Germany's Retail Industry Left Out in the Rain

Gloomy skies and dark clouds may be the weather conditions currently dominating most parts of Germany. But it's also an apt metaphor for the country's struggling retail industry reconciling itself to the fact that the lack of plentiful sunshine this summer might just mean fewer customers.

The textile branch especially is "dramatically affected by the bad weather," said Professor Johann Hellwege, business manager for the trade association for mid- and large-size retailers, BAG.

Ulrich Martinius of BAG agrees. "There's a clear decline of the average sales volume of the retail trade," said Martinius. "There's about 2 percent less profit from January to June 2004 as compared to last year".

Last year, at least in terms of the weather, was an extraordinary one. With the mercury hitting record levels of 40 degrees Celsius and more, one would think that Germans would be queuing up to buy the right accessories and outfits to beat the heat.

Instead, stores had to contend with people preferring to go swimming or cooling off under shady trees to trying on summer clothes in muggy shops. "Extreme weather conditions are always unfavorable," said Michael Scheibe, spokesperson for Karstadt, one of Germany's biggest department stores.

Focusing on price reduction

Bad weather aside, the German retail industry is also suffering from a general depression fuelled by a sluggish economy, rising unemployment and fears surrounding a new slew of social and labor market reforms. "Customers are more insecure than ever about their jobs and are trying to save money" says Scheibe.

Instead of relying on the highly unpredictable weather, retailers are now focusing on aggressive price reductions to attract customers.

"Rather than letting the products collect dust on the shelves, retail traders reduce prices" said Hubertus Pellengahr, manager for the Association of German Retail Sales (HDE). Discounts of up to 50 percent are possible. "If that does not suffice we carry on with price-cutting", says Karstadt's Scheibe.

Summer sales a saving grace

The one tried and tested method that stores can bank on to lure customers are the traditional summer clearance sales, usually held at the end of July -- a Mecca for bargain hunters.

However, the fixed end-of-July dates for the yearly summer clearance sales were abolished in June 2004. Instead a new law against unfair competition now allows shops to decide on their own about seasonal sales and discounts.

But changing old habits isn't easy. "The customers expect something at the end of July - the date is deep-seated in their heads," said Scheibe. Karstadt, for one, has begun to reinvent the summer sales as a Karstadt sale. Others are following suit.

The industry remains optimistic that the old trick will work.

Scheibe hopes that bargain hunters will buy summer clothes for holidays in warmer countries.

Pellengahr has another theory. Summer sales satisfy the customers, he says. "And contented customers might spend the money they saved with bargains on full price products."