Price-adjusted Christmas Business in 2023 Below the Long-term Average

Weak Business Performance Continues in December
"This year's Christmas specific sales are expected to increase in volume by around 900 million € in December. However, this result is significantly below the long-term average, continuing the trend towards lower additional sales observed in the past," explained WIFO economist Jürgen Bierbaumer at a press conference with the Austrian Retail Association on 14 December 2023.

"After business in the domestic retail trade weakened significantly over the course of the year, it also failed to gain momentum at the end of the year, but this is not due to the sporadic strikes surrounding the current collective labour agreement negotiations," says Bierbaumer.

WIFO forecasts that net sales in the non-food retail trade will shrink by around 3 percent in value terms in December 2023. Adjusted for prices, the volume will even decline by 6 percent. Sales in food retail are forecast to increase by around 5 percent in December. With an expected price increase of a similar magnitude, the volume sold will stagnate compared to the previous year.

For the entire retail trade (excluding motor vehicles and petrol stations), this results in a nominal growth of ½ percent and a price-adjusted decline of around 3½ percent for December. This results in a value increase of 3.6 percent and (price-adjusted) a volume decline of 3½ percent for whole 2023.

After pandemic-related catch-up effects provided positive support for Christmas business in the previous year, the weak performance so far this year points to a subdued end to the year in view of high inflation. The workforce strikes that have only been held sporadically so far should not have a negative impact on Christmas business. However, an expansion of these could have a slightly dampening effect.

Business development in the domestic retail trade has been heavily impacted by high inflation in the year to date – on the one hand on the cost side (including high energy prices) and on the other due to weaker consumer demand and a reluctance to buy non-daily consumer goods. Although prices in the retail trade have fallen continuously since peaking at the turn of 2022-23, they are likely to remain well above average at around 4 percent at the end of the year. Price increases in the food retail sector are even higher, while non-food prices are slightly lower. A further slowdown in price momentum is expected in the coming year, which should then stabilise business performance and volumes sold. The significant improvement in household incomes should additionally boost demand.

Although last year's Christmas business was impacted by even higher price increases, the fact that shopping opportunities were not affected by a lockdown meant that the domestic retail trade achieved a very solid sales result in total. The "Christmas-related" additional sales in 2022 were therefore better than expected, both in terms of value (1.45 billion €) and volume (933 million €).

The economic development in the trade sector is only likely to improve over the course of the coming year, driven by a further decline in prices and the increased purchasing power of domestic consumers. The trend of declining sales peaks in December that has been observed in the retail trade for many years will continue.

The pandemic-related catch-up effects were particularly pronounced in the toy trade and the clothing and footwear retail trade. The nominal sales peaks here in December of the previous year were not only above the two pandemic years 2020 and 2021, but also above the pre-crisis level of 2019. This high is likely to be somewhat overstated, as prices rose sharply towards the end of the year in particular as a result of the Russia-Ukraine war, giving an additional boost to sales volumes. In total, the retail trade (excluding motor vehicles and petrol stations) generated almost a fifth more turnover in December than in the rest of the year. For individual non-food sectors, these sales peaks were in some cases significantly higher (including the retail trade in toys, books, watches and jewellery).

However, these December sales peaks in trade turnover are gradually decreasing for a variety of reasons. Changes in consumer behaviour, such as the type of gifts, the time of purchase, the use of online offers or the importance of Christmas in general, are the main reasons for this.

An analysis of the volume sold (i.e., price-adjusted sales) in the period from 2004 to 2023 illustrates this development. While additional sales in the non-food sector averaged 25 percent between 2004 and 2013, they fell to just under 20 percent between 2014 and 2023. A figure of 17.6 percent is forecast for 2023. This trend is much less pronounced in the food sector, where additional sales fluctuate around 15 percent. At the current margin, the figure is likely to be around 12½ percent.

Based on these assumptions, WIFO calculates "additional sales" of 1.25 billion € in value terms for this year's Christmas business compared to the average from January to November (–200 million € compared to 2022). In price-adjusted (real) terms, this means a Christmas sales volume of 903 million €. However, this volume is not only below the previous year's figure, but also significantly below the average of the last ten years (1,039 million €). This successive decline is being driven by the non-food retail trade, where the contribution of "additional sales" in December is decreasing more and more.

In total, retail sales are likely to increase by +0.5 percent in value terms in December, but fall by –3½ percent in volume terms.

Methodological note and data basis

WIFO defines Christmas business in the retail trade (excluding motor vehicles and petrol stations) as the additional sales in December that exceed a certain "normal level". The average sales trend from January to November is used as a benchmark here. Calendar-related effects (such as the number of sales days or their distribution) are also included in the estimate on a weighted basis. Economic developments, external conditions and changes in consumer behaviour are also taken into account.

The turnover indices from Statistics Austria's economic statistics on trade are available as a data basis. These include net domestic sales of companies subject to VAT.