With a population of over 80 million and one of the world’s most robust economies, Germany is probably the biggest retail market in Western Europe.

With a population of over 80 million and one of the world’s most robust economies, Germany is probably the biggest retail market in Western Europe.

Three of the world’s 10 largest retailers are German – Lidl, Metro and Aldi – and have vast international networks.

However, despite this strong outward looking attitude, the German retail market is itself relatively insular and closed off to many international companies.

This could all be about to change, however, and British retailers could be about to benefit from tapping into Europe’s economic powerhouse.

At the moment, the only real downside to this opportunity seems to be Germany’s retail return laws, which are at present some of the most stringent in Europe. Retailers operating in Germany are required by law to offer free cash returns for 30 days after the transaction.

The direct impact of this strict consumer protection law is a much higher return rate than in the UK. According to some estimates up to 70% of purchased goods are returned in Germany, compared to roughly 20% to 25% in the UK.

Not only can this make it very difficult for small local retailers to set up shop in Germany, but in some cases it has also been a major prohibitive factor for overseas businesses looking to expand into this region.

Consumer rights laws in the UK similarly stipulate that shoppers have the right to a full cash refund within 30 days, but only for damaged or mis-sold goods.

For other types of returns, British retailers are able to offer an exchange or refund for store credit, giving consumers the freedom to change their minds, while ensuring a healthy revenue stream and profit margin.

Either way, returns put a great deal of strain on a retailer’s infrastructure. Accepting returns exerts pressure on both the front office logistics of moving around the products, as well as the back office financial functions for processing refunds.

However, by allowing for exchanges and store credit, UK companies have sufficient turnover to support this additional infrastructure, and can incentivise shoppers to make a firm decision whether or not to buy an item from their store.

German return policies, by comparison, require a great deal of resources, which means that the retail environment in Germany is best suited for very large companies.

The good news is that we may now be on the verge of seeing these strict return policies relaxed. There is speculation that Germany is about to change its retail laws, loosening the blanket requirement for retailers to refund all 30-day returns.

So what does that mean for British retailers? Germany has always been a very fruitful retail market, and as the eurozone inches out of its crisis years, consumer confidence is set to rebound.

The only real barrier remaining for smaller independent UK shops is Germany’s strict return policy, so let’s hope that the rumours are true and this restriction is about to be lifted. After all, isn’t that what the free market is all about? 

  • Dan Coen, Director, Zolfo Cooper