Retail

The economy contracted by 0.3% in the first quarter of 2023. The Central Bureau of Statistics attributes this decline mainly to higher withdrawals from inventories. On an annual basis, the economy grew by 1.9 per cent. This growth was mainly driven by investments, household and government consumption. The number of jobs rose by 49,000 to a record high of 11,538,000. The number of vacancies per 100 unemployed rose to 122, a key indicator that the labour market remained tight. This tightness puts workers in a strong position in wage negotiations. Collective wages rose by 5.7 per cent year-on-year. Workers are pushing hard for compensation for higher prices. Inflation was 5.7 per cent year-on-year. This price increase is mainly due to higher prices for goods, services, food and housing. These are the costs that households are feeling directly in their pockets now that energy prices are falling again. This mixed bag of dynamics makes consumers unsure and the consumer sentiment remains negative.

According to the CBS, there were 144 bankruptcies in the retail sector, compared to 82 in the same period last year. Although these numbers are still low in historical perspective, there is an increasing number of retailers that report difficulties. The main reason can be found in the rising costs. Not only have operating costs risen sharply, but also retailers had to pay back deferred taxes built up during the Covid-19 pandemic. On top of that, the cost of finance has risen sharply. Examples of retailers that reported difficulties are Big Bazaar, Score Group and Nine & Co. So far, this has not led to an increased vacancy. Often a restart is possible, but sometimes the store closes. In this case, there are growing brands that fill the vacancies. Examples of formulas that have grown in the past period are More & More, Only & Sons, Cotton Club, Mango, Only For Men, Omoda, Siebel and also worth mentioning is the luxury watch brand Breitling. In the second quarter, in 25 dutch shopping cities there was no decline in prime rents, which remained stable compared to the previous quarter. For small neighbourhood shopping centres, the top rent level even increased to 230 euros per square metre per year.

The retail market is currently functioning well mainly because consumers continue to spend, but rising operational costs and deferred taxes form a risk in the near future. Consumers, however, keep spending and although they can buy fewer products for the same money, spending remains upbeat. Retailers suffering from increased operating costs, higher financing costs and repayment of outstanding taxes are struggling and might trigger bankruptcy. Without a relaunch, this could cause vacancies. However, in the best locations in shopping cities, there is still more demand than supply and plenty of brands are expanding. In neighbourhood shopping centres, there is less vacancy. Moreover, there is an increased demand for retail space in neighbourhood centers coming from alternative functions like healthcare and leisure. If there is space, these kinds of functions can strengthen the shopping centre. In the economy, the higher inflation is persistent, in particular in the Netherlands. However, there are the first signs from the United States and the United Kingdom that inflation is falling faster than expected. This may be a good sign for inflation in the Netherlands and the rest of Europe, but for now the ECB is expected to maintain their tight monetary policty. Oxford Economics expects the ECB to raise interest rates to 4.5 per cent by the end of 2023, after which the ECB will adjust rates downwards again. In any case, this outlook is a reason for investors to wait and see, although spreads suggest that retail is currently attractively priced relative to other sectors. Investment activity is likely to remain limited in the second half of 2023.