Pressure is on European retailers to innovate, Scope Ratings

Europe’s retailers will have to invest heavily in their operations to remain competitive in 2020, according to a new report by Scope Ratings.

With debt back near levels not seen since the global financial crisis, profit margins remain under pressure amid tough competition and slack growth, it says. Retailers have limited room for manoeuvre to extract gains in profitability by seeking greater market share through mergers and acquisitions. Most national retail markets in western Europe are tightly consolidated.

Chief executives are increasingly focused on maximising the sales and cost-saving potential of individual existing markets. The pressure is therefore on management to innovate, through shop refurbishment, new payment methods, new products and services, to enhance the shopping experience, ensure customer loyalty and increase sales

“We expect the shift to smaller, convenience-style formats to continue,” says Adrien Guérin, analyst at Scope. “Companies will increasingly turn to franchising to reduce development and operating costs, signing agreements where the franchisee takes charge of the ownership and operation – so-called “FoFo” formats – of the stores.”

Spending on new store concepts will also rise, as companies experiment with a wider variety of formats. Development of shops within shops will increase, with a focus on innovative services and trending or curiosity products.

Footfall in some types of shops, such as large hypermarkets often located outside of cities, has fallen in recent years, but rather than rely on hypermarket refurbishment to win back customers, retailers and landlords are increasingly tackling this issue by trying to offer ancillary services. This might take the form of entertainment (cinema, bowling alleys, or other family activities), services (supervised children’s playgrounds, repair shops, ‘click and drive’ collection) or bars and restaurants.

“The capacity of retailers to enhance the shopping experience for customers, online and in their bricks and mortar shops, will be the theme of 2020,” says Guérin. “Proposing distinctive but sought after products at affordable prices while raising the satisfaction rate of in-store shopping and gaining customer loyalty will be the big test for the sector.”