Europe's uneven retail recovery: insights and trends
The retail sector in Europe is experiencing a slow and uneven recovery. In some countries, the retail market has grown slightly, while others are still struggling. This disparity is particularly evident in key markets such as Germany, Italy, France, Spain and the Benelux countries (Belgium, the Netherlands and Luxembourg). Despite the recovery in consumer confidence in Europe, high inflation and high savings rates continue to constrain consumer spending, and many retailers are facing financial difficulties due to high operating costs and excess inventory.
Slower recovery in the Benelux region In the Benelux countries, retail performance was mixed.In 2023, retail sales grew by a robust 2.8% year-on-year in Belgium and by 5.4% in the Netherlands. However, growth slowed into 2024. Retail sales in the Netherlands grew by 2.4% in the first nine months of 2024, while Belgium declined by 2.2%. This weak performance reflects the slow recovery in consumer confidence, which, despite the uptrend, is still below pre-pandemic levels.
Johan Geeroms, Head of Risk Underwriting for the Benelux region, noted that consumer confidence is still slowly recovering from its 2022 trough. Although overall sentiment remains negative, the trend is positive. Consumers are becoming more aware of their savings and showing a more cautious approach to spending.In the second quarter of 2024, the household savings rate was close to 15% in Belgium and 16% in the Netherlands, well above pre-epidemic levels.
Drivers of Retail Consumption: Affluent and Young ConsumersRecent research suggests that affluent and young consumers are the main drivers of retail consumption in Europe.Geeroms points out that, unlike the more balanced consumer spending that prevailed before the epidemic, the current consumer market is more focused on higher-income households. Higher-income households, driven by wage growth, rising house prices and stock market investment gains, are able to spend more and are less vulnerable to rising inflation and interest rates.
At the same time, younger consumers, especially those between the ages of 18 and 34, are taking over retail spending. These consumers are more inclined to follow emerging trends, try new brands, and focus more on experiences than material goods. This has prompted retailers to adjust their product offerings and customer interaction strategies. Luxury goods, electronics and unique items are becoming increasingly popular among affluent consumers, while younger consumers are more inclined to try new brands and new ways of shopping.
E-commerce continues to outperform brick-and-mortar retail A notable trend in the European retail market is the continued growth of e-commerce. Despite a slowdown in overall online shopping growth, this sector remains strong. Over the past 12 months, e-commerce has grown by an average of 9.5%, although lower than the 13.5% growth rate over the past five years. Online sales are expected to reach $65 billion by 2029, highlighting the continued progress of retail digital transformation.
At the same time, brick-and-mortar stores face a number of challenges, including persistent staffing shortages, rising rents and labor costs, and fierce competition from online platforms.Geeroms suggests that retailers need to step up their cost control, innovation, and sustainability if they are to remain competitive in an increasingly digital marketplace.
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