EUROPEAN COMMISSION Brussels, 19.4.2018 SWD(2018) 236 final COMMISSION STAFF WORKING DOCUMENT Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS FMT:BoldA European retail sector fit for the 21st century/FMT {COM(2018) 219 final}

{SWD(2018) 237 final}



Contents 1. Introduction 2. Importance and characteristics of the retail sector in the EU 2.1. Economic importance of retail 2.2. Digitalisation of the sector 2.2.1. E-commerce 2.2.2. Digitisation of stores and the supply chain 3. How restrictive is the retail sector – Retail Restrictiveness Indicator (RRI) 4. Restrictions to the establishment of retail shops 4.1. Introduction 4.2. Conditions for establishment 4.2.1. Conditions relating to size (thresholds) 4.2.2. Level of detail in spatial plans 4.2.3. Location-specific rules 4.2.4. Use of economic data 4.3. Procedures for establishment

4.3.1. Permits required in the establishment procedure 4.3.2. Entities involved in the establishment procedure 4.3.3. Impact assessments required in the establishment procedure 4.3.4. Length of the establishment procedure 4.3.5. Transparency of the procedure for establishment in Member States 4.4. Retail Restrictiveness Indicator: results for establishment restrictions 4.5. Potential impacts of restrictions to retail establishment 4.5.1. Potential impacts on competition 4.5.2. Potential impacts on market structure 4.5.3. Potential impact on productivity 4.5.4. Potential impact on employment 4.5.5. Potential impact on innovation 4.5.6. Potential impact on consumers 5. Operational restrictions 5.1. Introduction 5.2. Shop opening hours 5.3. Product-specific sales restrictions 5.4. Sales promotions and discounts 5.5. Retail-specific taxes and fees 5.6. Sourcing

5.6.1. Regulatory sourcing restrictions 5.6.2. Territorial supply constraints (TSCs) 5.7. Contractual practices of modern retail 5.8. Retail Restrictiveness Indicator - results for operational restrictions 6. Cost of compliance with regulatory requirements 7. Conclusions 8. Annex 1: Methodology of assessment of restrictions to retail establishment and operations and values of the Retail Restrictiveness Indicator 9. Annex 2: Results of the regression analysis



1.Introduction The Single Market Strategy adopted in October 2015 announced that the Commission "will set out best practices for facilitating retail establishment and reducing operational restrictions in the Single Market. These will provide guidance for Member States to reforms and priority-setting for enforcement policy in the retail sector". Retail and wholesale activities are one of the largest services sector in the European Union. The functioning of the retail market affects the whole economy, because of its size and also because of its linkages with other sectors of the economy. It is also important for consumers who spend 30% of their budgets in shops. Retail brings the Single Market to the EU consumers with a wider choice of products available to consumers. The digital revolution is dramatically changing the features of retail. This provides opportunities for retailers and consumers but it is also a challenge in particular for traditional retailers, often SMEs which are important players on the retail market. Tomorrow retailing will not be the same as today and multi-channel retail, combining both on-line and off-line, will remain the trend for retail in the coming years.. The assessment of the performance of the EU retail sector shows that there is room for improvement. A better functioning retail Single Market would allow for a more efficient and more innovative retail sector as well as for more competitive consumers prices. The retail sector is highly regulated in most Member States. This is due to the Member States' willingness to achieve public policy objectives such as the protection of consumers, workers, environment and town and country planning. Often, retail is subject to regulations at national, regional and local level. In the light of the challenges faced by the retail sector, competent authorities need to assess whether their regulatory frameworks are proportionate and effective for the public policy objectives and do not unduly restrict retail development. There is also a need for Member States to check whether national regulations are well-targeted, evidence-based and clearly drafted. Less complex regulations, better awareness of the sector's specificities and policy support would help the retail sector to be flexible and innovative. The Commission carried out an open public consultation from 17 July to 8 October 2017 to gather the views of retailers, competent authorities, trade unions and citizens and others. Workshops were also held as well as studies carried out. Member States were consulted through meetings of the Services Directive Expert Group. A report documents the consultation activities carried out in preparation of the retail action. Responses acknowledge the fact that the retail sector is undergoing a massive change due to e-commerce. They also converge to indicate that the trend towards multi-channel retail combining on-line and off-line will continue. This consultation confirmed that national retail regulatory frameworks are not fit for a multi-channel environment where retailers have to develop a coherent strategy for on-line and off-line sales. It also showed the need to recall that all restrictions should be justified and proportionate to the public policy objectives pursued.

The purpose of this document is to provide the background and evidence that underpins the Communication on a European retail sector fit for the 21st century (hereinafter referred as 'the Communication'). It presents detailed information on particular types of restrictions affecting the retail sector in Europe, their characteristics, justification, scope and scale, as well as their impact on the actual functioning of the sector. Those details form the basis for the best practices put forward in the Communication. They show various approaches adopted in particular Member States, and help to point to good practices. 2.Importance and characteristics of the retail sector in the EU 2.1. Economic importance of retail Retail is the biggest sector in the EU non-financial business economy in terms of number of enterprises and persons employed. It alone represents 4,5% of value added (gross value added, 2015) and 8,6% of employment. Its importance is even more visible when combined with the wholesale sector. The two together produce 10% of EU value added and employ 13% of the total workforce. Retail is also very important for youth employment (around 13% of retail employees are in the 15-24 age range). For many, this is the first job - from all young people employed, 21% worked in retail and wholesale, compared to 14% of people between 25 and 49 years old and 12% for people between 50 and 64 years old. Work in retail can often be combined with other activities, such as studies or household care. This is particularly important for women, who work part-time more often than men (75% of all part-time workers are females), and they account for 63% of those employed in retail companies. Nearly 5,5 million (23% of all non-financial business economy) companies are active in the EU retail and wholesale sectors (3,6 million in retail and 1,8 million in wholesale, 2015). Most of them are SMEs, which also generate 66% of the sectors' value added and 70% of employment. For all SMEs active in the non-financial sector, 22% of value added comes from retail and wholesale enterprises (compared to 20% by manufacturing and 11% by construction firms, 2015). Running a shop seems to be the most common type of a family business – the number of SMEs per 100 inhabitants was largest in distributive trades and accounted for 1,2 company on average in the EU. Retail is also closely linked with other sectors of the economy. Its links with the wholesale sector are obviously strong, as are its impacts on the performance of manufacturers of certain products (designed for final consumption), farmers, as well as providers of relevant services, including transportation and logistics, and other business services. The importance of those linkages can be well illustrated by the fact that one of the toughest negotiations happen along the supply chains for different products, when suppliers meet with retailers, and the relations between those parties are often very dynamic. Those linkages with other sectors are however not easy to measure. For example, the value of goods and services purchased for resale in the same condition for the retail sector accounted for 1, 98 trillion EUR (in 2015, EU28), which was 69% of the sector's turnover (2,88 trillion EUR). Another approach looks at the value added being traded between sectors and between countries, and the importance of regulations embodied in one sector for another sector's outcomes. An analysis carried out from this perspective by the Commission concluded that regulatory restrictions in retail account for as much as 32% of all services market related restrictions that are carried over to other sectors. Reducing restrictions in retail would also have positive spill-over effects in other sectors of the economy, in particular upstream in manufacturing. More efficient retail sector and lower consumer prices create more demand and steer it towards more innovative products. More competitive retail can also increase its demand for information technology products and services. There are different types of retailers on the market. Grocery retailers provide the largest part of retail turnover, from 40% in Austria to 60% in Romania. Among non-grocery specialists, apparel and footwear generate from 4% (Estonia and Finland) to 10% (Italy) of retail sales. Similar relative cross-country differences can be noted for other brick-and-mortar specialist retailers, such as for example health and beauty, home and garden or electronic appliances traders. Those variations often reflect the particularities of market structures – in some countries specialist retailers are still more common whereas in other, clothes, cosmetics or electronics are bought more often in larger grocery outlets or, in particular in the last years, on the Internet. Finally, retail plays a substantial role for consumers. Expenditure on goods that are normally purchased from retailers accounts for ca. 30% of household budgets (out of which 16% on food and non-alcoholic beverages, 5% on clothing and footwear, over 2% on furniture and household appliances). The average amount spent yearly by a household on goods distributed by retailers ranges from over € 18 000 (Ireland) to € 3 500 (Bulgaria). This expenditure decreased in some countries (Greece and Italy, where between 2012 and 2016 it fell by 2% yearly) and increased in other (Romania +8%, Estonia and Lithuania +6% of yearly growth in the same period). The last three countries also recorded the most dynamic growth of sales in absolute value terms as well as per capita. The amounts spent, both per household as well as per person (figure 1) depend to a great extent on the level of prices, size of the household and the disposable income, and it is correlated with the GDP per capita. As the recent Consumer Markets Scoreboard reports, price levels in general are strongly positively correlated with income per capita, however price levels for goods are less dispersed in the EU than for services, and they also converge more with time. This might indicate that, in relative terms, consumers in less affluent countries spend more on basic goods (such goods compose a larger share of their household budgets). In any terms, retailers are definitely present in the day-to-day lives of millions of Europeans, and the accessibility of shops, their offer and the extent to which it responds to consumer needs have a real impact on the quality of those lives. Figure 1: Value of retail per capita and its correlation with the GDP per capita Source: Euromonitor and Eurostat data The performance of retail companies matters not only for those companies themselves but also for the whole economy and for consumers. Establishing good regulatory and other conditions helps retailers to remain competitive and grow, which is a key objective for most of them. Currently, the sector does not belong to the most productive ones. Firstly, the wage-adjusted labour productivity in retail at 125 (for EU28 in 2015) was lower than in wholesale (153), transportation and storage (147) and in manufacturing (153). It was however at similar level as for professional/scientific and technical activities (121) and construction (125). Secondly, the average productivity level of European retail was lower than in the US (although the difference seems to be almost negligible and might stem from differences in measurement and in economic structures). And thirdly, it has been rather stable in the last years, compared to the US, where it grew significantly or Canada, Japan and Australia, where it also increased however less dynamically. In addition, in majority of Member States, the allocative efficiency in retail has been negative in the last years, i.e. productive factors have not been allocated towards their most efficient use. Compared to other services sectors, retail shows relatively low profitability (figure 2) and a high rate of companies' births and deaths (figure 3), mostly due to the constant need of retail businesses to adapt to market conditions in order to remain competitive and survive. However, both profitability and market dynamism vary significantly among Member States, indicating that there is a margin of improvement of less well performing countries. Figures 2 and 3: Gross operating rate and churn rate in retail Source: Eurostat, 2014. Source: Eurostat, 2014.

Innovation in the retail sector, one of the key elements of competitiveness, is difficult to capture. This is because retailers and wholesalers place emphasis on less tangible forms of innovation, such as new business models or processes. A key driver of innovation is the ongoing trend towards digitisation. The retail sector appears to be investing more heavily than all sectors on average in ICT management tools such as electronic supply chains management (24,2% of retail companies against 16.8% for the EU average for all sectors) but remains behind on advanced ICT tools such as cloud computing services. More detailed information on the digitisation trend is presented in section2.2. According to another survey, 74% of retail companies introduced at least one innovation, mostly new or better goods and services, and new or better marketing strategies. However, compared to other service providers and other sectors in general, a smaller proportion of retailers said they invested in any innovation activities (68% compared to 76%). Those that plan such investment in the future would focus on marketing strategies, goods and services, and the main reason for this would be increased competition. A major problem for the commercialisation of retailer's innovative goods or services was the domination of market by established competitors. Improving performance, productivity and competitiveness is a constant challenge for retail companies. Scaling up seems to be the answer. It allows retailers to be more efficient, remain profitable and develop. The starting point for their development is the domestic market, however it is the cross-border expansion that is the condition to actually build scale. Due to its cross-border dimension, the sector is also important for the Single Market integration. Brick-and-mortar retail is characterised by a dynamic cross-border expansion of large and medium-sized companies establishing in other Member States. All ten biggest retail companies in the EU are multinational and some of them have shops in the majority if not all of the 28 Member States. Physical premises with foreign-owned banners are established in each Member State however their share in turnover varies from 8 % in Germany to nearly 50% in Latvia (in 2012, figure 4). These are usually large European companies - their share in the number of retail companies is much smaller than the shares in turnover or in value added and the number of persons employed. Foreign retail companies seem to also pay higher salaries than the domestic ones (their share in personnel cost is higher than the share in the number of persons employed), which may indicate that they hire more skilled workforce. Figure 4: Turnover generated by domestic and foreign-controlled enterprises in the store-based retail market Source: study carried out for the European Commission by the EMLE (University of Rotterdam); 2018; calculations based on FATS. No data for Belgium, Cyprus, Estonia, Greece, Luxembourg and Malta. European retailers are also present globally and four of them (from Germany, France and the UK) are ranked among the ten biggest world retail companies. This picture is changing with the development of multichannel sales – a non-European Internet retailer joined the world top 10 recently, replacing a European brick-and-mortar company. As retailers are expanding to foreign markets, the regulatory environment that they have to deal with, its complexity and cross-border differences, are crucial to the success of such cross-border investments and operations, in particular for smaller companies. Regulations impact the company's performance and its position in the national market in the first place, and only when the company reaches a certain potential and a stable position there, it can enter a foreign market, provided it can overcome the barriers and fulfil the requirements it faces abroad. The development of e-commerce has made it possible to reach out to foreign customers without the need to invest in physical premises. 2.2. Digitalisation of the sector 2.2.1.E-commerce Growth of on-line sales The growth of e-commerce is one of the key trends affecting the retail sector. The value of on-line sales practically doubled between 2012 and 2017 from €121 bn to €224 bn (figure 5). Mobile sales are quickly becoming an essential part of the e-commerce market: sales through mobile phones, or "m-commerce", accounted for 29% of on-line purchases of goods in 2017, up from only 8.5% in 2012. Products most commonly sold on-line include clothes and sports goods (purchased by 64% of e-buyers in the last 12 months in 2017), household goods (46%), books, magazines and e-learning material (36%) and electronic equipment (25%). However despite this strong growth, the share of goods sold on-line is still only a small part of the retail market. In 2016, on-line sales only accounted for 8% of retail sales, growing from 2% in 2006. Figure 5: Value of EU retail sales by sales channels Source: Euromonitor Passport database Use of on-line sales channel by retailers

While most EU retailers (63%) now have their own website, the share is still lower than most EU companies (77%). 22% of retailers sold on-line in 2016, a share which has been steadily increasing from 13% in 2011. But this does not mean that EU retail companies are not present on-line. European retailers are more likely than other EU companies to use social media (51% of retailers against 47% of EU companies), and slightly more likely to pay to advertise on the internet (26% of retailers against 25% EU average). SMEs are also likely to use on-line platforms as their first means of accessing on-line markets. According to a recent Eurobarometer survey, more than four in ten companies use on-line marketplaces to sell their products and services (42%). E-commerce also offers SMEs the possibility to expand their activities across borders. In 2015, 19% of companies in the retail sector sold on-line, against 17% for the EU economy as a whole. This share has been steadily increasing since 2010, when it stood at 11,7%. Over 40% of European on-line buyers purchase products from abroad at least once a year and nearly 2 out of 3 have bought cross-border at least once in their life. And the potential of e-commerce is significant – between 2012 and 2017, the turnover it generated in the EU grew on average by 11.5% yearly in absolute terms, and the e-commerce share in total retail turnover also grew by 1-2 percentage points yearly on average. However the share of e-commerce in total retail varies greatly between Member States: it accounts for 1.7% of sales in Croatia and almost 16% in Denmark. Cross-border sales On-line sales are a powerful enabler for cross-border integration. E-commerce increases the choice offered to consumers by giving them access to traders that do not have a physical presence in their own country. Of the consumers that bought on-line in the last twelve months in 2017, 42% bought from sellers in another country. The willingness of consumers to buy on-line from traders located abroad appears to be even higher: according to a recent study, 31% of consumers who never bought on-line from sellers located in other countries are ready to do so in the future. This proportion rises to 61% in Poland. However EU retailers appear to only be slowly grasping the opportunities offered by internet sales. In 2017, only 10% of retailers sold on-line to customers in other countries – only slightly more than the economy-wide average of 9%. As a result, EU retailers also make less money from on-line sales than other types of companies. E-commerce only represented 10% of retailers' turnover in 2017, against 18% for the rest of the economy. Barriers to operating on-line Overall, a significant share of on-line sales is carried out by retailers operating brick-and-mortar shops. 44% of on-line sales are carried out by physical retailers operating outside of on-line platforms, and further shares of sales are made by traditional retailers selling through on-line marketplaces. The main barriers to selling on-line are related to high delivery costs, expensive guarantees and returns, lack of awareness of rules to follow, insufficient speed of the Internet connection, and other issues. Nonetheless, for these companies established first as physical entities, barriers related to establishment and day-to-day operations will remain important determinants of growth and efficiency. In addition, traditional retailers are not the only ones operating across sales channels. Sales through on-line-only retailers account for over half of all on-line sales (56% of all internet sales of goods in 2017, up from 50% in 2011) – figure 6. Brick-and-mortar retailers that sell on on-line platforms on-line marketplaces account for a large share of sales (36% in 2015). Figure 6: Share of on-line-only retailers in retail sales Source: Euromonitor Passport Database However these on-line-only retailers are increasingly opening up physical shops to cater to consumers that wish to handle products or ask for advice before buying, or obtain their product immediately. According to a recent competition inquiry, 8% of respondents to a survey of on-line-only retailers report that they plan to open a brick-and-mortar shop within the next two years. To allow these new hybrid business models to grow, seamless requirements for establishment and daily operations will therefore be important. In addition, it will be important to clarify how retail-specific rules apply to e-commerce. In a recent survey carried out by the European Commission, national authorities explained that in most cases, rules concerning daily operations in retail – such as rules on promotions and sales – also apply to e-commerce. Furthermore, e-commerce specific rules exist which may affect the growth of on-line sales: certain countries require e-commerce sellers to establish a local website, which in some countries such as Germany requires a physical establishment. In Italy, a license is required from local authorities to start trading on-line. Whereas it is unclear if and how these rules are enforced, these elements add to the legal uncertainty for retailers. 2.2.2. Digitisation of stores and the supply chain E-commerce is only one aspect of the increasing digitisation of the retail sector. Retail business processes are increasingly digitised and automated from the supply chain onwards. The share of retailers that report that their business processes are automatically linked to those of customers or suppliers is higher than the EU average (27% vs 18% of companies). A majority (59%) of retailers use Big Data to optimise their processes – a higher proportion than the EU average of 45%. The use of Big Data extends to on-line sales. According to the Commission's e-commerce sector inquiry, the use of price-tracking technologies is widespread. 53 % of the respondent retailers track the on-line prices of competitors, of which 67 % use automatic software programmes. Technology is also used in-store to respond to the demands of digitally-savvy customers. Shops increasingly offer free wi-fi, touch-screens, or develop mobile apps that can be used to facilitate in-store purchases. However, many small retailers are still at the early stage of technology usage. There are inherent barriers for technology driven innovation for small retailers including: lack of awareness, difficulty in raising finance, limited availability of expert labour, lack of time to gain new skills, marginal room for risk, as well as regulatory constraints and requirements. Barriers to the adoption of new technologies are arguably higher for small businesses: while large retailers are able to attempt and fail with a new concept without going out of business, small retailers' scope for failure is much more limited. The use of new technologies and innovation has been linked to increased productivity and growth. Such developments could therefore contribute to improving the performance of the retail sector. Public support can provide resources and expertise to reduce the risk of failure in adopting new technologies, which can be crucial in enabling small retailers to adopt technologies to modernise their business. The Commission is publishing a guide for fostering the revitalisation and modernisation of the small retail sector. This primarily targets the practical actions local authorities can take to tailor initiatives, gathered from across Europe, to encourage small retailers to embrace technological changes and use them to modernise and revitalise. 3.How restrictive is the retail sector – Retail Restrictiveness Indicator (RRI)

The retail sector is highly regulated in most Member States. Often, retail is subject to regulations at national, regional and local level. When they restrict the freedom of establishment or the free provision of services in the retail sector, Member States need to ensure that their rules are compatible with the EU law. In particular, because they are discriminatory or are in other ways particularly restrictive, certain requirements have been prohibited by the Services Directive (Article 14). This is the case of economic need tests and involvement of competing operators in the decisions of competent authorities, which are particularly relevant for the retail sector. Other types of requirements can be justified by public policy objectives (Article 15 of the Services Directive). In certain cases, requirements can only be justified on the basis of limited public interests enumerated in EU law (e.g., under Article 3 of the E-commerce Directive and Article 16 of the Services Directive) Furthermore, even to the extent that a public interest can be invoked to justify a restriction, Member States must comply with the principles of non-discrimination, proportionality and legal certainty. Retailers face establishment restrictions when they seek to open a shop. They also encounter operational restrictions influencing their day-to-day business activities. Selecting the right location for retail development and the timely start of operations are decisive for business success. Retail establishment restrictions may significantly affect the possibility to open a shop or hinder the development of specific business models or store formats. This document covers both retail establishment conditions and procedures for establishment. Also operational restrictions may have a negative impact on the daily operations of retail companies. They sometimes become a significant burden for businesses affecting their efficiency, productivity and the quality and price of products offered. This document examines retail-specific regulations. With the exception of territorial supply constraints, the focus is on regulations put in place by competent authorities and not restrictions created by the behaviour of private operators. The existing regulatory frameworks have been designed for brick-and-mortar retail. However, e-commerce is growing at double-digit figures in the EU each year and its share in the value of total retail sales is increasing each year. Since 1998 the OECD has regularly assessed the restrictiveness of regulations governing the retail companies through the product market regulation indicator (PMR). The Commission services attempted to measure the level of restrictiveness of restrictions imposed on the retail sector across the EU with the use of a composite indicator – the Retail Restrictiveness Indicator (RRI). It combines a number of indicators covering key areas of regulatory requirements concerning retail establishment (the establishment pillar) and operations (the operations pillar) - figure 7. It goes further than the OECD indicator to try to better capture the complexity and diversity of the regulatory frameworks in place in the Member States. This will allow comparison between Member States, monitoring of the developments over time and should induce a positive dynamic leading to more open and competitive retail markets. Figure 7: Components of the Retail Restrictiveness Indicator In the overall RRI composite indicator, the part of the indicator covering issues linked to retail establishment (opening of new outlets) has been given a higher importance (60 %), as compared to the part reflecting restrictions to operations (40 %). The methodological details of this exercise are explained in the Annex 1 to this Staff Working Document. They have also been consulted with Member States within the Expert Group on the Services Directive. A relevant statistical assessment of the RRI framework has been carried out by the JRC Competence Centre on Composite Indicators and Scoreboards (COIN). Figure 8 below presents the overall results for all EU countries, for the end of 2017. Those with stricter requirements were given higher scores. Detailed results for the establishment and the operations parts are presented in dedicated sections of this document. Figure 8: The Retail Restrictiveness Indicator Source: own calculations based on information collected from Member States and through dedicated studies Although the indicator helps to illustrate the restrictiveness level and compare it across the EU, it has its limitations and the results should be viewed in a broader perspective. In particular, information behind the overall values of the RRI and the values for particular indicators can be informative for identification of best practices as well as areas where countries could still improve. 4.Restrictions to the establishment of retail shops 4.1. Introduction

Opening new shops is a retailers' way to develop and build scale. The choice of the right format, and hence the right size of a shop is a key element of the decision taking, as is the shop's location and the timely start of operations. The Commission services carried out an extensive fact-gathering exercise regarding retail establishment both as regards conditions and procedure for establishment. Throughout 2014, the Commission services together with the Member States carried out a peer review of retail establishment regulatory frameworks in the Member States. This exercise was supported by a dedicated study and complemented by two workshops . In addition, some of the questions asked in the open public consultation related to this issue. Most Member States regulate retail, including the establishment of retail shops. Very often, retail establishment is regulated at regional and/or local level. Retailers enjoy the freedom of establishment and the free movement of services as enshrined in the Treaty and in secondary law such as the Services Directive. The following provisions of the Services Directive are particularly relevant for retail establishment: - Articles 9 and following regulate the conditions for authorisation schemes. - Article 14 prohibits certain particularly restrictive requirements such as economic needs tests; -Article 15 states that certain other requirements such as territorial restrictions have to be non-discriminatory, duly justified and proportionate. To the extent that the Services Directive, the E-commerce Directive or other EU secondary law is not relevant, the fundamental freedoms apply, so that restrictions are prohibited unless they are non-discriminatory, justified on the ground of an overriding reason of public interest, proportionate and compliant with legal certainty. Certain requirements are as such prohibited and may not be justified (e.g. under Article 14 Services Directive). In certain cases, requirements may only be justified on the basis of limited public interests enumerated in EU law (e.g., under Article 3 of the E-commerce Directive and Article 16 of the Services Directive). Furthermore, when setting up authorization schemes and procedures Member States must comply with a number of detailed prescriptions set out in Articles 9-13 Services Directive, which constitute full harmonization and therefore leave no margin of manoeuvre for Member States. Other types of requirements (Article 15 of the Services Directive) can be justified by public policy objectives and Member States enjoy a margin of discretion, which is however limited: Member States must justify these restrictions on the ground of legitimate public interests such as town and country planning, protection of the environment protection of consumers. Such objectives are legitimate and have been recognised as such by the Court of Justice of the European Union (ECJ). These objectives cover a wide range of Member States concerns such as urban planning, maintaining vitality of city-centres, social housing policy, reducing environmental impact and traffic. The protection of cultural heritage is also an objective invoked by Member States to justify restrictions. By contrast, purely economic public interests, such as ensuring the profitability of an undertaking or a class of undertakings or the promotion of the national economy or its proper functioning, can never be invoked by Member States to justify a restriction to the fundamental freedoms. As indicated above, Member States have a margin of discretion in regulating the retail sector. However when exercising this power, they need to respect EU law and in particular, the freedom of establishment and the free movement of services, including Services Directive. The ECJ confirmed that retail is a service and as such falls within the scope of the Services Directive. The ECJ confirmed that the Services Directive applies to retail establishment irrespective of the way Member States regulate retail establishment, whether through an authorisation scheme or through town and country planning. The ECJ stated in its judgment that the Services Directive allows public policy objectives to be duly taken into account and that Member States have a margin of discretion in the way public policy objectives are fulfilled. However, to be compatible with the Services Directive, Member States need to ensure that regulatory requirements relating to retail establishment are not only justified by an overriding reason relating to the public interest, but are also proportionate. Within the EU, retail establishment is regulated in very diverse ways. Some Member States provide for a retail establishment authorisation while others regulate retail establishment through planning. In some Member States the two ways may co-exist. Irrespective of the way Member States regulate retail establishment, these rules fall within the scope of the Services Directive. Under the Services Directive, clear and transparent criteria regarding establishment or free provision of services are important for retailers in order to have legal certainty. In addition, procedural aspects also play an important role. In practice, retail establishment procedures are often long, complex and not transparent. The time it takes to start operations can be delayed by many procedural obstacles. Such delays have a negative impact on the viability of a project – which was designed in a specific market setting – and cause significant costs. The following chapters provide information on the conditions of and procedures for establishment in the Member States. 4.2. Conditions for establishment Usually, specific conditions must be met for establishing a new shop. These conditions vary across Member States depending on the size of the shop and on the intended location. The following sections explore in more detail the rationale and consequences of these conditions.

The information presented reflects the state of play at the end of 2017. Important changes introduced later and brought to the attention of the Commission have also been taken into account. 4.2.1.Conditions relating to size (thresholds) Large shops are appealing to consumers who search for a wide choice of products and lower prices. By contrast, small shop would attract consumers looking for convenient and quick shopping, and possibly a more personal contact with the retailer. Large premises usually mean economies of scale, higher productivity and efficiency. Where retail margins for mass products (fast moving consumer goods, clothing, etc.) are rather low, retailer profits depend on the scale of the turnover. Also, for some specific voluminous products (e.g. furniture or large household appliances) retailers simply need sufficient selling space to display their offer. On the other hand, small shops often apply higher margins and can be more suitable for less populated areas, and for niche products or products that require good customer service and dedicated shop assistants. Member States often apply different rules to retail establishment projects depending on the size of the planned retail shop (size thresholds). Retailers take the thresholds existing in Member States into account when planning new openings. These thresholds have the effect of artificially shaping the retail landscape. They act as market entry criteria making more difficult or prohibiting the entry on the market of retailers with innovative or new business models not foreseen when the thresholds were set. Member States justify setting size thresholds for retail shops on the ground of public policy objectives such as environment protection, consumer protection and town and country planning. Shops of different sizes have different impacts on the area. Large outlets have a greater impact on the local environment and usually create more traffic. They can also change the market conditions for consumers as well as for existing operators, create new jobs and bring revenues to local budgets. A small shop usually has a smaller impact, however, a group of smaller shops can have an impact on the area and the local population compared to one larger outlet. It appears that in most Member States, there is no reliable methodology to define the thresholds. Many authorities simply apply commonly accepted statistical definitions, whereas the level of thresholds should be based on objective, transparent and non-discriminatory criteria. Regulation in Member States Thresholds are very different from one Member State to another. Through thresholds, Member States draw the line between large retail outlets and small retail outlets. In some cases, Member States add other thresholds to define medium retail outlets and extra-large retail outlets. In consequence, the definition of extra-large, large, medium or small retail outlets corresponds to very different situations depending on the Member State. In addition, in some Member States, different thresholds may apply depending on the part of the country where the retailer wishes to establish. This is the case in particular in Member States where retail falls within the competence of regional or local authorities. The consequences of falling in one or another category vary. Depending on the Member State, it triggers the need to apply for a special retail authorisation, to fulfil additional requirements or provide impact assessments. There may be a ban on establishing above a certain threshold. Thresholds may also determine the authorities competent to deal with the establishment planned. For example, in Belgium, Luxemburg and Hungary the threshold is set at 400 m². Retailers planning to open a shop that is below this threshold would be required to notify the authorities (on top of a usual building or planning permit if such is required for any construction of this size). For a shop above this threshold, they would need to apply for a special retail authorisation. In Italy, the threshold may even be lower: 150 or 250 m² depending on the area/region. In Spain, where the thresholds are set by the Autonomous Communities, the lowest is 500 m², the highest amounts to 4000 m², whereas the most common one is set at 2500 m². The French authorities have set the threshold for retail authorisation at 1000 m². In Portugal, it depends on whether the retailer intends to build a stand-alone shop (2000 m²) or whether the shop is part of a shopping centre, in which case only shops above 8000 m² would need to be specifically authorised. Apart from the retail authorisation, some authorities also apply special criteria for large retail shops, such as additional impact assessments or permits from several public bodies, or in general more complex procedures.

In Belgium, retailers have to provide an additional impact report if the planned shop is larger than 1000 m² and an impact assessment if it exceeds 4000 m². In Italy, for shops over 1500 m² or 2500 m² (depending on the region), a prior governmental approval is required. In Austria and Germany, shops with floor surface above 800m² are subject to an in-depth scrutiny by authorities. In the UK, retailers planning a shop above 2500 m² outside city centres need to undergo a specific procedure. In Cyprus, the authority in charge is different depending on whether the shop surface is below or above 1500 m². In Finland, a retail project above 4000 m² needs to be included in land use plans, whereas in Poland a project of 2000 m² or more is allowed only if the plot is covered by the local plan defining the zones suitable for large shops. The strictest rules in place forbid operators to build an establishment above a certain size in a certain location. In Denmark, grocery shops cannot be larger than 1200 / 3900 / 5000 m², depending on the location. In Ireland, similar conditions apply to shops above 3000 / 3500 / 4000 m², depending on the region. 4.2.2.Level of detail in spatial plans Prohibited restrictions such as economic tests must be abolished by Member States, regardless of where they are set out (in spatial planning rules or elsewhere). Beyond that, rigid planning limits considerably the possibilities to locate shops in zones which are nevertheless dedicated to commercial activities. It may make it more difficult or prohibit the entry to the market of retailers, in particular with innovative or new business models not foreseen when the plans were set. This is particularly detrimental for large retail shops which, because of their size, will face more difficulties to establish. Member States must prove that such restrictions are non-discriminatory, justified on the basis of an overriding reason of public interest and proportionate. The principle of proportionality may require in certain circumstances that Member States while pursuing legitimate public policy objectives, allow for derogations to planning rules. The principle of proportionality is also important for the change of use of premises. If the plan allows for a commercial use in general, it is easier for owners or tenants to change the use of premises, for example from a bank to a shop. Such flexibility helps in filling vacant premises in city centres. In certain Member States, the authorities specify spatial plans with a high level of detail. The specifications can be set out at a more general or more detailed level. The local spatial plans may: ·refer to "commercial use" ·refer to "retail use" or distinguish between food and non-food retail or between small and large shops ·specify the type of products that can be sold (for example furniture shops, DIY, etc.) ·introduce further requirements The level of detail of the urban plans has an impact on the flexibility of retail establishment and on the structure of the market. That must be taken into account in the proportionality analysis. Regulation in Member States In most Member States , local plans indicate zones dedicated to the "commercial use", which makes such zones open for a wide range of businesses, including retail, food and drink services, financial services, crafts, etc. Similarly, the decisions issued in those countries refer to the "commercial use" too.

In Germany, the Netherlands, Slovenia and Spain, local plans distinguish areas which can be used for retail specifically. In Greece, Italy, Lithuania and Poland, plans also separate areas where large and small shops can be built, whereas in Belgium (Brussels and Wallonia) plans distinguish between food and non-food retail outlets. Finally, the most prescriptive approach to local plans has been observed in Flanders (Belgium), Denmark and Luxemburg, where the types of goods to be sold are specified (going beyond the distinction between food and non-food products), as well as, in some cases, the maximum possible floor space. The above classification refers to simplified concepts, to allow comparisons between differing national systems – figure 9. Figure 9: Level of detail in local spatial plans plans may refer to e.g. types of goods that can be sold plans usually refer to "retail use" or designate areas for larger shops plans usually refer to "commercial use" Source: based on information collected from Member States and through a dedicated study 4.2.3. Location-specific rules Selecting the right location is decisive for business success. However, prohibited restrictions such as economic tests must be abolished by Member States, regardless of where they are set out (in location-specific rules or elsewhere). Beyond that, by introducing or keeping location-specific rules Member States restrict the freedom of establishment, so that they must prove that they are non-discriminatory, justified on the grounds of an overriding reason of public interest and proportionate. In particular, keeping city-centres vibrant is a concern in many Member States. Vacancies of shops in city-centres are becoming more and more frequent and in certain Member States are taking alarming proportions. Whereas this is a legitimate public interest which the Commission shares, Member States must carry out a detailed proportionality test also for those requirements, as is required in the case law. In France, on average, the percentage of vacant shops was 7.2% in 2012 and is 11.7% in 2017. In the Netherlands, on average, more than 9% of total shop floor area was unoccupied in 2015 and the percentage has been on the rise since 2008. Across the UK, store vacancy rates have increased from 5.4% in December 2008 to 14.1% in March 2013, a rise of 161%. Without intervention, the vacancy rate can rise yet further, perhaps above 20%. Maintaining the vitality of city-centres is undisputedly a legitimate public objective. As indicated by the ECJ, restrictions relating to the location of retail shops, in particular large ones, appear to be methods suitable for achieving this objective. Often, public authorities seek to achieve this objective by restricting establishment in the periphery of towns. Their concern is that shops there would attract consumers away from city centres. Such rules amount to territorial restrictions falling within the scope of Article 15 of the Services Directive. This provision contains a list of restrictions which constitute severe obstacles to the freedom of establishment but could be justified if non-discriminatory, justified on the basis of an overriding reason of public interest and proportionate. As it follows from the case law , territorial restrictions limit the number of retailers and thus hinder new operators from entering the market. Products-related restrictions which prohibit or limit the establishment of shops depending on the products sold do not appear to be proportionate. They may be based on lists of city centre relevant assortments or on the distinction between voluminous goods and non-voluminous goods. In practice, this leads to the prohibition of the establishment of shops selling these products without further consideration relating for instance to the shop business model. Some formats cannot fit in city centres because they need larger retail space and cannot afford the prices. This means that these shops will neither establish in city centres nor outside city centres. It seems simplistic to consider that since consumers will not be able to purchase products outside city-centres, they will be forced to go into town to get them. Retail is about selling goods but it also consists inter alia of selecting the assortment and offering a variety of services appealing to consumers, to attract and induce them to buy the goods. On-line trade makes this point even more obvious: if it is only to buy goods, consumers may choose to shop on-line ('any time and from anywhere'). In the context of the rapid development of e-commerce, Member States are bound by the principle of proportionality. In that context it is to be ascertained whether in order to improve the vitality of city centres, less restrictive means than restrictions to retail establishment are available to Member States. In that respect, the Commission is publishing an on-line, easily printable guide, aimed primarily at national, regional and local authorities on how they can contribute in compliance with the principle of proportionality to promoting the revitalisation and modernisation of small retailers, with a focus on digitalisation. The guide proposes practical solutions to revitalise and modernise the small retail sector. They are based on analyses performed on all EU28 Member States that identified over 200 typical local and regional initiatives. The effectiveness of these actions proved to be built on professionalism and competence, the strength of stakeholder relationships, a shared belief and a willingness to change. These elements were found to require the support of a clear organisational structure, community involvement and technology input. Regulation in Member States

In Cyprus, Ireland, Malta and the UK, a retailer is required to consider a city centre location as primary in their establishment plans and only if this is not possible, consider a location further from the city centre. Also in Finland, a retailer would need to apply for a specific derogation to the land use plan to establish outside city centre, and in Germany and Luxemburg, it is difficult or impossible to establish large shops outside town centres as this might have a negative effect on the centres. There are also rules which specify concretely the type of assortment that can be sold only in shops in city centres. Such restrictions exist in Austria, Germany and in the Netherlands, where the decision is left to municipalities. In Denmark and Sweden, public authorities take measures to protect city centre retail trade. In Slovenia, when planning shopping areas, a balance between the development of the city centre and the periphery is considered so as to ensure the vitality and attractiveness of the city centre. New shopping areas can be located at the periphery of the settlement only under condition that they do not endanger the vitality of the city centre. In a number of Member States, there are also rules that actually limit the type of shops that can be established in a city centre, which is sometimes linked to protection of areas of historical interest. For example, in Italy, it is more difficult to open a larger shop in the city centre (the decision has to be taken by a body at a higher level), and some municipalities can impose a total threshold for retail surface for a city. Figure 10: Member States with regulations specific to location Source: information collected from Member States and through dedicated studies 4.2.4.Use of economic data The Services Directive, by codifying the case law, prohibits inter alia "economic needs tests" as a requirement for establishment. Under Article 14 (5) Services Directive, economic needs tests are tests that make the granting of an authorisation subject to proof of the existence of an economic need or market demand, an assessment of the potential or current economic effects or the appropriateness of the activity in relation to the economic planning objectives set by the competent authorities. The Services Directive clarifies however that the prohibition set out in this provision does not concern territorial planning requirements which do not pursue economic aims but serve overriding reasons relating to the public interest, such as the protection of the environment, including the urban environment, or the safety of road traffic. Against this background, many Member States reviewed their conditions for establishment when implementing the Directive and removed economic needs tests. The dividing line between economic needs tests and genuine territorial planning requirements rests not on the form or the name of the rule but on its content. Information which is required to evaluate offer and demand should not be used by competent authorities for the purposes of establishment. Requiring such information could only serve economic aims and as such would constitute an economic needs test within the meaning of Article 14(5) Services Directive. This is the case of information relating to the number, the types and the formats of existing shops which has a direct meaning to evaluate the offer. In the same way, for the purposes of establishment competent authorities should not use or request information on the purchasing power or household consumption or population in the relevant establishment area as well as information relating to the potential catchment area which has a direct meaning in the definition of demand. Regulation in Member States In some Member States, municipalities require economic data as part of the process in the application for new establishment – figure 11. In Denmark, a retail trade analysis is often carried out by municipalities, for which data may be requested from private developers. Its purpose is to assess whether there is a consumer base for more retail units in the area. In the Netherlands, the municipalities often perform a test aimed at assessing the local market and the need for a new shop. In Sweden, it may happen that municipalities carry out trade assessments, however they do not request data from the applicant.

In some German Länder, for establishment projects exceeding 800 m2, retailers have to provide an assessment of their potential catchment area. Opening of a new shop is prohibited if more than 30% of its turnover would be generated by customers whose place of residence lies outside the city and surrounding area. They also have to provide an impact assessment on the turnover of incumbent retailers established in the city centres. The maximum percentage of turnover which may be distracted from incumbent retailers is set by law. In both Cyprus and Malta, retailers wishing to open a new shop are requested to provide information concerning, among others, the estimated turnover of the existing outlets as well as the new one. Also in Ireland and in the UK, the local authorities may request evidence for a need for additional retail floor space. In Member States with a decentralised structure, the matter of retail establishment is often delegated to the regions and consequently economic data might be requested by regional administrative entities. This is the case in Italy. In the procedure of granting a specific retail authorisation, some of the Italian regions require an applicant to provide data of economic nature. Under Sicilian regional law, establishment of outlets in historical areas requires an assessment of the impact on small local shops. Under Piedmont regional legislation, with respect to establishment of a large shop (bigger than 1.800 m2), data must be provided on the outlet's economic impact on competition in the local market. In Luxembourg, for the granting of the retail authorisation for a retail outlet larger than 400 m2, the retailer must define the potential the catchment area. Furthermore, the decision-making process takes into account, among others, the impact and consequences of the project on the balance between urban and rural areas (mainly city centre and outskirts) and the number of jobs expected to be created. Figure 11: Member States where economic data is required from the retailer Source: information collected from Member States and through dedicated studies 4.3. Procedures for establishment It is essential for brick-and-mortar retailers to be able to start their operations swiftly and smoothly. In practice, however, brick-and-mortar establishment can be stifled by long, complex and excessively burdensome establishment procedures and by difficulties in finding the relevant information. The time it takes to start operations can be delayed by many procedural obstacles. Such delays are bound to have a negative impact on the viability of a project – which was designed in a specific market setting – and cause significant costs. In this part examining retail establishment procedures, the focus is on the number of permits required, the number of entities to be contacted or involved in the process, the number of impact assessments required as well as on the often long deadlines and transparency issues. The following sections explore in more detail the procedural difficulties in the retail establishment procedure. 4.3.1.Permits required in the establishment procedure In the establishment process, regardless of whether a specific authorisation is required or whether the establishment is governed by planning rules, retailers often need to obtain several permits to establish a new shop: a planning permit, a building permit, an environmental permit and a special retail authorisation. Permits may be required in case of newly-built premises, a modification of existing premises or a change of use. Such procedures entail a significant investment of time and resources on the retailer's side. This may act as entry costs to the point that firms which would have considered opening an establishment in the absence of regulation decide not to do so. The objective is not to assess the need for the permits at issue. It is undisputed that a building permit or an environmental permit could be required in particular for large retail establishment. In the same way, a specific retail authorisation may be needed in the light of the objective at stake (town and country planning and protection of the environment). The focus of this part is to identify good practices where some simplification has been introduced to avoid proliferation of permits and alleviate regulatory burden. The Services Directive provides for an ambitious programme of administrative simplification. Article 5 to 8 of the Services Directive require Member States to simplify procedures, set up Points of single contact, make information on national requirements and procedures easily accessible and provide for the possibility to complete procedures at a distance and by electronic means. Furthermore, Article 13 of the Services Directive oblige Member States to process applications as quickly as possible.

Regulation in Member States In most Member States, urban planning constitutes a basis for establishment decisions. The authorities grant approval for a particular retail project in form of a planning permit (sometimes included in the building permit or another procedure combining two or more permits) which confirms that the project is in compliance with the spatial plans. Some Member States require a specific retail authorisation to establish a shop. Such authorisation can either replace the planning permit or be required on top of it. While the requirement for the project to comply with the spatial plans typically applies to all projects regardless their size, the specific retail authorisation in most cases applies only to shops above a particular size threshold (see section 3.2.1 on thresholds). Whether governed by specific retail authorisation or planning regulations, Member States regulatory frameworks often have mixed systems – as illustrated by the map below. Figure 12: Retail establishment regulatory frameworks in Member States Planning permit or planning approval, also when included in the building permit (Austria, Bulgaria, Cyprus, the Czech Republic, Denmark, Estonia, Finland, Germany, Ireland, Latvia, Lithuania, Malta, the Netherlands, Poland, Romania, Slovakia, Slovenia, Sweden, the United Kingdom) Special retail authorisation and/or planning permit/planning approval depending on the location/region (Greece, Spain) Special retail authorisation (Croatia, France, Italy, Luxembourg) Special retail authorisation and planning permit (Belgium, Hungary, Portugal) Source: information collected from Member States and through dedicated studies In addition, building permits which confirm project’s compliance with certain technical requirements for construction may be required. For premises of a certain size or deemed to have potentially significant effects on the surroundings, an environmental permit may also be required. To simplify the administrative process some Member States have introduced fully or partially integrated procedures. All-in-one permits allow retailers to submit a single application instead of having to apply for several permits. Partially integrated permits combine at least two but not all permits required. For example, they can include planning and building permits but other permits such as a specific retail authorisation and/or the environmental permit still have to be applied for separately. The graph below presents the situation in each Member State. Figure 13: Permits required in the establishment process Source: information collected from Member States and through dedicated studies In Estonia, Germany, Latvia and Sweden, only one permit is required. In twelve Member States, simplification efforts have been made and businesses can apply for an all-in-one or a partially integrated permit. For example, in Belgium, new rules adopted by the three regions have recently introduced an integrated procedure allowing businesses to apply for all types of permits in a single application submitted to a one-stop-shop. In France, the building permit includes the specific retail authorisation, and in the Czech Republic, the joint permit replaces the planning permit and the building permit. In Hungary, the so-called merged installation procedure encompasses up to seven different permits. 4.3.2.Entities involved in the establishment procedure To assess the administrative burden on the applicant in a retail establishment authorisation procedure it is also important to consider the number of administrative entities which need to be contacted to obtain the necessary permits. Such administrative entities include authorities responsible for planning and building, entities charged with retail development but also those competent for particular issues, such as the protection of the environment. They can be found on different levels of national administration (municipal, regional or central).

The greater the number of authorities that have to be contacted, the more time and resource-consuming the procedure becomes for the applicant. It may be necessary to submit several application files and manage information received from several different authorities in parallel. In accordance with the Services Directive, Member States have to ensure that service providers can complete all procedures and formalities needed for access to and exercise of their services activities through 'points of single contact'. The points of single contact are meant to be the single institutional interlocutors from the perspective of the service provider so that it does not need to contact several entities to complete all the necessary steps relating to his service activity. Regulation in Member States In many Member States businesses still need to contact a separate entity for each required permit, e.g. the municipality, a regional authority charged with planning and building matters and a governmental agency for the protection of the environment. In some Member States, there is only one administrative entity involved in the authorisation procedure. Several Member States have introduced one-stop-shops representing all administrative entities involved in the authorisation procedure. It means that the applicant needs to contact only one administrative entity and has a single interlocutor on the side of the authorities coordinating the replies from various competent bodies. This is the case in Austria, Belgium, France, Greece, Hungary and the Netherlands. In France, Italy and Lithuania, it is possible to apply for a retail establishment through a partially integrated contact point where some but not all competent authorities are represented. There, the applicant still needs to contact another entity separately, for example to obtain an environmental permit. It is often the municipality or a planning and building authority that acts as a single or partially integrated point of contact making sure that all other competent authorities are involved. The graph below shows the number of entities that have to be contacted in each Member State. Figure 14: Entities to be contacted in the establishment process Source: information collected from Member States and through dedicated studies 4.3.3.Impact assessments required in the establishment procedure Retailers may be requested to provide a large amount of information within the retail establishment process. Competent authorities may require from the applicant to provide studies or other type of analysis or data to assess the various potential impacts of the project. Such requirements are likely to increase significantly the time needed to prepare the application and may in certain cases be difficult to comply with, for example due to difficulties in gathering the requested data.

Firstly, in line with the section on the use of economic data, some impact assessments should not be requested from retailers as they may entail assessing the existing offer and demand and as such amount to economic needs tests prohibited by the Service Directive. Regarding data which is not requested in the context of an economic need test, it must be justified on the basis of an overriding reason relating to the public interest and proportionate. Thus, data that is sensitive may be required solely to the extent necessary for the pursuit of an overriding reason relating to the public interest. In the following description of the regulation in Member States, the focus is on the number of impact assessments required from retailers. Pursuant to the proportionality principle, Member States are required to eliminate the impact assessments which are not justified and to streamline the other requirements for impact assessments to simplify the decision making process for retail establishment. Regulation in Member States More than half of Member States do not require applicants to provide specific impact assessments. In those Member States which require impact assessments they mainly concern the impact on the local retail market (in particular, on the city centre), on employment and on traffic. That is likely to constitute an economic need test under Article 14(5) Services Directive ("potential or current economic effects of the activity"). Some Member States combine several of the above mentioned aspects into one analysis (referred to as other impact assessments). In Italy, Spain and the UK, up to three impact assessments can be required. In seven Member States (Belgium, Cyprus, Germany, Ireland, Luxembourg, Malta, Netherlands) two impact assessments are required, whereas Austria and Hungary request only one. The retail impact assessment, i.e. the assessment of the project's impact on the local market, appears to be the most frequently requested. Often the objective is to assess the impact of the new shop on the city centre. This is the case of Cyprus, Germany, Ireland, Malta, The Netherlands and the UK. In most cases, those impact assessments are required only for large retail shops. For example in Belgium the impact of projects above a certain size threshold is assessed against criteria such as the integration in urban pattern, consumer protection, compliance with social and employment law, protection of urban environment. In Luxembourg the retail impact assessment applies to shops above 400m² and in Germany to shops above 800m². In both cases, the catchment area and the impact on city-centres is assessed. In Italy in certain regions socio-economic impacts of medium and large shops, such as for example the impact on employment, are assessed. Figure 15: Impact assessments required for the establishment Source: information collected from Member States and through dedicated studies 4.3.4.Length of the establishment procedure

Lengthy procedures can have a negative impact on the viability of a project and lead to significant costs for businesses. With the development of e-government and on-line trade, it is not only required under Article 13(3) Services Directive but also important to shorten deadlines for brick-and-mortar retailers to access the market. This would also support pure on-line retailers developing their physical presence. As emphasized in the responses to the open public consultation, the use of electronic procedures should make establishment procedures shorter. Regulation in Member States The specificity of the authorisation process, the planning framework in place and the administrative practice differ between Member States resulting in divergent deadlines for establishment decisions. Deadlines set out in Member States' regulations to complete the formalities to establish a shop range from 1 to 12 months. However, in practice, retailers face procedures of much longer duration. The type of project and in particular its size and its potential impact on the surroundings may determine the type of procedure to be followed and hence its length. Decisions concerning large retail outlets which require additional impact assessments and additional permits (such as the environmental permit) would typically require more time. Environmental permit procedure can run in parallel to other procedures, but it can also be a pre-condition to apply for other necessary permits. For example in Croatia and Slovenia it is possible to apply for the building permit only once the environmental permit has been granted. The deadlines for issuing environmental permits in principle range from 3 to 18 months. However, in some Member States deadlines are not specified, so that the applicant cannot estimate the time needed to obtain a decision. In many Member States the conformity of the project with the planning framework can be decisive for the length of the authorisation process. For example in Denmark if the establishment complies with the local plan and does not require an environmental permit, the applicant would only need to obtain a building permit which takes up to 2 months. However, if the decision requires a change in the local plans and such a change is possible in a given Member State, the procedure can take up to 3 years due to public consultations and possible appeals (e.g. in Finland and Sweden). Although in most Member States the length of the procedure is in principle quite limited, the procedure can often be delayed because of third parties' appeals. Even if a positive decision has been issued, it may take years until the retailer can effectively start its activity in the selected location. Some Member States have introduced measures to ensure that appeals are based on substantive grounds. In France an administrative appeal is mandatory before a judicial review can be filed in Court. This is supposed to discourage all appeals without substantive grounds at an early stage. Other Member States may require the fulfilment of specific conditions to be eligible for an appeal to avoid opportunistic appeals by third parties, e.g. competitors or civil society, attempting solely or mainly to disrupt the on-going retail establishment project without having substantive grounds to appeal. 4.3.5.Transparency of the procedure for establishment in Member States Under Article 13(5-7) Services Directive, competent authorities must inform the applicant of a number of procedural steps and details. The lack of clear communication from the authorities at any stage of the process can be confusing and detrimental for the applicant. For example, if the authorities do not communicate clearly when the file has been deemed admissible, the applicant may not be aware when the procedure officially starts. In Belgium, the legislation specifies that the deadline is counted from the moment when the application file is deemed complete and it also imposes on the authority a deadline to inform the applicant of the completeness of the file. This is however not common in other Member States. In addition to the burden for the applicant, the lack of transparency can also generate additional burden to the authorities as insufficiently informed applicants are likely to submit incomplete files. Hence, it is important to ensure that all the necessary information about the establishment procedure is made available to the applicant beforehand. As indicated above, Articles 5 to 8 of the Services Directive provide for administrative simplification and cooperation. Member States are required to simplify administrative procedures, to set up Points of single contact, to provide for the possibility to complete procedures at a distance and by electronic means and to make information on national requirements and procedures easily accessible. In addition, Member States must comply with the specific obligations provided for in Regulation (EU) No 910/2014 of the European Parliament and of the Council. This includes obligations related to the use and acceptance of certain types of electronic signatures, recognition of advanced electronic signatures and advanced electronic signatures based on qualified certificates, provided for in Article 27 of that Regulation and further specified in Commission Implementing Decision (EU) 2015/1506. As emphasized in the responses to the open public consultation, the use of electronic procedures should improve transparency through easier access to the relevant documents, to information, to the status of individual applications. On-line submission of applications would be particularly important for SMEs. Finally, it is also important that establishment decisions, positive or negative, are made public. The information below focuses on this aspect ensuing from the principles of legal certainty, good administration and transparency.

Regulation in Member States Publication of both positive and negative decisions does not only comply with the principles of legal certainty and good administration in the ongoing procedures, but also allows future applicants to better prepare for the procedure and assess the chances for a positive decision. More than half of Member States publish or display in public only positive decisions. In six Member States (Belgium, France, Greece, Lithuania, the Netherlands and Poland) both positive and negative decisions are published. In Cyprus and the Czech Republic access to decisions is possible only upon request or only for interested parties. A number of countries use on-line tools, such as electronic registers, to make decisions available to the public. In Austria, Croatia, Germany, Slovenia and Spain neither positive nor negative decisions are published or publicly displayed. 4.4. Retail Restrictiveness Indicator: results for establishment restrictions The establishment pillar is part of the overall Retail Restrictiveness Indicator (RRI) – the composite indicator developed by the Commission services and presented in section 3. It measures the level of restrictiveness of Member States. It is composed of the following elements: size thresholds, the level of detail in local plans, the existence of regulations specific to location, the requirements for economic data, the number of permits required, the number of entities to be contacted in the process, the number of impact assessments required, the length of the procedure and the publication of establishment decisions. Details of retail establishment restrictions have been presented in the previous sections of this document. As figure 16 presents, in the end of 2017, the strictest requirements to establish new shops can be observed in Italy, Luxemburg and Cyprus. This stems mainly from a mixture of factors linked to conditions to establishment, mainly the size thresholds, the requirements for economic data and the legislation specific to location. The burden caused by procedural issues (the number of permits, entities to contact, or the length of the procedure) also adds to the picture. In the least restrictive countries – Estonia, Latvia and Slovakia – the establishment conditions and procedures enable retailers to establish swiftly and within a rather short deadline. Figure 16: The retail establishment restrictions pillar of the RRI Source: Own calculations based on information collected from Member States and through dedicated studies The restrictiveness level of retail establishment rules can have an impact on the functioning of the retail sector and may explain its suboptimal performance in some areas. The following section assesses the potential impact of restrictions to retail establishment on competition, market structure, productivity, employment, innovation and consumers. 4.5. Potential impacts of restrictions to retail establishment Restrictions on retail establishment can have inter alia the effect of blocking or reducing market entry and favouring incumbent companies. Although it is not easy to establish and measure a direct clear link between the restrictions to the establishment of new shops and the actual effects on the economic variables, numerous studies have demonstrated negative effects of such barriers on the market structure and unfettered competition as well as indirect negative effects on productivity, employment, prices and innovation. Those impacts are to a great extent confirmed by the present analysis.

While there are ways to assess the impacts of entry restrictions on the economic efficiency, it is much more difficult to measure whether such regulations are effective in achieving the legitimate public policy objectives they pursue. Needless to say, an analysis of the effectiveness of national measures is legally relevant only for those measures which may possibly be justified. By contrast, public measures such as those listed in article 14 Services Directive can never be justified because they either pursue purely economic objectives or they are by definition disproportionate. In addition, the hitherto approach to retail establishment regulations gains a new dimension in today’s increasingly digitalised retail sector. Since establishment restrictions usually concern solely brick-and-mortar shops, they may cease to be effective in achieving their goals when market actors compete through e-commerce. Only a few Member States have responded to these developments adapting their legislation to account for the establishment of showrooms and pick-up points or are reflecting on doing this in the future. Furthermore, a systematic analysis of the effects of current regulations in the changing retail landscape is lacking. 4.5.1.Potential impacts on competition Certain proxies are used to measure the level of competition in a given market: the level of concentration of companies (in terms of their market shares), the mark-ups that the existing companies apply, or the birth rate and the churn rate of retail companies. In the case of retail, competition is particularly important at the local level – how many and what types of shops consumers can effectively choose from in their catchment area. This local level is however the hardest to measure, especially for the whole EU. Some regulations will keep certain companies or store formats away from the market (e.g. if they determine the admissible type or size of the outlet), others will dissuade certain market players from investing on the market due to likely difficulties in obtaining the necessary decisions. They can also have a discriminatory effect on foreign companies if they target formats and sizes more commonly found abroad. Studies have shown that the existence of such regulations increases the probability of high concentration and creation of monopolies . It strengthens the position of incumbents inciting them to increase their mark-ups which in turn has a negative impact on economic performance. The analysis of changes in regulation between 1998 and 2007 in France and Italy concluded that barriers to entry were indeed associated to higher mark-ups. Results of the present analysis indicate that less new retail companies enter the market in Member States with higher establishment restrictions. Also, in those countries, fewer companies leave the market, which in fact may indicate that less efficient companies manage to survive whereas in strong competition conditions they would probably be eliminated from the market. Figures 17 and 18 show that the birth rates and churn rates of such enterprises are negatively correlated with the level of all establishment restrictions analysed combined together. Figures 17 and 18: Correlations between the level of restrictiveness of retail establishment and churn and birth rates of retail companies Source: Own analysis based on information from the retail establishment study, the Member States authorities, and Eurostat The links revealed by the correlation analysis have been confirmed by outcomes of a regression analysis. Retail establishment restrictions, in particular the specific requirements linked to size thresholds, seem to have a statistically significant negative impact on the birth rates of retail companies, and a positive impact on the price level index (i.e. lead to higher prices, in particular for prices of food products). They also correlate in a positive direction with the gross operating rate of retail companies. Figures 19, 20 and 21: Correlations between the specific requirements linked to size thresholds and birth rates of retail companies, the price level index and the gross operating rate.

Source: Own analysis based on information from the retail establishment study, the Member States authorities, Eurostat In more detail, in addition to requirements linked to size thresholds, certain other specific restrictions to retail establishment display a particular link with market developments. For example, the retail market is more concentrated in Member States with regulations specific to the location of a retail outlet (in particular defining rules for establishment in or outside city centre). Also, the higher the number of market studies and impact assessments that the retailer needs to submit, the higher the gross operating rate of retail companies. In those more concentrated markets, prices for goods distributed in retail outlets also tend to be higher. Links between the number of permits required and regulation specific to the location on one side, and competition on the other side, have been confirmed by the outcomes of the economic analysis carried out in the frame of the study on retail establishment restrictions. Higher number of permits seemed to be correlated with higher retailers' margins (the gross operating rates) and with higher concentration in the market (measured as CR5 and HHI). The study also identified a negative relationship between the entry rate and market concentration. In any sense, restrictions concerning establishment of physical shops affect almost solely off-line retailers, which does not help them compete with ever stronger on-line traders. However, in the increasingly multi-channel retail, these restrictions also affect pure on-line retailers wishing to establish their physical presence. 4.5.2.Potential impacts on market structure Competition is also linked with the structure of the market and its dynamics. Establishment restrictions can influence the type and the size of firms, the types of store formats that those firms operate (such as hypermarkets, supermarkets, discounters, convenience stores, small independent shops, etc.), the development of the different formats and of the selling space in general, as well as the development of on-line sales. Analyses have concluded that regulations on size and location of shops had a real effect on companies’ decisions. In Spain the analysis taking into account regional differences in retail establishment regulation showed that such regulations indeed impeded the entry of larger store formats. In England , the number of applications for major new retail developments fell significantly after the government introduced additional constraints on the opening of large stores in suburban areas in the mid-nineties and the store sizes decreased. Even if such regulations do not prevent market entry as such, they may influence retailer’s decision on the location of the store, its size, format and assortment. This may hamper the firm’s ability to adjust to consumers’ preferences and to successfully compete on the market. However, regulations may affect market players differently depending on their business model. For example, grocery retail chains offering different store formats (e.g. hypermarkets, supermarkets as well as convenience stores) can more easily adapt to existing restrictions than non-food stores running a single store format. The effect of entry deterrence will hence be weaker on companies running diverse store formats . Results of a regression analysis show a negative impact of establishment restrictions (in particular, the specific requirements linked to size thresholds, requirements for economic data and the number of permits) on the growth of the number of outlets for supermarkets and on the growth of this format's selling space. In addition, a correlation analysis (some results presented in figure 22) shows a negative link between restrictions to establishment and the growth of the number of outlets and of the selling space of most store formats: supermarkets, hypermarkets and non-grocery stores. However, no strong link could be found between those restrictions and changes in the selling space and the number of traditional shops, which would indicate that traditional retailers do not really benefit from such measures (even though the restrictions have often been put in place to protect them against the competition of larger shops). In general, retailers in more restrictive Member States opened in the years analysed not only less shops but also smaller premises – often limiting the accessibility and choice for consumers. Figure 22: Correlation between the level of restrictiveness of retail establishment and the growth in the selling space and the number of supermarket and hypermarket outlets Source: Own analysis based on information from the retail establishment study, the Member States authorities, and Euromonitor data This negative link is confirmed by results of a regression analysis, which also shows a statistically significant negative impact of retail establishment restrictions on the development of supermarkets. A different pattern could however be observed for discount stores: their number and the selling space grows more in countries where the level of establishment restrictions is higher. A possible explanation can be the generally very dynamic development of this format, which results from a more and more frequent consumer orientation towards lower prices and the improving quality of the discounters' offer. These shops are also rather flexible in terms of location compared to other formats, in particular supermarkets and hypermarkets, as their limited range of goods on offer requires less selling space. In many cases, they may also replace convenience stores, taking over their role of neighbourhood shops. High specific requirements linked to size thresholds seem to particularly positively impact the growth of the selling space of discounters. The above patterns have been confirmed by results of the economic analysis carried out in the frame of the study on retail establishment restrictions. In countries where more permits and numerous impact assessments and studies were required from retailers, less outlets were opened and less selling space was created. Also the number of entities that retailers have to contact when they apply for an authorisation or a permit is negatively correlated with the dynamics of new stores creation, in particular for small outlets.

The study also showed that specific requirements referring to the size thresholds for shops seem to negatively (and significantly) impact the market dynamics, in particular for supermarkets. Actually, such requirements had the greatest impact on the creation of new stores from all the different regulatory aspects analysed, followed by the number of entities to be contacted and the number of impact assessments to provide. The study concludes that establishment restrictions not only have an impact on the development of new shops, but they also affect different store formats differently. 4.5.3.Potential impact on productivity Entry regulation can affect productivity by limiting competition and decreasing the incentives of incumbent firms to become more efficient. As restrictive regulations often influence shop sizes and their location, they can also limit the company’s ability to choose the most efficient store format for a particular location. A company may also not be able to establish all the desired formats and achieve economies of scale, which are important for productivity gains. Achieving scale through store format is a key driver of retail performance. Large formats are generally more productive than small formats and specialized formats (e.g. discounters) are more productive than general formats. Studies have shown that establishment restrictions in retail are associated with lower productivity and that reforms can improve sector’s performance in that respect. Retail reform in Sweden in the 1990s (i.e. easing establishment restrictions and leading to growth of large-scale format stores) led to the highest retail productivity growth compared to US and Europe. Productivity growth in the food retail sector in the UK between 1997 and 2003, measured on the level of retail chains, would have been 0.44% per year in the absence of regulation, whereas the observed growth was only 0.07%. Another study using the differences in restrictiveness of planning policies between local authorities across the UK found that the introduction of stricter zoning regulation directly reduced productivity both by reducing shop size and by forcing retail onto less productive sites. Adopting best practice regulation as measured by the OECD in France and Italy could increase long-run productivity by 3.5 per cent in France and 3 per cent in Italy. In Denmark, planning restrictions which effectively banned the entry of hypermarkets have shaped the market structure with many smaller and less efficient shops and led to a large productivity gap in the retail sector as compared to peer countries. A recent reform relaxed to some extent the retail establishment rules, which is expected to increase productivity by 0.9% in the long run. A recent Commission analysis showed that there is a link between the restrictiveness in retail and labour productivity. In Member States with less restrictive retail regulations (measured with the OECD Product Market Regulations Index) the (wage-adjusted) labour productivity is lower. In addition, having to apply to numerous public entities and to provide certain studies or data in order to obtain several different decisions (authorisations, permits and licences) puts a significant burden on retailers. In particular, small companies can find it difficult to comply with such requirements. 4.5.4.Potential impact on employment Establishment regulations can hamper job-creation simply by restricting the access of new market players. Increased competition however can lead to the exit of less efficient firms or to incumbents striving for efficiency gains through workforce cuts. The job-creation effect through increased market entry is therefore not obvious. On the other hand, competition could reduce incumbents’ mark-ups, pushing them to selling more in volume and therefore requiring more workforce. Studies have shown that establishment restrictions have a strong negative effect on employment in the sector. In France, the analysis of the impact of the Loi Royer concluded that the measures put in place have reduced employment in the retail sector by at least 3%. Additional barriers imposed by the Loi Raffarin have been estimated to cause a 6% increase in supermarkets’ costs, which in turn could have also led to the reduction in employment. The analysis of the effects of the regulatory reform of 1998 in Italy showed that it had a clear impact on the performance of the sector, increasing prices and labour costs while reducing productivity and employment. 4.5.5.Potential impact on innovation Increased competition can incite market players to look for solutions to increase their efficiency. Investment in ICT leading to the optimisation of processes, such as intelligent stock management or self-service check-outs for customers can be an important factor improving productivity. Given that fixed costs of such investments can be relatively large for small store formats, restrictions on shop sizes are likely to inhibit innovation. The literature on this subject advocates that in the case of retail, innovation in processes (as opposed to product innovation) is the main determinant of productivity growth. Studies measuring the impact of regulations on innovation found a negative correlation between barriers to entry and innovation, measured through investment in ICT. Removing entry restrictions is hence likely to increase investment in ICT. Also, the present analysis shows that the higher the establishment restrictions, the lower the investment rate of retail companies – figure 23. However, other studies have shown that competition fosters innovation only up to a certain point where benefits from catching-up still exceed the decreasing profits caused by increased competition.

Figure 23: Correlation between the level of restrictiveness of retail establishment and the investment rate in retail Source: Own analysis based on information from the retail establishment study, the Member States authorities, and Euromonitor data 4.5.6.Potential impact on consumers Consumers can benefit from increased competition through lower prices and a greater variety of products and store formats in the market. Establishment restrictions that are often put in place to protect consumers' accessibility to retail in both urban and rural areas can in fact reduce affordability and choice of products for consumers. Prices As already highlighted, entry restrictions are likely to increase mark-ups of incumbent firms and thus lead to higher consumer prices. Numerous studies have found that removing establishment barriers could decrease prices. The already quoted study analysing the effects of the French reform in mid-nineties (Loi Raffarin) showed that stronger entry deterrence increases both concentration and prices. Also the study analysing local variation in entry regulation in Italian provinces found that barriers exert a strong influence on performance, increasing profit margins and prices. There, stricter entry regulation has been found to increase prices. Finally, the present analysis reveals that retail establishment restrictions have not only a statistically significant negative impact on the birth and churn rates of retail companies, but also link to higher prices – figure 24. Figure 24: Correlation between the level of restrictiveness of retail establishment and the level of prices for food and non-alcoholic beverages Source: Own analysis based on information from the retail establishment study, the Member States authorities and Eurostat Choice of shops and products Consumers can also benefit from increased competition through increased variety in products and store formats offered on the market. Reducing establishment restrictions allow the entry of different store formats appealing to consumers, and the increased competitive pressure also inclines incumbents to increase and differentiate their product offer. A ban on establishment of shops because of their size would deprive retailers from the possibility to choose the format which would best suit the area, the population and the business model of the retailer. A more complex and burdensome procedure to obtain an authorisation or a permit to establish a large shop may discourage operators from building such premises or make it more costly. Hence, consumers cannot enjoy a larger variety of shops and products. Limitations as to the location of new shops may also lead to inefficiencies in the market. City centres are often not suited for large shops and if they are not allowed to establish in the outskirts, consumers will simply not be able to enjoy them at all. Consumers may then be faced with higher prices and a limited offer. In addition, such restrictions to location are becoming less effective in times of growing competition coming from on-line sales. Also, this may not be beneficial for independent retailers either, as they would have difficulties to compete with small formats run by large retail chains.

5.Operational restrictions 5.1. Introduction On top of regulations affecting the establishment of retail outlets, retailers have to deal with a number of regulations linked to their daily operations - so called operational restrictions. Such regulations sometimes become a significant burden for businesses, affecting in particular their efficiency, productivity and the quality and price of goods/services offered. Moreover, excessively restrictive or complex regulations can deter or make market entry m