Weak Consumer Demand Fuels Retail Closures Across Europe

H&M store

Weak sales have driven a wave of retail closures across Europe.

In October, for example, Germany’s Federal Statistical Office reported a 2.8% decline in retail turnover compared to the month prior, and victims of Europeans’ austere spending patterns include some of the biggest names in retail.

In its most recent earnings report, Swedish fashion retailer H&M announced that by the close of 2022, it expects to have opened around 89 stores and closed around 254, amounting to a net decrease of 165 stores worldwide. And that’s not even including the winding down of its Russian operation, which cost the company 2.1 billion krona ($204 million) earlier this year.

While H&M didn’t reveal exactly where the closures would be concentrated, European countries are certainly among those that have lost stores. This is as seen from a report by U.K. newspaper Daily Mail that one in five H&M branches have closed in the country since its pre-pandemic height.

And by the firm’s own admission, “most of the openings will be in growth markets, while the closures will mainly be in established markets.”

In other words, while emerging economies like Ecuador and Guatemala have welcomed the retailer for the first time in recent months, H&M is on the back foot in closer-to-home European markets.

If H&M’s global restructuring centers on a strategic decision to refocus on high-growth markets, for other retailers, shutting stores appears to be a matter of survival.

In November, the German department store chain Galeria Karstadt Kaufhof filed for insolvency protection and announced that it planned to close more than 40 of its 131 locations.

In an interview with German newspaper Frankfurter Allgemeine Zeitung, the group’s CEO Miguel Müllenbach blamed the Ukraine war, soaring energy costs and weak consumer sentiment for the closures.

And while the German state may just be able to keep the embattled retailer afloat with what will be the second bailout package since 2020, other businesses face more dire consequences.

High Street, Online Retailers Retreat in the UK

In the U.K., a triple whammy of retail flops in November and December saw fashion retailers Joules and M&Co, as well as the online furniture store Made.com, collapse.

In the case of Joules, fashion retailer Next led a last-minute rescue deal on Dec. 1 worth 34 million pounds ($41.8 million) that will limit the number of store closures to 24, saving around 100 locations and over 1000 jobs.

Employees of Made.com, which is also owned by Next, haven’t been so lucky.

After being made redundant via Zoom, the law firm Aticus is inviting former Made.com employees to bring a compensation claim to the employment tribunal.

Having come as a surprise to many, the dramatic fall of the one-time poster child of furniture eCommerce has left many wondering what went wrong.

In a LinkedIn post addressing the retailer’s collapse, Made.com’s co-founder and former CEO Brent Hoberman blamed a transition from the asset-light model the company originally pioneered to a more inventory-based one that left the firm exposed to waning consumer demand.

“Made got caught with massive inventory at just the wrong time,” Hoberman wrote.

Alluding to its original business premise in which Made.com took orders from customers before passing them on to manufacturers, he said that “the model had previously always been about minimal stock and wastage. What was once a differentiated model morphed into being more similar to other retailers.”

As the Made.com case demonstrates, eCommerce businesses are by no means sheltered from Europe’s retail woes. And with consumer demand slumping, Hoberman’s post reads like a warning against increasing capacity at a time when people are spending less.

To adapt to falling demand, some retailers are looking to trim down their operations by strategically shutting or stalling the development of new warehouses.

On Friday (Dec. 9), Drapers reported that the U.K.-based online fashion retailer Boohoo will close its Wellingborough distribution center in January. And as PYMNTS reported earlier this month, the online supermarket Ocado has paused the construction of two new distribution centers in England citing weak consumer demand.

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