Blue Christmas: European Stores See Tough Holiday Ahead

Trees are in the windows and lights are glittering, but analysts predict a difficult Christmas selling season for retailers in Europe.

View Slideshow

PARIS — It isn’t only the U.S. that seems to have a bit of the Christmas blahs. Trees are in the windows and lights are glittering across Europe, but a difficult holiday season for retailers is expected there, too.

A spot check of European stores showed that many are optimistic, banking on luxury accessories, fragrances and cashmere sweaters to get shoppers spending. But analysts across the Continent and in the U.K. said low consumer confidence, endemic unemployment and high fuel costs could dampen the important yuletide shopping season.

In general, it seems the high end will fare best — as it so far has in the U.S. — spurred by some tourist trade, especially from Japan and China. Retailers also said Americans are trickling back, despite the high value of the euro and the pound against the dollar. And it seems that European shoppers are ready to shell out big bucks for powerful brands, executives said.

Jean-Michel Hallez, director of Galeries Lafayette’s store in Paris, said shoppers have been attracted to high-end accessories from Louis Vuitton, Prada, Dior and Gucci. Hallez said sales accelerated in November and that the store is gunning for a 6 percent increase in December.

“November was better than had been expected,” added Hallez. “Yet there are challenges. Shoppers are buying more gifts, but they are spending less on average.”

Analysts think the environment is least propitious for middle-of-the-road retailers (again, a pattern so far seen in the U.S., where Wal-Mart Stores Inc. already has been forced to switch course for the holidays and begin aggressive price promotions over the weekend). Some European stores also already have changed tactics.

In Britain, for example, the struggling Marks & Spencer has granted its staff of 67,000 an exceptional 40 percent reduction off Christmas shopping in an attempt to boost sales. And last Thursday, M&S held a one-day sale, slashing 20 percent off clothing, toiletries and homeware.

Early sales are expected to be widespread at stores throughout Europe, analysts said, as consumers begin to feel the pinch of weak or slowing economies. In a recent report, Lehman Brothers’ retail analyst, Frazer Ramzan, said he expected Christmas to be “disappointing” for U.K. retailers and that early price cuts would be needed to boost business.

This story first appeared in the December 6, 2004 issue of WWD.  Subscribe Today.

Consulting firm Deloitte in Paris said it expects consumers to do more comparison shopping. It added that more than 60 percent of Europeans are expected to shop at the last minute with hopes to profit from price reductions.

Footfall, the U.K. retail traffic monitor, said shopper numbers so far have been weak. Traffic in stores increased only 3.1 percent in the last week of November compared with an expected rise of about 10 percent. David Smyth, director of marketing and strategy at Footfall, said shoppers were “taking a break and waiting for better offers later in December.”

Europeans are expected to be thriftier this year. Deloitte said the average European household would spend about 4 percent less on Christmas this year than last. It predicts that Germany — Europe’s largest economy but one that has struggled for the last few years with burgeoning unemployment — will see the steepest decline, with a 38 percent projected drop in holiday sales. Holiday sales in Italy are expected to fall 20 percent.

Deloitte said December holiday spending should rise 20 percent in Ireland and 14 percent in the U.K.

Clothes are expected to fare poorly, which appears to be the case so far in the U.S., as well. As in America, Europe is expected to have a techno-Christmas, with video games, flat-screen televisions, CD players and mobile telephones among the top gift categories, according to Francois Forget, director of retail research firm Conseil Nationale de Sucursalistes de l’Habillement.

“Sales of electronics and appliances are on line to increase about 5 percent this year in France,” said Forget. “Clothing sales are down about 2 percent, but this is mostly due to price deflation.”

According to Deloitte, almost 40 percent of French consumers are concerned about the future economy and Deloitte projects that average household holiday spending will drop in France to 551 euros, or $731.18 at current exchange, from 565 euros, or $749.76, last year.

Hypermarkets are expected to suffer most in France. In September and October, sales of clothing at French hypermarkets, such as Carrefour, dropped 8.9 percent from the same two months last year, according to the Institut Français de la Mode, or IFM.  Meanwhile, in the same period, sales of clothing at department stores in France increased 3.1 percent, IFM said.

“Department stores have benefited from increasing tourism from Japan and China,” said Forget. “Despite the high euro, there have even been some Americans.”

Luxury ready-to-wear has sold briskly at Le Bon Marché, the upscale department store in Paris.

Confections from Rochas, Lanvin and Jil Sander have been top sellers, according to Severine Merle, the store’s image director.

“Generally, the trends are very feminine,” she said, adding that designs from Miu Miu, Marni, Vanessa Bruno and Diane von Furstenberg had been popular.

“The bestsellers are embroidered skirts, evening gowns and cashmere sweaters,” Merle said. “Brooches and fur scarves, Ugg boots and ornamented accessories are good.”

Lingerie also has been a surprise seller. “It’s becoming more of a Christmas gift category for us,” said Hallez, adding that sexy and cheeky designs, such as those in the new Kylie Minogue line, were most in demand.

“Cashmere sweaters and scarves for men are good,” he said. “It looks as if men are going to be getting more than socks this year.” Hallez added that fragrances from Dior, Guerlain, Chanel and Lancôme were selling quickly.

Despite Deloitte’s predictions of a sharp slowdown in holiday spending in Germany, some retailers there said Christmas so far has brought unexpected spending levels, leading them to believe the season could make up for the year’s accumulated losses. For the first 10 months of 2004, apparel sales in Germany decreased about 3 percent, according to BTE, Germany’s association of clothing retailers.

“We are very satisfied with the season’s start,” said a spokesman for Karstadt, one of Germany’s biggest department store chains. “Sales have been better than last year. The stores were packed right up to the close of business.”

Albert Eickhoff, owner of Düsseldorf’s high-end specialty store, Eickhoff, reported that sales so far were up by 10 percent compared with last year, while Hubertus Pellengahr, of the German retailers’ association, HDE, said the first weekend of Advent showed a strong increase in turnover.

Pellengahr believes German consumers are now making up for having held off buying for so long.

“If this keeps up until Christmas, we will hopefully be looking at positive end-of-year figures,” he said.

Once again, however, apparel fared less well than other sectors at the larger department stores. Such retailers as Kaufhof and Karstadt said sales were strong for digital cameras, plasma-screen TVs, DVD payers, laptop computers and mp3 players.

Beauty products, toys, perfumes and watches also have been highlights. Surprisingly, considering the country’s economic difficulties, consumers are focusing on top-of-the-range goods, many retailers said.

“People are really prepared to spend more on quality,” said Karstadt spokesman Elmar Kratz. “They are prepared to spend five, six or seven hundred euros on an espresso machine.”

A similar trend also has been noticed in clothing.

At upscale store Jades in Düsseldorf, store manager Biggi Heider reported that business had been brisk.

“Expensive jeans, such as Seven For All Mankind, Rock & Republic, Chip & Pepper and True Religion, are selling really well,” she said. “Brands like Juicy Couture and Amor & Psyche are also popular. We have customers with massive buying power who are not so concerned about the price.”

Jeweled belts, ornate brooches, expensive boots, negligee tops and delicate cardigans are particular favorites.

Petra Fladenhofer, spokeswoman for KaDeWe, Berlin’s oldest high-end department store, said luxury had been kicking strong.

“The most expensive fashion has been selling especially well,” she said. “It seems that, when people do buy, they are going for quality. They are prepared to spend money on global brands and major labels. Perhaps it is because in uncertain times like these, people are looking for security. Brand names provide that security.”

Luxury also is selling in Italy. Toni Tanfani, owner of two upscale stores in Ancona called Gisa, said sales were strong for new, special items. Tanfani mentioned cruise accessories from Gucci, Prada and Fendi, as well as the new Luella Bartley bag, among the store’s bestsellers.

“Brands still have a very strong appeal, and customers that know the brands will pay for that,” added Tanfani.

— With contributions from Adam P. Schneider, Paris; Samantha Conti and Nina Jones, London; Damien McGuinness, Berlin, and Luisa Zargani, Milan

View Slideshow