Retailers suffer pain in Spain

Posted by admin on 30 August, 2008 under Business news | Read the First Comment

‘Rebajas’, ‘Gran Liquidacion’, ‘Descuentos’.

It’s hard to find a shop window in Madrid that isn’t littered with signs announcing big sales.

But despite the time of year, this is not a summer sale. This is a retail cool down.

There’s a cold front hitting Spanish shoppers.

With the housing market in a downturn, inflation continuing to rise and unemployment now at its highest rate since 1998, consumer confidence is taking a beating.

And while the Spaniards rein back on their spending, the retailers are battling to stay in business.

Luis Galeote owns a shop selling luggage and shoes in central Madrid. He has seen his sales fall by 25% in a year because people are cutting back on non-essentials.

“What happens is that people pull back on consumption of unimportant things, like in our case suitcases,” he explains.

“We stock shoes which are considered as a necessity but even they are affected.”

Retail sales across Spain have been falling rapidly since December.

First hit were shops selling consumer goods, such as flat-screen televisions and mobile phones. But since then the malaise has spread right across the retail sector to supermarkets and department stores.

Shutting up shop

Walking around Madrid it is not unusual to find streets dominated by boarded-up shops.

Shop owner Luis Galeote has seen sales fall

Wynn Williamson, a real estate analyst for Aguirre Newman, has seen many retailers close down in the neighbourhood where he lives in the city.

He thinks people are spending less because they’ve been hit hard by rising interest rates.

“Eighty percent of Spaniards are home owners and 97% of mortgages are variable rate mortgages. So where people were previously paying 500 euros (£402) a month, that rate could go up to 1000 euros.”

“Basically every person has less money to spend on luxury items, such as lunches and taxis, and that affects the economy all in all.”

Professor Pedro Schwartz of San Pablo University in Madrid thinks that things are going to get worse before they get better.

“What is worrying is that the problems are spreading quickly because of a lack of confidence”.

“We haven’t fallen into negative growth rates yet, but we will have a recession and it’s coming very quickly.”

With the Spanish economy stalling the government has tried to put its foot on the accelerator.

It has introduced a package of measures, including greater investment in public infrastructure and a 6bn-euro programme of tax breaks to try to get people spending again.

Will it be enough to turn the tide?

That will all depend on how much shoppers tighten their belts as the summer turns to winter.

News reported by The BBC