These issues compound Europe’s retail sector which is already facing a slew of challenges that are impacting its future success or survival. Needless to say, retailers are in the midst of some major challenges right now. Geopolitical tensions, the prospect of import tariffs, and weakening consumer confidence are further challenges. Rising costs associated with inflation and an enduring move towards e-commerce add even more confusion to the mix. Still, as these dynamics play out, a lot about the future of European retail appears to be up in the air.
This is especially bad news for European sellers who invest in high quality products. Yet, they are in danger of being intentionally undercut by bad actors and the flood of fake nonfoods via online marketplaces. Our retail sector is experiencing rapid changes. These transformative changes around cost, convenience, and overall ubiquity have the potential to reshape consumer preferences and fundamentals of marketplace competition.
Economic Outlook and Consumer Sentiment
Germany’s near-term economic outlook is the stuff of nightmares, with gross domestic product (GDP) projected to flatline this year. Homegrown persistent US tariffs and global geopolitical uncertainties play a big part in this standstill. These tariffs have a domino effect, causing unnecessary uncertainty not just in Germany but for all of Europe’s leaders.
Recent figures underscore the worsening mood of European retailers. In April, our sentiment index fell from -5 in March to -7, the worst reading since July of 2024. This fall is in line with the increasing concerns regarding the state of the market and what lies ahead for retail in Europe. With inflation, a looming recession and consumer spending shifting rapidly, retailers are understandably nervous about how these factors will play out on their bottom lines.
Against this backdrop of massive operational hurdles, the pandemic-led wave of online shopping adoption shows no signs of slowing down. By 2023, almost two-thirds of Europeans had bought physical goods online. The Netherlands and France are in the top spots, with the highest shares of internet users shopping online. Italy is lagging, having registered only a 45% share. This trend reflects a broader movement towards convenience and accessibility that is reshaping consumer shopping behavior.
The Rise of Low-Value Consignments
The rapid growth in e-commerce has resulted in an exponential growth in low-value consignments flooding into the EU market. Last year 4.6 billion consignments under the value of €150 flooded into the market. That’s 12 million fewer parcels delivered every day! Though this growth brings exciting opportunities for convenience and company, it creates major concerns over the use and misuse of T&E technology with respect to European legislation.
Most of these low-value products do not comply with existing, often long-standing EU standards. This illegal non-compliance exposes consumers and law abiding businesses to increased risk. This flood of bad actors’ products poses an existential risk to honest European retailers that want to offer consumers quality goods that comply with high European standards. The more these phony products spread across digital platforms, the more it threatens all of the retail industry’s R&D investment.
Unless it’s luxury, the mid-market fashion segment is doomed. It is dealing with unrelenting competition from low-cost fast-fashion rivals such as Zara and H&M, second-hand markets and, increasingly, from low-cost Chinese online rivals like Shein and Temu. This increased competition has created a high-pressure environment where 1 in 5 retailers can’t make enough profit to stay in business.
Regional Variations in Retail Sentiment
For all the difficulties at the European retail level, there are some significant regional variations within the overall sentiment. A higher percentage of retailers from the Netherlands, Poland, and Austria report feeling very optimistic—with their national peers in other countries trailing them by a wide margin. This regional divergence indicates that some areas of the country are simply in a stronger place to weather the storm of the times.
While Poland’s economic rebound should remain robust, with real GDP growth of 3.2% in 2023 and 2.1% in 2024. Even as global export demand weakens, domestic consumption is increasing, propelled in no small part by public investments to boost economic activity. This positive outlook is an indicator of the surprising resilience of Poland’s retail industry, even as uncertainty looms across Europe.
In Switzerland and Austria projections of 2025 growth just 1.5% (2026). Under more positive economic circumstances, each of these countries would do pretty well. This stability should help consumer confidence and spending, putting their retail sectors on track for strong growth.