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Sunday, 22 March 2015

Dutch Cabinet “helps” the faltering retail industry with all kinds of nice measures, but conveniently forgets the most decisive side of the equasion: the customers’ demand!

There is one thing that the Dutch cabinet and I have in common: our worries about the faltering brick & mortar retail industry in The Netherlands, as a consequence of the enduring economic crisis, the mindless expansion of domestic shopping space and the emergence of webshops and the internet economy. 

This enduring crisis causes extremely rough times for many shops and store-owners and leaves the battle scars within the Dutch shopping centres and streets, in the shape of vacant stores and sometimes desolate shopping centres.

Our cabinet and I differ, however, about the solution for this conundrum. 

My readers know that I often refer to the diminished demand, as a consequence of cautious, crisis-hardened consumers, as well as growing unemployment and long-term wage restraint and even wage decreases among the middle and lower classes. 

The cabinet totally denies this circumstance, however, and searches for its solutions at the supply side of trade.

The following snippets were published in the AD newspaper:

The inner cities in The Netherlands should flourish again, but that is virtually impossible with the ever-growing shop vacancy. This is the reason that the Cabinet of PM Mark Rutte presents a series of measures, in order to help the shop-owners and keep the shopping centres viable.

From now on, shop owners will get a permit to refurbish their shop or extend their shop with a food and beverage corner more easily. 

On top of that the often skyrocketed shop rents will be lowered, according to the commercial real estate exploration companies. 

Additionally, €40 million will become available for extra loans to the small and medium enterprises.

The 775.000 employees in the retail industry will also receive an education, which enables them to work at a web-shop easier and without the transitional problems that one would expect.

These are exactly the solutions that someone would find – in this case Minister of Economic Affairs, Henk Kamp – who is in total denial of the situation in the Dutch retail industry.

These solution just won’t work as they do NOTHING about the enormous elephant in the room: the lagging demand, as a consequence of the ubiquitous consumer strike in The Netherlands!

They ignore the simple reality that people (i.e. consumers) are still not very confident about the economy and spend much less on consumption and shopping, than say 15 years ago. And they have done so over the last ten years, slowly choking the retailers.

Besides that, the significantly diminished expenditure of consumers is divided over more shops and shopping space: for the latter, there has been at least 8.5% growth between 2005 and 2015 [no more recent data available than 2012 - EL]. 

To make things worse, there are many, many more webshops than in 2005, which take an increasing slice of the consumption pie. You could call this a triple whammy. These developments are shown by the following two charts.

The sales development in the Dutch retail industry
vs the official inflation rate
Chart by: Ernst's Economy
Data courtesy of: CBS
Click to enlarge
The inflation adjusted sales growth vs
the increase of shopping space
Chart by: Ernst's Economy
Data courtesy of: CBS
Click to enlarge
As long as the Dutch government, the Dutch municipalities and the Dutch companies fail to significantly increase the purchase power of the Dutch consumers and – at the same time – put an effective brake on the increasing amount of available shopping space, the problems in the retail industry will endure. So simple is that

The rest of the plans in the aforementioned article are simply hot air…

Let’s take a look at for instance the plan to add a food and beverage corner to stores in the shopping centres.

In spite of the fact that the La Place food & beverage formula of V&D was by far the most successful part of this extremely large retail company, it did not help one bit to keep this company as a whole afloat.

La Place flourished, but the V&D stores as a whole suffered nevertheless.

Besides that, La Place might be a successful exception, but in general the food & beverage industry suffers from the same consumer strike, which hit the whole retail industry in The Netherlands.

So when you stack ‘failure’ (decreasing shop sales) upon failure (decreasing food & beverage sales), the chances that the outcome will become a success, are minute. The only difference is that the shop owners have spent even more money and have loaded up more debt to finance this expansion of their shop.

The same is happening, with refurbishing one's shop: it is a useless investment, when there is so much competition and when the competition also refurbishes their shop. 

I am convinced that Minister Henk Kamp – who is a smart fellow – knows this too, but does not want to spoil the charisma of unfounded optimism that surrounds this Cabinet of Wishful Thinking.

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