Retail PMI on Growth Trajectory

EghtesadOnline: The Purchasing Managers’ Index for Iran’s retail sector stood at 54 in the month leading to Jan. 19, which marks the end of the 10th month of the current Iranian year, to signal a 19.68% rise compared with the previous month’s reading of 45.12.

News ID: ۷۸۵۹۸۹

14 February 2021

The announcement was made by the Economy and Planning Department of Iran Chamber of Guilds. The department has been measuring retail PMI, known by its Farsi acronym Shamekh, since the month ending May 20, 2020.

A reading above 50 indicates expansion in the sector; below 50 indicates contraction. Traders watch these surveys closely as purchasing managers usually have early access to data about their company’s performance, which can be a leading indicator of overall economic performance.

A higher than expected reading should be taken as a positive sign for businesspeople while a lower than expected reading marks a negative performance.

This is the third consecutive month the index has been on the rise since it hit a record low of 33.69 in the month leading to Oct. 21.

The retail PMI is based on five major survey fields: "new orders", "raw material inventory ", "production", "supplier deliveries" and "employment". The survey includes 12 questions about business conditions and any changes, whether it be improving, no changes or deteriorating.

It is measured through a monthly survey sent to executives of businesses engaged in the retail sector, including grocery stores, supermarkets, cosmetics and toiletries, clothing shops, bakeries and confectioneries, home appliance, furniture, kitchen and interior design showrooms, leather, gold, perfume and cultural product sellers, reception salons, traditional and fast food restaurants, automobile dealers, carpets, textiles, electronic devices and mobile phones.

It is based on five major survey areas: "new orders" with a coefficient of 30%, "raw material inventory" (10%), "production" (25%), "supplier deliveries" (15%) and "employment" (20%).

The “activity level” sub-index, which has the highest impact on the overall PMI and whose score equals that of the index, stood at 54 in the month ending Jan. 19, posting a 19.68% growth compared with 45.12 of the previous month (ended Dec. 20, 2020).

The "new orders" sub-index stood at 38 in the month ending Jan. 19, indicating a 13.44% decrease compared with the previous month’s reading of 43.90.

The "supplier deliveries" sub-index, which measures how fast deliveries are made, increased from 50 in the month ending Dec. 20 to 57 in the month ending Jan. 19, indicating a 14% growth.

The "raw materials inventory" sub-index jumped 14.30% from 40.24 in the month ending Dec. 20 to 46 in the month leading to Jan. 19.

The "employment" sub-index fell 44.65% from 48.78 in the ninth month to 27 in the 10th Iranian month.

To calculate retail PMI, seven secondary criteria were also surveyed by ICG, including "raw materials or essential products purchase prices", which stood at 74.39 in the month ending Dec. 20. The sub-index increased by 12.92% to stand at 84 in the month ending Jan. 19.

"Warehouse inventory" improved 34.39% to 59 in the 10th Iranian month from 43.90 in the ninth fiscal month.

The "exports" sub-index settled at 40 in the month ending Jan. 19 from 43.90 in the month ending Dec. 20, registering an 8.89% decrease.

"Prices of products or services" increased by 15.15% to stand at 66 in the month ending Jan. 19 from 57.32 in the month ending Dec. 20.

"Fuel consumption" jumped by 16.89% from 57.32 in the ninth Iranian month to 67 in the 10th Iranian month.

"Sales" improved by 9.33% from 36.59 in the ninth month to 40 in the 10th month.

The "performance expectations for the following month" sub-index settled at 53 in the month ending Jan. 19 from 56.10 in the month ending Dec. 20, showing a 5.52% decline.

“There are 6,000 chain stores across the country,” says Akbar Taqavi-Shavvazi, an official with Iran Consumer and Producer Protection Organization.

“These multiple retail shops, which operate under one brand name, sell different types of merchandise, including food, clothing and electronics,” he was quoted as saying by IRIB News.

“Today, chain stores occupy a very important place in the retail distribution of goods.”

Noting that the density of retail businesses in Iran is very high, the official said, “Iran is home to over 3.5 million stores affiliated to Iran Chamber of Guilds, half of which are engaged in the distribution of goods. About 2.8 million of businesses in the distribution sector are licensed and 700,000-800,000 are unlicensed. In fact, there is one retail shop per 25 people in Iran.”

Chain stores have a 50% share in a majority of retailing markets worldwide, but the share reaches 80% in advanced economies.

According to the head of Iran's Chain Store Union, Iran's retail market is worth 1,200-1,300 trillion rials ($4.8-5.3 billion).

Amir Khosro Fakhrian also told the Persian economic weekly Tejarat-e Farda that chain stores currently have a 10% share or 120-trillion-rial ($480 million) in Iran's retailing market, which is projected to reach 25-40% by the next Iranian year (March 2021-22).

There are over 2 million licensed and 500,000 unlicensed sales outlets in Iran. This is while the number of grocery stores surpasses 170,000.

The provinces of Tehran, Khorasan Razavi and Isfahan have the highest number of sales outlets in the country.