Increasing purchasing power, higher real estate prices, online growth and growing economic insecurity: conflicting factors are influencing the growth prospects for brick-and-mortar retailers in Europe, according to GfK.
Barely any growth
Turnover from physical retail only grew by 1.9 % in Europe last year, which is about the level of inflation. This year is not looking any better: in its annual report on the European retail industry, GfK predicts a growth of 2 % in 2019. There are some strong differences within the European Union: while turnover from brick-and-mortar stores is stagnating in Western Europe, it is improving in Eastern Europe - despite dwindling population numbers. In Belgium, physical retail grew by 0.4 % in 2018, in the Netherlands that was even only 0.2 %. Bulgaria (+ 7.7 %) and Romania (+ 7.1 %) are doing much better.
GfK explains that there are several causes at work: although purchasing power is strong in most countries, there are the uncertainties surrounding Brexit, trade wars and the decelerating growth of the Chinese market. The continued growth of online retail is a major factor in the prospects for brick-and-mortar stores. Next year, turnover from physical stores is expected to grow by 1.5 % in Belgium and 0.5 % in the Netherlands.
Stores closing down
The pressure on brick-and-mortar stores is made evident by their lack of growth in physical size. In 2018, growth in terms of square meters was entirely in line with population growth, keeping it stable at 1.13 sqm per capita. The number of new retail projects is diminishing, focus is shifting towards the redevelopment of existing sites. Old-fashioned shopping centres are turning into lifestyle hubs with more room for enjoying food, entertainment and health.
In the United Kingdom, store size per inhabitant even decreased from 1.09 to 1.08 sqm due to massive store closures. The countries with the most dense store network are still Belgium (1.66 sqm per capita) and the Netherlands (1.60 sqm). Turnover per square meter is highest in Luxembourg (7,250 euros/sqm), followed by Norway (6,430 euros/sqm) and Switzerland (6,220 euros/sqm). Belgium (between 4,000 and 4,500 euros/sqm) and the Netherlands (between 3,500 and 4,000 euros) are somewhere in the middle.
Omnichannel performs better
On the whole, purchases made in stores are becoming a smaller part of family budget use among European consumers: retail only represents 30.5 % of private consumption. The long-term trend is negative, partly due to rising real estate prices, forcing consumers to spend more of their budget on their living accommodations.
GfK does point out that prospects are looking better for omnichannel retailers. In consumer electronics, turnover from the web shops of traditional chains increased by 24 %, while pure players only saw a 4 % rise. Online now has a market share of 26 % in this segment. The Netherlands (36 %) and the UK (35 %) are top, while Belgium scores poorly with 17 %, followed by Italy (13 %) and Portugal (7 %).
Graph: online turnover share from technical consumer products (electronics)