UPDATE 1-Spain sends send chill through retail world

Wed Jul 30, 2008 11:22am EDT

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By Sarah Morris and Andrew Hay

MADRID, July 30 (Reuters) - Spanish retail sales suffered a record plunge in June as a severe economic slowdown hurt multinational retailers in what was until recently the world's fastest growing developed economy.

Sales at Spanish stores ranging from supermarkets to cellphone shops fell 7.9 percent in calendar-adjusted terms from the year-earlier month, marking the worst performance since Spain began registering the results.

It was the seventh consecutive month Spanish retail sales declined, with households goods suffering a 17.9 percent plunge.

The depth of problems in Spain hit the global stage last week when Vodafone (VOD.L), the world's largest mobile phone firm, blamed weak revenues on the euro zone's fourth-biggest economy.

Analysts said few multinational companies have the same kind of exposure to Spain as Vodafone.

But firms that previously profited from big-spending, heavy borrowing Spanish households face hard times in Spain given expectations it will undergo the deepest retail downturn of any major European economy.

"For any company with significant business in Spain, these figures are not going to be encouraging," said Bryan Roberts, retail analyst at Planet Retail in London.

"The negative trend in Spain is going to be mirrored in other European countries as part of a European slowdown."

SPANIARDS' SLIM SPENDING

Spain's retail blight began last December among retailers selling consumer goods like flat-screen televisions and cellphones. Wednesday's figures showed the malaise had spread to supermarkets and department stores.

"What is quite shocking is that there is a fall in food because you've got inflation," said Anne Critchlow, analyst at Societe Generale. "The Spanish consumer really must be cash-strapped if they're buying less food."

Food sales plummeted 6.8 percent after prices of goods like milk rose around 25 percent in the last 12 months.

Spanish households borrowed more heavily than those in any other large euro zone economy in past years and retailers are hurting as banks slash lending after the global credit crunch.

Consumer confidence is at a record low with unemployment now the second highest in the European Union in the second quarter. Disposable income is being eaten up by 13-year high inflation.

International firms ranging from Volkswagen (VOWG.DE) to consumer electronics firm Philips (PHG.AS) and dairy giant Danone (DANO.PA) have highlighted Spain as a weak retail market.

Spanish hotel chain NH Hoteles (NHH.MC) on Wednesday said it would revise a 3-year expansion plan announced last year.

"The sectors being hit are those associated with homes, textiles and leisure; it's easier to give up those types of purchases," said Sara Balina at Madrid's AFI consultancy..

ZARA NOT IMMUNE

Spain's foremost global retailer Inditex (ITX.MC), owner of the Zara chain and more than half a dozen other labels, has shrugged off fears it will be hit by a consumer slowdown in its home market, where it makes over a third of sales.

Critchlow did not expect Inditex's Spanish sales to fall anything like those of Spain's wider retail sector, but she said the world's second-largest clothing retailer could suffer.

"If retail sales keep falling like this they're not completely immune," said Critchlow.

Spain's mid-market has shown clear signs consumers are tightening their belts and switching to cheaper brands.

Fashion chain Adolfo Dominguez (ADZ.MC) reported a 71 percent slump in first-quarter net profit.

Inditex seems to be banking on taking market share from competitors and launched a new accessories chain this month.

Competitively priced clothes and food chains could benefit from a consumer downturn as shoppers spend more time hunting for bargains, analysts said.

Hypermarket chain Carrefour (CARR.PA) defied a gloomy sector outlook by growing Spanish second quarter sales 8.3 percent, bumping up sales at its discount stores.

"Carrefour has the Dia chain in Spain which successfully captures low-income shoppers," said Roberts.

(Additional reporting by Paul Day; Editing by Victoria Main)

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