The recovery of European retail remains hesitant and uneven. Germany and Italy are lagging behind, while France and Spain show slight growth this year (around 1.5%). Although European consumer confidence is rising, high savings rates (20% in Germany) and inflation continue to dampen spending. After construction, retail is the sector with the highest number of bankruptcies, according to the recently published sector analysis by credit insurer Allianz Trade.
Johan Geeroms, Director of Risk Underwriting Benelux at Allianz Trade, explains: "Profitability in the sector is under pressure globally due to high stock levels, elevated operating costs, and cautious consumer spending. Many retailers have been forced to offer aggressive discounts to clear inventories and free up working capital. Price competition is especially fierce in essential categories like food and personal care."
Netherlands and Belgium
The retail landscape in Europe varies significantly by country, as seen within the Benelux region. After a strong 2023, where retail sales grew on average by +2.8% (Y/Y) in Belgium and +5.4% (Y/Y) in the Netherlands, the first nine months of 2024 showed an average growth of +2.4% in the Netherlands, while Belgium experienced a decline of -2.2%. Geeroms comments: "In both countries, consumer confidence is recovering very slowly after hitting a low in 2022. Sentiment remains negative, but the trend is upward."
Geeroms also highlights the savings rate. "People lack confidence and are saving more. In Q2 2024, the household savings rate was almost 15% in Belgium and nearly 16% in the Netherlands—significantly higher than in 2022 and above pre-pandemic averages."
Affluent and young consumers drive retail
Allianz Trade's research identifies affluent and young consumers as key drivers of retail spending. Geeroms explains: "This is a notable shift from the pre-pandemic period when spending patterns were more evenly distributed. Affluent households have benefited from wage increases, rising home values, and stock market gains, allowing them to spend more freely while being less impacted by inflation and higher interest rates."
He also notes the increasing impact of young consumers. "Proportionally, they spend more than older generations. These trends necessitate adjustments to product offerings and the customer experience within the retail sector. For instance, affluent consumers are drawn to high-end products like electronics and luxury items."
E-commerce on the rise
Geeroms emphasizes the importance of cost control, innovation, and sustainability in remaining competitive in a market that is increasingly shifting toward e-commerce. "Brick-and-mortar stores are struggling with persistent staff shortages, rising rental costs, and increasing labor expenses. Meanwhile, e-commerce continues to grow. Although growth has slowed from previous highs, it remains robust. The average growth rate over the past 12 months was 9.5%, compared to 13.5% in the five years prior. We expect e-commerce to generate $6.5 trillion in sales by 2029."
Geeroms also highlights changes in international retail trends and consumer behavior, citing "changing brand loyalty" as an example. "Approximately 75% of U.S. consumers have adopted new shopping habits, with half trying new product brands and a quarter exploring alternative household brands. These developments underscore the need for retailers to adapt to consumers who are increasingly open to new options."
Focus on innovation
Technological innovation and automation are also shaping the retail landscape. "Investments in technology, such as AI and automation, enable retailers to optimize supply chains, enhance customer experiences, and improve operational efficiency," says Geeroms. He also notes the growing use of influencers as a marketing tool: "Retailers need to embrace these new marketing techniques to remain competitive."
Looking ahead to 2025, Geeroms believes the main focus for retailers will be on restoring operational margins and balancing physical and digital sales channels. "While customers value the convenience of online shopping, the in-store experience still holds significant value. Investments in technology, customer experience, and sustainability will be essential for growth. Retailers must remain flexible to adapt to changing market conditions and consumer expectations."
Source: Allianz Trade