printable version

Last month, the IADS attended the presentation of the State of Retail 2024 - Europe: Transition and transformation in non-grocery retail, a report carried out by Eurocommerce in collaboration with McKinsey. Usually dedicated to grocery retail, this report addresses key trends shaping the specialty retail landscape in 2025 for the first time. It combines market data with surveys of 30 European executives and approximately 15,000 consumers across six European countries (France, Germany, Italy, Poland, Spain and the United Kingdom). The scope focuses on six retail categories: furniture and furnishings, DIY and hardware, consumer electronics, sporting goods, beauty and personal care, and pet care.

Introduction: trends and the European consumer

Eurocommerce presented the key numbers and trends in the European retail industry. While the industry’s nominal turnover increased by 2.3% annually, inflation-adjusted growth slowed by 1.8%, below 2019 levels. Real growth is projected to be 0.6% per year through 2028, however the dynamics vary by category and country.

Across Europe, the proportion of retail sales between grocery and non-grocery categories varies. For example, in Germany and the United Kingdom (UK), non-grocery items account for more than half of retail sales while French consumers allocate almost 60% of their budget to groceries. Furthermore, European households remain cautious about future spending post-Covid. Retail sales of discretionary items hinge on purchasing power, which varies across Europe. The challenge for retailers here is that the expected slowing of real income growth could undercut purchasing power gains. More than half of low-income households have saved as much as possible in the past 12 months instead of spending. The combination of cautious spending and eroding purchasing power suggests that consumer spending is polarising; adapting to the needs of both high- and low-income groups will be critical for retailers as the favour for discounter options and private labels continues.

The average European consumer has changed significantly:

• Purchasing behaviour: omnichannel journeys are becoming increasingly prevalent, with more than 50% of consumers using online and in-store options to research and purchase non-grocery items.
• Price sensitivity: transitioning from a focus on low-cost options, one in three consumers prioritise value for money. This characteristic includes promotions, discounts, a wide product range, trustworthiness, and a fun shopping experience.
• Loyalty: with low levels of loyalty, more than 60% of consumers actively seek opportunities to trade down. Convenience is the top factor in purchasing decisions, both online and offline.
• Approach to sustainability: consumers also have a paradoxical approach to sustainability where one-third cited it as their second-biggest concern, yet it hardly affects purchasing decisions.

The growing presence of omnichannel journeys

Following rapid e-commerce penetration during the Covid era, brick-and-mortar retail recaptured some of these gains post-pandemic. More recently, e-commerce has started increasing again but remains below 2019 levels. Given the growing presence of omnichannel journeys in consumers’ shopping habits, more than 50% reported using online and in-store options to research and purchase non-grocery items. The rise of omnichannel is evident in the context of other consumer trends, such as a preference for convenience, value for money and a general decline in retail sales.  /nbsp]

Consumers decision journeys are now predominantly omnichannel. The first step is often beginning to research products online through brand, retailer, competitor, or third-party websites (social media and marketplaces). Next, they visit stores to get advice and experience the products. Finally, they return online to purchase the item at the best prices.

It is notable that brick-and-mortar retail plays an important role in the omnichannel journey. Over one-third of consumers choose physical retail for convenience and almost a third prefer it for the opportunity to experience products. Functioning as fulfilment centres, showrooms, and community hubs, physical stores provide unique experiences that cannot be replicated online.

Non-grocery retail channels (multi-brand and brand-owned) still capture the largest share of consumers’ declared spending. Consumers are motivated to purchase from non-grocery channels given the broad range of products and services retailers offer, the availability of specific items at the time of purchase, their trust in the retailers, and their love for the in-store experience. This trend is expected to persist, with net future purchasing intent in non-grocery retail channels at its highest over the coming years.

Despite this maintenance of spending intentions in these retail channels, department stores are increasingly challenged by online resellers, which are gaining ground across all surveyed countries. Specialised multi-brand and brand’s own stores capture the largest market share in all markets.

In the face of growing consumer polarisation, omnichannel retail caters to all groups and gives them the added value of convenience, the most important factor affecting purchase decisions. Investing in and providing a seamless omnichannel experience keeps consumer journeys within retailer-owned channels. This necessitates cross-channel harmonisation to meet the needs of different kinds of consumers.

Building new ecosystems to restore loyalty

Increasing diversity and fragmentation in the retail sector give consumers more choices. This results in lower customer loyalty, an increase in the variety of retailers visited and a decrease in the size of shopping baskets per visit. Furthermore, consumers’ focus on value for money includes promotions, a rewarding experience, a variety of products and trustworthiness. To take advantage of this, retailers must capture the consumers’ interest, both high and low spending groups, by going beyond products and traditional retail to services that enhance customer experience.

Retailers are creating ecosystems that include services to combat decreasing customer loyalty. These include retail media networks (RMNs), repair, maintenance, travel and insurance services. While travel and insurance services have become staples at El Corte Inglés, El Palacio de Hierro or Falabella, Macy’s media network has recently been expanded to include personalised post-purchase offers1. Creating a comprehensive ecosystem for customers’ needs can reward retailers with higher customer loyalty and a larger share of their spending, as shown by the predominance of El Corte Inglés in Spain. Introducing and strengthening private label capabilities can also enhance customer loyalty while affording the retailer better margins.

Existing assets can be leveraged to develop an ecosystem strategy, as suggested during the 2023 General Assembly by Michael Jacobides, strategy professor at the LBS (IADS Exclusive here). Tapping into all available tangible and intangible assets can drive growth and reduce investment needs. Brands, loyalty programmes, stores, applications, products, services, and expertise, can all potentially be used in the new ecosystem.

By putting customers’ needs at the centre of the retailer’s value proposition, they can build a portfolio of traditional retail and services that better serve customers while increasing revenue. Digitisation and advancing technologies have made it easier for retailers to explore segments beyond core retail to create a network of services.

Demanded sustainability won’t come out of the consumer’s pocket

Climate change and sustainability are still on the minds of European consumers. Thirty percent of survey respondents cited sustainability as their second-greatest concern. Consumers expect sustainability: across all segments, more than one-third of consumers reported paying close attention to environmental friendliness when shopping for non-grocery goods.

However, this awareness of sustainability has yet to influence buying decisions. When asked whether retailers offering a broad range of sustainable products is important in purchasing decisions, consumers ranked this driver at just 32 out of 40.

There is a gap between consumers’ declared priorities on sustainability without manifesting in purchasing decisions. They expect retailers to meet sustainability priorities without it coming out of the consumer’s pocket. In this vein, circularity as an alternative has worked well and is seeing gains as it meets cost considerations while enhancing sustainable objectives.

This explains the current momentum around circular models. Retailers with sustainable or circular offerings in certain categories experience strong growth. This is especially true in consumer electronics and appliances, where refurbished items allow consumers to get a better value for their money, and in sporting goods, where equipment rental and second-hand purchases are on the rise.

Overall, retailers are faced with a complex decision on sustainability. Focusing on these priorities could improve incremental long-term revenue growth by integrating new sustainability and circularity practices into their operations at the cost of short- to medium-term growth. More and more retail groups now focus on circularity (such as FNAC-Darty’s refurbished electronics and appliances offering) and sustainability (for example, cosmetics brand Davines) as key value propositions.

Note on CEO sentiment: cautious optimism

Most of the 30 European non-grocery executives surveyed by Eurocommerce expected market conditions in 2025 to improve or remain the same. Cautiously optimistic, the sector is adapting to ongoing economic challenges. Margin pressures and consumer downtrading, driven by rising costs and heightened price sensitivity, remain top concerns for CEOs in the coming year. Executives are prioritising investments in omnichannel experiences to meet evolving consumer demands, along with expanding private label offerings.

More than 70% of CEOs believe that by 2030, delivering a seamless omnichannel shopping experience will be the cornerstone of success. Approximately one in three executives also cite factors such as developing robust private label strategies and reinventing store formats to excite customers. On the other hand, only 20% of leaders believe improving the sustainability of products will be important to win in their segment by 2030.

Conclusion: omnichannel is key, sustainability is (unfortunately) not

The retail landscape is undergoing a significant transformation driven by polarising consumer spending. Retailers must cater to both high- and low-income groups to maximise their reach by adapting to omnichannel strategies that cater to all groups, offering a seamless shopping experience and giving them the added value of convenience which is the most important factor affecting purchases. Reduced customer loyalty driven by this fragmentation of consumers and the availability of large numbers of retailers, calls for the development of an ecosystem of value-added services and private labels to recapture consumers. The focus on value for money for consumers includes promotions, a rewarding experience, a variety of products and trustworthiness. As the sector navigates economic challenges, executives focus on enhancing omnichannel experiences and expanding private label offerings as key strategies for success.

There is a gap between consumers’ declared priorities on sustainability without it reflecting in purchasing decisions. They expect retailers to meet sustainability priorities without the cost being passed on to consumers. In this vein, circularity has worked well and is seeing gains as it meets consumers’ cost considerations while meeting sustainable objectives. This approach addresses consumer expectations and positions retailers for incremental long-term growth. While sustainability is not yet a top priority for many leaders, integrating these practices could become increasingly important as consumer awareness continues to grow.

Credits: IADS (Anchita Ranka)