Tough times for fashion retailers in Germany

There’s been a succession of bad news from the German fashion sector recently.

  • Wöhrl, a fashion chain with some 36 outlets has filed for bankruptcy protection.

  • Its sister company, Sinn Leffers filed for protection a week later.

  • MS Mode, a Dutch fashion chain with over 400 stores of which 40 are in Germany is also looking for a major restructuring and protection from its creditors.

  • Promod, a French clothing chain, has agreed a major restructuring which allows its 74 outlets in Germany to be closed down.

Wöhrl

Wöhrl has filed for protection while it tries to slim down its chain. It has 34 stores of which 15 are losing money and 10 are scheduled for immediate closure. However, it is not the whole Rudolf Wöhrl group that is in administration, just the subsidiary that operates the stores. It appears that the holding company wants to rescue the profitable stores and with the help of a new investor, take control of the Karstadt Group.

Sinn Leffers

Sinn Leffers is a sister company of Wöhrl because it has the same owner, but it is not part of the Rudolf Wöhrl Group. It was rescued from the failure of the Karstadt group in 2008 and 22 of the 47 stores continued to trade.

Germany clothing retailers

German specialist clothing retailers have been losing share of clothing spending. The next chart may seem to exaggerate the trend because of the narrow scale, but in the last five years the specialists have lost two full points of share of clothing spending and that is very significant.

Figure 1: Germany: Clothing specialists sales as % all spending on clothing, 2011-15
[graphic: image 1]
Source: Statistiches Bundesamt/Mintel

That’s a loss of some €1.4bn of sales by the clothing specialists. But the actual figures for most is worse than that because of the growth of two companies in particular – H&M and Zara (Grupo Inditex). We estimate that they have added almost €0.8bn between them over that period – H&M, €0.56bn and Inditex around €0.2bn.

Who’s winning?

In most countries, one would say that mixed goods retailers had been picking up share, but that is not the case in Germany where the department stores have seen a substantial contraction, especially at Karstadt.

The main winners have been online. The last five years have seen explosive growth by both Zalando and Amazon. Five years ago, Zalando was a small business with sales of €0.5bn, the majority of which were in Germany, but last year sales in Germany alone were over €1bn and group sales were almost €3bn.

Amazon published total sales in Germany (€10.6bn), but no further breakdown. Clothing sales are probably approaching €1bn and, again, that is a substantial increase on five years ago. Total sales have doubled and clothing sales probably more than that as the clothing was offer was much less well developed then.

Those two online players alone would account for the majority of the share lost by the clothing specialists.

Not a question of stores vs online

It would be easy to say that therefore this is just a question of online killing the high street. But that would be too simplistic.

The growth of online is undeniable. Both companies continued to grow in 2015 and are expected to do so this year as well. There are some signs that the rate of growth may be slowing, but online’s share of clothing spending is still under 4% and comparison with other countries suggests that there could be scope to take it further. After all, in the consumer research for the forthcoming clothing retailers report, we found that the same proportion of consumers in Germany had bought from Amazon as had bought from H&M or Zara and the proportion buying from Zalando was about half of that. That suggests, among other things, that sales per customer at Zalando are about double those at Amazon.

We think that there is a greater underlying reason for the weakness of the specialists.

Fashionability

Wöhrl, Sinn Leffers, Peek and Cloppenburg and C&A (and many others) have in common a conservative, tailored approach to fashion. The most successful clothing retailers in Germany these days target younger customers and they have been successful around the world.

As customers age then local tastes tend to be more important and, in the past the Germans have been more conservative. But the failure of so many of the older focussed businesses suggests that that distinction is waning.

We think that older customers these days do not necessarily want to be labelled “old” by what they wear. They want younger styling engineered to be more forgiving to older bodies. German retailers are not alone in failing to adapt to that need. Their UK counterparts have not been very successful either. And the failure of Promod and MS Mode point in the same direction.

Time for change

The real failure of these companies is a failure to adapt and understand how the market is changing.

The success of Amazon and Zalando is not that they are online, but that they have been more responsive to the change, as have H&M and Grupo Inditex.

2010 was the first year that H&M overtook C&A in the German market and now its sales are 40% higher. C&A is drifting downwards, along with too many of its peers in Germany and we think that the root cause is a failure to understand how the market is changing.

The failure of Wöhrl and Sinn Leffers is a message to the rest of the sector – adapt, or go the same way.

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