Retail climate forecast for Europe: Cloudy with storms possible and occasional sunny intervals

Results of GfK studies reveal that the crisis has had a definite impact on European retail. The extent of the impact varies extensively by region. Where is there a realistic hope for an imminent recovery or even a rebound? GfK GeoMarketing experts bring clarity to consumer trends in Europe.

Despite a still relatively stable consumer climate as measured by consumer mood, the hard facts such as retail turnover figures indicate that Germany's retail sector has suffered a loss in the first financial quarter of 2009. GfK retail expert Olaf Petersen predicts that the sector will undergo a loss of 2.5 percent in 2009. Even so, Germany is faring comparatively well. Countries that experienced robust economic growth prior to the crisis will have to reckon with two-digit retail losses for 2009. "The crisis has hit Ireland especially hard, where a loss of around 10 percent is anticipated. The Baltic States have also been strongly affected, with losses between 9 and 14 percent," says Petersen. Central and southern European countries have also not escaped the crisis, which brought an abrupt end to the economic growth previously enjoyed by these regions. One country going against the trend is Poland, where GfK GeoMarketing expects a small increase of 0.3 percent in retail turnover for 2009.

Source http://www.gfk-geomarketing.com/en/customer_magazine_enews/gfk_geomarketing_magazine/ggm/032009/retail_climate_forecast_for_europe.html

Unfavorable developments amongst European currencies against the euro have resulted in additional pressure and uncertainty in the international retail real estate sector. For example, Poland's currency has undergone a devaluation of more than 25 percent since June 2008. The currencies of Great Britain, Norway, Sweden, Russia and south-eastern European countries have also fared poorly against the euro, with losses over the previous year between nine and 14 percent. "The period of robust consumer spending is over for the present."
Given the situation in most European countries, Germany currently occupies a somewhat favorable position. While the German market was considered somewhat sluggish in boom times, it now offers retailers a certain continuity and conditions favorable to planning. This is the assessment of Petersen based on GfK GeoMarketing's numerous recent location evaluations throughout all of Europe. GfK GeoMarketing does however note that there is fierce competition and pressure to succeed among the various retail forms. The success enjoyed by discount merchants and retail warehouses is threatening traditional speciality stores – a trend that will grow more pronounced as the economic crisis continues. Stationary retail remains in competition with online vendors, the latter of which are benefitting from a growing target group of older consumers: Between 2003 and 2008, the number of online purchases grew by 148 percent among 60-69 year-olds in Germany. By comparison, the number of all online purchases grew by "only" 53 percent.

Those involved in retail and real estate must reckon with this phenomenon if they wish to remain competitive, indicates Petersen. As a positive example of an effective response to this trend, Petersen names city center-oriented concepts such as well integrated shopping centers. According to Petersen, these retail venues have a good chance of continued success despite the crisis, an evaluation supported by their grow-ing proportion in retail space and associated turn-over in Germany. Even so, the shopping center area per person in Germany still lies in the bottom half from a Europe-wide perspective. Here it's important to note that the popularity of shopping centers in Scandinavia and Eastern Europe owes much to unique climatic and historical factors.
A glimpse of the future: European retail in 2020

Retail expert Dr. Eberhard Stegner offers a prognosis for European retail in 2020 based on a range of GfK GeoMarketing's comprehensive target group studies and Europe-wide data drawn from location reports and sales network planning carried out for clients. Dr. Stegner's results are based around four test-case countries: Germany, Italy, Sweden and Poland. These countries were strategically chosen as representative of Eastern, Western, Southern and Northern Europe as well as the unique cultural factors, challenges and strengths characteristic of these regions.
According to Dr. Stegner, purchasing power density – measured in euros per square kilometer – is a particularly valuable benchmark for retail companies wishing to gauge the relative potential of a given area. In Europe, the regions with the highest level of wealth per inhabitant correspond to the regions with the highest population density: A crescent-shaped band of high purchasing power density runs along the Thames, Rhine and Po rivers. Outside of this band, high levels of purchasing power can only be found in isolated urban areas.

The purchasing power of a region is directly related to its economic power. Low levels of unemployment and high salaries are preconditions for high purchasing power. A high level of education and innovation are addition-al factors that influence purchasing power and drive future development. GfK GeoMarketing's forecast evaluated the period from 1999 to 2007 in order to correct for temporary boom and bust periods.

According to Stegner, Sweden will fare best in 2020 among the four test-case countries. The key areas of growth here are located in the south – above all, in the southwest. According to GfK GeoMarketing's analysis, purchasing power development will largely stagnate in Italy, while the coastal regions in the south will make marginal strides toward closing the gap with the levels of wealth in the north. The divide between Western and Eastern Europe will also diminish somewhat. "Poland will continue to catch up, but the pace of this growth will slow significantly," explains Stegner. Poland's population growth – particularly in the region around Krakow – will lead to a significant increase in purchasing power density.

Stegner regards Germany's current above-average position among its European counterparts as relatively stable. "However, poor income development and a loss of population in the eastern German federal states will create large areas of declining purchasing power density," Stegner explains. On the whole, Germany will continue to develop in a positive direction thanks to the western federal states. The already wealthy southern federal states will make a significant contribution along these lines and are expected to enjoy even higher levels of purchasing power in the future.
When will the crisis end?

It is very difficult or even impossible to answer this question according to the GfK GeoMarketing experts. This is largely due to the fact that the crisis has had widely varying effects on different regions and business branches. In the retail sector, companies selling basic necessities are unsurprisingly better off than those selling luxury items. Still, the actual state of the regional market in question remains a decisive factor. Consequently, Olaf Petersen offers this planning advice to retailers, real estate investors and developers: Analyze markets and locations down to the last detail and proceed cautiously. "More important than ever is a detailed examination of turnover potential that takes into account the economic, socio-demographic and urban development aspects of a given location," advises Petersen. "This is essential to coming up with a sustainable market strategy or even just surviving in the market." If the relevant factors are taken into account, Petersen even sees some potential opportunities in the crisis: "Sustainably planned and well thought-out retail offers and retail real estate can profit from others' mistakes and result in a favorable market position."