Germany's retail sector faces a gloomy outlook

07 Nov, 2023

Germany's retail sector faces a gloomy outlook

German sports retail company Signa Sports United recently filed for insolvency in the city of Stuttgart, becoming the latest casualty in a recent surge of retail bankruptcies in the country.

The insolvent company has been operating well-known online stores in Germany, including Fahrrad.de and Tennis-Point. The insolvency application was submitted by the company to the local court after its parent company, Signa Group, an Austrian real estate and retail giant, declined to inject further liquidity, deeming the business nonviable, according to local media reports.

Throughout this year, 94 fashion companies in Germany have sought insolvency protection, as reported by the trade magazine TextilWirtschaft. The footwear sector has been especially hard-hit.

In March, Reno, the country's second-largest shoe retail chain, declared bankruptcy, unable to withstand the crisis of closures.

Last year, 1,500 shoe stores, constituting 10 percent of the total in the country, permanently closed, according to Rolf Pangels, managing director of Textile Shoes Leather Goods (BTE).

Only a few companies in Germany's fashion industry have managed to emerge unscathed from this crisis.

Peek & Cloppenburg, one of Germany's largest fashion retailers with annual sales exceeding 1 billion euros, concluded its self-administration proceedings in late September. The company had initially filed for bankruptcy protection in March and was compelled to undergo restructuring, resulting in the reduction of 350 jobs at its Duesseldorf headquarters.

The challenges have been attributed to diminishing sales caused by COVID-19-related restrictions, global supply chain disruptions, persistent inflation in the eurozone, and the conflict in Ukraine.

The German Retail Association's (HDE) consumption barometer, designed to measure people's willingness to purchase, sharply declined in the middle of 2021, hitting a record low of 84 points in October 2022.

The annual inflation rate in Germany, which eased for the fourth consecutive month in October, cooled to 3.8 percent, the lowest level since August 2021, according to the German Federal Statistical Office (Destatis).

Holger Schmieding, chief economist at Berenberg Bank, anticipates a contraction of the German economy by 0.2 percent this year, with a noticeable recovery expected in the coming year. He believes that despite current consumer restraint in shopping habits, private consumption will likely increase next spring.