Retail sales under lockdown across Central and Eastern Europe are sinking

Retail sales under lockdown across Central and Eastern Europe are sinking
Retail sales have tumbled in nearly every country and no amount of online shopping can make up for the shortfall
By bne IntelliNews May 12, 2020

A worldwide lockdown has created havoc for retailers as their customers are forced to stay at home. There has been a little respite as sales in March surged due to panic buying, and online sales have soared as punters explore the home-delivery options, many of them for the first time. But overall sales volumes are down and are likely to remain depressed for months to come.

Worst hit have been counties in Eastern Europe, partly as the coronavirus (COVID-19) has hit them hard, but more because food makes up about half of the shopping basket and a larger share of the population will see wage cuts or lose their jobs entirely.

The citizens of Eastern Europe have lived through multiple crises and the routine is well worn. Most go into savings mode, cutting or cancelling big ticket purchase plans. However, there are surges in the purchase of things such as apartments, cars and washing machines as the population anticipate dramatic devaluations and look for stores of value for cash savings they have at home. But these surges are short-lived reactions to the start of a crisis.

In Central Europe where economies are more stable and the effects of the downturn are less severe the impact on retail is less serious, but locking people up at home will nevertheless hurt many businesses and many retailers are expected to go out of business, as they simply do not have the financial resources to go months with their doors closed.

Eastern Europe

Russia

Russia’s retail sector got off to a strong start in 2020. After almost six years of stagnation, incomes had finally started to grow again in the fourth quarter as the government rushed to spend money on its 12 national projects.

But while the coronavirus crisis was still a month away, Russia had already been hit by the collapse of the OPEC+ production cut deal on March 6, which saw the price of oil tumble, and Russians are well aware that the value of the ruble will tumble in tandem. In times of crisis Russians rush to dump their rubles in an effort to minimise their losses.

Retail demand was very strong in March, the last month before the coronavirus epidemic hit. Retail sales growth accelerated to +5.6% year on year, from +4.6% y/y in February when real wages rose +5.7% y/y.

The scale of the pick up in retail sales in March was very similar to the surge in retail sales in December 2014, when the last oil shock hit. However, the structure of spending this time was very different: this year Russians rushed out to buy food as coronavirus fear rapidly mounted, whereas in 2014 they stocked up on non-food durables, which is the classic anti-crisis strategy to lock up value.

The April retail numbers are not out yet but analysts widely anticipate a sharp fall, as both mobility and real incomes will have taken a bath that month.

Russia’s Business Ombudsman, Boris Titov, said during an online conference on May 6 he expects consumer demand in Russia to decline 10-15% in 2020 due to the coronavirus pandemic.

“We expect that countrywide, real wages will fall. This applies primarily to the private sector, but also in the segment financed from the budget, wages will be reduced. Therefore, [we will lose] 10-15% of demand at least this year,” he said.

And the early indicators bear that prediction out – and suggest it might be even worse. The Watcom shopping index, which measures foot traffic in real time in the biggest malls in Moscow, crashed in week 13 of this year, falling to its lowest level on record.

Likewise, Watcom’s daily foot tracker monitor shows that traffic in the top malls in Moscow and St Petersburg is down by 70-75% y/y as punters shy away from the shops, or are simply forbidden from going out.

Consumer demand may take three years to recover from the crisis, according to a study by the Boston Consulting Group (BCG) and Romir Holding. The decline in Russian consumer markets spans 90% of all goods and services and is not easily shaken off. Unless there is a sharp rebound then consumers are expected to keep cutting their spending for at least six months until it is clear the crisis is over.

In the coming six months 15% of Russian consumers expect their incomes to decline further, the third worst result globally after Italy (18%) and the US (16%), according to analysts and retailers surveyed by Kommersant.

Ukraine

Ukraine has had it even tougher. The economy has only just emerged from a deep recession caused by the economic dislocation of the Euromaidan revolution in 2015, which saw economic growth collapse by 17% in the first quarter of 2015.

Incomes remain amongst the very lowest in Europe, but with economic growth beginning to gather some modest momentum in 2019 they had finally started to rise again as inflation began to fall rapidly in the first quarter of this year, feeding through to retail sales.

That all ended abruptly in March as retail sales crashed as twin whammies of the oil price shock and retail turnover fell from a 13.5% expansion in February to 6.1% in March as the virus arrived in Ukraine. After the country was put on lockdown they will fall again in April.

Ukraine retail sales advanced 10.6% y/y in real terms in 1Q20, slowing from 13.5% y/y in 2M20, Ukraine’s State Statistics Service reported on April 21.

Belarus

Belarus has been doing its best to ignore the coronavirus crisis as Belarus President Alexander Lukashenko has refused to take it seriously. Instead of locking the country down, the strongman leader advised his citizens to wash their hands with vodka, “and maybe drink a little, but not more than 40-50g and never at work!” The result has been a predictable disaster as infection rates have soared unchecked.

Like the other countries the April numbers are not out yet, but retail sales were already in free fall in March. Like Russia, with which Belarus’ economy is closely tied, retail sales had been building in the first two months of this year, rising from 2.3% in December 2019 to reach 8.8% expansion in February this year, according to the national statistic agency. However, by the end of March they had tumbled to post a 10.5% contraction – by far the worst result in the region. Both Russia and Ukraine saw sharp slowdowns in retail turnover in March, but in both countries retail was still growing y/y.

The outlook for Belarus is now uncertain and its fate remains tied to that of Russia’s, where things are expected to get worse before they get better.

Central and Eastern Europe (CEE)

The latest data for Central and Southeast Europe is for March, during which strict lockdowns including closure of all but essential shops were imposed. This shows a mixed picture from the slump in sales in several countries, to only a modest decline or even an increase in others where panic buying of food, medicines and cleaning products outweighed the fall in purchases of other items.

Poland

The region’s largest economy Poland saw one of the steepest declines in retail sales, which dropped 9% y/y in constant prices in March, the statistics office GUS said on April 21. The reading was the weakest since 2005.

March was the first month to picture in hard data the expected crash in retail sales after Poland closed most of its retail early that month as one of the means to curb the spread of the coronavirus (COVID-19) epidemic. 

With the lockdown tightened in April and layoffs from industries such as hotels and restaurants running into tens of thousands at least, demand for goods is likely to fall further.

“The collapse in the Polish activity data for March came on the back of two strong months and suggests that the economy probably avoided a contraction in Q1 and grew at around 2% y/y. But the slump in March is a taste of things to come, with the April data likely to be even worse as lockdown measures bite,” Capital Economics wrote in a comment.

“We expect that the effect of lockdown on retail sales will be much stronger in April as limitations were valid throughout the whole month and the figure could go down as much as 20%-30% y/y,” Erste wrote.

Most retail segments saw sales crash in y/y terms in constant prices in March, GUS data showed. Sales of textiles, clothing and shoes collapsed 49.6% y/y, clearly an effect of the government ordering the closure of shopping malls as potential coronavirus outbreak points.

Car sales declined 30.9% y/y, while sales of domestic appliances fell 16.7% in annual terms. Sales of fuels were also hit, dropping 12.5% y/y. Sales of press and books retreated 21.4% y/y.

The only segments to record turnover growth were food, in which growth came in at 2.5%, driven by the run on the grocery stores that occurred before the lockdown. Sales of pharmaceuticals and cosmetics also expanded, at 8.8% y/y. 

In monthly terms, retail sales declined 3.3% in constant prices in March after inching up 0.4% month on month in February.

Czech Republic

Czech retail sales, adjusted for calendar effects, decreased by an even steeper 9.3% y/y in March, due to restrictions related to the coronavirus outbreak, according to data published by the Czech Statistics Office (CSO) on May 6. In monthly terms, the seasonally adjusted retail sales fell by 12.2%. 

“As expected, sales in the Czech Republic fell significantly in March due to preventive measures against the COVID-19 outbreak. As most shops were closed in the second half of March, sales of non-food items fell by 17% y/y. Restrictions did not apply to grocery and pharmaceutical shops, where sales increased above the 2019 average due to some stockpiling,” commented ING chief economist Jakub Seidler. 

The overall decline came despite a 3.2% m/m increase in food sales, which failed to offset a 22.7% fall in non-food sales and a 15.8% drop for automotive fuel.

And analysts say the data for April will be even worse: “The March statistics reflect the closure of shops in just the second half of the month, while April was affected almost entirely. Although today's figures reveal the intensity of the economic slowdown due to restrictive measures against the spread of COVID-19, May's figures will be more significant, showing how fast the economy is returning to normal,” Seidler added.

Hungary

In Hungary retail sales grew 4.4% y/y in March, slowing from a 10.9% increase in the previous month as household spending eased off after a massive buying frenzy in late February, according to data released by the Central Statistics Office (KSH) on May 6. The adjusted data showed a 3.5% growth.

In absolute terms, retail sales came to HUF1 trillion (€2.8bn) in March. Food sales accounted for 51% of the total, non-food sales for more than 36% and vehicle fuel sales for 13%. Mail order and internet retail sales came to HUF82bn, up 41% y/y. Hungarian consumers quickly switched to online delivery after the state of emergency and stay-at-home orders from mid-March. Online retail only accounts for 8% of retail sales.

Hungary’s retail sector weathered the first month of the pandemic well, analysts said, adding that the impact of the epidemic will be better seen in the April data. Analysts are expecting a pent-up demand to show in retail sales by May, when restrictions are eased, but that will depend on the economic fallout of the crisis.

Latvia

Similarly, Latvian retail sales fell a calendar-adjusted 1.8% y/y in March after expanding 5% y/y the preceding month, data from the Central Statistical Bureau (CSB) showed on April 29.

Broken down by category and in calendar-adjusted terms, sales of non-food products declined 8.3% y/y in March, compared with an expansion of 8.2% y/y in February. That is clearly an effect of the lockdown that affected non-essential retail.

In contrast, demand for food shot up, with turnover expanding 7.1% y/y in March following a gain of 3% y/y the preceding month.

In the non-food sector, eight out of ten segments recorded y/y turnover declines in March. Sales of clothing, footwear and leather goods predictably collapsed 45.6% in annual terms in the third month. The only two non-food segments that recorded growth were pharmaceutical and medical goods, where turnover increased 26.8% y/y in March, and sales of electrical household appliances in specialised stores with an expansion of 15.5% y/y.

Lithuania

Lithuanian retail sales also contracted 5.7% y/y in March in calendar-adjusted constant prices, Statistics Lithuania said on April 28. Sales thus recorded their first y/y fall since 2015 in what was an expected development after the Lithuanian government instituted a lockdown on the country’s people and businesses.

Of the main retail categories, sales of food, alcohol and tobacco gained 5.5% y/y in March after growing 3.5% y/y the preceding month – an effect of the run on the stores caused by the lockdown.
But sales of non-food items fell 14.3% y/y in March after shooting up 12.9% y/y in February. The figure includes a crash of 52.9% y/y in sales of textiles, clothing and footwear and a fall of 24.2% y/y in sales of audio-video equipment, domestic appliances and furniture.

On the other hand, panicked consumers continued to stock up in other countries, leading to a rise in sales.

Estonia

Estonia also reported retail sales growth in March, albeit easing to 4% y/y in constant prices compared to 7% y/y in February. The expansion runs counter to expectations, which predicted a contraction because of the lockdown the authorities imposed on the 1.1mn-strong economy because of the coronavirus (COVID-19) pandemic, which especially hit retail.

Still, the breakdown of the data did show an impact of the pandemic. Turnover in pharmacies and stores selling cosmetics jumped 30% y/y, the statistics office said. Meanwhile, sales in the textiles, clothing and footwear segment crashed 43% y/y, a direct effect of malls closing down to foster social distancing that curbs the spread of the virus.

Southeast Europe

In Southeast Europe, several states also reported growth in sales driven by food purchases. Incomes in Southeast Europe (with the exception of Slovenia) are typically lower than in Central Europe, so food and other essentials make up a larger share of the consumer basket.

Romania

Romania's retail sales volume index increased by 9.4% y/y in Q1, according to statistics office INS. The annual growth rate was the strongest since 4Q17 and this was due to the food sales that surged in March as households built up stocks amid the panic prompted by the coronavirus pandemic.

March food sales marked an annual growth rate (+17.4%) not seen since the VAT rate was cut in March 2015, pushing down prices and allowing households to buy more with the same budget. Food sales were up by 14.6%, as households rushed to build up reserves, fearing imminent food shortages at the end of the March after the lockdown came into force. Compared to the same month last year, sales of food items in March surged by 17.4%.

In the same month, sales of non-food goods dropped by 1.6% compared to March 2019, though over the entire Q1, non-food sales still posted a healthy 7.5% annual growth rate.

The robust growth in Q1 is, however, expected to reverse in the coming quarters (particularly regarding the sales of durable consumer goods), as the European Commission forecast a 6.2% contraction in private consumption over the entire year in its 2020 Spring Forecast.

Serbia

Serbia's retail trade turnover expanded by a real 4.4% y/y (4.6% y/y at current prices) in March, data from the country's statistics office indicated. This was, however, a slowdown following the 13.3% y/y increase in the previous month. It was backed by sales of food products.

In March, the only annual increase was registered in sales of food products that went up by a real 14.9% y/y and by 16.4% y/y at current prices. Trade in non-food products went down by a real 1% and by 0.8% at current prices, while sales motor fuel went down by a real 9.7% y/y and by 11.8% y/y at current prices.


In other countries in the region, the lockdowns resulted in an overall decline in retail sales in March.

Turkey

Turkey suffered a recession-ailed 2019 in the wake of its 2018 currency crisis but its economy, credit-fuelled by the Erdogan administration, was making a comeback in the early months of 2020 — until the coronavirus (COVID-19) pandemic stopped it in its tracks.

Early indications of how badly retail in the country has been affected can be gauged from payment card figures. Payments made with credit cards and debit cards declined by 30.8% weak on week to a value of TRY13.6bn ($1.9bn) in the week ending March 27, according to data from the Central Bank of the Republic of Turkey (CBRT). Expenditures on supermarket items dropped to TRY4bn from TRY5.3bn a week earlier. People spent some TRY370mn on clothing, down from TRY1.63bn two weeks prior.

Recent weeks have shown payment card spending picking up as more people isolating themselves from the pandemic at home get used to shopping online.

Google’s community mobility data, meanwhile, showed that visits to groceries and pharmacies in Turkey plunged 39% from February 16 to March 29.

Turkey’s consumer confidence index fell 5.8 points to 54.9 in April, the country’s official statistical authority TUIK said on April 22.

Less consumer buoyancy was also indicated as Turkey’s white goods market contracted by 9% y/y in March, according to data from business group TURKBESD.

In the month, some 504,000 units were sold on the local market. Exports also dropped 9% y/y, falling to 1.35mn units.

“The impact of the coronavirus outbreak will be felt much more strongly in April,” cautioned Can Dincer, head of TURKBESD.

On another consumer front, measures brought in to curb the spread of the coronavirus in Turkey triggered such a sharp drop in fruit and vegetable prices, with many Turks unwilling to mingle in shops and outdoor markets, that Turkish farmers have been considering cutting spring output. Turkey is among the world’s top exporters of fresh produce such as tomatoes, apricots, tangerines, aubergines and peppers, and its farmers have thus also been hit by COVID-19 border restrictions. In March, as farmers prepared for the critical April and May planting season months, fruit and vegetable prices dropped 6.6% y/y, with some prices down by more than 30% y/y.

Finally, Migros, one of Turkey’s largest supermarket chains, in April hired 5,000 additional personnel to meet a sharp spike in online orders caused by social distancing pressures amid the coronavirus outbreak.

“We have seen our online orders quadruple. We have also increased the number of provinces to which we offer home delivery services to 75 from 60 in the face of the surging demand,” said Ozgur Tort, the Migros CEO.

Croatia

Retail trade turnover in Croatia slumped in both monthly and annual terms in March as the coronavirus pandemic and the government lockdown hit trade, data from the Croatian Bureau of Statistics (DZS) showed. 

In annual terms, the sector saw its sharpest contraction since January 2010, when the country was in the depths of recession, falling by a real 7.0% y/y. 

However, the fall was not uniform across different segments of the retail sector: retail trade turnover of non-food products (except automotive fuels and lubricants) decreased by 17.3% as non-essential shops were closed, while the retail trade turnover of food, beverages and tobacco grew by 8.5%, reflecting the panic buying of essential foodstuffs. DZS data revealed strong increases in turnover at supermarkets and pharmacies.

• North Macedonia

North Macedonia’s retail sales also dropped by a real 8.8% y/y in March, reversing a 6.3% y/y increase the month before, statistics office data indicated on April 30. Retail trade in food, beverages and tobacco increased by a real 1.8% y/y in March, while non-food sales (except fuel) were 13.1% y/y lower in real terms.

 

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