Over the past five years, nongrocery retailers in Europe have faced twin challenges: navigating fierce macroeconomic headwinds and a heightened competitive landscape while catering to increasingly selective consumers. On the first count, inflation-adjusted sales have yet to return to 2019 levels in all top European markets, and generalist marketplaces and discounters have ignited a race to the bottom on price and quality. Balancing sustainability with growth poses a dilemma to retailers as margins continue to erode.
On the second, consumers continue to exercise caution in their discretionary spending, favoring travel and out-of-home activities. They are also demanding seamless omnichannel experiences and higher sustainability standards, raising the bar for retailers striving to capture their attention and loyalty.
Building on the success of previous reports dedicated to grocery, fashion, and beauty,1 State of Retail 2024—Europe: Transition and transformation in nongrocery retail, delves into the key trends that will shape the nongrocery industry in 2025 and beyond. This report offers new insights and perspectives that we hope will help retailers navigate ongoing uncertainties and seize future growth opportunities (see sidebar “About the research”).
The state of retail
CEO sentiment on the nongrocery retail industry
A majority of the European nongrocery CEOs we surveyed predicted market stabilization in 2025, with more than 75 percent expecting conditions to either improve or remain the same. These results reflect cautious optimism as the industry adapts to ongoing economic challenges. Looking back, 40 percent of leaders described the industry as challenging and complex in 2024, and one-third indicated they had focused on prices.
Margin pressures and consumer downtrading, driven by rising costs and heightened price sensitivity, remain top concerns for CEOs in the coming year (exhibit). Executives are prioritizing investments in omnichannel experiences to meet evolving consumer demands, along with expanding private label offerings.
One-third of CEOs anticipate that capturing consumers’ renewed purchasing power will be the top challenge for 2025. At the same time, retailers see opportunities to improve online and omnichannel experiences and innovate with higher-quality products.
More than 70 percent of CEOs believe that by 2030, delivering a seamless omnichannel shopping experience will be the cornerstone for success. Approximately one in three executives also cite factors such as developing robust private label strategies and reinventing store formats to amaze customers. On the other hand, only 20 percent of leaders believe improving the sustainability of products will be important to win in their segment by 2030.
Four trends have shaped the nongrocery retail industry in recent years, and our analysis suggests these same trends will continue to be influential in the years ahead. (For the view from the C-suite, see sidebar “CEO sentiment on the nongrocery retail industry.”)
Macroeconomic headwinds
Over the past five years, surging input price inflation, the COVID-19 pandemic, and geopolitical tensions have profoundly affected retailers’ costs and global supply chains. Although the sector’s nominal turnover grew by 2.3 percent a year from 2019 to 2023, it declined by 1.8 percent when adjusted for inflation. Categories such as furniture and DIY were hardest hit. Adjusted for inflation, nongrocery sales remain below 2019 levels in all geographies. The persistence of macroeconomic headwinds, such as elevated prices, has led consumers to prioritize grocery purchases, trade down, and delay spending on household goods. According to our latest consumer survey, more than half of low-income households have saved as much as possible in the past 12 months instead of spending.
Amid this environment, most top European markets are expected to grow 0.6 percent through 2028, adjusted for inflation (Exhibit 1)—though the dynamics vary by country and category.
Demand on nongrocery categories tied to local purchasing power
Consumer demand for discretionary items remains closely tied to purchasing power, which varies significantly across European markets. In nations with higher incomes, such as Germany and the United Kingdom, nongrocery items account for more than half of retail sales. French consumers, however, have lower spending per capita on nongrocery goods and tend to allocate close to 60 percent of their budget to grocery shopping (Exhibit 2). A deeper analysis of consumer purchases reveals differences in category appeal across countries. German household spending on furniture exceeds that of other European households by approximately five to ten percentage points, Polish consumers have the largest share dedicated to electronics, and fashion2 accounts for the lion’s share of Italians’ nongrocery budget.
Rise of omnichannel journeys
E-commerce penetration increased rapidly during the pandemic, although some of these gains in market share were recaptured by brick-and-mortar retail postpandemic. More recently, e-commerce started increasing again, but growth remains below 2019 levels. Still, online was the fastest-growing channel in 2023, at 3.3 percent overall, and online penetration is expected to progress steadily across nongrocery retail categories.
Its growth stems from the greater presence of omnichannel journeys in consumers’ shopping habits: more than 50 percent of consumers reported using both online and in-store options to research and purchase nongrocery items. This figure rises to more than 60 percent in retail categories such as sporting goods, leisure, consumer electronics, and furniture. Although nongrocery retailers seem to be maintaining their position regarding consumers’ future spending intentions, department stores will be increasingly challenged by online resellers, which are gaining ground across all geographies (Exhibit 3).
The winners of 2023
Retailers that were able to capitalize on the market forces outlined above—whether through strong online presence, higher convenience, broader range, lower prices, or sustainable or circular offerings—emerged as the winners of 2023 (Exhibit 4).
From a channel perspective, a strong online presence was a clear asset. Compared to 2022, online was the fastest-growing channel in 2023, at 3.3 percent overall across categories, except for pet care and beauty and personal care where other channels grew more rapidly. Growth of online sales was particularly strong for sporting goods (around 7 percent) and pet care (around 12 percent). On this playing field, retailers continue to face competition from generalist online retailers. For example, online retailer Allegro grew 280 percent since 2019, while nongrocery retail overall grew only 12.9 percent (3.1 percent a year).
Discounters such as Action and B&M have also gained market share, though not in all categories. In pet care, discounters were the fastest-growing channel, increasing 14 percent. Discounters and everyday-low-price players also saw double-digit or high-single-digit growth in beauty and personal care (10 percent) and sporting goods (6 percent). However, the appeal of discounters seems to vary by geography: compared with 2022, discounters and everyday-low-price retailers achieved the highest growth in Poland (15 percent) and Spain (10 percent).
Retailers with sustainable or circular offerings in certain categories also experienced strong growth. This is especially true in consumer electronics and appliances, where refurbished items allow consumers to get a better value for their money, and in sporting goods, where equipment rental and secondhand purchases are on the rise.
Finally, despite the competition from online players and discounters, we observe many pockets of growth in the nongrocery retail industry. To begin with, pet care is the only category to have recovered beyond 2019 levels in real terms. Beauty and personal care, though below 2019 levels in real terms, is also seeing growth more recently (8 percent).
Characteristics of European nongrocery retail consumers
In addition to conducting country and industry analyses, our research explored the preferences and behaviors of consumers. Five characteristics stood out.
First, consumer optimism is returning, but European households remain cautious about future spending. Consumers are expected to reduce spending in the short term on furniture, DIY, electronics, and sporting goods items, while travel is favored. Looking ahead, one in five consumers plan to increase nongrocery spending, with pet care being the only category showing positive purchasing intent3 two years from now.
Second, consumers are more likely to trade down on discretionary categories than on grocery or pet care. Although more than 60 percent of consumers actively seek opportunities to trade down, they are not doing it mindlessly. They opt for lower-priced retailers and discounters, especially for sporting goods, leisure, and furniture. Sometimes they delay their purchases altogether or reduce their basket size. Consumers are looking for more than just low prices. One in three shoppers prioritize good value for money when shopping, which also includes great promotions and discounts, a wide product range, trustworthiness, and a fun shopping experience.
Third, our survey found consumers don’t profess strong loyalty to nongrocery retailers and are instead inclined to explore a wide range of retailers and channels. Each quarter, approximately 20 percent of consumers switch retailers or brands for their purchases. Moreover, about 80 percent reported considering more than three retailers for their most recent purchase and buying from two to three companies in each category over the past year.
Fourth, climate change and sustainability are still on the minds of European consumers. Thirty percent of survey respondents cited sustainability as their second-greatest concern, right behind rising prices and inflation. Sustainability is also an expectation: across all segments, more than one-third of consumers reported paying close attention to environmental friendliness when shopping for nongrocery goods. However, this awareness of sustainability has not yet influenced buying decisions. When asked whether retailers offering a broad range of sustainable products is important in purchasing decisions, consumers ranked this driver at just 32 out of 40, on average.
Last, more than one-third of consumers cite convenience as the dominant factor in their in-store and online purchasing decisions. Still, more than one-quarter of European consumers prefer to buy goods at physical locations for the chance to touch and feel items, reinforcing the value of the in-store experience.
Six value themes for nongrocery retailers
Collectively, these trends and consumer behaviors are presenting numerous challenges to the business models of nongrocery retailers. To thrive in this environment, they must excel on all fronts. Enhancing both revenue and profitability will be crucial to finance their transformation. Six value themes hold the key; the first four seek to boost revenues, while the last two aim to improve margins (Exhibit 5).
The full report provides a detailed examination of the steps nongrocery retailers can take in each theme, examples highlighting industry leaders, insights from EU executives, and deep dives into six nongrocery categories.
The years ahead will present plenty of obstacles for nongrocery retailers. While growth across Europe may be modest, opportunities can be found in specific markets and categories. Leading retailers will likely monitor consumer patterns, tailor their product offerings accordingly, and expand their reach by embracing adjacent services and innovation. The insights in the full report provide a valuable reference for retailers as they chart their own path to growth.