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A guide to the German fashion market

By Barbara Russ

3 Sep 2021

Business |BACKGROUND

Luxury shopping mall Berliner Quartier 205 in Berlin. Image: Sandip Roy / Unsplash

Germany is an attractive market for the fashion industry. Within Europe, it is the largest and one of the richest markets. Many international players have found a reliable key market in Germany. But on the other hand, many brands and retailers have tried unsuccessfully to conquer it. What was the reason for that? Here - on the eve of Berlin Fashion Week - is an introduction to the German market and some facts you should know before trying your luck with German customers.

The German market beckons

Germany is the largest market in the European Union, with a population of almost 84 million - by comparison, France has around 65 million inhabitants and Italy around 60 million. Germany is also Europe's top performer in terms of gross domestic product, which means that the population as a whole has high income levels and thus high purchasing power. Before the pandemic, people in Germany spent 76 billion euros on clothing and footwear in 2019 alone, according to Statista. This puts Germany just behind the United Kingdom in Europe and sixth in the world behind the United States, China, India and Japan. These figures might give you the impression that selling fashion and clothing in Germany is easy. Unfortunately, it is not.

Purchasing power in German-speaking countries. Graphic: GfK

A recent example is The Hudson's Bay Company (HBC). The well established fashion retailer from Canada entered the German market in 2015 with high hopes. It bought the Kaufhof department store chain for 2.8 billion US dollars, with plans to “transform them into Macy's concepts,” as Forbes wrote in 2016. Additionally, it opened off-price stores under the Saks Off Fifth brand. “The question is whether the off-price stores will resonate with German customers unfamiliar with the Saks 5th Avenue banner,” Forbes asked at the time. They didn't.

Although other off-price concepts such as TK Maxx, the German version of the American discount chain TJ Maxx, seem to work well, Saks Off 5th was forced to close its stores just a few years later and HBC withdrew from Europe. Galeria Kaufhof was sold to Signa. A combination of insufficient understanding and sensitivity for the German market and a lack of e-commerce orientation was probably to blame.

Previously, other US retailers had also tried to gain a foothold in Germany, most notably Walmart. The mega-store bought up Wertkauf and Interspar discount stores in 1997, “only to exit the highly competitive German retail landscape nine years later,” as Forbes wrote, and at a presumed loss of 1 billion US dollars. Clothing chain Gap also tried its hand in Germany and failed, as did Forever21, which itself slipped into insolvency in 2019. Germany is a difficult market and the strategy that works in the home market often doesn't work out as planned for Germans. What are the reasons for this?

In these regions, Germans like to self-indulge. Image: GfK

1. Decentralised structure

The fact that Germany is a difficult market to tap is due to several factors peculiar to Germany. Unlike France, the UK or Italy, Germany is more decentralised in structure, meaning that there are many urban centres rather than, as in the UK or France, Greater London or Paris's Île-de-France, where most of the wealth and tastemakers are concentrated. Instead, Germany's five largest cities are located in different corners of the country, and their respective lifestyles differ significantly. A look at per capita income by city in Germany holds even more surprises. Who would have thought of cities like Wolfsburg, Ingolstadt or Schweinfurt to open their first fashion boutique? And yet, these are the places in Germany with the highest income per working population.

2. High demands on service and price

German customers are well informed and very demanding. They compare and look for the best deal - ‘value for money’ is central term to the German worldview - before making a purchase. According to a 2015 global study by Accenture, Germans have the highest expectations in the world. “Compared to consumers in other mature markets, Germans are particularly demanding,” Accenture’s managing director Sven Drinkuth said in a statement about the study. “Price alone is no longer the main focus. Customers fundamentally expect high quality and are quickly disappointed.”

3. Protestant culture

Although quite evenly divided between Protestants and Catholics in terms of denomination, Germany is, culturally speaking, a Protestant society. After all, it is the country where the reformation began. That is what sets it apart from the French and Italians: the Germans are more pragmatic in their aesthetics and pay less attention to status symbols: Think of Jil Sander, Hugo Boss or even Adidas. German style is more like a Protestant church interior - clean, minimalist, functional - than the pomp of a Catholic cathedral.

Also following a Protestant virtue, Germans like to save and invest their money. According to ING Germany and Barkow Consulting, the average European invested 3,121 euros in savings investments such as shares last year. In Germany, the figure was 4,671 euros.

4. Germans spend less on fashion than other nationalities

In Germany, “[S]tatus is demonstrated by smart investments in cars, watches and technical devices,” according to a study by consultancy 'Join The Dots'. This fact is also reflected in the budget distribution of Germans. According to data from Statista, German women spent an estimated 719 euros per person on clothing in 2019, significantly less than Italy (834 euros) and the UK (1,133 euros). According to the Luxury Spending Index, this could be due to the fact that expensive accessories such as handbags and jewellery - status symbols, after all - are more popular in other countries.

5. Price-sensitive and pragmatic

What is certain is that Germany has been the top-selling market for the Swedish fashion group H&M for decades, and the second largest for Amazon. During the Corona crisis, price sensitivity in the lower price segment intensified again this year. From February to the end of May, the C-market, which includes 50 percent of Germans, lost 19.7 percent in value, and 13.6 percent in volume, explains Ulla Ertelt, managing director of Frankfurt-based market research firm HML Marketing in an interview with FashionUnited [in German]. “That means people have been buying at even lower prices.”

Brands should also remain realistic when it comes to style. German consumers tend to be reserved and pragmatic when it comes to fashion. They prefer garments that are practical and can be worn on many occasions. “The most common fashion style is comfortable or casual, and classic, practical and sporty styles are also popular. It is important to always be neatly dressed,” sums up a recent study by Magdeburg-based market research institute IWD.

The typical German customer who spends most on fashion is older than many might expect. “The over-50 market makes up over 50 percent of the German market,” said Ertelt. “But the ‘Modern Women’ market makes up only 25 percent. That's a fundamental dilemma in fashion, that everyone wants to get younger. If everyone moves into the 25 percent market, from their range and fits, then of course there are gaps in the market where 50 percent of the sales can be made,” she explains. The older generation, “the one that has money, that has already reached its lifetime peak income,” is neglected in fashion retail, she said. “In the years between 25 and 49, much more is still built, a new apartment or house is bought, a family is started, with small children, one can often only work half days. These are markets that are much more volatile and fashionably overestimated. The most fashionable customer is 50 plus, who has been used to buying fashion trends in specialty stores all her life.”

Conclusion

For brands and retailers, this means that there is not only not the one German lifestyle, but also different regions and population groups.

If brands want to get a foothold in the German market, it would be wise to visit the biggest cities and take a stroll through the high street. Look closely at the people you see on the streets to get a feel for who they are and what they might be looking for. Do market research in advance and think about smaller towns where the retail landscape is not as saturated as in the big cities. Be realistic with your target audience, which is in no doubt not young and trendy. Be sure to work with a sales agency specialising in the German market and listen to their input.

This article was originally published on FashionUnited.de. Edited and translated by Simone Preuss.