German retailers wait for cheer

THE GATHERING momentum of the German economic recovery has yet to be felt in the high street, according to the country's largest retail groups, which warned of continued weak demand and falling profits.

While the government and the Bundesbank have declared the recession over, and some economists are raising German gross domestic product growth forecasts to over 2 per cent for 1994, Karstadt and Kaufhof saw few signs of their sector joining the bandwagon.

'Like the whole of the retail industry, the Karstadt group has suffered from the severe weakness of consumer demand in the first half,' Germany's biggest retail group said. 'We do not expect a recovery in demand soon. Our intense efforts to reduce costs will therefore not prevent profits from falling behind the previous year's level.' Karstadt's 1993 group net profit was DM227m ( pounds 97m).

The big German retailers have responded to the recession by merging, restructuring, cutting costs and diversifying into niche sectors.

Kaufhof group saw first-half sales in its department store division fall 4 per cent to DM4.1bn. But specialist store sales jumped 31 per cent to DM3.9bn. Despite the generally weak demand, the group said it should still be able to report 'favourable earnings for the year'.

A pick-up in consumption is traditionally the last stage of a German recovery, driven initially by exports and then investment. But this time economists fear consumption may remain weak well into next year, hit by rising unemployment, real wage cuts, and sharp tax and duty increases. Consumers have so far confounded the most pessimistic predictions of a collapse in demand by drawing heavily on savings, but there is some doubt as to how long this will continue.

'There will be a slight recovery in the retail sector in the middle of next year, but strong demand will not return until 1996,' said Antje Witte, analyst with Trinkhaus and Burkhardt.