Profit margins should remain stable, but downside risks remain
The Belgian consumer durables market grew strongly in 2021. Restrictions or lockdowns and the surge of hybrid and remote working triggered higher household investment in domestic appliances, furniture and electronic goods. Sales increased 14% in H1 of 2021 over the same period in 2019, and 26% year-on-year. Along segments, sales rose 30% for telecommunication equipment, 18% for consumer electronics and 26% for major domestic appliances.
However, sales growth has started to slow down in H2 of 2021, and rising inflation (forecast at about 7% in 2022), mainly driven by high energy and fuel prices, is negatively affecting consumer confidence. Many households have started to postpone purchase of consumer durables, or to look for bargain offers and move downmarket when buying discretionary goods. We expect retail sales in Belgium to level off this year, after growing 5.7% in 2021.
Profit margins of consumer durables retailers increased in 2021 and should remain stable in 2022. While sales growth has slowed down, we do not expect a serious deterioration in demand. As producers pass on higher prices for commodity and energy along the value chain, many retailers try to absorb higher input prices by increasing their sales prices. Demand for premium products, which usually generate higher margins, remains robust for the time being.
Payments in the Belgian consumer durables retail sector take 30-60 days on average, and the payment behaviour has been good during the past two years. While the number of non-payment notifications was historically low in 2021, we have noticed an increase of payment delays since early 2022. The insolvency level in the sector was low in 2022, and we do not expect a substantial increase in business insolvencies in the coming twelve months. However, we are closely observing current downside risks that could severely affect consumer sentiment (e.g. another spread of the pandemic and economic impacts of the war in the Ukraine). For the time being, our underwriting stance is mainly open for the consumer electronics and the household appliances segment, while neutral for furniture, due to fierce competition in this subsector.