Future sector trends and developments at METRO GROUP

METRO Cash & Carry

The performance of the cash & carry segment is tied to macroeconomic conditions. We expect that the phase of economic weakness will continue in the first half of 2013 and that a gradual recovery will begin in the second half of the year. This rebound should continue in 2014. Trends will vary among regions and within individual economic zones. We assume that these inconsistent economic activities will also be reflected in the performance of the cash & carry segment.

In Germany and Western Europe, we foresee no growth momentum arising for the cash & carry segment due to the financial and sovereign debt crisis. Demand in food retail should reach the same approximate level produced in previous years. Price increases could have a positive impact on revenue trends. Sales produced by nonfood products will most likely decline slightly in 2013. Depending on economic conditions, the negative trend could reverse in 2014. In countries being hit hard by the euro crisis, a moderate contraction is expected to occur in the cash & carry segment. In the Western European countries that are being less affected by the crisis, we foresee stable or slightly rising sales for the cash & carry segment in 2013 and 2014.

In Eastern Europe, we expect the cash & carry segment to continue growing in 2013 and 2014. In addition to price increases, which will exceed the Western European level, higher demand is expected to have a positive effect. In Russia and Turkey, the cash & carry segment will grow thanks to good business conditions. By contrast, we expect sales in Greece will dip in 2013 as the country’s economy continues to contract. From 2014, new growth is possible – if the economy rebounds.

In Asia, cash & carry sales will rise in both 2013 and 2014. The cash & carry segment continues to generate very high growth rates in this region, and these rates exceed those of modern food retailing. In this region, the sector continues to have weak competition from other modern formats. As a result, traditional retailers, a key customer group of cash & carry businesses, continue to offer tremendous potential. We expect that this customer segment will remain very important following an easing of India’s ban on direct investments by international retailing chains.

METRO Cash & Carry will press forward with its international expansion in 2013 and 2014. The focus will remain on the growth regions of Asia and Eastern Europe.

Real

Demand for food is primarily determined by direct needs. As a result, food retailing is affected by economic swings to a comparatively lesser degree. For this reason, we expect that, in 2013 and 2014, demand in German food retailing will remain at the level produced in the previous year. This should also remain the case should the euro crisis have a bigger impact on the German economy and labour market than experts are forecasting at the moment.

In 2013 and 2014, growth momentum for German food retailing is expected to be generated only by positive price effects primarily caused by high prices for raw materials. The rise will roughly equal the one produced in 2012. As a result, we expect that, in 2013 and 2014, German food retailing will continue to grow at the 2012 level.

Media-Saturn

Compared with other retail sectors, consumer electronics retailing is much more cyclical. Because countries’ economic conditions are expected to differ widely in 2013 and 2014, the varying regional trends in consumer electronics retailing will continue.

For Germany, sales produced by consumer electronics retailing are expected to climb. This view is shared by both the German Association of Consumer and Communication Electronics and the trade association BITKOM. The experts predict that sales produced by both consumer electronics and information and communications technology will rise. The specialists also expect that demand for televisions in 2013 will once again reach the record level reached in the previous year, when more than 10 million sets were sold. Demand is also expected to climb for devices such as tablet PCs and smartphones. In 2014, we expect the Winter Olympics and the World Cup football championships to generate growth momentum that will result in positive demand – as they have done in the past.

In Western Europe, the sector will continue to be impacted by the economic problems being experienced by many countries in 2013 and 2014. In 2013, we expect business performance will be weak particularly in such euro crisis countries as Italy, Spain and Portugal. After hitting bottom, the sector could rebound from 2014. On the other hand, we expect sales generated in the remaining Western European countries to be stable or positive in 2013 and 2014. Just like in Germany, both major sporting events scheduled for 2014 should have a positive impact in Western Europe. Despite these optimistic expectations, many uncertainties are associated with the outlook for the consumer electronics retailing sector as a result of the questions about general economic trends.

In Eastern Europe, we also foresee differing trends in consumer electronics retailing for 2013 and 2014. For Russia and Turkey, we expect to see continued growth in the sector during 2013 and 2014. Momentum will be generated in both countries by continued efforts to exploit these markets’ untapped potential. In Russia, we also expect that the Winter Olympics in Sochi will produce a surge in demand during 2014. By contrast, the sector will continue to contract in Eastern European countries that are wrestling with economic problems. This is particularly the case for Greece.

Throughout the regions, online sales will continue to grow and gain market share at the expense of stationary consumer electronics stores. Multichannel providers like Media Markt and Saturn can profit from this trend by optimally combining the strengths of both sales channels. Media Markt and Saturn will continue to link both sales channels in other countries as a way of further expanding their own market position.

Galeria Kaufhof

In 2013, business developments at Galeria Kaufhof will depend on the extent to which the euro crisis negatively impacts the economy and consumer confidence in Germany. From the second half of 2013, the economic situation is likely to improve once again. In this case, private consumption may generate positive momentum for retailers. Galeria Kaufhof would profit from this as well. The trend will continue in 2014.

In 2013 and 2014, we expect that the department store sector will be weaker than the retail industry as a whole once again. On the one hand, this will result from the continued reduction of overcapacities in the sector. On the other hand, the competitive pressure being exerted by rapidly expanding online retailers remains high and will extend to further product groups. To fend off this competition, stationary and online operations must be tightly linked, and a clear positioning in the store-based business must be established. As the concept and system leader in the department-store segment, Galeria Kaufhof has successfully established this link. As a result, we believe the sales line will outperform competitors in the next 2 years.