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Global Report: Europe

Despite its economic woes, Europe remains the first port of call for many seeking international expansion.

Germany

The Basics

Value of clothing market £40.7bn
Currency Euro, €915m in circulation as of September 2012
GDP £2tn
Clothing as spend of GDP 2%
Total ecommerce market £12bn
Ecommerce share of retail market 8%

As economic turmoil and gloom plagues the majority of European countries, Germany is faring well compared with its neighbours and, so far, has avoided slipping into recession.

However, bad weather, a shift in preferred shopping channels and a downturn in consumer fashion consumption led to a 2% decline in the fashion retail market during 2012, with 60% of retailers in the category reporting a loss.

Added to this, the German fashion market, which is the largest in Europe, is saturated. But according to Dorothea Ern-Stockum, managing director at management consultancy Kurt Salmon Germany, there is still potential. “Growth is generated from vertical brands, which are able to directly retrieve, understand and translate consumer data into new assortments, and whose supply chains allow for a quick reaction to fashion trends and replenishment of top sellers.”

Isabel Cavill, senior analyst at Planet Retail, believes most retailers should be able to enter the German market directly, but warns there are prohibitive labour laws that are weighted in favour of employees, land-use restrictions, limited store opening times and price regulations which prevent retailers from
selling below cost.

During 2012, the fashion market was dominated by speciality chains and multiples, which take a 39% share, while indies make up 25% of the market and etail accounts for 15%. Online is driven by sites such as home shopping giant Otto and clothing and footwear etailer Zalando, multi-brand etailer MyTheresa, private shopping clubs such as Vente-privee and by foreign retailers, such as H&M, launching into the market.

Catalogue shopping is historically popular in Germany and consumers are comfortable with the idea of shopping from home. It is also served well by the country’s sophisticated infrastructure and efficient domestic postal service. Catalogue currently accounts for about 3% of the market, with online gradually taking its place.

There is an oversupply of retail property in Germany, where available space has grown more than 25% over the past 15 years. There is a variety of units available from retail parks, which tend to be dominated by major retailers, to outlet centres, which are more higher-end than elsewhere in Europe and aim to offer a better shopping experience.

ITALY

The Basics

Value of clothing market £38bn
Currency Euro, €915m in circulation as of September 2012
GDP £1.2trn
Clothing as spend of GDP 3%
Total ecommerce market £2.4bn
Ecommerce share of retail market 2.6%

Italians may be famous for their love of fashion, but political and economic turmoil has taken its toll on consumer confidence.

The country’s highly fragmented retail market is stagnant and consumer spending was lower in 2012 than 2011, according to property firm CBRE.

There is demand for new space from both retailers breaking into the market and existing retailers looking to expand. However, that demand is centred on prime locations on high streets, particularly in big cities such as Rome and Milan.

According to CBRE, retailers and brands already in Italy, such as Desigual, Nike, Inditex, H&M and Cos are looking to improve the location of their stores.

Domestically, Gruppo Coin, which operates brands OVS, Coin, Upim, Lana and Excelsior Milano, is the country’s top fashion retailer, with a 6.51% market share.

The strong Italian culture of independents combined with the short supply of quality space makes wholesaling a viable - and less complex - route for brands.

Michael Ross, co-founder of consultancy eCommera, says Italy is “one of Europe’s laggards” in ecommerce terms. He adds: “Italian consumers prefer to touch and feel products.”

France

The Basics

Value of clothing market Estimated at £25bn
Currency Euro, €915m in circulation as of September 2012
GDP £1.6tn
Clothing spend as proportion of GDP 1.5%
Total ecommerce value £14bn
Ecommerce share of retail market 9.8%

A well-developed domestic fashion retail market and a global reputation for being a leader in style and fashion means France offers opportunities for UK retailers but is also highly competitive.

On top of a saturated fashion market, the French economy has stalled and consumer spending rose just 0.2% in November.

Retail sales have fallen for the past 10 consecutive months, according to data from financial information company Markit.

“France is sinking into recession,” says Ira Kalish, director of consumer business for consultancy Deloitte Research. “Confidence is poor, tax rates are rising and there are unpopular labour market reforms ongoing.”

He adds that regulations regarding retail development make expansion difficult, even for domestic retailers. “It is one of the reasons French retailers are looking to grow internationally,” he says.

Isabel Cavill, senior analyst at Planet Retail, adds: “There is room for testing brands in Paris but it is a saturated market,” she says. “Retailers have gone straight in and come straight back out again.”

But Cavill believes there are opportunities, particularly in Paris, for comparative and niche offers, while vibrant independents such as Merci and department stores such as Printemps make wholesaling a viable approach.

Cavill points to Karen Millen, which has 26 French stores (22 concessions and four branches), the majority of which are in Galeries Lafayette department stores around the country, and Whistles, which has a shop-in-shop in Printemps department store in Paris.

Marks & Spencer, which operates two Paris stores but is planning a further five, is following a direct-ownership strategy with its physical stores. The retailer is focused on a bricks-and-clicks strategy - the former based around Paris and the latter giving it national coverage.

For Jan Heere, M&S director of international, from a logistics point of view France was an obvious move. “We consider [the Paris stores] to be part of the UK,” he says.

“Without sounding too simplistic, it is easier to run Paris than it is to run Glasgow [due to its proximity to London].”

France is part of the European Union Customs Union, meaning UK retailers can run ecommerce from the UK without incurring extra costs. This also means online can be used to test the market before investing in physical stores.

TURKEY

The Basics

Value of clothing market £15.2bn
Currency Lira (also trades in euros)
GDP £1.6trn
Clothing as spend of GDP 2.8%
Total ecommerce market £660m
Ecommerce share of retail market 2.7%

Turkey may occupy an uneasy position straddling both Europe and the Middle East, but that has not stopped it developing a vibrant fashion retail market that has already caught the attention of H&M, Arcadia Group and Inditex.

With a growing middle class, Turkey is one of Europe’s few bright spots, although the wealth and investment opportunities tend to be concentrated around Istanbul.

“It is a healthy fashion market and has a lot of potential for UK retailers,” says Planet Retail senior analyst Isabel Cavill. “But there remains a big divide between the east and west [of the country].”

The market is still dominated by unorganised retail, for example, independent shops, which account for about 60%of the market. The organised sector, which includes chains, is expected to gain ground as more store space becomes available, particularly in shopping centres.

Domestic retailers, such as young fashion retailers Waikiki and Collezione, mid-market retailer Koton, and denim brand and retailer Mavi, are still leading the market. Arcadia has 16 stores in the country across all its fascias except Wallis, H&M has 14 and C&A has 27. Inditex has already built up a network of 146 stores, which comprises 32 Zara stores and 23 Pull & Bear stores.

Turkey is increasing its share of the manufacturing market, particularly for in-season buying.

It has a good import/export infrastructure, which has received government investment.

For Cavill, however, the best route to market in Turkey is with a local partner, either as a joint venture or through a franchise deal, which provides support in putting a supply chain and back-office function in place.

Ecommerce is also growing rapidly in Turkey, with internet penetration doubling in the past five years. However, Emma Ormond, international trade adviser at PwC, warns the retailers and brands looking to launch in Turkey that it is not part of the European Union Customs Union, which means buyers will be liable to pay import duties.

There is an exemption for private individuals of up to €75 (£63.50) per delivery, after which shoppers have to pay the duty. They are also limited to five deliveries each year.

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