Only the innovative survive: The European retail renaissance

Published: August 17, 2016

Executive summary

Growth in retail is no longer dependent solely on the quality of the product, the loyalty of the customer, or past success. In an increasingly competitive retail environment, those reaping rewards are the bold, agile innovators. Those are the retailers with a willingness to adapt quickly. They know how to anticipate market fluctuations and changing consumer demand. They make tough decisions early.

In this report we examine the European retail scene with fresh data from the Netherlands, Britain, France, and Germany. Smaller retailers once hamstrung by their inability to enter markets dominated by large players have been liberated by fresh technologies, new business models, and the increased availability of capital. As a result, they have become more creative and more willing to exploit new niches by differentiating their offerings. And they are pushing themselves harder on a daily basis to provide a more enticing customer experience and value proposition.

This is just as true of the more innovative incumbent retailers that, faced with increasing turmoil, have been steadfast in setting a new course, developing business models that are not easily replicable by rivals, and thus ensuring a long-term competitive advantage. Their boldness in attempting to differentiate their business models rather than relying on their brand recognition and legacy ways of operating has been essential to profits.

The larger lesson: Retailers that focus on what works now, and pare away what doesn’t, stand an excellent chance of surviving and thriving in a rapidly changing retail environment.

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Rapid rebirth

Retail across Europe is in crisis. Many of the traditional chains, industry giants, and even new outfits have failed for a variety of reasons: They’ve been too slow to join the e-commerce revolution and too cumbersome to compete against nimbler, more innovative online rivals.

Or so we’re told. Except it isn’t quite like that.

Yes, there have been failures, and there will likely be more. But we have found quite a different scenario in our analysis, based on the 2016 findings about two retail segments — clothing and footwear, and consumer electronics and appliances — in the Euromonitor Passport database. Whether they are incumbent high-street chains, independents that may also operate online, or startup companies operating online, offline, or both, retailers are already beginning to make bold decisions, create innovative new business models, and operate with agility. In doing so, they are winning business online, offline, and through omnichannel platforms. The result is a retail renaissance throughout Europe, in categories as diverse as clothing, electronics, and food.

The media’s focus on the bankruptcies of incumbents that have tried to innovate but have seen their sales decline has obscured a more encouraging picture. Daring innovators are taking advantage of incumbents’ failures by bringing more variation to the high street and responding to consumers’ desire for a more enticing, intuitive shopping experience.

Indeed, the scale of the retail recovery throughout Europe comes as a surprise to us, given what we predicted in our 2013 study of the European retail landscape, “Footprint 2020.” Retail remains a zero-sum game in which the market as a whole is not growing, but success is being redistributed, to the benefit of more innovative rivals. And the speed of change has been much faster than we expected. Pure-play online businesses and innovative high-street stores have grown their market share at the expense of incumbent rivals that have yet to refresh their business models.

Our prediction that retailers would disappear if they failed to respond adequately to the changing market turned out to be accurate, as evidenced by the alarming stories of high-profile retail collapses across Europe. But the accelerated emergence of innovative online and offline players has hastened these failures.

In short, the developments over the past several years only highlight the fact that in a constantly evolving market driven by rapidly changing consumer tastes and a plethora of energetic innovators, traditional incumbents need to take radical steps to survive and thrive. Rather than simply reacting to circumstances, they must act with greater urgency and ruthlessness to shape their futures. Otherwise, bankruptcies among retailers large and small will likely continue.

Conclusion

The European retail revolution that many believed was still a few years off is happening now. The landscape is already being disrupted by the e-commerce revolution, an overabundant brick-and-mortar legacy, price-obsessed consumers, and increased competition from any number of innovative startups.

Despite the turmoil, a retail renaissance is beginning to emerge. The winners are proving agile enough to spot trends and create niches, fueling demand for goods and services. Instead of shortsighted tinkering around the edges, these companies are changing their value propositions to distinguish themselves from the competition. And instead of relying on tried and trusted supply chains, winners are adapting them to push their portfolio of products in smarter, more efficient ways.

In other words, the winners are winning in spite of the challenges. They are innovating on their own terms — and the bolder they are, the greater the rewards.

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Only the innovative survive: The European retail renaissance

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