Germany is an attractive market for the fashion industry. WithinEurope, it is the largest and one of the richest markets. Manyinternational players have found a reliable key market in Germany. Buton the other hand, many brands and retailers have tried unsuccessfullyto conquer it. What was the reason for that? Here - on the eve ofBerlin Fashion Week - is an introduction to the German market and somefacts you should know before trying your luck with German customers.
The German market beckons
Germany is the largest market in the European Union, with apopulation of almost 84 million - by comparison, France has around 65million inhabitants and Italy around 60 million. Germany is alsoEurope's top performer in terms of gross domestic product, which meansthat the population as a whole has high income levels and thus highpurchasing power. Before the pandemic, people in Germany spent 76billion euros on clothing and footwear in 2019 alone, according toStatista. This puts Germany just behind the United Kingdom in Europeand sixth in the world behind the United States, China, India andJapan. These figures might give you the impression that sellingfashion and clothing in Germany is easy. Unfortunately, it is not.
A recent example is The Hudson's Bay Company (HBC). The wellestablished fashion retailer from Canada entered the German market in2015 with high hopes. It bought the Kaufhof department store chain for2.8 billion US dollars, with plans to “transform them into Macy'sconcepts,” as Forbes wrote in 2016. Additionally, it openedoff-price stores under the Saks Off Fifth brand. “The question iswhether the off-price stores will resonate with German customersunfamiliar with the Saks 5th Avenue banner,” Forbes asked atthe time. They didn't.
Although other off-price concepts such as TK Maxx, the Germanversion of the American discount chain TJ Maxx, seem to work well,Saks Off 5th was forced to close its stores just a few years later andHBC withdrew from Europe. Galeria Kaufhof was sold to Signa. Acombination of insufficient understanding and sensitivity for theGerman market and a lack of e-commerce orientation was probably toblame.
Previously, other US retailers had also tried to gain a footholdin Germany, most notably Walmart. The mega-store bought up Wertkaufand Interspar discount stores in 1997, “only to exit the highlycompetitive German retail landscape nine years later,” asForbes wrote, and at a presumed loss of 1 billion US dollars.Clothing chain Gap also tried its hand in Germany and failed, as didForever21, which itself slipped into insolvency in 2019. Germany is adifficult market and the strategy that works in the home market oftendoesn't work out as planned for Germans. What are the reasons forthis?
1. Decentralised structure
The fact that Germany is a difficult market to tap is due toseveral factors peculiar to Germany. Unlike France, the UK or Italy,Germany is more decentralised in structure, meaning that there aremany urban centres rather than, as in the UK or France, Greater Londonor Paris's Île-de-France, where most of the wealth and tastemakers areconcentrated. Instead, Germany's five largest cities are located indifferent corners of the country, and their respective lifestylesdiffer significantly. A look at per capita income by city in Germanyholds even more surprises. Who would have thought of cities likeWolfsburg, Ingolstadt or Schweinfurt to open their first fashionboutique? And yet, these are the places in Germany with the highestincome per working population.
2. High demands on service and price
German customers are well informed and very demanding. They compareand look for the best deal - ‘value for money’ is central term to theGerman worldview - before making a purchase. According to a 2015global study by Accenture, Germans have the highest expectations inthe world. “Compared to consumers in other mature markets, Germans areparticularly demanding,” Accenture’s managing director Sven Drinkuthsaid in a statement about the study. “Price alone is no longer themain focus. Customers fundamentally expect high quality and arequickly disappointed.”
3. Protestant culture
Although quite evenly divided between Protestants and Catholics interms of denomination, Germany is, culturally speaking, a Protestantsociety. After all, it is the country where the reformation began.That is what sets it apart from the French and Italians: the Germansare more pragmatic in their aesthetics and pay less attention tostatus symbols: Think of Jil Sander, Hugo Boss or even Adidas. Germanstyle is more like a Protestant church interior - clean, minimalist,functional - than the pomp of a Catholic cathedral.
Also following a Protestant virtue, Germans like to save and investtheir money. According to ING Germany and Barkow Consulting, theaverage European invested 3,121 euros in savings investments such asshares last year. In Germany, the figure was 4,671 euros.
4. Germans spend less on fashion than other nationalities
In Germany, “[S]tatus is demonstrated by smart investments in cars,watches and technical devices,” according to a study by consultancy'Join The Dots'. This fact is also reflected in the budgetdistribution of Germans. According to data from Statista, German womenspent an estimated 719 euros per person on clothing in 2019,significantly less than Italy (834 euros) and the UK (1,133 euros).According to the Luxury Spending Index, this could be due to the factthat expensive accessories such as handbags and jewellery - statussymbols, after all - are more popular in other countries.
5. Price-sensitive and pragmatic
What is certain is that Germany has been the top-selling market forthe Swedish fashion group H&M for decades, and the second largest forAmazon. During the Corona crisis, price sensitivity in the lower pricesegment intensified again this year. From February to the end of May,the C-market, which includes 50 percent of Germans, lost 19.7 percentin value, and 13.6 percent in volume, explains Ulla Ertelt, managingdirector of Frankfurt-based market research firm HML Marketing in an interview with FashionUnited [in German].“That means people have been buying at even lower prices.”
Brands should also remain realistic when it comes to style. Germanconsumers tend to be reserved and pragmatic when it comes to fashion.They prefer garments that are practical and can be worn on manyoccasions. “The most common fashion style is comfortable or casual,and classic, practical and sporty styles are also popular. It isimportant to always be neatly dressed,” sums up a recent study byMagdeburg-based market research institute IWD.
The typical German customer who spends most on fashion is olderthan many might expect. “The over-50 market makes up over 50 percentof the German market,” said Ertelt. “But the ‘Modern Women’ marketmakes up only 25 percent. That's a fundamental dilemma in fashion,that everyone wants to get younger. If everyone moves into the 25percent market, from their range and fits, then of course there aregaps in the market where 50 percent of the sales can be made,” sheexplains. The older generation, “the one that has money, that hasalready reached its lifetime peak income,” is neglected in fashionretail, she said. “In the years between 25 and 49, much more is stillbuilt, a new apartment or house is bought, a family is started, withsmall children, one can often only work half days. These are marketsthat are much more volatile and fashionably overestimated. The mostfashionable customer is 50 plus, who has been used to buying fashiontrends in specialty stores all her life.”
For brands and retailers, this means that thereis not only not the one German lifestyle, but also differentregions and population groups.
If brands want to get a footholdin the German market, it would be wise to visit the biggest cities andtake a stroll through the high street. Look closely at the people yousee on the streets to get a feel for who they are and what they mightbe looking for. Do market research in advance and think about smallertowns where the retail landscape is not as saturated as in the bigcities. Be realistic with your target audience, which is in no doubtnot young and trendy. Be sure to work with a sales agency specialisingin the German market and listen to their input.
This article was originally published on FashionUnited.de.Edited and translated by Simone Preuss.