European Retail Briefing - January 2015
Analyst Comment
 
●	In the context of sustained economic difficulties, the major eurozone economies turned in weak or negative retail sales growth for the period 2008-14.
●	Prospects are better for the period 2014-19 but average annual retail sales growth is still expected to be tepid for a number of big eurozone economies.
●	Measured by retail sales growth, the UK has outperformed its eurozone peers and is expected to continue to do so. 
●	We think liberalisation of retail sectors in a number of European countries is necessary to contribute to retail recoveries.

The past
Forecasts of economic recovery for the eurozone have come and gone as the currency bloc has lurched from one crisis to another, the promise of sustained eurozone growth has always turned out to be one of "jam tomorrow". 

The UK, enjoying freedom from the euro, has performed much more strongly, when measured by average annual retail sales growth since the start of the downturn:

FIGURE 1: Total retail sales: compound annual growth rates, major European countries, 2008-14
  
Based on all retailing, excluding automotive fuel, including VAT. 2014 data based on part-year data.

Source: National statistics offices/Mintel

The future
2015 won't be easy. But the worst appears to be behind us: hard-hit countries like Spain and Greece have likely got past the lowest point of retail sales.

That said, we forecast only tepid retail growth for a number of the major European markets.

The UK is still expected to comfortably outpace the major eurozone economies.

FIGURE 2: Total retail sales: forecast compound annual growth rates, 2014-19
  
Source: National statistics offices/Mintel

In 2015, the return of deflation in consumer prices will likely hit economic growth in the eurozone, which in turn will probably impact on retail sales growth.

But the picture for inflation in the core retail categories - food and clothing - is not consistently downward. So there will not necessarily be direct deflationary pressure in retail.

FIGURE 3: Eurozone: consumer prices inflation, January - November/December 2014
  
Source: Eurostat © European Union, 2014

In the UK, inflation has been falling but it remained positive (+1.0%) at November 2014.

What’s needed
Sustained economic growth is clearly the most important factor for a eurozone retail recovery. And speculation has recently re-emerged about countries, notably Italy and Greece, exiting the currency bloc and so gaining competitiveness by devaluation. That issue is a little outside our remit. 

But looking more closely at retail, it's clear that some countries need structural reforms to drive up competitiveness and modernise their retail sectors. Italy is the most obvious candidate, though it is not the only one.

Italian retailing, as with much Italian business, has been hampered by restrictive practices, family ownership, and limited capital investment. This has resulted in a sector that is, by European standards, fragmented, underdeveloped, non-internationalised and almost entirely offline.

France has been similarly hampered by restrictive practices and a lack of modernisation. For instance, 2014 saw the country's Constitutional Court uphold a ban on Paris shops opening after 9pm after a campaign against liberalisation by trade unions. And it was only in November 2014 that the French government announced plans to relax rules on Sunday trading - fully 20 years after the UK liberalised its Sunday trading laws. 

And even Germany retains relatively strict rules on trading hours at weekends, with an almost total shutdown on Sundays. 

As consumers become accustomed to shopping whenever, wherever they like - online, through mobile devices - the urgency for modernisation becomes greater, to allow stores to compete more effectively.

What it means
●	The eurozone remains mired in crisis, and deflation in 2015 will probably depress economic growth this year. Structural reforms are needed in a number of countries, and retail is one area in which such reforms are needed.
●	Retail is – or should be – free-market economics in action, shaped by consumers' needs and desires rather than business-owners’ interests in maintaining the status quo. To varying degrees, major eurozone countries need further liberalisation in retail.
●	The UK, with a liberalised retail sector, is ahead of a number of other European countries: we see the result of this in factors like the development of e-commerce. 
●	So the UK can serve as a model for retailing elsewhere in Europe.