Retail country in focus: Germany

Germany is the European country British retailers want to crack. With western Europe's largest population and the strongest economy, it is an attractive stepping stone into Europe – especially for UK eCommerce players.

Zalando is Germany's eCommerce success story. The seven-year-old e-tailer is now active in 50 countries and boasts €3 billion in annual revenue and 16 million customers, while being one of the biggest employers in Berlin with a 9,000-strong workforce. Late last year, the company floated on the German Stock Exchange in one of the biggest technology IPOs in decades.

Germany's eCommerce penetration is accelerating at a greater rate than the UK, leading a number of British retailers wanting a piece of the pie. Asos is one of them, which is even is planning on introducing a Barnsley-style warehouse in Germany, which will be able to handle up to 20 million units of stock and next-day delivery up to midnight.

Notonthehighstreet and also launched German websites in September 2014, and the most recent financials for look strong, with revenues increasing and predictions in December of annualised revenue of €77 million.

Meanwhile, Joules, which sells online in the US and Germany is planning for further growth in both regions, and Hobbs launched physically in Germany via concession partnerships in a number of department stores.

There are also significant eCommerce vendors with links to the region, German entrepreneur, Stephan Schambach, founded Demandware in 2004, while German exhibitors at this year's RBTE included PoS giant Wincor Nixdorf, as well as Webtrekk.

Retail technology show, Eurocis, also takes place in Dusseldorf, and following Brexit, Berlin is trying to lure UK tech start-ups to the German capital which boasts an already thriving start-up scene, thanks to the affordability of the city.

German eCommerce is a mature market, and WNDirect's UK MD, Jonathan Matchett, says it is Germany's mail order heritage which has ensured customers embrace eCommerce and digital, with €63.4 billion coming from German eCommerce in 2013 alone.

An online-savvy consumer

Research from B2C Europe states 70% of German consumers purchase a physical product online at least one a month – making them the most frequent eCommerce shoppers in Europe, who spend 10% more online than their neighbours.

German shoppers tend to shop on Amazon and eBay, as well as Zalando and Otto, which combined see over 16 million unique visitors every month.

The research discovered that Germans are also the least likely to abandon an online shopping basket – with over a third never having abandoned an online shopping basket. This suggests German consumers are more likely to research the product price, product information and the retailer's return policies when making a purchase than other European consumers. Also, German retailers are meeting the needs of their shoppers, such as providing clear and detailed product pages, as well as transparent prices and information on delivery and returns.

Meanwhile, 77% of German shoppers expect online orders to arrive between 3-5 days, while they also have the highest return rates in Europe and expect free returns as a standard service.

Matchett adds: "There are significant cultural differences, high returns being at the top of the list, which must be taken into account by retailers if they are to succeed in the region. Germany has one of the highest product return rates with estimates putting the figure at around 50%. This isn’t because Germans are necessarily more difficult to please, although they are well-known for their insistence on quality, but because of the strict regulations which protect consumers rights as well as consumer behaviour; so they tend to order multiple colour and size options with the confidence that they can return the unwanted items."

And it is not the millennials driving this growth, WNDirect research claims silver surfers in the region are growing steadily. "It is the over-55s, who lived through a divided Germany and have more disposable income, that in Germany are evidencing a willingness to spend it online," explain Matchett. "With nearly €1,300 worth of goods per person being purchased online by Germans, the 45-64 year old segment has experienced steady growth through 2012 and the over 55 market in particular is being targeted for its purchasing power."

Open invoice and returns

When it comes to paying for online orders, open invoice is still the preferred method of choice. IMRG's MD, Graeme Howe, says credit card penetration in the region is a mere 20% and not all debit cards can be used online.

"PayPal is widely used and e-wallets are gaining in popularity due to the increase in mobile commerce, but the most popular payment method remains open invoice," he explains. "Using this method the customer receives the goods with an invoice, which they settle by transferring payment to the merchant’s bank account. This is particularly popular for sectors with high return rates such as fashion, where customers can order a number of different sizes – effectively see and try the products before purchasing – and only pay for the items they keep without the inconvenience of refunds."

In fact the returns rate in Germany can exceed 40% in some sectors due to open invoice, but the conversion rates when offering open invoice typically exceeds the European average.

In-store technology

Uwe Hennig, CEO at Austrian fashion analytics company, Detego, says Germany lags behind the UK when it comes to in-store technology adoption. Hennig, who resides in Berlin, says: "German retailers are too conservative and would rather spend more on supply chain and efficiency, rather than in-store customer experience."

Felix Kreyer, managing director for online at Marc O’Polo, a Swedish-German fashion label, agrees that Germany is not as advanced as the UK. 

“You have to go to the UK and we see we’re not ahead of the game,” says Kreyer. “It surprises me, when I go to the UK and go into stores and eCommerce conferences, how much more advanced brands are – it’s not just about Burberry, but traditional department stores are doing a fantastic job in transforming and embracing.”

Kreyer says he is always surprised how few German retailers use technology in their stores. "The technology exists, but is super complicated to the consumer and not built for great consumer experience – we have a long journey ahead of us, but the most important thing is we’ve started."

But Hennig points to German supermarket retailers who have implemented electronic shelf labels over the last 18 months. "Especially in food retail, comparing prices from competitors in the morning is important," he explains. "Supermarkets can change all of their prices an hour later – it's very popular over here."

But elsewhere in retail there are very few in-store technologies deployed. "On the German side, we're a little bit slow and retailers don't really trust the cloud and want to go on a server, whereas in the UK retailers think a subscription SaaS model is normal."

But by 2020, Hennig believes German fashion retailers will realise the potential of digitising stores and implementing interactive digital signage solutions to keep their customers more engaged.

"PoS will move completely into the cloud, but PoS systems will be “stripped down” as ERP systems increasingly take over," he says.

Click & collect is also not as advanced as it is in other countries, mainly due to not having real-time visibility of stock, which is leading to missed opportunities. But Germany is beginning to offer RFID tags to solve this problem. Hennig said the demand has significantly increased within fashion retail over the last 12 months. "Obviously customers are demanding to have the full service in store, they want to check everything on the website, see what other people bought with that T-shirt and all these services meant retailers were nearly blind. RFID brings that and causes a big push in omnichannel for fashion retailers."

While German consumers are thought to be concerned over data privacy, Hennig says this attitude has almost "disappeared from the radar".

"With mobile internet and so much sharing on Facebook, Instagram, and consumers are tracked with their smartphone and credit cards, that story is a little bit gone because younger people have grown up with these technologies," explains Hennig. 

Germany and the UK make up two-thirds of the European fashion market and while UK shoppers still visit the high street, Hennig notes a demise of the high street has been felt by the German market. "There's a big run on eCommerce in retail, far bigger than the UK," he said. "So German fashion retailers need to adopt technology to connect online and offline sales."