Dusseldorf The year 2023 is likely to start with bad news for retailers in many German cities. Because in the course of January it will become clear which locations the department store group Galeria Karstadt Kaufhof will give up. And for probably more than 40 municipalities, this will mean another vacancy in the most prominent inner-city location – with consequences for the surrounding retailers as well.
However, Galeria is just one particularly prominent case that reflects a general trend in the industry. According to estimates by the German Retail Association, around 40,000 shops have been closed since the beginning of the pandemic. In the past year alone, around 15,000 are likely to have been added.
And even after the Corona has subsided, the tough times for retailers are not over. Inflation, cost pressure and changing customer behavior are likely to force many retailers to give up or at least downsize their branch network in 2023. However, some companies may even benefit from the difficult framework conditions.
The current “Germany Study Downtown 2022” by the consulting firm Cima paints a bleak picture. The number of visitors to the city centers will then fall by a further 20 percent – and with it the number of potential retail customers.
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This is particularly evident in the under-30s. The city center is now only a place for shopping for only 40 percent of them; for most, shops are no longer a reason to go to the city center. It was different in 2015: 75 percent of younger people said that shopping facilities make the city center attractive for them.
Primark, H&M and Zara are closing stores in Germany
This has consequences for many retailers. Even branch concepts such as Primark, which have expanded massively in recent years, are feeling the drop in sales. The fashion company has already closed the store in Weiterstadt in Hesse, and one of the four branches in Berlin will follow in April.
The profitability of the German Primark locations is at an “unacceptable level”, writes the parent company Associated British Foods in its annual report. The company has now written off the equivalent of 230 million euros on its assets in Germany.
Primark is not an isolated case. The fashion retailer Adler went through bankruptcy and closed around 30 branches in the process, H&M and Zara are planning to close hundreds of locations worldwide, many of which are likely to be in Germany. The Orsay fashion chain has even closed all its stores in Germany.
On the other hand, retailers who set up their own e-commerce business in good time should be less worried this year. After all, around 50 percent of all fashion sales are now made online. For example, the fashion retailer Breuninger plans to increase its online sales to 1.5 billion euros in the coming years. In 2021, Breuninger achieved sales of a good one billion euros.
Consumer sentiment is at a historically low level
Fashion is one of the product categories that is more likely to be among the losers this year in view of declining purchasing power. The easiest way to reduce spending is on fancy clothes. Retail expert Stefan Wenzel calls this “a kind of consumption triage”, i.e. the personal classification of the consumer as to which expenses have priority for him.
“Less essentials such as furniture and electronics will be sorted out,” predicts the former Ebay Germany boss. Daily necessities or health expenditure are less affected.
Nevertheless, even supermarket operators are starting the year 2023 with great concern. While they had benefited massively from the pandemic, they too are now feeling the reluctance of customers. The consumer barometer that the Handelsblatt Research Institute collects for the HDE every month is still at a historically low level.
The index of propensity to buy, which describes consumer behavior over the next three months, rose for the second time in a row in December. However, it is still only 75 points. By the end of 2021, however, he had always fluctuated around 100 points with a few minor exceptions.
This reluctance does not only affect long-term purchases. In the food trade, the inexpensive own brands are in greater demand than before. At the same time, retailers have little leeway to pass on their increased purchase prices and high energy costs to customers.
The high energy costs in particular are an existential threat for many retailers. Although the gas and electricity price brake will cushion a lot, it cannot prevent everything. Experts expect a few more bankruptcies in the industry. However, many smaller retailers will also give up without filing for bankruptcy because they see no prospects.
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HDE President Alexander von Preen emphasizes that the association is not concerned with delaying the necessary structural change in retail. “What we have to prevent with all our might in this particular emergency are economic structural breaks that irretrievably destroy the healthy substance of our companies,” he said in November at the trade congress in Berlin.
The head of the association basically sees a great will to break new ground in the industry. “We want to use the opportunities offered by new technologies for the benefit of our customers and are preparing for radical changes in consumer behavior,” says von Preen.
This radical will to change also affected the discounter Aldi Süd, which had previously been rather skeptical about online trading. For the first time this year, he is planning an online offer with delivery of fresh groceries in Germany. Should this become established, it would be a structural change that would have consequences for the entire industry – and should further promote the shift in consumption towards e-commerce.
More: The high energy costs make climate protection a matter of survival for retailers.