Credit Suisse publishes study on the prospects for the Swiss retail sector
Credit Suisse published the annual "Retail Outlook" study in collaboration with the consulting firm Fuhrer & Hotz. Nominal sales in the Swiss retail sector stagnated in 2019, while weaknesses in the global manufacturing industry and a strong Swiss franc are likely to hamper dynamic growth in 2020 as well. However, population growth in Switzerland and a slight rise in purchasing power, which will be boosted by the unusually low increase in health insurance premiums for the coming year, should support nominal retail sales and help them to grow slightly. Retail Outlook 2020 shows which tenants will subsequently take over empty premises caused by structural change, and presents "flexible retail," a concept that could help the retail sector.
An analysis by Credit Suisse economists shows that nominal sales in the Swiss retail sector stagnated in 2019. Purchasing power remained at roughly the same level as in the previous year. Only population growth supported the stationary retail trade in 2019 against growing competition from online trade and the increased attractiveness of shopping tourism. The apparel and footwear segment continued to suffer from structural change and was responsible for the slight overall decline (-0.3%) in the non-food segment. Food and near-food, by contrast, recorded a slight increase in sales compared to the previous year (0.5%).
Structural change contributes to the reduction of quality of stay
Along with stationary retail sales, the structural change has also affected real estate providers, who are feeling the effects of falling demand for sales outlets. In addition, towns and villages are facing vacant retail premises in their centers. A vicious circle looms, in which vacancies and declining supply density lead to declining visits, existing retail outlets face a drop in sales, and vacant space is even more difficult to rent out. Ultimately, fewer stationary shops and vacant space lead to a reduction in the quality of stay in the town centers affected.
Sales areas become more flexible and pop-ups gain momentum
In order to counteract this, there is a growing trend toward changing how space is used. Only 20% of the retail space advertised for mixed use is rented out again to retailers. Instead, restaurants, but also hairdressers, beauty salons, and office users move in. According to Credit Suisse economists, flexible and innovative forms of retail space could attract more retailers in the future. In recent years, the advertising of flexible sales areas has more than doubled. The expert survey conducted by Fuhrer & Hotz also identified a desire on the demand side to make Swiss retail space more flexible in terms of rental conditions, infrastructure, and other criteria such as the legal framework for adjusting the permitted opening hours. Pop-up concepts are a form of flexible rental conditions. They are used to test new business concepts under real and time-limited sales conditions, to expand point-of-sale marketing, and to bridge the gap between two rental agreements. However, according to the survey and an analysis of advertised sales areas, the potential of pop-ups lies primarily in locations with high customer frequency. In this respect, they are not regarded as a panacea against structural change in the retail sector.
Digital in-store media for smooth and checkout-free shopping
In addition to real estate providers, retailers must also demonstrate flexibility. For stationary providers, digitalization at the point-of-sale is a central issue. The focus here is on the payment process in particular. While self-service checkouts are taken for granted by consumers and experts alike, Fuhrer & Hotz's Omni Channel survey shows that other digital in-store communication formats that should be aligned with the customer's journey also have potential. Since generation Y and Z consumers are significantly more interested in new self-service technology options than baby boomers, retailers are likely to intensify their efforts to try new formats.
Outlook 2020: Population growth and purchasing power as drivers
According to economists, weaknesses in the global manufacturing industry and a strong Swiss franc are likely to hamper dynamic growth in 2020. However, population growth in Switzerland (forecast: 0.9%) and a slight rise in purchasing power, favored by the unusually low increase in health insurance premiums, should support nominal retail sales and help them to grow slightly (forecast: 0.4%). This assessment is largely in line with the assessment of the companies surveyed by Fuhrer & Hotz: 70% expect a largely moderate increase in sales in 2020, which is mainly attributable to the expected positive development of online sales.