Retailers in the Benelux will face declining consumer confidence and increasing competition in the coming years, credit rating agency Moody’s says in a new report. Traditional retail chains are forced to make high investments due to the growth of online retail, which has a negative impact on profits and creditworthiness.
High transformation costs
Over the next twelve to eighteen months, conditions will remain difficult for retailers in the Benelux. It is only in the course of 2021 that Moody’s expects a slight recovery of the economy. Meanwhile, consumer confidence remains low, which will result in a slowdown in growth for many retailers: they may be forced to cut prices, putting pressure on profitability. For players such as Hema, DIY group Maxeda and Douglas, the outlook is not bright either.
After all, as customers in the Benelux increasingly demand online shopping and convenience, physical non-food retailers are becoming obsolete. They need to find new ways to meet their customers’ needs. Hema is seeking to reinvent itself in partnerships with colleagues such as Jumbo, Franprix and Walmart, while Maxeda is simplifying its business by combining the Formido and Praxis formats in the Netherlands. However, both retailers also have to deal with high transformation costs as a result. Local e-commerce players such as bol.com and Coolblue can expect to face increasing competition from Amazon and Veepee.com and will lose market share.
Growth in online sales of food products
Supermarkets will be less affected by economic conditions; there is also growth for leisure and personal goods: after all, there is an increasing demand for luxury and online media use. But the growth of online sales does threaten the market share and profitability of established physical retailers. E-commerce sales are growing strongest in categories where online emergence was historically low, such as do-it-yourself and especially food. In time, this could weigh on the profit figures of Carrefour, Colruyt, and Ahold Delhaize.
The impact of pure player Picnic remains limited for the time being, but it was the fastest-growing retailer in the 2015-2018 period and its market share is growing rapidly. Discounters such as Aldi, Lidl and Action have little to fear from online sales and will continue to gain market share, as will Jumbo. Moody’s expects that Colruyt and Ahold Delhaize will be able to defend their market share: they have the necessary scale, developed a strong private label offering and good online activities. Weaker players like Louis Delhaize and Carrefour, however, will feel the pressure on prices from discounters more. In Belgium, hypermarkets are suffering from structural problems after all.