Retail sector: Limited rehabilitation of European retail trade

Retail recovery in Europe is hesitant and, above all, uneven. Germany and Italy are lagging behind, while France and Spain are showing slight growth for this year (around 1.5%). While European consumer confidence is rising, high savings rates (20% in Germany) and inflation are holding back spending. After the construction sector, retailing is the area recording the highest number of bankruptcies.

 "The sector's profitability is under pressure overall due to high inventories, high operating costs and cautious consumers. Many retailers have been forced to offer significant discounts to clear their inventories and free up working capital. Price competition is fierce, particularly in key categories such as food and personal care", explains Johan Geeroms, our Director Risk Underwriting Benelux.

The retail situation in Europe varies from country to country. This is particularly true of the Benelux countries. After a successful 2023, during which retail sales increased in value by an average of +2.8% (y/y) in Belgium and +5.4% (y/y) in the Netherlands, average growth for the first 9 months of 2024 was +2.4% in the Netherlands, while Belgium recorded a drop in average growth of -2.2%.

Johan Geeroms: "In both countries, we can see that consumer confidence is recovering only very slowly from its low point in 2022. In both countries, sentiment remains negative, but the trend is upwards."

Johan Geeroms also draws attention to the savings rate. "Citizens are wary and are putting more money aside. In the second quarter of 2024, the household savings rate stood at almost 15% in Belgium and almost 16% in the Netherlands, significantly higher than in 2022 and the pre-pandemic average."

Our study shows that affluent and younger consumers are the main drivers of retail spending.

Johan Geeroms: "This is clearly a different phenomenon from the pre-Corona period. Back then, these elements were less pronounced, and consumer spending was broader and more generic. We can see that average households have benefited greatly from wage rises, increases in the value of their homes and rising stock market prices. This allows them to spend more money and feel less the effects of inflation and rising interest rates."

According to Geeroms, the impact of young people's spending is also growing. "Proportionally, they spend more than older generations. These trends require adjustments to the product offering and customer experience in the retail sector. Wealthy consumers, for example, are interested in high-end products such as electronics and luxury goods."

Johan Geeroms highlights the evolution of international retail trends and consumer behavior. He cites the example of 'shifting brand loyalty': "Around 75% of American consumers have adopted new shopping habits. Half of them are trying out new product brands. A quarter are interested in another private label. These developments underscore the need for retailers to adapt and remain relevant to consumers who are open to new options."

Technological innovation and automation are another development. "Investments in technology, such as AI and automation, are helping retailers optimize the supply chain, improve the customer experience and increase operational efficiency. The use of influencers, for example, is also becoming increasingly common. Retailers will need to comply with these kinds of new marketing techniques."