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).
Michael Busch Former CEO, Thalia
“The key is to create an ecosystem where customers can get everything they need. The real battle is not between different booksellers, but between different ecosystems.”
McKinsey: How do you think about the role of your stores versus your online business?
Michael Busch: Customers are very disappointed if they can’t find a book that they’ve come into a store to purchase, so we have developed an online reservation system that gets around this issue. About 25 percent of our online customers pick up in-store, and a good proportion of those will purchase the same amount again, on impulse, once they get to that store.
For urgent shopping missions, of course, the customer just wants same-day or next-day delivery, which is why both the online business and stores are vital. Asking which is more important is like asking whether you’d rather lose an arm or a leg. Sometimes the arm is better and sometimes the leg is better, but you need both.
McKinsey: What is the next big challenge?
Michael Busch: A broader issue is that books themselves are losing ground to other mediums. We’re in a fight against on-demand streaming platforms—both audio and video—for the time and money of our customers. The big hope is that other national and regional retailers are able to develop the sort of omnichannel excellence that brings customers back to downtown areas. Online platforms will never be able to deliver a human interface.
The key is to create an ecosystem where customers can get everything they need. The real battle is not between different booksellers but between different ecosystems. We want to show other companies what’s possible.
Barbara Martin Coppola CEO, Decathlon
“Our vertical business model helps us maintain the quality, affordability, and innovation that we value—and do it in a sustainable way.”
McKinsey: How are digital technologies helping you connect with your customers?
Barbara Martin Coppola: We are and will continue to be in an omnichannel world, where stores have an important role and are connected to digital touchpoints. Stores are evolving so that you can not only come and get personalized, expert advice but also receive services. They’re acting as circularity hubs where you can repair your bike, return products that you don’t use anymore, and buy new or used products.
Overall, our objective both online and in stores is not just to sell products—it’s to accompany people on their sporting journeys. In the future, combining physical touchpoints with personalized customer data from e-commerce could help us develop app features such as alerting people when it’s time to upgrade their equipment. Everything is connected in our customer journeys.
McKinsey: Where will future growth come from, especially looking at Europe, where the overall economic outlook is for slower growth?
Barbara Martin Coppola: Sports are still growing. What has changed is which sports are growing. For instance, fitness is going up, team sports have been going up, and cycling is having a revolution thanks to electric bikes in cities. Because Decathlon has more than 80 sports under one roof, we’re in a very good position to weather these fluctuations.
Circular business models are also an important source of growth. Two models in particular have had incredible growth: renting—especially for bikes—and Second Life, where we buy back equipment that people don’t use anymore and put it back up for sale in stores and online. These items fly off the shelf.
Decathlon is working to make these models available everywhere in Europe, and beyond.
Alexandre Falck CEO, BUT Conforama
“Our development model is based on hyperproximity. Our online presence enables us to offer the same range of products at a 1,000 m2 store in the middle of a small town as a 5,000 m2 store on the outskirts of large cities.”
McKinsey: What makes BUT and Conforama’s target value proposition unique?
Alexandre Falck: BUT and Conforama are deeply rooted in France, from our manufacturers to our distributors. Their ongoing success is a testament to their excellent salesmanship and their strong local networks, which extend to almost every small town in France. They provide custom work in partnership with manufacturers via a highly efficient and hyperpersonalized commercial model. Their core challenge is reconciling two opposing forces: our ecological responsibility for our environmental footprint and our responsibility to create value and develop our business. To balance our responsibility to run a profitable business that can continue to support an entire industry, we have to face ecological constraints head-on. We need to figure out how to keep selling affordable, ecologically friendly products while also supporting customers’ options to purchase secondhand furniture at a lower price point.
McKinsey: Customers place more and more importance on a seamless journey between a brand’s physical store and its online experience. Where does that leave the role of the store?
Alexandre Falck: To me, online and physical are intricately linked, not two separate channels. The customer will visit the store and be advised by a salesperson who will facilitate the sale, even if the product is not physically present in the store. Then the product will be delivered to the store three days later, when the customer will pick it up. The point is that a sale is no longer tied to either a digital or a physical channel.
A recent survey found that 84 percent of French customers continue to prefer physical stores. Those stores are essential to creating a warm, professional in-person experience. And with online-only brands, a shopper would never experience the personal attention that our salespeople provide.
Richard Flint President of Europe, Claire’s
“Being consumer focused and ensuring we learn continually based on consumer feedback are core to our operating model. We involve consumers in key areas to get their feedback in the moment before executing at retail.”
McKinsey: What is Claire’s unique value proposition?
Richard Flint: At the core of our value proposition is our piercing service. We offer a safe, fun, and reassuring experience whether you’re having your ears pierced for the first time or already have multiple piercings.
Beyond that, our brand was founded on the value proposition of creating self-expression. Our multicategory proposition—with everything from body jewelry to pendants, bracelets, and hair products—allows our consumers to fulfill whatever look they’re going for, whether it’s basic or premium.
We are also currently focusing on value. Every retailer, including Claire’s, raised prices because of inflation. Now it’s time for us to realign a bit and create great value, so we have new, lower prices across hundreds of SKUs in multiple different categories.
McKinsey: What are your growth levers beyond store expansion globally?
Richard Flint: We’re continuing to grow transactions and serve consumers through our value-added services. Our penetration in ear piercing varies by market. In more-mature markets such as the United Kingdom where piercing has been established for many years, a very high percentage of our revenue comes from piercing. In less-mature ones, piercing may traditionally be done in a pharmacy or medical setting. We are making a big push to educate and reassure consumers to grow that base. And that’s happening successfully in places such as Italy and Spain. We are also focusing on delivering the best possible product at the right price at the right time to our customers, something that sounds simple but is complex to do right. If we can achieve those things, we are poised for growth.
Miguel Mota Freitas CEO, Worten
“Stores can remove the biggest pain point customers have when buying online—returns— and solving this problem with a human touch is something that online pure players cannot do.”
McKinsey: Has the shift toward e-commerce affected how you think of transactions and the customer?
Miguel Mota Freitas: There are two things in retailing that most of us didn’t manage until 10 years ago: orders and customers. Most retailers—and this was our case—didn’t really manage customers; we managed transactions: The customer comes, buys the product, takes it, and leaves. Order management was even less of a priority because the transaction was complete immediately. Now, more than 50 percent of our business is about managing orders. Only about 40 percent of our sales are what we call grab and go. That’s very new for the company.
Putting customers more in the center of the organization is also a shift. Retailers now really measure customer satisfaction and the longtime value of customers, among other new metrics.
McKinsey: When did you see a step change in your omnichannel journey?
Miguel Mota Freitas: Probably the pandemic period, where we had the strongest market share gains. That created positive momentum in the organization. Midway through our journey, we felt that it wasn’t enough to be solely a very good omnichannel player in electronics. We challenged ourselves to become a generalist marketplace and get customers to visit us more often and buy more than just electronics. We came from being an offline retailer with about 20,000 to 30,000 SKUs to offering 10 million to 12 million products on our website—part of it sold by us, but a big part through marketplace operations and partners or sellers. It’s a successful formula because we are the most visited e-commerce website in Portugal.
Nicolò Galante CEO, Arcaplanet
“The bar to convince consumers to go premium is higher for specialist retailers, but it can be done through services, innovation, functional benefits, and marketing.”
McKinsey: How does your operating model align with your cost model?
Nicolò Galante: We are quite good at working cross-functionally. To be omnichannel, everything needs to be centered around the customer, and a company cannot do this by working in separate divisions or categories. So we don’t have separate pricing teams for the store and for e-commerce. We don’t have separate category managers for the store and for e-commerce. Every function mirrors this customer-centric, omnichannel, cross-functional view.
We are also integrated at the product level, which helps make our brand more distinctive and more unique. We now produce almost all the dry food we offer, and we are building an R&D lab at the end of this year for wet food and accessories. We want to move more into product design, if not proper production.
McKinsey: How do you see the role of the store changing?
Nicolò Galante: Even in ten years, I think stores will be the main source of sales in our industry. The challenge is how to keep stores’ profitability at the level that it is today.
I think the store should be a point of service, a point of advice, and a point of differentiation. If you can go to a store and meet a professional who can give you good advice, then stores will be invaluable to customers.
Ten years ago, people were hired just to replenish the shelf, but the next step will be to train them to be consultants. It’s a massive change in HR because it requires new training, a change in our recruiting metrics, and a change in our incentive system and compensation.
Thierry Garnier CEO, Kingfisher
“If you want to compete against major online retailers, you have to play to your strengths, which means leveraging your store network to compete on speed and super-fast click & collect.”
McKinsey: What do you think your customers will expect from you in years to come?
Thierry Garnier: We feel that the customer of tomorrow will want a combination of speed and choice. We invested heavily in our marketplaces, and we use our stores rather than warehouses to make deliveries very quickly. We also vary our store sizes to fit different customer needs. We see great upside in serving professionals alongside casual customers in larger stores.
More broadly, stores should offer an experience that gives you a reason to visit. It could be customer advice, physical interaction with a product, the convenience of a family visit to the store, or just the proximity that makes collecting your purchases easier.
However, we think of the strongest players of tomorrow as neither pure brick-and-mortar retailers nor pure online players. To stay ahead, you need to be able to offer both an in-store and an online experience of very high quality.
McKinsey: How do you empower stores to become more agile and independent when you have a strong online strategy?
Thierry Garnier: When stores are at the center of your model, it’s important to give them responsibility across the whole range of sales they can capture, including owning the e-commerce P&L [profit and loss] within their store P&L. That works only if stores are offered incentives to support any transaction configuration, even for online sales when they don’t encounter the customer.
CEOs will need to spend more of their time on tech issues. I spend about 20 percent of my time on tech, defining priorities for data and marketplace approaches, setting budgets, and shaping our cloud strategy. That’s where teams need support. We’re building two tech hubs in Europe to help us do just that.
Sebastian Gundel CEO, OBI
“Our proposition to the consumer—on all channels and touch points—is to become the number one home and garden destination in Europe.”
McKinsey: How do you see the role of the store evolving?
Sebastian Gundel: Five years from now, our OBI DIY stores will still have the same role in terms of immediate product availability, ease, and convenience of shopping. But we need to adapt our assortment by category. What is an immediate purchase? What is a planned purchase? Where do I need a broader variety of offerings, and where not? The key challenge in our stores is how you convey this to the customer. Today, our store employees mostly sell what’s in the store. But in the near future, they will also be able to sell what’s not in the store. You’ll find items on the screens or, ideally, in your app, which when opened in the store allows our people to then take an assisted-selling approach.
McKinsey: How do you see this transition toward “do it for you” happening?
Sebastian Gundel: A year ago, we launched end-to-end solutions where customers have a request—such as “I want a solar panel on my roof”—and we find a local partner for them to install the project and follow up to make sure everything is executed in a proper manner. We have 54 years of heritage and have therefore earned trust and established a reputation for competence. Combining our brand and our customer relationship with the competence of our selected partners is our proposition, and it works well. It’s completely uncharted territory, but we are so far meeting our business case assumptions with mid-double-digit GMV [gross merchandise value] after 18 months.
Saskia Egas Reparaz CEO, HEMA
“We don’t believe in the race to the bottom. Instead, it’s a race to add value.”
McKinsey: How do you think about affordability, given that discounters are gaining market share?
Saskia Egas Reparaz: We believe there’s always a market for good-quality items that are sold at a good price. We do, however, always need to be aware of the price point for each product at which consumers become annoyed. This price level will depend on the reference item for each product. Consumers may be willing to pay a bit more than this reference price for a better-quality everyday product, but they won’t pay twice as much.
These sorts of category-based calculations should never stop. Every time you consider a new product or supplier, you should ask whether your product is adding enough value for the price. There was a time when the shopping experience itself was enough to persuade customers to pay more for good quality, but those days are over.
McKinsey: What would be your one wish for your industry?
Saskia Egas Reparaz: We need to stop the race to the bottom in terms of product prices. It’s simply not sustainable. Resources are scarce, and we need to move away from the mindset that we can just buy things and then throw them away. Europe is asking companies to do more to decrease our impact on the planet—which we at HEMA embrace—but we need to do that in a way that is affordable, and we have competition that does not need to play based on the same rules. We need a level playing field for the industry, which means more standardization on what is expected in terms of sustainability and responsible production.
Sander van der Laan CEO, Douglas Group
“We need shopping environments with an attractive portfolio and variety of brands where people want to go and shop, not just at Douglas but also at other stores.”
McKinsey: How important is the service aspect of the in-store experience?
Sander van der Laan: Douglas has 15,000 beauty advisers. You do not walk into a Douglas store, grab your products, and fill a basket. There is a lot more interaction and advice between the adviser and the customer. We also offer mini treatments on the shop floor, and there are some services that are free of charge.
In addition to that, we are seeing a lot more beauty salons, wellness centers, massage parlors, and nail studios. This is a booming industry, and we want a share of that, especially in the categories we are active in. In certain stores, these categories have become a sizable percentage of sales; it’s not a rounding error anymore.
McKinsey: What is your hope for the future of the retail industry as a whole?
Sander van der Laan: We believe in physical stores as an important channel and part of social life. We need shopping environments with an attractive portfolio and variety of brands where people want to go and shop, not just at Douglas but also at other stores. And this is also why we want to provide more than just a sale and to provide services. I hope brands continue to invest in retail—and not only the retail brands but also beauty and other brands.
Answer condensed for length. Download the report to read the full interview.
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.