Target and Toys R Us posted overall sales declines during the holidays.
German consumers are confident and spending more, especially online. But they shop somewhat differently online than their U.S. counterparts.
German shoppers, historically, have been notoriously thrifty—austerity measures can be a way of life. Even recently, statistics suggested that despite a fall in the proportion of income saved as a result of falling interest rates since 2008, German households still set aside around 10% of their wages.
But with incomes on the rise—many industrial sectors have been awarded 2-3% pay rises over the past few months, most notably the public and chemical industry sectors—even a stable 10% level of savings will mean more actual money ringing through the tills. The 10% figure is not expected to change any time soon; national cultures are somewhat steadier than economic fluctuations and Germans still search for discount and practicality over brands and unnecessary credit. But with interest rates so low, shopping is the practical option over saving, and there are plenty of discounts out there for the extra cash to be spent on.
Early 2014 figures bear this all out. Retail sales rose 2.5% in real terms in January, according to federal statistics office Destatis. This was the biggest monthly rise in seven years. Retail then grew 1.3% again in February, while German imports from the rest of the Eurozone were up 8.4% year on year in the first quarter. Unemployment, which is at a post-reunification low, is likely to have the effect of pushing wages up in the medium term, meaning more money around to be spent.
Where’s the money going?
Firstly, there’s been a huge growth in online shopping. Whilst being a traditionally minded folk who often like to see and feel what they are getting, the swelling volumes of smartphones and tablets being sold have gone hand in hand with significant rises in the online retail sector, leading to Germany having the highest number of online buyers in Europe. 92% of internet users in Germany shop online, which represents about 71% of the German population ages 14 and above, some 50 million people. Such is the confidence and the speed of the development that experts project the e-commerce market will exceed the EUR 100 billion mark by 2020, which would represent a 300% increase since 2012. Altogether, 25% of European e-commerce turnover is generated in Germany, while German companies generate one-sixth of their revenue online.
But online and in-store shopping are becoming more and more intertwined too: 87% of consumers admit to researching online before buying in a store, while 71% of consumers say they got in-store advice first, before buying online. The day when you can see, feel and debate, yet not have to worry about lugging home or walking around looking for better prices seems to be here—Germans use the online shopping tool to refine the experience, rather than change it.
However, online shopping is concentrated in certain product categories. The discerning German online shopper tends to stick to buying goods such as books and clothes or services and experiences, such as flights or software/computer games. Consumer electronics are the other major sector, especially at the lower end. Products in all other sectors are still purchased more from shops than from internet portals. Toys look likely to be the next segment where parcel deliveries outweigh shopping bags.
How is the money getting there?
Usually online shopping is fueled by credit cards, but here again Germany is an exception. 58% of Germany’s online shoppers prefer to be invoiced for their items, an invoice which they can then settle from their current bank accounts. This proportion of shoppers preferring this method of payment increases significantly with age and in female shoppers. PayPal—which frequently serves as an instant direct debit service from a current (bank) account—is the most popular means of payment overall, used by 40% more people than credit cards.
A pitfall of the invoice concept is the huge amount of returns. But German consumers value their rights, and outlets trying to change it would probably be seen as rocking the boat too much, especially given the laborious processes you sometimes need to go through to get money back.
What happens next?
Online shopping is only going to grow. Not only it is the convenience and ability to price-benchmark, but Germans are also increasingly buying into the concept of 24/7 shopping. That and time-saving were the top two reasons for shopping online among the click-and-carriers. The big challenge is to get the growth spreading into other areas of commerce, such as for garden furniture, building materials, toiletries and even perishable goods such as foodstuffs and organic vegetables. Although branding means nothing to 75% of the shoppers overall, 48% of the 14-29 age group were giving certain brands Facebook ‘likes’ (the internet’s version of a branded bumper sticker).
The increasing number of online reviews will be important too. German consumers cherish honesty far beyond tact and diplomacy. With 35% of the online shoppers giving their ten cents’ worth post-purchase, the chances for peer-pressure influence are high. Retailers seem to be aware of this and respond to online complaints. Of all the people who reported negative experiences, 64% ended up satisfied with the retailer’s solution to the issue.
There are several reasons to be upbeat about the prospect of online retailing in Germany. German consumer confidence remains at 92 points—the EU average is 74—and Germany’s economy continuing to steam ahead. Meanwhile the logistics network and IT infrastructure in Germany remain strong, and the country’s populace continues to
smarten up its households with tablets and smartphones. Given all these factors, there’s only one way e-commerce in Germany is really going to go—and that’s up.
Germany Trade & Invest is a government-backed agency that promotes Germany as a business and technology location and supports foreign companies that are planning to establish a physical presence in Germany.