What does the future have in store for us? What follows are some ideas and concepts, which we expect to become much more relevant in Germany over the next few years. We consider these to be crucial success factors, both for producers and retailers.
1. Broad, undifferentiated assortments hardly stand a chance
Niche products, handmade goods, and tailored services offer authenticity and value not only to German consumers. The internet is a medium through which people can easily identify products and services that really fit their needs. Universal retailers such as department stores, traditional mail-order companies, and hypermarkets with extensive non-food offerings have been strongly affected by this development in Germany. Consumers expect a high level of specialisation which requires a deep rather than broad assortment and a strong retail competence - both online and offline. These new demands have effects on growth rates of retail formats (rf. graph on the left). Former German retail heavyweights (department stores, hypermarkets, supermarkets) have passed the zenith - specialised retailers, convenience stores, discounters and e-commerce retailers are registering strong growth.
E.g. German department stores: In Germany, there are only two significant department store operators, Karstadt and Kaufhof. While Karstadt has suffered from its undifferentiated middle market positioning, Kaufhof had anticipated this market threat quite early on. By applying their so-called Galeria uptrading concept, they now offer premium products, luxury items, and high value throughout their assortment. All stores have been renovated. Nevertheless, the overall growth rate appears limited. The German post-war success formula to offer "everything under one roof" is not very appealing to consumers since it does not really show a strong competence. The operators' focus on clothing meets fierce competition from P&C and vertical retailers. Household appliances and travel accessories are available at many discount stores. Perfumes and personal care products are mostly the business of Douglas and drugstore chains such as DM and Rossmann. Books are available from Amazon, furniture at IKEA. Hence, in which areas are German department stores able to position themselves when consumers prefer specialised retailers? Sceptics say that department stores should be turned into urban shopping centres, limiting the role of Karstadt and Kaufhof to a real estate business.
E.g. German hypermarkets: a 2005 scandal about re-packaged meat that had already passed its best-before date caused a drop in sales for German hypermarket operator Real (part of Metro Group). Real has still not recovered today. However, it can be argued that this is not solely due to the aforementioned incident. Rather, Real still has a problem in terms of showing its competence to consumers. A mixed assortment of food, clothing, garden furniture, computers, and sports gear plus hairdressers and travel agencies is quite irritating for every German shopper. Competitor Kaufland (part of Schwarz Group) has a much stronger concept and is especially popular among German consumers.
2. Future sales staff competence should be in events
Given the e-commerce possibilities we have today, do we really need local sales staff any longer? This is a provocative question. However, it is being asked in some retail areas. Many German consumers use the internet to inform themselves intensively about product features, prices, and services before they enter a local store (if they do at all). And if any questions remain open, it can be difficult to find competent store staff who have more information than available on the web (which is, in fact, very unlikely).
If most sales staff want to have a future, they need to fulfil other and additional functions than were originally attributed to them. This is based on the retailer's strategy which should give very clear answers to the following core questions:
- why should anyone buy in my local store and not on the internet?
- what added value do I offer the customer?
- who and what do I need to realise this value?
3. Bringing consumers together
"Retailers need to do more" is a statement that is often confronted by the question "But what?". German retailers are not very innovative when it comes to new ideas. To lower prices for brand products or "celebrate" the opening of a new department in a store is often seen as the maximum that can be done to attract customers. But most German consumers stay at home. Longer opening hours and accepting credit cards are often features considered as "service" by retailers. In fact, these are necessities to stay in business.
It is our conviction that the shopping experience would be much more valuable if truly interesting events or community actions were arranged. As bookshops offer readings, electronics retailer could offer computer courses, digital image manipulation, sound mixing events and so forth. Department stores could organise days for special targets groups, e.g. children, the disabled, or elderly people. Such initiatives don't have to take place in the outlet or (department) store. DIY retailers could bring together customers that want to support each other with their projects. Mutual learning, help, and respect are values that German retailers should build on.
4. Enabling consumers
Until recently, materialism determined most of post-WW2 life in Germany. As in many Western countries, however, German consumers are starting to turn away from accumulating more possessions. Instead, they are looking for better consumption - products and brands that can give meaning to their lives and help them to fulfil and actualise themselves. For instance, while organic food used to be a niche product, it is now available at most retail stores throughout Germany. A discussion on sustainability and fairness towards future generations has been established and seems likely to stay. Fair trade products register an enormous success. Organic cotton is likely to be the next big issue, with clothing retailer C&A having triggered a campaign to introduce such products to its assortment. We are reminded of the "hierarchy of needs" by humanistic psychologist Abraham Maslow (1908 - 1970). After our basic needs have been more than fulfilled, people are striving towards community experiences and self-actualisation. Hence, the focus is less on technical product features but more on what products and especially brands mean to a person and if it has any linking value to bring the individual of the western world together with other people. Think of brands such as Apple's iPod and iMac, Harley-Davidson, IKEA, Amazon, Harry Potter, RedBull, RipCurl, O'Neill, Jack Wolfskin, Nortface, Puma etc. All of them carry the powerful message that the brand is not in the centre, but what you make of it. Creativity, freedom, lifestyle, knowledge, events, sports, community, outdoor experience - all these concepts are opening doors towards self-actualisation that many people strive for today.
5. A challenging time for mass producers
In some German market segments, mass producers might see new challenges, similarly to some of the "too broad" retail formats (rf. paragraph 1). Consumers tend to ask themselves whether they want to be part of a mostly standardised world and if not, how they can differentiate themselves from others. The use of differentiation is not new - but the scale is different. For a long time mass brands were used to set oneself apart from people with other wide-spread brands, the future might very well see much smaller brands becoming favourites. Authenticity, tradition, sustainability, and features of self-actualisation are important facets of such brands. The challenge will be to make such brands recognisable as brands but not achievable by everyone. Take Bionade as an example - Bionade is a German organic soft drink similar to lemonade. Its production process, however, is very unique since it gets close to beer brewing technology (but without alcohol). It was introduced to the German market without any large budget since its manufacturer was a small company located in the countryside of Germany. It became an extremely popular drink over the years. Today, it is close to being a mass product - but fortunately, Bionade management has decided to make it scarcer - by increasing prices. Bionade is a premium product that has not become a simple commodity such as Coca-Cola. It will be very interesting to watch its future development.
