With sophisticated, innovative and super-demanding consumers, the German retail market requires innovation from brands and retailers alike.
When British success story Joules announced another year of sales and profit growth last month, CEO Colin Porter said international trade had been a key contributor.
International sales rose 43.5%, and Porter said they would soon be 20% of the total, adding: “We don’t see why in five or 10 years it couldn’t be 50% of the business.” Group revenue soared by 17.2% to £218m for the year to 26 May 2019 and underlying pre-tax profit rose 19.4% to £15.5m.
The sources of this international sales growth include Germany. It is one of the lifestyle brand’s core overseas markets, and Joules has more than 400 stockists in the country, among them etailers Zalando and Otto, and a strong network of independent retailers.
Germany is the UK’s second-largest trading partner after the US, and, despite the looming prospect of Brexit, the country looks like a safe bet. Competitive tax regulations and a highly qualified workforce make German shoppers relatively affluent.
Their penchant for shopping on multi-brand etail platforms and preference for high-quality product offer an opportunity for British operators – from heritage brands such as Charles Tyrwhitt to younger labels such as Gym King – who understand the market.
The German fashion retail sector shares similarities with the UK: a blurring of lines between online and physical retailing, demanding consumers and a rapidly developing, sophisticated ecommerce network.
The market is growing at a rapid rate. German market research company Statista predicts fashion retail revenue will be up 8% year on year for 2019, to €18.5bn (£17bn), and will grow 6.8% annually to hit €24.1bn (£22.2bn) by 2023. This is only slightly behind the UK market, which is forecast to be worth £24bn by 2023.
This steady expansion defies a wider economic slowdown. Although the German economy picked up after the global financial crisis of 2007/8, this has slowed since 2017 as a result of decreased foreign demand and global trade tensions. Consumer confidence is waning: GfK’s German consumer confidence index fell to 9.8 in July 2019 from a peak of 10.8 in February.
By comparison, however, GfK’s UK consumer confidence index plummeted to -11 for July. And Statista reports year-on-year drops in German retail footfall in seven of the 12 months between March 2018 and March 2019.
The catalogue model that evolved into ecommerce was very popular in Germany
Colin Porter, Joules
Historically, German shoppers favoured catalogues for buying fashion, and this influences the way they shop today and how brands enter the market. Fashion retail is dominated by multi-brand online platforms, and etailers such as Zalando and Mytheresa win customers by emulating the browsing and ordering model shoppers are familiar with.
Joules’ Porter explains that many retailers that are successful in Germany shifted from catalogues to platform ecommerce retailing: “Over the years, the catalogue model that evolved into ecommerce was very popular in Germany. There are a lot of brands that did well with catalogues in the UK and did well in Germany too.”
Berlin-based Zalando is the largest online fashion retailer in Europe. Its most recent results, for the second quarter of 2019, show group revenue was up 20.1% year on year to €1.6bn (£1.5bn). Fashion revenue grew by 19% to €1.5bn (£1.4bn). While it does not split out revenue internationally, Germany remains a key market, and the demands of its domestic shopper continue to drive innovation at the retailer.
“Today, the German market is one of the most mature among the 17 European markets where we are active,” says Andreas Rödl, vice-president of the men’s category at Zalando. “In general, German shoppers are advanced in ordering products out of catalogues or by shopping online.”
German consumers look for curation and variety in their online shopping experiences.
Michael Kliger, president and chief executive of luxury fashion retailer Mytheresa, also notes that the continuing preference for German shoppers is platform retailers: “We see that [German] customers continue to favour the idea of shopping on ‘platforms’ versus visiting several different mono-brand webshops.
German shoppers are advanced in ordering products out of catalogues or by shopping online
Andreas Rödl, Zalando
“The platforms can be simple aggregators or marketplaces, but also multi-brand shops. On the one hand, the sheer depth and breadth of the assortment can be attractive, as it promises the consumer that they will find something.
“However, for the shopper that has only a rough idea or is looking for inspiration, a clearly curated selection with a strong point of view is most attractive. For us, the edit is at the core of what we do.”
How to pay
The market has increased its sophistication rapidly. One area in which this can be seen most clearly is payment methods. In 2012, most online orders were paid for via the country’s ELV direct debit system or cash on delivery, rather than by credit card.
Today, however, times have changed: Cologne’s EHI Retail Institute found that in 2018, Germans paid for more by card than by cash. “Buy now, pay later” services are hugely popular, as are e-wallets such as Google Pay and Apple Pay.
One payment expert, who wishes to remain anonymous, explains that Germany’s catalogue culture has helped drive this shift: “German shoppers are used to paying for their online purchases by invoice. It was already Germans’ favourite way to pay when they were still shopping via old-school print catalogues.”
[German] customers continue to favour shopping on ‘platforms’ versus visiting different mono-brand webshops
Michael Kliger, Mytheresa
He says security and familiarity are important in online payment: “Germans tend to be more careful when it comes to disclosing personal financial information, especially when it comes to trusting third parties such as online shops and payment providers. They might be more reluctant to use an unknown online shop than their favourite and most-used sites.”
International brands entering the German domestic market must address these points of familiarity and trust. So using the home-grown platforms is a good starting point.
Tailoring brand Charles Tyrwhitt is one such business. It originally entered the German market 20 years ago via catalogue selling, and has now shifted its focus to online, selling via its own website and also on Zalando.
Chief sales and marketing officer Joe Irons says a characteristic of the German shopper is a discerning manner: “Our German customer appreciates Charles Tyrwhitt’s London heritage, and is particularly discerning around product quality and value for money, which plays well with our brand strengths.
Customers generally demand superior product quality and value for money
Joe Irons, Charles Tyrwhitt
“Customers generally demand superior product quality and value for money. Once the customer has experienced a brand, and developed trust in the quality and service of that brand, they tend to be loyal customers.”
Activewear retailer Gym King has been selling into Germany via its own ecommerce site since 2015, and counts it as a core international market. Founder Jay Parker attributes its success in the market to catering to expectations on price and service, as well as a strong focus on storytelling to win trust from consumers.
“We have worked hard to establish an emotional connection with our customers to achieve the lifestyle they want,” he explains. “We stay close to what our customers want, with regular consumer insight groups to ensure we are continuing to deliver above expectations. The market is extremely price sensitive and customer expectations are high. They look for lower prices, free delivery and ‘buy now, pay later’ options as standard. We want to continue to build trust with the German audience and offer a quality product at competitive prices.”
The British fashion retail industry is still hopeful of a new Brexit deal that ensures continuing ease of trade with Europe, including Germany. Nevertheless, the relative stability of the German market in comparison with other international retail destinations, and a forward-looking, wealthy population remain a lure for UK operators.
The sophistication of the market may be challenging for new entrants – German consumer expectations are high – but both domestic and foreign retailers and brands are priming themselves for further growth.