RBC Capital Markets released a research note highlighting deteriorating consumer conditions in Germany as a significant concern for European retailers operating in the region. The bank attributed the weakness to elevated living expenses that have prompted shoppers to become more selective and price-conscious in their purchasing decisions.
In response to these findings, RBC reduced earnings per share forecasts for H&M by 2% to 3% across the 2026 and 2027 financial years, based on assumptions of lower comparable sales and increased operating expenses. The bank established a price target of SEK175 for the Swedish fashion company while keeping its rating at sector perform. JD Sports faced steeper forecast reductions, with RBC cutting earnings predictions by 6% for both the 2027 and 2028 financial years and reducing its price target to 95 pence from 100 pence, following weaker-than-expected second-quarter results driven by sluggish US footwear sales.
RBC’s analysis revealed a pronounced shift in German retail consumption patterns, with physical store sales in the fashion sector declining almost 4% year to date while online channels grew 4% year on year. The bank anticipates this trend will persist given Germany’s e-commerce adoption rates remain below those of other major markets. According to RBC’s assessment, retailers with strong online capabilities and exposure to the digital channel, including Next and Zalando, are positioned to capitalize on this shift. Conversely, Action and H&M face greater risk due to their heavier reliance on brick-and-mortar locations.
JD Sports is planning to shutter approximately 40% of its roughly 100 German stores, a move RBC attributes to changing consumer preferences favoring single-brand retailers over multi-brand operators. RBC also noted that Associated British Foods, owner of Primark, must develop localized product offerings for the German market to address its current lack of online distribution infrastructure in the country.
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