Enter the sophisticated and stable German market

When UK success story Joules announced another year of sales and profit growth last month, CEO Colin Porter said international trade had been a key contributor.

International sales rose 43.5% and Porter said they would soon be 20% of the total, adding, “We don’t see why in five or 10 years it might not be 50% of the business. Group revenue soared 17.2% to £ 218m for the year ended May 26, 2019 and underlying pre-tax profit increased 19.4% to £ 15.5m of pounds sterling.

The sources of this growth in international sales are Germany. It is one of the lifestyle brand’s main overseas markets, and Joules has over 400 resellers nationwide, including retailers Zalando and Otto, and a strong network of independent retailers.

Germany is the UK’s second-largest trading partner after the US and, despite the looming prospect of Brexit, the country appears to be a safe bet. Competitive tax regulations and a highly skilled workforce make German buyers relatively wealthy.

Their penchant for shopping on multi-brand e-commerce platforms and their preference for high-quality products offers an opportunity for UK operators – from historic brands like Charles Tyrwhitt to younger labels like Gym King – who understand the market.

Joules has more than 400 dealers in Germany

Shared culture

The German fashion retail sector shares similarities with the UK: a blurring of the lines between online and physical retail, discerning consumers and a rapidly developing sophisticated e-commerce network.

The market is growing at a rapid pace. German market research firm Statista predicts fashion retail revenue to grow 8% year-on-year for 2019, to € 18.5 billion (£ 17 billion), and increase by 6% , 8% per year to reach 24.1 billion euros (£ 22.2 billion) by 2023. slightly behind the UK market, which is expected to reach £ 24 billion by 2023.

This constant expansion challenges a broader economic downturn. Although the German economy recovered from the global financial crisis of 2007/8, it has slowed since 2017 due to declining foreign demand and global trade tensions. Consumer confidence declines: GfK’s German consumer confidence index fell to 9.8 in July 2019, after peaking at 10.8 in February.

By comparison, however, GfK’s UK consumer confidence index fell to -11 in July. And Statista reports year-over-year declines in German retail footfall in seven of the 12 months between March 2018 and March 2019.

The catalog model that evolved into e-commerce was very popular in Germany

Colin Porter, Joules

Historically, German shoppers have favored catalogs over fashion, which influences how they shop today and how brands enter the market. Fashion retail is dominated by multi-brand online platforms, and retailers such as Zalando and Mytheresa are winning customers by mimicking the browsing and ordering patterns that shoppers are used to.

Joules’ Porter explains that many successful retailers in Germany have moved from catalogs to e-commerce platform retail: “Over the years, the catalog model that evolved into e-commerce was very popular in Germany. There are a lot of brands that have done well with catalogs in the UK and also in Germany. ”

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Berlin-based Zalando is the largest fashion retailer in Europe

Based in Berlin, Zalando is the largest online fashion retailer in Europe. Its most recent results, for the second quarter of 2019, show that the group’s revenue grew 20.1% year-over-year to 1.6 billion euros (1.5 billion euros). pounds sterling). Fashion revenue rose 19% to € 1.5 billion (£ 1.4 billion). Although it does not distribute its revenues internationally, Germany remains a key market and the demands of its domestic buyer continue to drive innovation at the retailer.

“Today, the German market is one of the most mature among the 17 European markets where we operate,” says Andreas Rödl, vice president of men’s category at Zalando. “In general, German buyers are advanced in ordering products from catalogs or by purchasing online.”

Consumer choice

German consumers seek conservation and variety in their online shopping experiences.

Burberry sells on the luxury multibrand site Mytheresa

Burberry sells on the luxury multibrand site Mytheresa

Michael Kliger, president and CEO of luxury fashion retailer Mytheresa, also notes that the continued preference for German shoppers is platform retailers: “We see that [German] customers continue to favor the idea of ​​shopping on “platforms” rather than visiting several different single-brand online stores.

German buyers are advanced in ordering products from catalogs or purchasing online

Andreas Rödl, Zalando

“The platforms can be simple aggregators or marketplaces, but also multi-brand stores. On the one hand, the depth and breadth of the assortment can be appealing, as it promises the consumer that he will find something.

“However, for the buyer who has only a rough idea or is looking for inspiration, a clearly curated selection with a strong point of view is most appealing. For us, editing is at the heart of what we do.

How to pay

The market quickly increased its sophistication. One area where this can be seen most clearly is in payment methods. In 2012, most online orders were paid through the country’s ELV direct debit system or cash on delivery, rather than by credit card.

Today, however, times have changed: the EHI Retail Institute in Cologne discovered that in 2018 Germans were paying more with cards than with cash. Buy now, pay later services are very popular, as are e-wallets such as Google Pay and Apple Pay.

A payment expert, who wishes to remain anonymous, explains that the catalog culture in Germany has contributed to this development: “German buyers are used to paying for their online purchases by invoice. It was already the preferred method of payment for Germans when they were still shopping through old-fashioned printed catalogs.

[German] customers continue to favor purchases on “platforms” over visiting various single-brand online stores

Michael Kliger, Mytheresa

He says security and familiarity are important in online payment: “Germans tend to be more careful when it comes to disclosing personal financial information, especially when it comes to trusting third parties such as online stores and payment providers. They might be more reluctant to use an unfamiliar online store than their favorite and most used sites.

International brands entering the German domestic market need to address these points of familiarity and trust. Using local platforms is therefore a good starting point.

Couture brand Charles Tyrwhitt is one such company. He entered the German market 20 years ago via catalog sales, and has now focused on selling online, via his own website and also on Zalando.

Sales and Marketing Director Joe Irons says that a hallmark of the German buyer is his discernment: “Our German client appreciates the London heritage of Charles Tyrwhitt and is particularly demanding when it comes to product quality and value. price-quality, which corresponds well to the strengths of our brand.

Customers generally demand superior product quality and value for money

Joe Irons, Charles Tyrwhitt

“Customers generally demand superior product quality and value for money. Once the customer has experienced a brand and developed confidence in the quality and service of that brand, they tend to be a loyal customer.

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Gym King sells in Germany through its own e-commerce site

Sportswear retailer Gym King has been selling in Germany through its own e-commerce site since 2015 and sees it as a core international market. Founder Jay Parker attributes his success in the market to meeting price and service expectations, as well as an emphasis on storytelling to earn consumer trust.

“We’ve worked hard to bond emotionally with our clients to achieve the lifestyle they want,” he explains. “We stay close to what our customers want, with regular consumer analysis groups to make sure we continue to exceed expectations. The market is extremely price sensitive and customer expectations are high. They’re looking for lower prices, free shipping, and “buy now, pay later” options as standard. We want to continue to build trust with the German public and offer a quality product at competitive prices.

The UK fashion retail industry is still hoping for a new Brexit deal that will ensure continued ease of trade with Europe, including Germany. Nevertheless, the relative stability of the German market compared to other international commercial destinations and a well-to-do and forward-looking population remain an attraction for UK operators.

Market sophistication can be difficult for new entrants – German consumer expectations are high – but domestic and foreign retailers and brands are bracing for further growth.

James R. Rhodes