European retail markets are predominantly in good shape at the start of the year, however retail investors in Europe will need to adjust to a growing gap between robust retail markets and those that are subject to high risk in the long term, according to new research.
Union Investment’s Global Retail Attractiveness Index (GRAI) shows there are 25 points between the current top performer, Portugal, and the weakest market in Europe, Belgium. This difference is the largest that has been recorded for the index over the past 12 months.
Henrike Waldburg, Head of Investment Management Retail at Union Investment and Member, said: “The ongoing positive economic climate in Europe, which is delivering rising revenues for online businesses as well as brick-and-mortar retailers in almost every country, is softening this trend at present. However, any sustained weakening of consumer sentiment is likely to cause retail markets to drift further apart.”
The German retail market remains one of the top performers globally. Its stable top-tier position is due in particular to consistently strong increases in retail sales. Germany is also the only country in the GRAI’s EU-12 index to see a slight rise in consumer confidence compared to Q4 2017 (+2 points). In all the other European regions surveyed, consumer confidence in the domestic economy is deteriorating to a greater or lesser extent.
Waldburg said: “The buoyant employment market and optimistic income expectations mean that German retail markets are particularly well supported. Local players and increasingly also foreign investors are attracted by the prospect of very predictable cash flows.”
With 110 points, the EU-12 index remains above average. Alongside Germany (115 points), the top tier includes Central European countries Poland (118 points) and the Czech Republic (117 points). Like the Czech Republic, Portugal scored more highly than in the prior year, gaining two points to reach 121.
Spain, with 114 points, is in the top five for the first time, due to particularly strong sales in the Spanish retail sector, underlining the optimism being felt on the provider side.
Ireland scored less well (111 points), but despite a marked decline (minus 6 points) still performed better in the fourth quarter than mid-ranked countries such as Austria, Italy and the Netherlands.
RPA Perspective Across Europe, the indicator for retail sales performance gained a total of 15 points compared with the previous quarter. Accordingly, the EU-12 index lost very little ground overall compared to the last survey a year ago (minus 2 points).
Relative to the North America index, which was unchanged at 113 points, the Europe index is down slightly. The EU-12 index was able to gain some ground compared to the Asia-Pacific index, however. A sharp fall in consumer sentiment in South Korea meant that the Asia-Pacific index declined by 4 points to 106 points, putting it third in the global ranking behind North America and Europe.
Waldburg said: “From an international perspective, Canada, the US, Japan and Australia – in that order – are the retail markets that we believe offer the best prospect of attractive returns in 2019. However, even here investors need to take a very selective approach as the retail landscape in some of these major markets is experiencing more serious upheaval than the European markets are likely to face.”
France saw the biggest falls of all the European countries in this quarter. Compared to the prior year, the French retail index plummeted by 11 points. This was caused by double-digit drops in the two sentiment indicators and in the inflation indicator. The gap between Europe’s largest economy, Germany, and France has thus widened further, growing from 6 points to 15 points. France, on 100 points, is even falling behind the UK (104 points).
At country level, Portugal currently leads (121 points), followed by Poland (118 points) and the Czech Republic (117 points).
In the fourth quarter of 2018, Belgium, the only European country below the 100-point mark (96 points), came in at the tail end of the group. A significantly below-average sentiment among retailers (85 points) and inflation (86 points) are responsible for this weak development.
Union Investment’s Global Retail Attractiveness Index (GRAI) measures the attractiveness of retail markets across a total of 17 countries in Europe, North America and the Asia-Pacific region. An index value of 100 points represents average performance.
