LONDON: A brisk start to post-Christmas sales in some European countries is unlikely to save retailers from more profit warnings and insolvencies as cash-strapped shoppers are only being tempted to open their purses by margin-crushing discounts.
Crowded stores in major economies like Germany and Britain will ease fears the euro zone's debt crisis could see consumers across the region cut back on everything other than essentials.
But analysts warn Europeans, who are seeing their disposable incomes squeezed by rising prices, muted wages growth and austerity measures, are only being persuaded to spend by price cuts of up to 70 percent that are erasing margins.
"Interest in the sales could fall away pretty quickly once the best of the bargains have gone," said Howard Archer, chief UK and European economist at IHS Global Insight. "This would put pressure on retailers to cut prices even more, thereby further hurting their margins."
And with trading still deteriorating in debt-laden countries like Italy and Greece, there is a risk conditions could get worse across the continent if policymakers don't make a decisive breakthrough in restoring confidence in the region's finances.
Greece's ESEE retail federation estimates sales plunged a jaw-dropping 30 percent year-on-year in the run up to Christmas.
"Next year will be even more challenging for European retail. Virtually all of the negative headwinds that have blown in during the second half of 2011 will persist, and could worsen, for at least the first half of 2012," said Simon Chinn, lead consultant at retail research group Conlumino.
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