Market Monitor Consumer Durables Germany 2017

• Rising consumer prices could act as a brake on further spending
• Smaller brick-and-mortar retailers continue to struggle
• Payment terms range from 30 to 60 days

According to the German Statistics Office, non-food retail turnover increased 1.6% year-on-year in 2016 – the seventh consecutive year of growth, and further growth is expected in 2017. German consumer durables retail benefits from the country´s robust economic performance, with household consumption expected to rise 1.6% in 2017 following growth of 1.8% in 2016. Demand is driven by low unemployment and increased household purchasing power. However, rising consumer prices (expected to increase to 2.1% in 2017, after 0.5% in 2016 and 0.2% in 2015) could somehow act as a brake on further spending.

For the furniture segment, the German association of furniture industries BVDM recorded a turnover increase of 2.5% in 2016, reaching EUR 33.4 billion. In 2017 sales are expected to be more than EUR 34 billion. According to the German Electrical and Electronic Manufacturers' Association ZVEI, in H1 of 2016 manufacturers sales of large electric domestic appliances increased by almost 5%, while manufacturers’ sales of small electric domestic appliances rose 3%.

In all German consumer durables retail segments a concentration process is on-going, with a few large retail chains generating the majority of sales. Therefore, smaller and mid-sized retailers are still struggling to cope with the fast growing market leaders. At the same time, they are facing additional pressure from online retailers (in 2016 online sales again grew more than average, by more than 10%). Therefore, restrained future prospects are expected for smaller brick-and-mortar retailers in subsectors, where e-commerce has rapidly increased market share (e.g. consumer electronics, electrical domestic appliances, furniture, leisure articles, clothing), especially in segments where sales development highly depends on weather conditions (clothing, leisure articles). The best way for smaller retailers to survive in this very competitive market is to join a large purchasing association and to compete with e-commerce by providing outstanding service, e.g. advisory, easy return of goods, etc.

In general, payment terms in the consumer durables retail segment range from 30 to 60 days, however they can extend to more than 120 days depending on the market power of individual retailers. Payment behaviour in the German consumer durables sector has so far remained both good and stable, and we expect no major changes, as the general outlook for all subsectors is positive. The sector´s insolvency level is low, and no major increase is expected in 2017.

We still see consumer durables retail as a medium-risk sector. Despite persisting sales growth, we monitor more closely the performance of smaller players, who are generally more exposed to risks due to larger players dominating the market. We are also more cautious on segments dependent on weather conditions, such as clothing and leisure articles retail. We closely observe the growing competition between online and brick-and-mortar retailers. Price transparency, made available to consumers by online retailers, maintains pressure on margins along the whole value chain.

In segments with a steadily increasing share of e-commerce we try to obtain interim accounts in order to continuously check if buyers are able to keep sufficient margins. When businesses cannot pass on increased costs to customers/consumers or compensate for this with savings elsewhere, they might demand extended payment terms. We monitor payment behaviour closely in all subsectors and inform our customers immediately of any deterioration.

We do not cover newly established firms during their first year of business unless they are members of a well-known group or have branched out from an established company.