The Netherlands, once a bastion of brick-and-mortar retail, is going throough a multifaceted transformation. From bustling city centers to quaint provincial towns, the familiar landscape of shops is morphing, due to several reasons that are reshaping consumer behavior and forcing businesses to adapt or perish. The fashion and apparel sector, in particular, is facing tough competition from online retailers, changing consumer preferences, and economic pressures, now further complicated by the explosive growth of discount retailers.

The digital disruption and discount divergence

The most significant change driver is, undoubtedly, the relentless rise of e-commerce. Dutch consumers are increasingly opting for the convenience and accessibility of online shopping, leading to a decline in foot traffic for traditional retailers. As per Statistics Netherlands (CBS), online retail sales in the Netherlands have consistently increased over the past decade. However, a parallel trend is emerging: the rapid expansion of discount stores, driven by economic uncertainty and inflation.

Table: Growth of online retail sales in the Netherlands

Source: Statistics Netherlands (CBS)

"The ease of comparing prices and accessing a vast selection online is undeniably appealing," says consumer behavior analyst, Annelies de Vries, from the University of Amsterdam. "For many, the physical store is becoming less about purchasing and more about experiencing or trying before buying. However, with rising inflation, another factor is now heavily influencing consumer behaviour: price."

Discount store takeover

Recent research by Locatus, reported by the Volkskrant, reveals a significant rise in discount retail. Nearly 120 discount drugstores and textile supermarkets have opened in the Netherlands in the past five years. This trend highlights the growing price sensitivity of Dutch consumers. "The higher the deal content, the sooner the consumer comes and buys," says sector manager Olaf Zwijnenburg of Rabobank, emphasizing the impact of inflation on consumer behavior.

Discount store growth (2020-25)

·         Medikamente die Grenze: +50 stores

• Kik: +30 stores
• Wibra: +34 stores
• Action: +31 stores

The bankruptcy of Blokker created an opportunity for discount retailers. Approximately 350 large retail spaces became available, which were quickly snapped up by chains like Wibra, Kik, Normal, TerStal, and Kruidvat. Kik, for instance, is planning to take over around 20 former Blokker locations. This case shows how economic instability can create opportunities for discount retailers to expand their footprint.

The fashion and apparel sector is particularly vulnerable to these shifts. The rise of fast fashion giants like ASOS, Zalando, and Shein, with their aggressive pricing and rapid trend cycles, has put immense pressure on traditional Dutch clothing retailers. Now those same retailers face competition from discount clothing stores.

Zeeman, while closing some branches, is still the largest discount clothing chain in the Netherlands, and that shows the need for lower priced clothing. The company is now focusing on online sales and southern Europe growth. This shows that even discount retailers are needing to adjust. "The fashion industry is facing a perfect storm," says retail consultant, Mark van Dijk. "Consumers are demanding more sustainable and ethical products, while also expecting fast delivery, competitive prices, and now lower prices due to inflation. This is a difficult balance to strike."

Headwinds and how to survive

Beyond the digital disruption and the rise of discount stores, several other factors are contributing to the challenges facing Dutch retailers. Rising operating costs is a bane. Increasing rents, energy prices, and labor costs are squeezing profit margins. Consumers too are prioritizing experiences over material possessions, leading to a decline in spending on traditional retail goods. Then there are sustainability concerns. Growing awareness of environmental issues is prompting consumers to demand more sustainable and ethical products, which can be more expensive to produce. Inflation and economic slowdowns too have reduced consumer spending, and amplified the want for discount options.

Despite the challenges, many Dutch retailers are finding ways to adapt and thrive. They are opting for omnichannel integration which involves blending online and offline experiences to provide a seamless customer journey. The focus is on creating unique and engaging in-store experiences to attract customers.

More and more retailers are now focus on niche markets which means they are catering to specific customer segments with specialized products and services. They are also focusing on personal interactions and providing excellent customer service. Investing in sustainable practices and offering eco-friendly products is another important step.

Retailers are using data to understand customer behavior and personalize offerings. What’s more, many retailers need to offer competitive pricing, or risk losing customers to discount stores. "The future of retail is not about choosing between online and offline," says de Vries. "It's about creating a seamless and engaging experience that meets the evolving needs of the consumer, which now includes a strong emphasis on value and affordability."

Thus the Dutch retail space is in a state of flux, and the coming years will undoubtedly bring further changes. Retailers that can adapt to the digital age, embrace sustainability, provide exceptional customer experiences, and offer competitive pricing will be best positioned to succeed. The fashion and apparel sector, in particular, must navigate the complexities of fast fashion, sustainability, changing consumer preferences, and the increasing dominance of discount retailers to remain competitive. The need to offer value, and lower priced options is more important than ever.