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Retail Trends

Cautious Optimism at the German Retail Congress

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The German retail sector continues to transform apace in the face of demographic change and the rise of e-commerce. This was again apparent in November at the annual congress of German retail association HDE in Berlin. While e-commerce may have been one preoccupation for attendees, it was mainly the convergence of retail and politics that shaped the dialogue. In a relatively steady consumer climate, HDE estimated nominal retail growth at 1.5 percent in 2012; with inflation running above 2 percent, this still corresponds to a decrease in real terms, continuing an overall two-decade trend. Retail, which accounted for some 40 percent of consumer spending in the early 1990s, saw that share fall to 27.4 percent by the end of last year. At 6.4 percent of retail sales, e-commerce has clearly become too big to be ignored by even the most well-established high street giants. However, it seemed most bricks-and-mortar players were bereft of any specific ideas for adapting to or combating the online threat — an impression that is apparently confirmed by the continued erosion of high street sales in key non-food categories. HDE president Josef Sanktjohanser indicated that additional challenges were coming in the form of rapid demographic change and rising energy costs.

Call for a stable European framework A number of conference participants opined that politicians exert too much influence on the economy, and asked whether regulation of issues such as opening hours was really required under the national constitution. Addressing this point, both German finance minister Wolfgang Schäuble and opposition leader Peer Steinbrück agreed politics had to guarantee everyone’s welfare in society — retail employees included — in order to ensure social stability and consumer confidence. With that in mind, the political leaders asked for greater understanding that balanced decisions could not always support one-sided business interests. Schäuble stressed that German consumer confidence was holding up well with a strong job market and a currency bolstering German foreign trade. He expressed confidence that the Euro would be maintained as a strong currency, ultimately leading to robust consumption. Looking at high youth unemployment across Europe, with levels above 50 percent in Greece and Spain, Schäuble emphasized Germany’s much better position. The country’s competitiveness in global markets, largely based on knowledge and education, is a key factor in sustaining current levels of consumer spending power, directly affecting retailers’ long-term outlook.

Considering routes to foreign expansion Klaus Jost, board president at Intersport International, said that few growth opportunities remain in Western Europe due to factors like demographic changes. On the other hand, he termed Asia and South America as the “big world,” where he often witnessed higher motivation within groups of franchisees than among long-established European associates. Till Guthmann, director at Deloitte, stressed the importance of not limiting critical factors for international expansion plans exclusively to macroeconomic data, as this would only lead to China. Although he underlined that different retailers would all have their own individual solutions, he declared that, for instance, South America — especially Chile and Brazil — were exciting foreign destinations, but “the lowest hanging fruits have been already taken.”

Germany outlook In 50 years’ time, Germany’s retail market will be significantly smaller than today due to a shrinking population and falling per capita expenditure. Households will also be smaller, following the massive birth rate decrease of recent decades. Consequently, there will be more shopping in residential areas at the expense of hypermarkets. Consumers will also have integrated the Internet and mobile devices into their daily lives more effectively. Consumer expectations will change accordingly, and with retail investments like store property usually expected to operate over several decades, confronting these long-term scenarios today is paramount for any retail strategy.