German retailers aren’t feeling very festive

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When theKaufhaus des Westens (KaDeWe), a temple of consumption in West Berlin, celebrated its 115th birthday last month with a glitzy champagne party for 2,000, the mood was sparkling. A row of brightly lit Christmas trees greeted partygoers when they entered the ground floor of the grand old lady of Berlin’s department stores, where Chanel, Dior, Gucci, Tiffany’s and other luxury brands vie for their attention. As guests danced through the night, the war in Ukraine, sky-high inflation and other worries seemed far away.

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That cheer, also on display at Christmas markets around Germany, disguises deep unease—among shopkeepers and their clients alike. Only around a quarter of 400 retailers surveyed by Handelsverband Deutschland (HDE), the retail association, are happy with the Christmas shopping season so far. Retail sales in October were a bad omen, plunging by 5% compared with last year, a bigger drop than expected. That month consumer confidence sank to the lowest level since GfK, a research firm, started to survey it in 1991.

By early December shoppers were buying sweets and trinkets that can be stuffed in boots on St Nicholas’s Day, when children receive small gifts, but steering clear of high-margin big-ticket goods. HDE is forecasting the deepest slump in Christmas sales since 2007. It expects retailers to sell 4% less in the two months before Christmas relative to the same period in 2021 (adjusting for inflation).

Has the worst passed? “October was the nadir,” thinks Rolf Bürkl of GfK. Inflation, energy bills, the war in Ukraine, the strong dollar: consumers were under siege on all fronts. The mood has lifted a little since, for two reasons. The price of petrol is down, which has a strong signalling effect as motorists see it most days, prominently displayed at service stations. As a one-off gift, the government will foot the gas bill for households and businesses in December. Next year it will introduce a “double ka-boom”, a subsidy to cover 80% of individuals’ and companies’ expenditure on natural gas, based on consumption in the previous year.

This will offer Germans some respite. But many still fear a recession, which Germany looks poised to enter. gdp is likely to contract this quarter and next, says Andrew Kenningham of Capital Economics, another research firm. That will make consumers think twice before opening their wallets. So will inflation, which stood at 10% in November, and higher interest rates, which are increasing the cost of servicing household debts.

The downturn is forecast to be relatively mild, in particular if the winter isn’t too harsh. But next winter could bring more woe, warns Olaf Roik of HDE. No Russian gas will have reached Germany via pipelines (this year gas still flowed until September, when Russia turned off the taps as payback for Western support of Ukraine). Shoppers will have used up savings accumulated during the pandemic. And even with generous government assistance, energy bills could be much higher than in the past. It may be a while before German shopkeepers feel festive again.

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