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- Higher growth in 2015, but unevenly distributed
- Continued pressure on sales prices
- Level of non-payments remains high
According to the Dutch Statistics Office CBS, non-food retail increased 2% in 2015. However, sales prices decreased 0.7%, and sales levels were still 16% lower than at the onset of the 2008 economic crisis.
Growth was unevenly distributed among subsectors. According to CBS, home furnishing shops recorded a turnover increase of almost 7%, driven by a rebound in the Dutch housing market. Clothing retail increased 2%, but was affected by decreasing prices. Businesses selling household articles, consumer electronics and DIY items recorded turnover decreases (by 5%, 3% and 2% respectively).
The growth outlook for 2016 remains positive, with Dutch private consumption expected to increase 1.7%. The furniture and DIY segments are expected to benefit from a continued rebound of the Dutch housing market.
However, the business environment is expected to remain challenging. Dutch consumers remain very price sensitive, and the growing market power of larger players has led to fierce price competition. In all retail segments competition and subsequent pressure on prices will remain high, and the deterioration of profit margins of many businesses will continue.
At the same time, many retailers are highly geared and dependent on bank loans, but access to bank credit remains limited for many companies. Lack of finance was a major reason for the insolvencies of some larger non-food retail businesses end of 2015/beginning of 2016, especially in the consumer electronics and textile/shoes segments.
The difficulties for many Dutch brick-and-mortar retailers are exacerbated by the rapid increase in online shopping, both in the number of sales and sales volumes per customer. In 2015, B2C internet sales increased 20%. Already in 2014, 10.6 million Dutch people – out of a population of approximately 17 million – already shopped online, and some large online retailers already have started to offer the whole range of consumer durables goods as a one-stop shop.
Another issue, which is forecast to shape future customer needs and shopping behaviour, is changing demographics, i.e. the growing population which is aging (in 2025 the share of people aged 65 or older is expected to be more than 20%). At the same time, there is a population shift towards the growth areas of Amsterdam and Rotterdam. Consumers increasingly demand longer opening hours in order to shop whenever it suits them. It cannot be excluded that businesses unwilling or unable to adapt to changing shopping behaviour patterns will sooner or later cease to exist. This trend could mainly affect smaller retailers, which often lack the required financial strength to make the necessary investments.
Our underwriting stance remains cautious, given the above mentioned current and future challenges for the sector. It is expected that the levels of non-payments and insolvencies both remain high in 2016, and further increases of business failures cannot be ruled out.
Close attention is paid to businesses´ turnover and margin development as well as their ability to sell online. Given the persistent threat of overcapacity, especially in the brick-and-mortar businesses segment, non-food retailers’ resilience and ability to survive increasingly depends on successfully combining offline (shopping floor) and online sales channels. Retailers’ location and opening hours are also taken into consideration when underwriting the business.