Growth through retail could be plateauing

Last week, the Central Bank published the Quarterly Review including the business perceptions survey results.

As we reported in last week’s issue, increased sentiment in construction, among consumers and in the industrial sector, more than offset a significant deterioration in the retail sector.

This requires careful reading and understanding. We must remember that the growth registered in the past months has been declared as coming mostly from consumer spending. So what’s gone wrong?

On the one hand, the Central Bank says that the consumer confidence indicator rose to 5 in the second quarter of 2017, from 2 in the preceding threemonth period. Theref ore, it remained well above its longterm average of -19. All components contributed to the increase in consumer sentiment, with savings expectations for the year ahead being the main driver.

Compared with the first quarter of 2017, a larger share of respondents expected their financial situation and the general economic situation over the following 12 months to improve.

Also, more respondents expected unemployment to fall further compared with the first quarter of 2017. Additional survey data suggest that the share of consumers intending to reduce major purchases over the subsequent 12 months decreased further. At the same time, on balance, a higher share of consumers expected inflation to rise.

But on the other hand, the Central Bank gives the retail sector some rather grim news. Sentiment in the retail sector fell significantly to -3 from 8 in the first quarter of 2017 and turned negative for the first time since the third quarter of 2014. Following this drop, it stood below its long-term average of 1.

The decline in confidence was driven by both firms’ assessment of past and expected business activity, with both indicators declining sharply between the two quarters under review. At the same time, on balance respondents continued to assess stock levels to be above normal, with the share of respondents expressing this view declining only marginally from that in the preceding quarter.

Additional survey data indicate that selling prices are expected to rise during the three months ahead, while on balance, respondents expected employment to decline.

Now this is rather strange. For just a few days prior to the publication of the Quarterly Review, Eurostat had reported on 7 November that among Member States for which data are available, the highest increases in the total retail trade volume were registered in Romania (14.0%), Malta (+9.8%) and Ireland (+8.2%), while a decrease was observed in Luxembourg (-25.3%).

On the one hand, there is an air of exuberance among consumers, as we move into the Christmas period, anticipated by new fads as Black Friday and Thanksgiving. But on the other hand, retailers are getting a sinking feeling.

Could it be because more and more people are getting their shopping done on the Internet? Or are resorting to buying more and more on frequent shopping sprees outside Malta?

Or could it be that many are getting wise to the mark-ups practiced by some or many in the retail sector that can be short-circuited by the various means of buying direct, as outlined above?

It could also be that retailers are getting cold feet because the amount of shops and retail outlets has grown disproportionately. We now have more and more supermarkets than we can handle and the sector is getting too crowded both geographically and sector-wise.

There is also the issue, raised by GRTU and the Chamber of Commerce about people coming from abroad (especially Sicily) and selling direct to consumers without the tax burdens their Maltese counterparts have to carry. The two bodies have grown rather silent on this issue. We too have raised the issue following the July Trade Fair which saw more and more Sicilians crowd out the few Maltese sellers.

This is a creeping problem which, if untackled, can have serious consequences. It is time for all involved to speak their mind and seek a common solution.