Sluggish shopping

Christmas provided its usual seasonal spike to retail sales, but overall consumer spending won't see much growth until at least 2012, analysts say.

"When we adjust data for Christmas buying, we don't see any real trends in consumer spending," said Jiří Škop, a research analyst at Komerční banka who expects month-on-month consumer spending numbers to be largely stagnant for November and December. "We're also expecting stagnation next year as consumer spending and household consumption will remain subdued, at around 0.7 percent growth in 2011."

Growth in spending and consumption will continue to be sluggish because of government austerity measures that began Jan. 1 and will have a cooling effect on the economy, as well as unemployment, he added.

"We expect unemployment will only begin to stabilize this year," he said, pointing to recent figures that showed an uptick in the jobless rate.

Unemployment hit 9.6 percent in December, a big spike from 8.6 percent in November, according to data released by the Labor and Social Affairs Ministry Jan. 10, a nine-month low. While GDP growth returned to positive numbers in 2010, at 2.8 percent, unemployment and consumer spending typically lag behind other indicators in economic downturns.

In addition to weak demand, prices continue to rise, hurting the retail sector. Inflation has quickened to a 21-month high at 2.3 percent in December, according to data released by the Czech Statistical Office Jan. 7. That number was up from 2 percent in November, and the highest price growth since March 2009.

A Deloitte consulting firm survey forecast in December 2010 that customers would be spending less money in 2010 for the holiday - 12,380 Kč per household compared with 13,400 Kč in 2009 - and 66 percent of respondents said they would be searching out special deals or discounts. The final numbers for holiday shopping are not in yet, but retailers will likely continue to offer discounts and sales well past the holiday season to bring in customers, a tactic that pushes volumes and results in lower profit margins.

"I think [discounts] work, because if you look at how the labor market has developed, at the GDP and at household consumption, consumption has actually stabilized to pre-crisis levels in real terms," Škop said. "For sure, though, when you offer discounts, the stores will have smaller profit margins."

Discount-seeking customers have also gravitated to online stores, where price comparison is quicker and easier. The result has been large, continued growth for online retailers, which collectively had 33 billion Kč in sales last year, 6 billion Kč higher than in 2009, the Association for Electronic Commerce (APEK) estimates, according to the Czech News Agency. Sales over the Christmas season alone reached 13 billion Kč, up from 9 billion Kč spent over the holiday season in 2009, APEK said.

The online retail segment got its initial boost from the novelty of online shopping, Jan Vetyška, APEK's executive director, told The Prague Post in December, but the economic downturn has brought in even more business from customers who want the lowest price, he said.

Claire Compton can be reached at
ccompton@praguepost.com