Retail withstands and adapts
Due to the pandemic, the current situation of the Spanish economy is very complex. The case of retail is no exception, although it is proving to be remarkably resilient in the face of all the restrictions on opening hours and capacity adopted in order to curb the pandemic. As revealed by the sector’s demand and employment indicators, retail trade is now close to, but below, its pre-COVID level. Despite this, an analysis of CaixaBank’s internal data shows very different figures for large and small companies, as well as for the different branches of activity, confirming that the sector has yet to recover completely.
The traditional economic indicators suggest that retail is still far from its pre-COVID levels of business. Activity in the sector recovered strongly after a difficult period during the worst months of the pandemic, when people were under a strict lockdown and turnover fell sharply. According to the most recent figures from the National Statistics Institute’s turnover indicator, the turnover of retail companies was 6% below pre-crisis levels in February 2021.2 This is a considerable decline although it is noticeably smaller than the drop in the general turnover index (all industrial and non-financial service companies) which, in February 2021, fell by 18% compared with its pre-COVID level.
- 2. Our baseline (pre-crisis, pre-COVID) is the 2019 average turnover of the indicator adjusted for seasonal and calendar effects.
Turnover in the retail business and economy as a whole
Despite these figures for the sector’s average, there are differences between turnover between large and small retailers. As can be seen in the chart below, according to data from the retail trade index, large chains and supermarkets (large stores in both cases) have regained their pre-COVID-19 level of sales. On the other hand, the situation of small chains is more delicate and their business is still 13% below the 2019 average. This difference is relevant because, as we have seen above, although the bulk of the turnover generated by retail is concentrated in large companies in the sector, small retailers are very much present throughout the country (98% of the companies and 48% of the jobs). Consequently, liquidity measures and other measures to make labour costs more flexible (furlough schemes) as well as direct aid to companies have been and continue to be essential for a significant part of the retail sector to overcome the current crisis.
large chains and department stores have regained their pre-COVID-19 level of sales. The situation of small chains is more delicate, whose business is still 13% below the 2019 average
Retail sales index by company size
As far as the labour market is concerned, the sector is still feeling the impact of the pandemic. In April 2021, the number of retail workers registered with Social Security was 3% lower than in April 2019. Another perspective that helps us to gauge the sector’s labour market is the number of workers who have been furloughed. In April, 2.8% of the sector’s employees had been affected (51,941 workers), a number that has remained relatively small since August 2020. Although the sector is currently only using furloughs to a limited extent, their usefulness is beyond doubt. It is worth noting that, since the start of the COVID-19 crisis, the fall in total employees has always been around 4% while, as can be seen in the chart below, if we discount furloughed workers, the year-on-year falls in employment reached 21% in Q2 2020 (strict lockdown) and 9% in February (third wave of COVID-19).
a number that has remained relatively small since August 2020. Although the sector is currently only using furloughs to a limited extent, their usefulness is beyond doubt
Retail workers registered with Social Security
Having looked at the official statistics, we now turn to CaixaBank’s own internal indicators for a more up-to-date and detailed view of the retail situation. Specifically, we have used data on payments made with CaixaBank cards and payments recorded via CaixaBank POS terminals to produce a consumption indicator with a weekly frequency.3 ,4
The first thing highlighted by our consumption indicator is the huge difference between food stores and the rest of the retail trade. The former have benefited from an increase in demand during the pandemic thanks to the replacement of on-trade with home consumption, significantly boosting supermarket sales. As can be seen in the chart below, food consumption is still posting strong growth of 24% compared to the baseline level.5 In contrast, the rest of retail has suffered more from the consequences of the health crisis (with consumption falling by 80% year-on-year during the first COVID wave). Once the first wave was over, however, consumption of non-essential products has recovered strongly, except during the second and third waves of COVID-19, when restrictions on shops resumed for several weeks. Currently, non-food retail consumption is 1% below the baseline level.
- 3. The increased use of cards for payment during the pandemic means that our consumption indicator based on card payments is biased upwards.
- 4. See the consumption tracker at: https://www.caixabankresearch.com/en/publications/monitor-consumo
- 5. The baseline level for January 2020-February 2021 is the one that produces a year-on-year change (January 2019- February 2020). From March 2021 onwards, the baseline level is from the same period of 2019 adjusted upwards by the year-on-year growth observed in February 2020.
CaixaBank Consumption Indicator
If we dig a little deeper and break consumption down into the different branches of activity, great discrepancies can be observed. As can be seen in the chart below, consumption in some retail categories such as textiles and footwear, as well as in jewellery and sporting goods, decreased sharply in April, in line with what was observed in 2020 as a whole. At the other end of the scale is consumption of electronic products and furniture, posting even higher growth than the aforementioned figures for food.
CaixaBank consumption indicator by branch of activity1
Annual change 2020 and variation compared to the baseline April 20212
Once again, these data confirm that it is important not to analyse the sector from a global perspective as it is highly heterogeneous. In this respect, CaixaBank’s internal data have great potential to explore these discrepancies and corroborate the disparate situations across different types of consumption.
Having analysed in detail the situation of retail demand, it is now time to look at the financial difficulties that companies in the sector may be experiencing as a result of the slump in activity in 2020 and the first half of 2021.
According to data from the Bank of Spain,6 corporate debt in the retail sector grew by 11% in 2020. This is a very notable increase but it is in line with the pattern followed by the debt of all non-financial corporations (up 7% year-on-year). In greater detail, it is worth noting that almost all the increase in the sector’s debt was recorded in Q2 2020 (growing by 11.4% quarter-on-quarter), coinciding with the period of the biggest drop in revenue (falling by 20% year-on-year), which led to a significant need for liquidity, alleviated via debt. Most probably, the role of ICO credits was fundamental during this period to facilitate access to the liquidity required by firms encountering difficulties.
As can be seen in the graph below, once the period of strict lockdown was over, the drop in retail turnover was 5% year-on-year. Despite this fall, the sector’s debt has remained virtually flat, suggesting that, on average, retail firms had no major additional liquidity requirements.7
- 6. See Blanco, R., Mayordomo, S., Menéndez, Á. and Mulino, M. (2020). «El impacto de la crisis del Covid-19 sobre la situación financiera de las empresas no financieras en 2020: evidencia basada en la central de balances». Boletín Económico, (4/2020), 1-23.
- 7. As we have seen, there are great divergences within the sector, so it is likely that there are also differences in financial stress across the different types of business in the retail sector.
Turnover and debt of retail companies
% year-on-year change (turnover) and quarter-on-quarter change (debt)
In this respect, the data on non-performing loans are also relatively positive for the sector. At the end of 2020, the volume of non-performing loans for retail companies fell by 8%. As can be seen in the table below, the sector’s financial situation is in line with that of the Spanish economy’s non-financial corporations as a whole. This relatively stable financial situation was not the norm in 2020. If we look at the financial indicators of a sector that has been harder hit by the health crisis, such as hospitality, there is a stark contrast with the situation of retail trade.
Sector-based financial indicators for 2020
In conclusion, the data suggest that the level of income currently generated by the sector, despite being lower than before COVID-19 appeared, seems to be sufficient to meet its cost structure and maintain its activity.