• The German economy picked up strongly in the final quarter of 2014 after a sluggish period in the middle of the year, ending the year up 1.6%.

• Two major department store categories, clothing and beauty both showed growth in spending, with beauty being the more buoyant of the two and clothing suffering from a warm autumn in 2014.

• Spending on department stores’ key categories fell back as a share of total expenditure in 2013 but recovered slightly in 2014.

Figure 1: Germany: Spending on key department store categories as % of all consumer spending, 2009-14

Source: Statistisches Bundesamt/Mintel

• Overall consumer prices fell at the end of 2014 in Germany but in clothing, the leading department store category, the trend appeared to be in the opposite direction, with price inflation.

• Department stores are now only the fourth largest channel of distribution for clothing, taking 9% of spending in the category in 2014.

• Mixed goods retailers, including department stores, accounted for 5% of beauty spending in 2014.

• We estimate that the department store sector as a whole saw sales contract by around 1% in 2014 to approximately €6.5bn.

• In 2015, with the improving consumer climate, we forecast 0.5% growth.

• Galeria Kaufhof, now the sector leader, has seen sluggish growth, due entirely to an increase in its online sales

• We believe that Karstadt, firmly in second place, has failed to see a turnaround in sales and is still suffering from falling turnover.

• Some 70% of the German population has bought something online in the past 12 months, with 47% having bought clothing or sports goods.

• German department stores are lagging behind seriously in their online development, with the sector’s leading online operator, Galeria Kaufhof, only generating 2% of its turnover online.

• Galeria Kaufhof is the most popular department store, with 32% of our sample of internet users having bought there in the last six months.

• Karstadt was the second most shopped store, with a score of 24%.

• Department stores in other countries were the third most popular option, with 8%.

Figure 3: Germany: The consumer: Department stores purchased from in the past six months, whether in-store or online, February 2015

Base: 1,000 German internet users 16+

Source: Lightspeed GMI/Mintel

• German consumers are most responsive to attitudinal statements about breadth of offer and choice, with 31% agreeing that ranges have improved.

• They would like to see more fashionable clothing, more ranges suited to their age and a bigger selection of sizes.

• Younger consumers are more responsive to all attitudinal statements and are particularly keen on the ability to shop online and on having wider ranges to choose from there.

• They would also like to see more online delivery options.

Figure 4: Germany: The consumer: Attitudes to department stores, February 2015

Base: 597 internet users 16+ who have visited or purchased at department store in the past six months

* compared to a couple of years ago

** (eg beauty treatments, cafes/restaurants) compared to a couple of years ago

*** (eg next day/weekend/early morning delivery) or collections (eg collect in store)

**** (eg more own-label brands, better promotions) compared to a couple of years ago

Click here to zoom

Source: Lightspeed GMI/Mintel

The German retail sector saw signs of accelerated growth at the end of 2014 and beginning of 2015, with the value of retail sales up 4.3% and 4.1% year-on-year in December and January respectively, yet German department stores do not seem poised to take advantage of any emerging upturn. Consumer research for Mintel shows that while some consumers credit them for having improved their ranges, many would like them to do more in terms of providing clothing that suits their fashion tastes, size and age. While both Galeria Kaufhof and Karstadt have moved to decentralise decisions about what each store sells to local management, which could provide part of the solution, we do not believe that on its own this is enough.

The continued rise of internet shopping in Germany, with 70% of the whole population having bought something online in the last 12 months, is both an opportunity and a challenge to which German department stores have so far barely responded. The internet potentially allows department stores to widen their ranges and appeal to new customers, particularly younger consumers, while making use of their existing stores as brand showcases, as well as collection and service points. It could also allow department stores to test new brands online before selling them in their physical stores.

German department stores are stuck in a rut and those consumers who are starting to spend more as a result of the strengthening economy do not seem to be doing so in their shops. They desperately need to shake up their offer to provide the excitement required to attract a new generation of fashion and beauty consumers and the internet may provide a means of doing this.