EMCC dossier on the European commerce sector
The European commerce sector faces an unprecedented number of challenges: greater competition, complex supply chains, changing demographics, increased migration, changing consumer and media trends and the difficulty of attracting skilled workers to the sector. In addition, the sector also faces challenges from outside Europe – the emergence of Asian economies and ongoing economic out-performance by the US. However, although these challenges pose a threat to some companies in the commerce sector, for others they can offer the opportunity for expansion and growth: many European retail and wholesale companies are improving competitiveness through acquisitions and mergers, the introduction of new technologies, restructuring, and innovations in product lines and human resources. This dossier aims to provide an in-depth analysis of the trends and forces shaping the sector, drawing primarily on recent, original EMCC research. It provides a sector mapping report, company and cluster studies, future scenarios and recommendations for change.
In the EU, the commerce sector is relatively large: it employs 24.5% of the total workforce of the non-financial segment of the economy, and produces 19.3% of the segment’s added value. Nearly 30 million persons were employed in the commerce sector in 2004, the largest proportion being employed in retail – 55% or 16 million people. The sector consists of more than six million enterprises; again, retail is the biggest subsector with approximately 60% of the enterprises.
There are significant differences between the EU Member States in terms of their share of total EU indicators in the commerce sector. This is demonstrated by the huge differences in labour productivity in the sector across the EU. In 2004, in the EU, the commerce sector (NACE G) had an average level of labour productivity of €33,900 per employee. The countries with the highest productivity were Finland (€49,500), Belgium (€49,300) and Denmark (€46,600), while the countries with the lowest productivity were Bulgaria (€3,000), Romania (€4,500) and Lithuania (€7,100).
The distribution of the size of the enterprises also varies considerable among European countries. The countries that have the largest proportion of very small enterprises (with only one person employed) are the Czech Republic (of which 70% of its enterprises are very small), France (61%) and Italy (60%). The countries with the smallest proportion of very small enterprises are Lithuania (21%), Germany (23%) and Ireland (24%). Furthermore, it should be noted that the commerce sector (distributive trades) is a sector with one of the highest proportions of micro enterprises.
This study focuses on the trends and drivers of change in the particular subsectors of car sales, repair and maintenance, wholesaling and retailing in general (NACE classifications 50, 51 and 52). The commerce mapping report (364 KB PDF) is based on data from a wide range of official national and European publications.
Because of the size of the commerce sector, and its importance to the economies of both Member States and Europe as a whole, changes in the sector have a profound impact on the local communities in which retail stores are located. Furthermore, procurement and supply chain management means that such changes impact far beyond these communities. Retail and wholesale companies operate in a socioeconomic context in which their strategic choices affect the welfare of many Europeans and increasingly that of many societies outside of Europe, as the internationalisation of trade continues.
Trends and drivers of change in the commerce sector
The EMCC commerce mapping report (364 KB PDF) identifies a range of important drivers of change affecting the environment in which the commerce sector operates, and hence the sector itself: concentration, complexity and price and cost pressures.
- Concentration is business concentration, an ongoing process as larger retailers continue to expand and European countries – and actors in the sector – engage more fully in the global economy. Concentration is also evident in relation to certain key retail locations, where spatial concentration takes place as a result of restrictive land-use planning and a desire for high-quality locations.
- Complexity is the result of the fragmentation of consumers and their volatility. This puts pressure on the distributive trades to respond rapidly to new consumer tastes.
- Price and cost pressures are inevitable, given the operating parameters of wholesaling and retailing and their need for a variety of inputs. Being efficient in terms of operation and the use of resources is one response; seeking out the best sources of supply is another.
These drivers for change will impact on the structure of the commerce sector. The sector can be characterised as expanding, polarised, innovative and open.
- It is expanding in both horizontal and vertical dimensions as retailers take on more activities and develop broader business strategies.
- As these strategies are successful, the larger companies grow in scale and can operate a wider range of store types: hence, the sector becomes more polarised.
- Innovation has been critical to development, in terms of the type of stores, operations, products and branding levels.
- The European market is open, which allows overseas retailers easy entry and thus increases competition. Meanwhile European retailers have begun to expand both within and outside the EU, seeking out new markets and exploiting advantages.
The drivers of change affecting the commerce sector also influence the activities that companies undertake, and the methods of retailing they use: this in turn alters the scope of retailing.
Retailers have become very good at managing all aspects of their business and developing their own business systems, approaches and practices. They have done so in terms of their own operations, their outsourced or partnered activities, and by exploiting their scale, data and reach. However, implementing these changes has perhaps made them less attractive as employers, just at the same time as their need for high-quality labour has increased. As a result, the industry may need to re-engage with the people and their needs, in order to better promote commerce as an attractive sector in which to work.
Commerce clusters – Birmingham and Warsaw
The dossier includes two studies of commerce clusters: one in the city of Birmingham in the UK, and one in the metropolitan area of the Polish capital Warsaw.
For more than twenty years, retail in Birmingham has been underdeveloped. However, the redevelopment of the city centre and new regeneration schemes have changed that. The increase in shopping numbers indicates that Birmingham is now perceived as an attractive place to shop. There are still several challenges facing the city. Although the level of educational attainment of young people has risen, over a third of those of working age in Birmingham and the adjoining town of Solihull are without any qualifications. As a result, the employment rate for working age residents is low and many are excluded from the labour market. High unemployment rates in Birmingham – especially among ethnic minorities and other people with few or no skills – mean that it is fairly easy to recruit unqualified or low-qualified staff. However, at the same time, it is difficult to fill some vacancies for better-qualified staff.
The Birmingham cluster study (221 KB PDF) is available online.
The retail market is still very competitive in the greater Warsaw area. Research indicates that – as the demand for large hypermarkets is already saturated, particularly in big cities – the best opportunities for growth and development exist in the so-called ‘new generation’ shopping centres, with recreational and entertainment facilities. Meanwhile, big retail companies such as Tesco and Carrefour have responded to this saturation of demand by opening chains of smaller stores. Another trend is an intensive process of consolidation – mergers and takeovers of existing stores and companies. Market analysts state that, in the sector, mergers and acquisitions are perceived as the only strategy for strengthening market position.
High levels of competition also mean that companies are reluctant to share information and to collaborate. Relationships between the stakeholders in the sector are marked by a lack of trust and a near-total lack of any cooperation. Another issue for the sector in Warsaw, given the extent of recent emigration from Poland, is the ongoing difficulty in recruiting skilled employees.
The Warsaw cluster study (249 KB PDF) is available for download.
Company case studies
The EMCC study of the commerce sector looks at four case studies of companies that are operating in different subsectors. These case studies illustrate the range of approaches to change management and restructuring, innovative business models, market strategies and the impact of socioeconomic drivers on company performance.
- Tesco PLC (166 KB PDF) is one of the world's leading international retailers. The UK-based company’s long-term strategy for growth is based on four key elements: to grow the core UK business, to expand internationally, to be equally strong in both non-food and food retailing and to provide new retail services in response to changing customer demand.
- Irma (86 KB PDF) is a Danish grocery retail chain. After a difficult period in the 1990s, significant changes have been introduced that focus on three key areas: the people in Irma, improved relationships with suppliers, and more intensive promotion of the Irma brand. Since the introduction of these changes, the company has boosted its productivity and has shown annual budget surpluses.
- Surface To Air (86 KB PDF) is a young French fashion and design company, launched in 2001. The company is a successful example of a new trend of merging fashion, graphic art and design in the one firm. Its client group includes a wide range of high-end brands such as Burberry, Cacharel and Comme des Garçons.
- Family shoe retail company (80 KB PDF): this company focuses on innovation, responsiveness to demand, distinctiveness, and producing in line with latest fashions. The company sells its shoes and accessories through five chains of shops. The company started as a small shop of only 14m2 more than 130 years ago; it has since grown to form a chain that today has more than 120,000m2 of retail space.
Future scenarios for the European commerce sector
The study drew up four scenarios (145 KB PDF) projecting the possible future development of the commerce sector, on the basis of the major trends and drivers likely to have a significant impact on the sector over the next 10 years. The objective was to create an analysis that can be used as a tool for developing long-term ideas for optimising the sector and the sustainable development of its workforce. The four scenarios represent realistic, internally consistent, and plausible pictures of alternative futures.
Scenario 1: The consumer in your hands In this scenario, consumers’ priority is their social life and the community in which they live. Shopping is undertaken for practical reasons, to acquire what is needed: consumers want to spend as little time shopping as possible. Consumer preferences prioritise quality and a sense of trust in products: local, organic and ethically sound production is a key element that consumers seek out. As a result, large international retail companies source more from local, high-quality suppliers, companies use e-commerce to make shopping easy for consumers, and marketing seeks to create a sense of trust, linking products and services to both local and broader values, including sustainability. Smaller companies benefit from opportunities community-based retailers and wholesalers, and local community stores experience a revival, as do some traditional skills.
Scenario 2: Peer-to-peer consumer sales Again, in this scenario, shopping is of limited interest to many consumers and therefore they use the most time-efficient methods, with e-commerce and shopping concentrated in shopping centres being preferred by many. Consumers spend more time on services that support their values and spiritual well-being, and many barter or sell second-hand goods to each other both in their own country and internationally. Large international companies focus on expanding in developing countries where growth rates are higher. In Europe, companies focus on efficient supply chain management, on innovation in international sourcing and on e-commerce. This results in a shortage of highly skilled professionals in some new technological fields and in international commerce, purchasing, management and e-commerce.
Scenario 3: The consumers’ way Consumerism in 2017 is more highly developed than at present, with consumers having high expectations. Shopping is seen a pleasurable activity, and consumers are willing to provide extensive personal information about themselves to companies in order to obtain a more personalised experience of trusted brands – in both goods and services. Consumers as a group are more fragmented, in terms of both age and tastes. Companies use new technology, including personalised promotion, to mass market low priced-goods, and seek to control costs through such means as diversification, mergers and acquisitions, and more efficient production.
Scenario 4: Sell it to the consumer With higher growth rates in Europe, a spirit of optimism prevails. New businesses are emerging in most countries, and multinational companies are forced to innovate to maintain their share of local markets. Local communities are strong and so is local trade. This is a society based on individualism, with consumers favouring products that signal their status and preferring shopping experiences with a high level of individual service. These demanding consumers see shopping as a meaningful activity and require extensive product information. In response, companies have personalised their marketing approaches.
The full set of scenarios (145 KB PDF) is available for download.
Agenda for change
Participants at the EMCC workshop ‘Commerce at the crossroads – the future of the commerce sector in Europe’ in Dublin on 19–20 November 2007 defined an ‘agenda for change’. The key recommendations are outlined below.
Challenges and opportunities
Further information sources
A number of other information sources regarding the commerce sector are available, including recent published works.