Market Monitor - Consumer durables - Sweden

Market performance snapshots

Sweden

• A transformation of the retail sector is underway
• Higher-risk sector despite decreasing insolvencies
• High-street retailers face problems

The Swedish consumer durables retail sector grew about 2% in the last five years, more or less in line with national GDP growth. Larger growth rates were recorded for the online retail sector, including major players such as Dustin, NetOnNet, CDon. In contrast, brick-and-mortar retailers often recorded weak or even negative growth. In 2015, just a modest growth increase in the consumer durables retail segment is expected.

Beside the growing market share of online retail, another trend is the concentration of retail stores in large, newly-built and car-accessible malls close to Swedish cities, often financed through public-private partnership ventures. This has led to retail overcapacities in some places, with customers going away from traditional high-street retailers in the city centres. As a consequence, the number of those traditional players continues to decrease. Meanwhile, the costs of new building projects have forced landlords to increase rents for subletting retailers to compensate, which puts additional financial pressure on affected businesses.

Between January and November 2014, the number of insolvencies in the retail sector decreased 23% year-on-year, from 800 to 617 cases. However, this was in line with the development in all Swedish industries, and the insolvency level remains high compared to other sectors: retail insolvency exposure is the second highest in the country (at 1.13%) behind hotels and restaurants. While insolvencies are expected to decrease further, the number of businesses active in retail is decreasing. Insolvencies outnumber new foundations, which also points to on-going challenges in this industry.

Our underwriting stance for consumer durables retail is mildly cautious. Newly founded businesses, in particular, face higher risks in the highly competitive market. The same accounts for brick-and-mortar high-street retailers and subsectors with capital tied to inventory, such as kitchen, furniture and boat retail. Online retailers generally face good business prospects, as there are still growth opportunities in segments with low market penetration. Swedes increasingly embrace shopping online, and the online segment is expected to continue to grow in the years ahead. The dual effect of growing e-commerce and relocation of stores in large shopping malls out of towns will continue to shape the transformation of the Swedish consumer durables retail sector.