European retailers may not be a recovery play

By Mark Potter - Analysis

LONDON (Reuters) - Europe's retailers are taking drastic action -- hoarding cash and cutting prices -- to cope with a looming recession. But even if they are successful, the industry is facing structural changes that may deter investors.

A glut of new shopping centres, the rising cost of importing goods from China and the growing popularity of Internet shopping are posing challenges to store groups from London to Moscow.

The effects will vary according to country and product category, but are likely to be felt across the industry.

"When in 18 months or two years or however long it's going to be until this period of economic hardship is over, I think the retail industry will remain a much lower growth, much lower margin industry than the one we've all come to know for years," said Richard Hyman, retail strategist at consultancy Deloitte.

Analysts said retailers could be among the biggest casualties, while those in less developed economies with younger populations, like eastern European countries, may fare better.

Grocers, with their scale and focus on essentials, and niche players in growth markets, like gaming, are also better placed, while electricals, home improvements and clothes stores could be hit by reliance on imports and exposure to online competition.

Retail volumes in the European Union's 27 countries fell 0.4 percent in the year to September, and economic confidence across the region plunged to 15 year lows in October.

The downturn has been felt most in country's like the UK and Spain which have also been hit by a housing market crash, but has now spread across the region as the crisis in financial markets has raised the spectre of a global recession.