Market Focus Germany: Hesitating – Selling Luxury in Hard Times


February 2006


In autumn of 2005, the Federal Republic of Germany was at a turning point. However, many people refuse to recognize the current serious situation of Europe’s largest economy. The indebtedness of the federation and the particular states and communities is now at the highest rate ever. In some cases, the amount to be paid for interest has increased up to 40 percent of the annual income from taxes. The Governments, on one hand, are struggling to fight unemployment by lowering the employers’ share for health insurance, unemployment insurance and pension scheme in order to induce the companies to offer new jobs. The private companies, on the other hand, move their production facilities to other countries, mainly Eastern Europe because of the lower wages. Ironically, they are even aloud to lower their tax bills in Germany because of the removal costs to other countries.
In December 2004, Opel, a General Motors brand, announced it would fire 9,500 people and the fusion of UniCredit and HypoVereinsbank, carried out in June 2005 will be at the expense of some 4,000 jobs in Germany. In July, Mercedes-Benz, one of the Daimler-Chrysler group, announced they intended to release some 8,500 employees.
With this sort of economic background, many people are afraid of losing their jobs. In reaction to their fears they save as much money as possible in order to be prepared for more difficult times. That way the saving rate of the Germans, who are the ‘European savings champions’ anyway, is the highest ever. According to bank organizations, last year the savings increased some 154 billion euros. The total amount of money on savings accounts thus extended to the incredible amount of 4,067,000,000 euros.
Logically, the money is not in the consumer domain. If it was spent instead of being saved, political economists estimate this money would cause a growth in the economy of some three percent.

Problems facing new Government
After the general election in September, neither the coalition of Social Democrats and Greens, nor the alliance of Christian Democrats and Liberals won the majority. That is why, Social Democrats and Christian Democrats who gained together some 70 percent of the votes, built a coalition by mid-November. Although this large majority has the power to get very unpopular changes like economical policy and higher VAT through, the parties hesitate and it is doubted that they will be courageous enough to achieve the overall turn around Germany needs.

Tendency of the branch
Forecasts like these are not the only calamities, retailers – especially owners of small stores – have to face. As in the years before, the market of both the retail business in general and the watch and jewellery market in particular is divided and becomes more difficult every year: pricing pressure is increasing, profitability decreasing. Obtaining bank credits in order to be able to refill the stock today becomes nearly impossible, especially for small businesses which make up some 73 percent of the 9,000 specialized dealers, but make only 20 percent of the overall turnover of the branch. As they only generate turnovers under 250.000 euros per annum, it is hard for them to find potential market partners and to add attractive brands to their stock. Quickly changing trends, promoted by the high share of fashion brands entering the watch market, make it more difficult than ever to have the right amount of items with a fashionable look in the store.
However, there is another serious trend within the retail watch business: according to market analyses, only 49 percent of jewellery and watches is sold in specialized stores in Germany: 23 percent is sold in department stores, 18 percent in chain stores. And the downward trend continues. Surprisingly, mail order and purchases via the Internet only play an insignificant role with market shares of five and three percent.
But this could change rapidly. Distribution via the Internet or over special TV channels is growing tremendously with rates of more than 300 percent per annum. 43 percent of all TV-Shopping products bought is jewellery.
This knowledge of market research focussing on Germany’s watch and jewellery retail business matches perfectly the results of the individual shopkeepers. As in previous years, owners of small stores are especially affected by the weak economy and the consumer’s refusal to spend money for watches and jewellery is a result of the economic situation.
No wonder the power of the specialized retail trade is declining, market shares drop and turnovers vary very much every year.

In the forthcoming days, the rest of this lenghty survey will be added to our europastar website.

Market Focus Germany: Part 1
Market Focus Germany: Part 2
Market Focus Germany: Part 3
Market Focus Germany: Part 4

Source: December - January 2006 Issue

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