Consumer sentiment in Germany has deteriorated significantly in view of rapidly rising prices and falling real incomes. Retailers are therefore expecting the sharpest slump in demand in more than ten years this year. Although sales are likely to increase nominally by two percent due to inflation, as the German Retail Association (HDE) forecast on Tuesday. In real terms - i.e. adjusted for inflation - the industry expects sales to fall by three percent. According to the HDE, there has not been a slump like this since the 2009 financial crisis.

Christmas warning sign

The retail sector already felt that the situation was serious in the Christmas business. Otherwise a safe bet for good business, this time the gift season disappointed expectations across the board. According to the Federal Statistical Office, sales in December were 6.4 percent below the previous year's level in real terms. Even the Internet and mail order business, which has been accustomed to success, recorded a real, calendar and seasonally adjusted minus of 7.2 percent. "The Christmas business did not go as we would have liked," said HDE President Alexander von Preen.

Consumer sentiment in the basement

The year 2022 actually got off to a good start. In the first half of the year, real retail sales were still 3.1 percent above the previous year's level. But then the rising food and energy prices as a result of the Ukraine war spoiled consumer sentiment - the mood to buy went down like on an escalator. In the second half of the year, sales fell by 4.1 percent compared to the same period last year. The bottom line was a price-adjusted minus of 0.6 percent compared to the previous year.

Busted grocery store

The reluctance to buy hit the food trade particularly hard. Sales there fell by 4.6 percent in real terms in 2022. According to the Federal Office, this was the highest decline in sales since the survey began in 1994. The 13.4 percent inflation rate for groceries was probably to blame for this.

The industry does not expect the situation to improve quickly. "It remains challenging," said von Preen. Inflation will probably remain high for the time being and will be particularly difficult for people with lower incomes. But the HDE President hopes that the price trend will weaken over the course of the year and that consumer sentiment will recover somewhat.

However, the optimism in the industry is not too great, as a survey of 900 companies by the association shows. According to this, more than half expect sales this year to be slightly or significantly below the previous year, a good quarter with sales at the previous year's level and every fifth company with an increase in sales compared to 2022. According to HDE estimates, the number of shops last year increased by 16 000 decreased, will continue to decrease, predicted von Preen. He did not name an order of magnitude.

Growth driver online retail

There is one exception in the otherwise rather gloomy overall picture. After the slump in sales last year, online trade is likely to be the growth driver for the industry again this year, predicted the HDE President. The industry association expects nominal sales growth of eight percent in online trading, which corresponds to price-adjusted growth of four percent.