UK Retailers Get Top Rankings in Europe

According to a new report from Mintel Retail Intelligence, Marks & Spencer remains Europe's number one choice for clothing while Tesco consolidates its runner-up position as the second largest grocer in Europe.

Kingfisher's B&Q and Castorama dominate the DIY European industry and are more than twice the size of its German competitor Obi. Health and beauty retailing is one of the fastest growing retail sectors in Europe, and even though it now only operates in the UK, Boots is the largest operator in the sector.

Over the last few decades, the European retail sector has been increasingly subject to the process of concentration and internationalisation. The amount of cross-border activity is growing all the time, and the key players are getting larger. These processes, together with the reduction in barriers to trade and the growth of the Internet are creating a truly dynamic and evolving retail environment. The British retail boom has been built on low interest rates which have led people to feel able to borrow and this has led to a frightening surge in indebtedness and a boom in house prices which has all the characteristics of a bubble about to burst.

Among the top 20 retailers in Europe, 13 are pure food retailers. The French giant Carrefour has strengthened its lead in this sector still further over the last year, and is now almost twice the size of its closest rivals, Tesco and Intermarché. Tesco has overtaken Intermarché as the second largest grocer in Europe and goes from strength to strength and has proved able to adapt its format to different markets in and beyond Europe.

Pan-European or even global mass is becoming even more important. The quest for buying power and economies of scale are leading retailers to gain size on both a domestic and international level. Within this process of consolidation, it is also becoming clear that these activities are not without their downsides. Wal-Mart is still struggling to understand the complexities of the German market, while Intermarché's acquisition of Spar Handels in Germany continues to be loss making.

Future developments are likely to focus on the countries in Eastern Europe and the lesser-developed areas of Southern Europe. 'In the future, as the food retail sector becomes even more competitive, the companies able to control their entire store network, such as Carrefour, Tesco and Ahold, will have a considerable competitive advantage over voluntary groups, such as Leclerc and Intermarché' comments Richard Perks.

The leading non-food retailer, Marks & Spencer finally seems to have begun to reverse its decline through a combination of initiatives that appear to be winning its core customers back as well as attracting new ones. C&A looks securely in second place for 2000 but will be overtaken by H&M in the 2001 rankings following the closure of C&A UK.

The clothing retailers have been the worst performers of the major retail sectors over the last five years. According to Mintel Retail Intelligence one of the principal reasons has been the shift in attitudes towards fashion. Consumers are much more demanding and much less forgiving of shortcomings. This change in attitude has happened at the same time, and perhaps because of, a move by the major clothing chains to try to streamline their businesses. They cut back the number of ranges, and tried to treat clothing as if it was groceries. 'It is hardly surprising that the companies who have fared best in the last 10 years have been those that resisted this trend and concentrated on a strong timely, fashion offer' comments Richard Perks, Senior European Retail Analyst. 'The successful clothing retailers in the longer term will be those who focus more clearly on a particular market segment and can respond quickly to fashion trends, interpreting them best for their chosen segment' continues Richard Perks. This probably means that there is little scope for internationalisation in fashion. Although it is true there are some common trends around Europe, particularly for the young and this has led to the success of Zara, H&M and Mango, but Retail Intelligence questions how far this can be taken.

Kingfisher dominates the European DIY retailing sector with B&Q/Castorama. Combined they are more than twice the size of the German DIY retailer Obi. B&Q/Castorama is the most international retailer, with operations in 11 countries. However, Kingfisher itself is expected to slip down about 10 place in the overall ranking following the demerger of its general merchandise businesses in 2001. The sector has been subject to a considerable level of corporate activity recently and Mintel Retail Intelligence expects this activity to continue, as a number of companies such Leroy Merlin are known to be seeking partnerships and the German market is ripe for rationalisation. The largest markets are France, Germany and the UK. However, these markets are large and mature, and it is the underdeveloped and fragmented markets of Eastern and Southern Europe, where there are most opportunities for growth.

Consumer spending on health and beauty products is accelerating strongly, as a result of Europe's ageing population, increasing awareness of wellbeing and more affluent consumers. Boots the chemists is the largest operator is the sector, even though it now only operates in the UK. It is the only chain to successfully combine all three functions of pharmacy, drugstore and perfumery and cosmetics. It has been, however, conspicuously unsuccessful in exporting this beyond its home market.

Health and beauty specialists are coming under increasing pressure from non-specialists such as department stores and food retailers. The specialists are responding to this often price-led competition by focusing on expertise in relevant products, value-added services and premium ranges. The sector has been subject to a high degree of corporate activity in recent years, with several retailers expanding aggressively through mergers and acquisitions. The most active companies have been Kruidvat, Marionnaud, Sephora, Alliance Unichem, Schlecker and Rossman.

The strong performance of the electricals specialists reflects both the strength of demand and the growing power of the leading players. Prospects are good and Mintel Retail Intelligence expects this sector to outperform the overall retail sector in the longer term. Led by product developments in the brown goods area, as well as advances in communications technology, the sector is on the verge of another major boom. The European market leader is Media-Saturn owned by Metro of Germany. Number two is the UK based Dixons, which is pursuing a strategy of internationalisation, and the next largest multiple is Kingfisher's electricals arm Kesa. 'The two multiple groups - Media Markt and Dixons, have established a substantial lead over the competition, but viewed on a European scale, the sector is still highly fragmented and there is no reason why a fourth major player should not emerge' comments Richard Perks.

In 2001 most European economies turned down and growth in retailing slowed. The two extremes were seen in Germany and the UK. If the Germans are ultra cautious, the British are at the opposite pole, spending with an abandon which has taken commentators by surprise. In 2002 the UK was again the exception. The boom continued uninterrupted and the longer that goes on the greater the fear that it will 'all end in tears'. Mainstream Europe remains depressed with Germany struggling out of recession. The Euro launch caused problems and made the downturn in Germany worse, but the fact that the currency has started to recover against the dollar has done much to boost confidence. 'The uncertainties at present are enormous. There is the ever-present threat of further attacks on the US or its allies. There are the falls of stock markets around the world. The collapse of major groups, Enron and Worldcom, accounting irregularities at Xerox and the much publicised problems of Vivendi may have relatively little direct impact on consumer but the longer term impact is as yet difficult to assess' concludes Richard Perks.

All articles 2006-22 written and edited by Mel Crowther and/or Nick Thomas unless otherwise stated.

• MINTEL
• All news
• MrWeb info