The Revival of Physical Retail in Europe

By Alberto Chiumento and Paolo Laudani

The rise of online shopping has led to numerous store closures, raising concerns over the future of retail malls and high streets. However, recent trends in Europe suggest that physical shops are regaining popularity and play a crucial role in driving online sales.

European retailers are investing in brick-and-mortar stores to boost both online and offline sales while competing with major e-commerce players like Shein. Following the end of COVID-19 lockdowns, there is a renewed enthusiasm for shopping in person.

Francesca Marini, a 28-year-old shopper in a Rome mall, highlighted her preference for seeing products in person and avoiding the delays of online purchases, stating, "I come to stores as I want to see things live, try them out, and have them immediately available."

Data from market research firm Euromonitor shows a slight decline in the total number of stores in Europe, down to 4.90 million in 2023 from 4.92 million the prior year. However, the total selling space has increased nearly 1%, and projections indicate a 2.7% growth by 2028 compared to 2022.

Thomas Joekel, portfolio manager at Union Investment, noted the importance of direct customer interaction in retail, stating, "This is easier to achieve if you have brick-and-mortar stores rather than just e-commerce. On e-commerce, you can only see pictures but you don’t feel, you don’t smell, you don’t talk to somebody, so it’s much more difficult to be optimistic or enthusiastic about a brand."

Demand for Outdoor Products

Since the pandemic, sports retailers have experienced increased demand for items such as running shoes and training gear. Deutsche Bank analyst Adam Cochrane points out that brands like Adidas and North Face have benefited from this trend towards outdoor activities.

In response, Decathlon, the French sports retailer, has added around 80 stores this year, bringing its global total to approximately 1,700 outlets. Italian retailer Cisalfa, known for sports apparel like Nike soccer shoes and Under Armour running gear, plans to open or refurbish 10 stores in Italy and has expanded into Germany with 75 locations after acquiring SportScheck.

The Impact of Physical Stores on Online Sales

Research indicates that having a physical store can increase nearby online sales by 10% to 20%. Cochrane explains that both opening a store and closing a store can significantly impact online sales dynamics.

Stefan Reiner, chief sales officer of mountain sports retailer Oberalp, stated, "The more stores are present in an area, the higher the interest in the online brand."

To attract customers, Decathlon has created hubs for equipment repair and rentals, complemented by areas for playing sports. Features like showrooms and interactive stations are merging physical and digital shopping experiences. In one Rome shopping mall, Decathlon has put table tennis tables at the entrance, enhancing the shopping experience.

Spanish retailer Inditex, parent of Zara, has introduced group fitting rooms with touch screens for requesting different clothing sizes. Meanwhile, Zalando, an online retailer, operates 15 physical stores in Germany, competing with pop-up shops launched by Shein across Europe and the UK.

Industry experts assert that shoppers increasingly favor the tactile experience and immediacy of in-store purchases. RBC analysts emphasize, "Consumers are choosing to return to stores as they’re rediscovering the leisure aspect of shopping." The convenience of options like click and collect has also added to the appeal, especially as consumers find it more challenging to be at home for deliveries.

Joekel from Union Investment highlighted the immediacy of physical retail: "Some people just want to buy a t-shirt and to go to a party or school. If you have to wait two weeks, this is simply too long."