The decline reported by Eurostat, the EU's statistics office, was in line with market expectations and follows a modest 0.5 percent advance in December. Compared with the same month a year before, retail sales were 1.3 percent lower.
Over the last few months, retail sales have shown little direction, rising one month but falling the next.
The lack of direction in retail sales is indicative of the stuttering economic recovery in the euro zone - for the recovery to become more rooted, analysts think consumers have to step up and provide the wider economy with another pillar for growth alongside the export of goods.
"January's fall in euro-zone retail sales confirms that the much-needed recovery in domestic spending has yet to materialize," said Jennifer McKeown, senior European economist at Capital Economics.
And with wage growth set to slow, governments poised to withdraw some of the stimulus measures introduced during the recession, such as car junking programs, and countries like Greece and Spain poised for big austerity measures, the outlook for consumption does not look good, analysts said.
"Unless we see renewed signs of life in the consumer sector soon, our forecast of a 1.5 percent annual expansion in the economy as a whole will start to look too optimistic," McKeown said.
The picture doesn't look much better for the wider 27-nation EU, which includes non-euro members such as Britain and Sweden. As in the euro zone, retail sales were down 0.3 percent too in January, following a 0.2 percent advance in December.
An earlier survey into the euro zone services sector, which includes retail, also disappointed.
The monthly purchasing managers index - a gauge of business activity - fell to 51.8 in February from 52.5 the previous month. The sector continues to grow - any reading above 50 indicates expansion - but more slowly.
The figures Wednesday have reinforced market expectations that the European Central Bank will not be raising borrowing costs any time soon and may actually hold off from increasing its benchmark rate from the current record low of 1 percent until 2011.
Though an interest rate increase is not thought to be imminent, the central bank's President Jean-Claude Trichet is expected to announce Thursday, at the conclusion of the latest monetary policy meeting, that special liquidity measures introduced to prop up the banking system during the financial crisis and the recession will continue to be wound down.
