The ongoing migrant crisis in Europe is likely to dent public finances, put additional pressure on some of the Continent’s most economically troubled nations — but not directly impact retail trade, tourism flows and the consumer psyche.
That’s the verdict from a number of observers as Europe reels with an unprecedented wave of immigration from Syria and other countries in the Middle East and Africa.
“The refugee crisis will have emotionally affected millions of European citizens as a human crisis, but putting emotional and moral issues aside, I think it is unlikely to have any immediate impact on consumer sentiment,” said An Hodgson, income and expenditure manager at Euromonitor International. “What will be more obviously impacted will be public finances, as the refugee influx will, to various extent, increase public expenditure in European countries depending on their response to the crisis.”
Hodgson noted that border countries — particularly Cyprus, Greece, Italy and Spain, which saw the largest number of refugee arrivals this year — are the most impacted. Serbia, Croatia, Hungary and Austria also have seen a huge influx of refugees from the Middle East over the last month, with significant economic impact.
“Unfortunately, these are also among the weakest economies in Europe, and so the refugee influx and government responses to it are putting serious pressure on public finances of these countries, which already have to make huge spending cuts in an effort to curb government borrowings and reduce debts,” Hodgson explained of the border nations.
Dr. Ben Voyer, associate professor, marketing department at ESCP Europe Business School and visiting fellow in the social psychology department at The London School of Economics and Political Science, said that any potential effect of the migrant and refugee crisis on European consumer behavior would depend on how long the situation lasts.
“If this is the beginning of something that is here to stay, [the crisis] could gradually start to have an impact,” said Voyer. “Given that consumers are rather slow at changing their behaviors, I would say that only a crisis that settles for one to two years would start affecting consumers’ behaviors. In addition, once the change process has started, it would take some additional time to start noticing the impact of changes.”
If they do alter their behavior, Voyer noted that research on extreme events — such as natural disasters and terrorist events — indicates that consumers “actually increase spending on comforting items, [such as] comfort food and stress-related products such as alcohol or cigarettes,” he said, calling the phenomenon “coping consumption.”
Ashok Som, a professor of global strategy in the management department at ESSEC Business School, said that he does not expect any near-term impact on tourism or discretionary spending, noting that “the luxury, fashion retail business is immune to such shock events on a long-term basis. Rich becomes richer and poor becomes poorer is the harsh reality of our capitalist wealth-creation model.”
There are those, such as outspoken British designer Vivienne Westwood, who are pessimistic about the future.
“The migrants are not a temporary crisis. The crisis is mounting. There are many war refugees and three times as many climate refugees. All of them are people who can no longer live where they were born,” she said. “I hope we face reality in time to save ourselves. We will all be migrants soon.”
Germany has borne the brunt of the crisis, with about 800,000 refugees and migrants expected to have entered by the end of 2015. Chancellor Angela Merkel said it was now setting aside 6 billion euros, or $6.7 billion at current exchange, to handle costs related to the refugee influx, and Merkel personally said this sum could conceivably go up to 10 billion euros, or $11.2 billion.
To put this into context, however, Germany’s total government expenditure is expected to total nearly 1.4 trillion euros in 2016, so 10 billion euros would account for about 0.75 percent of the country’s total public expenditure in 2016, according to Euromonitor calculations.
German consumer sentiment has been improving over the last five years, but Nuremberg, Germany-based market research company GfK reported economic expectations and willingness to buy declined for the third month in a row in August.
Rolf Bürkl, senior manager of Industry Financial Services, said this could be partly attributed to the refugee crisis. “Apparently some consumers are unsure what consequences the large influx of refugees will have for them. The September figures [to be published Oct. 24] will surely provide further information to what extent consumers have been affected by this.”
Jürgen Dax, director of the German Apparel Retailers Association, said he doesn’t expect the crisis to have any short-term effect on business or consumer behavior.
“In the short term, I’m not concerned that consumers will be made nervous by the situation,” he said, noting that in the midterm, however, there will definitely be greater demand in the less expensive apparel sector.
Analysts are also largely sanguine about short-term effects. Urs Müller, head of the consumer goods and retail practice group at Berlin’s European School of Management and Technology (ESMT), told WWD: “I don’t see any predictable negative effects of the refugee crisis for the German consumer market. There are no indications that it would affect the total disposable household income, there are no debates on tax rises and there are no consequences for existing social transfer payments.
“There could be a slight positive effect, albeit restricted regionally, temporally and in regard to the market positioning,” he continued. An influx of 800,000 people this year equals a rise of the German population by one percent, he pointed out. “This one percent needs to buy clothes as they arrive empty-handed — so there should be a slight positive effect for the lowest price segment of the consumer markets once they receive social transfer payments.”
Roland Döhrn, division chief of the Macro Economics and Public Finance Department at RWI, the Essen, Germany-based center for economic research, suggested that the business climate in Germany could be affected in the short term by the money now needed to house and accommodate the refugees. But it’s not an immense sum” for Europe’s strongest economy, he pointed out.
In the mid-term, those refugees could positively impact the German economy. “Germany’s population is aging, and we now see there are many jobs that are difficult to fill. The new influx of people could lead to those positions being filled, which would be favorable to the economy,” Döhrn said. “While noting information was lacking as to the exact age and family status of the refugees, most are young and we can presume that many of them will take jobs, paying into the government coffers” in contrast to Germany’s growing cadre of pensioners, he added.
Karl Brenke, researcher in the department of Forecasting and Economic Policy of the German Institute for Economic Research (DIW) in Berlin, is not so sure. “There will only be slight effects on the labor market. In the intermediate term, the downward swing of unemployment will be subdued slightly because many of the immigrants don’t speak the language and will have difficulties integrating into the labor market,” he said.
Euromonitor’s Hodgson noted that “fears of the migrant inflows” are unfounded as it is overly simplistic to assume a direct link between a high net migration rate with high unemployment and low economic growth rate.
“In 2007, net migration into the EU peaked at 1.7 million, and yet real GDP growth in the whole of the EU reached 3.3 percent,” she said. “What is more, a number of European countries including Germany and Italy have rapidly aging and even declining populations and therefore the latest arrivals of migrants — most of them are refugees of working age and their young families — can even be beneficial to these economies.”
The crisis has already had one concrete effect on Germany’s fashion business. As reported, Zalando, Bread & Butter’s new owner, canceled the planned B2C event next January as two hangars at the show’s venue, Tempelhof Airport, are to be used as temporary refugee shelters. “A fashion party hardly suits the situation,” said spokesman Boris Radke, and Zalando is currently working on plans for a charity event to support the refugees instead.
Turkey, which has a longer experience with a large influx of migrants, has seen little impact on the purchasing habits of fashion consumers, despite a plummeting currency.
Against a population of 72 million, Turkey now shelters nearly 2 million Syrian refugees, more than 300,000 of whom have found their way to Istanbul, which is also the hub of the fashion business.
Five years into the conflict in Turkey’s southern neighbor, Syrians have become a highly visible feature of urban life, forming a new economic underclass struggling to make headway in an already small employment pool. Thousands in dire need are spotted on street corners and sleeping rough in public parks, pricking the public conscience but not denting consumption, analysts say.
“Turkey has received several refugee influxes in the past and has its own poor in the east who live in equally if not more dire conditions,” said Seref Fayat, the chairman of the Turkish Clothing Manufacturers’ Association, which is based in Istanbul. “Turkish mass and luxury consumers in fashion, therefore, are pretty much immune to the psychological repercussions of the refugee crisis and have not changed their purchasing habits.”
Seref’s views are echoed by Esna Betul Bugday, an expert in consumer behavior at Hacettepe University in Ankara.
“Syrian refugees are begging at shopping mall entrances all the time, but even the most conscious consumer who would feel some kind of responsibility cuts down on food consumption — not necessarily clothing,” she said. “Although clothing is listed as a basic human need, in today’s rampant consumerism of contemporary society, fueled by fashion advertisements, there’s a very thin line between what is a need or luxury.”
European shoppers were unlikely to react differently to the refugee crisis or change their lifestyles since their character profile was more individualistic than communal, Bugday asserted. “Turks have a stronger sense of empathy and are known to be more hospitable as a nation compared to an average European, but have not changed their retail consumption habits because of the Syrian refugee influx,” she said. “In Europe, we’ve seen images of warm welcome in Austria and Germany but the majority would still expect their states to take action rather than being individually involved at the limits of changing their ways of consumption.”
The swelling urban population has generated an unregistered refugee workforce that could threaten Turkey’s textiles sector as well as manufacturers in Europe, industry insiders claim.
“We sometimes hear about small- or medium-scale garment workshops remaining open overnight and recruiting cheap Syrian labor to fill their production gaps,” Fayat said. “Reputable international brands immediately cut ties with production houses when they hear about violations. This phenomenon, however, might become an issue also in Europe if refugees, striving for better lives, are not accommodated properly in textile-producing countries like Italy and France.”