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French Market: 2022 Down Vs 2021, But Better Than Pre-Covid

Economic growth was zero in France in the first quarter of 2022. The main cause was weak domestic demand, dampened by a sharp rise in prices.
By Benoit Brecq

Gross domestic product stagnated in France in the first three months of 2022 compared to the previous quarter. Economic activity has therefore come to a halt after having increased over the previous four quarters, with a total increase in growth of 7% over the course of 2021. GDP growth in the first quarter of 2022 is therefore lower than INSEE’s projections, who, before the outbreak of the war in Ukraine, were expecting a 0.3% increase.

This economic stagnation in France is mainly explained by weak domestic demand. While investment grew by 0.2%, household consumption fell sharply in the first quarter by 1.3%. This decline in consumer spending is linked to three major events:

• Firstly, the Omicron wave at the beginning of the year led to household consumption expenditure dropping by 5.3% for accommodation, restaurants and clothing in the first quarter.
• Secondly, the war in Ukraine has significantly boosted inflation. Price rises are at the highest level for more than 30 years, reaching +4.8% within a year, mostly because of the increasing energy prices and increases on certain food products. This sustained inflation has negative consequences on purchasing power and therefore on household consumption.
• Finally, the spring of 2022 was marked by the presidential election in France. Historically, election years are not good for household consumption, with people tending to delay or postpone their spending out of fear for tomorrow. This presidential run-up, although largely disrupted by the first two factors, has also contributed to the overall situation.

To all this we could also add the return of lockdowns in China, which are once again disrupting supply chains in the first quarter of 2022. However, since last autumn, the government has expanded the measures being implemented to help people through this difficult period. Energy vouchers, tariff caps on gas and electricity prices and 18 centimes rebate at the pump from April 1: the measures have mainly been aimed at limiting the impact of price increases on household budgets. These initiatives have helped limit inflation in France compared to its European neighbours in the first quarter.

To tackle rampant inflation, Emmanuel Macron also had to make new promises throughout his presidential campaign: abolishing the TV licence fee paid by 23 million French people, creating a food voucher that could benefit 8 million French people and establishing a new, more targeted scheme to mitigate the impact of rising fuel prices. He also committed to raise the index point for public services in the summer. As far as wages are concerned, only the minimum wage is indexed to inflation. On May 1, it will automatically increase by 2.65% – an increase of about 34 euros net per month. That’s a lot of initiatives to quickly implement straight after his successful re-election, all aimed at reassuring households for whom purchasing power is the main concern at the beginning of 2022.

Like other countries in the world, France is suffering from historic inflation. So what is the real impact on our industry and on consumption for retailers at the beginning of the 2022 season? The beginning of the year 2022 has been rather quiet as Victor Rassouli, Manager of Zephyr Surfshop store in Saint Malo, confirms: “The winter has been rather quiet but we have noticed an increase in sales since the Easter holidays,” he adds, “This is normally the launch of the summer season and a return of customers to the shop. However, Victor adds, “sales are down compared to last year, which is probably related to inflation and the political and economic situation.”

The reports are quite similar from Ocean Gate In Saint Pierre de Quiberon where Shop Manager Lionel Collin, tells us: “Business has picked up well, less strong than last year when the lockdowns ended but better than in 2019 before COVID.” Lionel even adds, “We are on a 10% increase in turnover compared to 2021, this is partly due to inflation which for the moment does not seem to be a problem. Purchasing power still seems to be there, even though the two weekends of the presidential election had a big part to play in the serious drop in in-store traffic.”

Further south at Welcome in Hyères, Shop Manager Ingrid Granger agrees: “The season really kicked off in April with a very good Easter. The tourists turned out in good numbers, especially the English, Swiss and Germans. She added: “We didn’t notice any real repercussions of the political or economic events on visitor numbers or on in-shop sales during that period.”

The supply and delivery of goods, which were already quite troublesome, appear to be major themes again at the beginning of the 2022 season. Ingrid from Welcome tells us: “There are big delays on most products, we’ve had trouble receiving everything on time, much like in the last couple of years” she adds: “We have however made good orders to avoid shortages, which will inevitably lead to less restocking as we should have enough stock for the season. Victor from Zephyr Surfshop confirms: “There are quite a few delivery delays and a really significant increase in prices, especially for neoprene.” He adds: “We have been forced to overstock in order to tackle both the shortage and above all, the expected price increase.” Lionel from Ocean Gate seems to be on the same wavelength: “There are indeed late deliveries or partial deliveries from many suppliers. For the most part there will be very little or no restocking possible and we have prepared ourselves for this” he adds: “But we’ve had quite a lot of stock since the start of the season because we accepted the late deliveries from last season so we already have stock in the shop early on.”

As for product, neoprene still seems to be popular despite particularly high inflation in this category. Lionel from Ocean Gate says: “Neoprene is still leading in terms of sales, followed closely by equipment and finally textiles with the return of the good weather”, but he adds: “Compared to last year, the boom in surfboards is not as strong even though it’s the beginning of the season, so we’ll have to see what happens in the long term.” At Zephy Surfshop Victor notes: “Clothing and skateboards are still doing well for us, but inflation, especially in neoprene, seems to have slowed the category down a little.” At Welcome Ingrid tells us: “the good weather and the beginning of the season have been pretty positive for our clothing section. But one segment that we put a lot of emphasis on and which is doing very well at the beginning of the season is Wing Foil.” She adds: “This new activity is really popular and more and more people are looking at this discipline, attracting an increasing number of participants.”

The return of the good weather and the Easter holidays once again seem to have gone hand in hand with customers returning to our retailers. Still looking for the advice, service and interaction that you cannot find on the internet, enthusiasts are stepping into shops in search of the latest products to help them live out their passions. While inflation and purchasing power are the major issues we are faced with, the beginning of the season seems encouraging for the time being. Let’s hope that these promising early-season signs are fulfilled over the summer and that the 2022 season proves as successful as the last couple of years. To be continued…