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Portuguese Market Insight, Summer 2020
Like all European countries, Portugal had a brutal shock to their economy due to the Covid-19 pandemic. Early in the year the economic forecast was the best possible: for the first time in the country’s history, since the democratic revolution in 1974, a positive State General Budget of 0,2% was forecast. This was mainly because of the economic recovery that has been happening since 2015 driven by a tourism boom. By Nuno Príncipe.
Portugal was elected in 2019 for the third time in the row as the ‘World’s Leading Destination’ by the World Travel Awards, considered as the Oscars of tourism. Lisbon was elected the ‘World’s Leading City Break Destination’ and Madeira Island was, for the fifth time in a row, the ‘Best Island Destination in the World.’ As the expression goes, ‘the higher they rise the harder they fall’. This dependency on tourism for 14.6% of GDP in 2018 makes Portugal one of the European economies the most affected by the Covid-19 lockdown and travel flight restrictions. Despite a good control during lockdown, the returning to ‘normal life’ saw the cases of Covid-19 rise in the Lisbon area. And that was key to countries like United Kingdom putting a red flag on Portugal and excluding it from the ‘tourism/travel corridors’ that allow people to travel free without the need to do quarantine on their return. This was a huge blow to Portugal’s summer season economy with the most critical situation in the Algarve, however we’re pleased to say Portugal is now back open to UK visitors without the need for a quarantine.
The adoption of correct and earlier measures than most countries meant the worst was avoided, the German magazine Der Spiegel called it the “Portuguese miracle”. The National Health Service didn’t overload and many lives were saved. After lockdown we had three steps on the way to return to the ‘new normal’ each of them lasting 15 days: 4th May (small stores, local shops, hairdressers, barbers, book stores, individual sports like surfing, tennis and golf); 18th May: medium stores, restaurants, cafes, day care centres and schools only 11th and 12th grade and on 1st June: bigger stores, gyms, cinemas and theatres with limited capacity. Shopping malls only opened on 15th June. On 1st August discos and nightclubs were the last to open but only as cafes until 1AM, except in the Lisbon area where 8PM is the limit because the Covid numbers in the capital’s numbers are higher than elsewhere. Since the beginning of the Covid-19 crisis the government has been helping companies with bank credits, lay-offs for workers and tax payment and rent postponements. The goal is to help companies to survive and not to fire employees so that when the worst is over, companies can quickly recover. Despite all these measures, before Covid-19 arrived in Portugal (first case was detected on 2nd March) in February the unemployment rate was 6.5%. And now it’s 5.5%. This isn’t accurate since a lot of people have been put on furlough. Politicians say the real rate is between 10% and 14% and when the furlough is over the situation could get worse. Because of the economic dependency on tourism mentioned above the second quarter saw an historic GDP fall of 16.5% compared to the same period in 2019. The European Commission forecast points to a 9.8% fall for the year for Portugal. Still for 2021 the forecast is an economic recovery between 4.3% and 6%. There’s a lot of people working from home and companies had to quickly adapt to this new era. Right now, there’s a lot of concern about the schools reopening in September and people are worried about a second wave hitting this Fall.
Surfing is one of the most popular sports in Portugal and a study from 2012 showed a 400 million Euro contribution to the country’s economy. The updated numbers from recent years are not yet available but should be way higher. The Liga MEO Surf (national surfing championship) on 19th/21st June was the world’s first official surfing event to happen after lockdown. That was very important not only for Portugal’s surfing industry and professional surfers but it was also a statement to the world that surfing events can happen within the safety rules. If everything goes according to plan, in a short period of six months Portugal will have two WSL’s events, one with a waiting period from 28th September to 3rd October and the other in February which is great news. The first will be the Euro Cup (one of two, the other will be in France) as part of WSL’s Countdown Series and the other will be the second event of WSL’s Championship Tour 2021.
During lockdown and after it, online orders registered strong growth and were the most important and almost the only way to conduct business. Brands and retailers had to quickly reinvent themselves to keep sales going, launching marketing campaigns with discounts and door-to-door delivery just to survive. Brands focused on their digital relationship with their customers through their websites, social media and newsletters to keep communication going despite social distance rules.
After the lockdown, surfing was one of the first sports to have the permission to restart and lots of people returned to the ocean. The demand for surfboards, wetsuits, skateboards, bikes and technical material grew significantly. People are now enjoying summer while following the rules of social distance and all skate and surf shops have safety regulations and people have to wear masks inside.
We are now seeing two different realities: skate and surfing hardgoods with strong growth and apparel very hard to sell. In consequence there are big promotions to get rid of apparel stock.
“We had our physical stores closed for almost three months with a large accumulation of Spring 20 stock” said Despomar’s Sales Manager, Pedro Fernandes. Despomar is the biggest and most important Portuguese action sports player with 34 stores between their Ericeira Surf and Skate, 58 Surf and Billabong stores. In terms of distribution they work brands like Billabong, Element, RVCA, Dakine, FCS, VonZipper and Nixon among others. “Since the lockdown we’re seeing a double-digit growth in online sales which is positive. But since online sales represent little of the overall turnover in our company, it did not cover the loss of having physical stores closed for such a long time. Still online sales are currently gaining weight compared to the brick and mortar business. Fortunately, summer sales in physical stores are now similar to the same period of 2019”.
POP Skate Shop is one of the most important core shops in Portugal located inside the Parque das Gerações skatepark, Portugal’s most important skatepark and one of Europe’s best. They were caught off guard by Covid-19 and had the bad luck of not having their website ready. “The lockdown’s impact on our store was huge”, said Bernardo Aragão, skater and one of the owners. “We had our doors closed and managed a few sales through Instagram. But it was hard. During that time, we focused on restructuring the company, checking inventory and working on our website. After lockdown we were expecting a worst-case scenario but fortunately it was the opposite. We saw a sales boom in skateboards and all the technical kit. Shoes and apparel are not as easy but since the main segment in our store is skateboards, we’re doing well. It’s crazy because right now European stores are fighting to buy skateboards stock to meet demand.”
Among retailers and brands the word uncertainty is experienced on a daily basis. There is a lot of concern about how this scenario will influence Fall 20 product deliveries into stores as well as on the consumption side for this season and Spring 21. The only way to face this scenario is to work hard on the things we can control, keep thinking positive and have hope for the future.
