Europe on the verge of retail growth, finally! Are the manufacturers ready for the next phase of boom?
Europe on the verge of retail growth, finally!
After many years of remaining on the backfoot, the EU economy finally looks to be on an upward projectile.
2017 can safely be considered as the turnaround year for the economy, with positive news on many fronts auguring well for the future. The recovery remained consistent throughout the year and was in high gear in the final quarter of 2017, as exports grew considerably in November and the unemployment rate fell to a multiyear low in October. Significantly, the FocusEconomics panel raised its GDP growth forecast for the fourth consecutive month and now sees the Eurozone growing at a strong 2.2% in 2018. Ironically, the Euro area economy is enjoying the strongest period of economic growth in more than a decade, despite lingering political uncertainty. According to the recently released –The FocusEconomics Euro Area Report – Ireland, Latvia and Malta are forecast to be the fastest-growing economies in the Euro area this year, expanding at rate of 3.8% or above. Conversely, Italy will be the region’s slowest-growing economy, with a forecast of 1.4%
growth. Regarding the other major economies in the region, Spain will outperform the rest, with a 2.7% expansion. Germany’s economy is seen increasing at 2.3%, followed by France’s at 2.0%.
The retail scenario in the Western and Eastern part of Europe are poles apart. While the value of the total retail market in Western Europe in 2017 reached around
2.6 trillion euros, the retail market in the Eastern part only reached 565.6 billion euros, a noteworthy difference, though both are on a growth path. It cannot be overlooked that the west of Europe has many prospering countries, such as France and Germany. The market value of retailing in Germany alone covers one fifth of the total retailing in Western Europe, and when combined with France, the total retailing accounts for nearly half of the whole of Western Europe. The main growth in retail has been coming from online sales. A report by Forrester predicts that online retail sales will grow at an average of 11.3% per year over the next five years in Western Europe. Italy and Spain will see the fastest online sales growth, and by 2022, 20% of non-grocery retail sales will be online.
Emerging markets in Eastern Europe such as Romania, Poland and Slovakia have rapid growth rates for GDP at over 3%, but they are coming from a lower base than more mature economies in Western Europe and pay lower wages. A fact to be considered is that going forward these markets will be attractive to manufacturers who can compete on price. So Eastern Europe may develop as a conducive manufacturing base for Western Europe in the next decade. Also those manufacturers that are fast and flexible suppliers operating close to Europe with a vertical supply chain will have a good chance to connect with retailers who buy short runs of on-trend products with a view to selling out before having to reduce prices.
In the meanwhile, manufacturers from other sourcing destinations looking to service the improving retail scenario in Europe have to be very careful in approaching the market. So, what are the factors that can impact growth for apparel retail…? For one, products must clearly stand out from the rest because of their design, origin, production technique involved or story behind them. There are opportunities in sportswear and athleisure categories, with garments offering performance benefits such as breathability, moisture wicking, multiway stretch, or waterproof, quick-dry and smart fabrics that can measure body metrics, having a definite edge over regular garments. Retail experts are of the opinion that countries that benefit from Europe’s Generalised Scheme of Preferences (GSP), will be preferred, provided they combine this aspect with highly efficient production in order to offer a cost price advantage over competitors in non-duty-free countries or a better product at an equivalent price level. Further, while countries in Europe may show similar macro-trends, the competitive landscape is unique for each one. The best way to find out which country matches the offerings that a manufacturer may have, is to conduct detailed research on each country, looking at product segments and price levels.
The secret of future growth of business in Europe is to develop styles that can be partially prepared in advance and are only finished according to the final consumer request, possibly at another location closer to the point of sale. The reality is that if a manufacturer can offer the flexibility of shorter production runs and/or quicker lead times, such offers are in high demand. This strategy can help to meet the growing consumer interest in customisation and premiumisation.
Another important direction is to improve sustainability performance. The race is on to industrialise the recycling process and to create a circular economy for clothing. The bottom line is that European retail is finally looking up and apparel consumption in the region is forecast to grow to ¤ 372 billion by 2020.