Fashion Retail Faces Challenges from Frugal Consumers and Rising Costs

The fashion retail sector in Germany is grappling with a complicated economic landscape characterized by cautious consumer spending and escalating costs. Industry experts foresee a challenging year ahead for fashion companies, with increasing financial pressures likely to push more retailers into distress.

According to the German Textile, Shoe and Leather Goods Retailers Association (BTE), there has been a significant rise in operational costs, with businesses facing around a 20% increase in expenses related to energy, rent, and wages compared to 2019. This surge in costs has already led to well-known companies like Galeria, Esprit, and Sinn filing for insolvency in the past year.

Consumer behavior remains a major concern; a recent survey conducted by the price comparison site Idealo revealed that half of the respondents are cutting back on clothing purchases. The BTE reported that retail sales in the apparel sector, including physical stores and online retailers, reached EUR67.5 billion in 2024, which is comparable to the previous year despite slight price increases.

The situation is particularly precarious for brick-and-mortar clothing retailers, which suffered severe losses during the pandemic. Although sales began to recover, they have not returned to pre-pandemic levels. A survey of 150 retailers found that only one-third expect a significant increase in sales this year, while nearly 30% anticipate a decline of 1% or more.

Moreover, competition from Asian retailers is intensifying. The BTE president highlighted the bureaucratic hurdles faced by German retailers, stressing that the rules are untenable while low-cost goods are imported unchecked via platforms like Shein and Temu. He welcomed the EU's plans to implement stricter regulations on these imports.

Asian companies have significantly increased their market share in recent years. E-commerce expert Gerrit Heinemann from Hochschule Niederrhein estimates that Shein alone generated approximately EUR3 billion in sales in Germany last year, positioning it as the leading fashion retailer in the market when considering individual companies rather than group revenues like those of the Otto Group.