German Retail Sales Continue to Decline Due to Consumer Restraint

German Retail Sales Continue to Shrink

Consumer restraint is continuing to hit German retailers hard, particularly in the food sector. Experts fear more businesses will close as a result.

German retailers are feeling the impact of consumer caution as sales fell 1.3% in March compared to the previous month, according to data released by the Federal Statistical Office. Adjusted for inflation, sales fell even more steeply by 2.4%, the largest drop in the past five months.

Economists surveyed by dpa had predicted growth of 0.4% following a 0.3% contraction in February. Compared to the same month last year, retailers recorded a real sales decline of 8.6%.

“Falling purchasing power of households”

“The decline in retail sales reflects the falling purchasing power of households in Germany due to energy price shocks and high inflation,” said Sebastian Dullien, Scientific Director of the Institute for Macroeconomics and Economic Research (IMK).

In the coming months, the losses in purchasing power are expected to diminish thanks to rising wages and tax- and contribution-free inflation compensation premiums. “Then private consumption is likely to gradually recover,” said Dullien. However, the pre-COVID-19 consumption level from 2019 is not expected to be reached until at least 2025. “The energy and food price shock represents half a lost decade for German consumers,” added Dullien.

“The sales trend is clearly downward,” commented Alexander Krüger, Chief Economist at Hauck Aufhäuser Lampe Privatbank. “Due to high inflation, it will remain difficult for the retail sector.” The German Retail Association (HDE) fears that more businesses will close, especially as costs have risen. Around 9,000 shops are expected to close this year, according to HDE’s forecast.

Saving on groceries

Retail sales of food dropped 1.1% in real terms in March compared to the previous month. Compared to the same month last year, there was a decline of 10.3%. “This is the steepest decline in sales compared to the same month the previous year since the time series began in 1994,” the statisticians noted.

The significant cause is likely to be expensive food, which was 22.3% more expensive in March than a year earlier. “The price increase for food was three times higher than the overall rate of inflation in March,” according to the Federal Office. Economist Dullien described this trend as worrying. “It is to be expected that particularly poorer families, who often buy poorer quality food, will now save even more,” said the IMK director.

Real sales in non-food retail fell 2.3% in March compared to the previous month. The long-term thriving internet and mail-order trade were particularly affected, recording a decline of 4.8%.