Europe Retail Sales in Longest Contraction Since at Least 2004

By Jurjen van de Pol

Oct. 30 (Bloomberg) -- European retail sales fell for a fifth month, marking the most protracted slide since at least 2004, on concerns the financial crisis will tip the economy into a recession, the Bloomberg purchasing managers index showed.

The measure of sales in the euro area fell to 44.3 in October from 46.2 in September. The index is based on a survey of more than 1,000 executives compiled for Bloomberg LP by Markit Economics and a reading below 50 indicates contraction. The index has been below that mark for five months, the longest sub-50 showing since the indicator was introduced in January 2004.

The world's worst financial crisis since the Great Depression has pushed up credit costs around the globe and caused stock markets to tumble, undercutting consumer confidence. Europe's economy is on the brink of a recession, with the region's manufacturing and service industries contracting at a record pace this month and the Dow Jones Stoxx 600 index down more than 40 percent this year.

``For Europe as a whole, the situation does looks rather grim,'' said Mark Cliffe, chief economist at ING Groep NV in Amsterdam. ``The ongoing financial turmoil and the fairly negative indicators coming out of the economy and from the corporate sector'' indicate ``consumer spending will be depressed.''

Retail sales dropped in Germany, France and Italy this month as the financial turmoil spread to the broader economy and households curbed spending amid rising job-market insecurity. Sales in France contracted for the first time in four months, while Italy saw the steepest decline of the three largest euro- area economies.

Declining Sales

Retailers' earnings are suffering as stores step up discounting to fight eroding sales. This led to a continued fall in gross margins, Markit Economics said in today's report.

PPR SA, owner of the Gucci luxury-goods brand, last week said it may cut 151 jobs at the headquarters of its La Redoute mail-order unit and shut all of its 81 stores, which employ 430 people, because of a shrinking market and declining prices. The Paris-based company said third-quarter sales rose the least since 2005 after the global credit crunch cut into demand for goods from handbags to furniture.

``We are perfectly aware of the worsening macroeconomic environment,'' Chief Financial Officer Jean-Francois Palus said on Oct. 23. ``We are taking it into account and focusing on cost control and efficiency of operations at all our brands.''

First Contraction

The French economy may already be in a recession after shrinking 0.3 percent in the second quarter, the first contraction in more than five years, according to statistics office Insee in Paris.

European retailers, especially clothing and footwear stores, expect sales to miss their targets in November, the survey showed, with Italian retailers more pessimistic than their German and French counterparts. Milan-based Luxottica Group SpA, the world's biggest maker of eyeglasses, this week cut its annual profit forecast amid slumping spending on designer brands.

Italian business confidence fell to the lowest in 15 years in October and consumer optimism declined on prospects that the financial crisis has pushed the economy into a recession. The Italian government forecasts economic growth of just 0.1 percent this year, the slowest in five years.

While retail sales in Germany declined for a fifth month in October, the pace of contraction lessened, today's report showed. The German sub-index rose to 46.7 from 44.6 in the prior month, remaining below the 50 mark.

Oil Prices

Consumer confidence in Germany, the euro region's largest economy, unexpectedly rose for a second month as a drop in oil prices left households with more money to spend, GfK AG said on Oct. 28. German inflation slowed more than economists forecast in October as energy costs declined, the Federal Statistics Office in Wiesbaden said yesterday.

Germans ``are happy food and energy prices are falling back,'' ING's Cliffe said. ``Over time that is a bright spot for consumers.''

To contact the reporter on this story: Jurjen van de Pol in Amsterdam jvandepol@bloomberg.net