european digital divide e-commerce markets in europe opportunities and prospects

EUROPEAN DIGITAL DIVIDE: E-COMMERCE MARKETS IN EUROPE OPPORTUNITIES AND PROSPECTS

November 2011

INTRODUCTION

INTERNET RETAILING AND EUROPE: IN

CONTEXT

INTERNET RETAILING IN EUROPE A

PRODUCT VIEW

THE IMPORTANCE OF CROSS-BORDER

SALES

BARRIERS TO CROSS-BORDER SALES

THE FUTURE OF INTERNET RETAILING IN

EUROPE

Euromonitor International PASSPORT 3 RETAILING: INTERNET RETAILING

Disclaimer

Much of the information in this

briefing is of a statistical nature and,

while every attempt has been made

to ensure accuracy and reliability,

Euromonitor International cannot be

held responsible for omissions or

errors.

Figures in tables and analyses are

calculated from unrounded data and

may not sum. Analyses found in the

briefings may not totally reflect the

companies opinions, reader

discretion is advised.

Internet shopping has been a

disruptive force in retailing in

developed markets for a number

of years. With the enlargement

of the EU, increasing internet

speeds, consumers growing

acceptance of buying over the

web and retailers looking to

internationalise, consumers

have looked to shop across

borders, exporting trends from

Western Europe into Eastern

Europe. In the future, the

internet and cross-border sales

are likely to mean that

competition throughout retailing

will increase.

Scope

INTRODUCTION

Retailing

Store-based Retailing Non-store Retailing

Internet Retailing

All values expressed in this report are in US dollar terms, using a fixed exchange

rate (2011).

2011 figures are based on part-year estimates.

All forecast data are expressed in constant terms; inflationary effects are

discounted. Conversely, all historical data are expressed in current terms;

inflationary effects are taken into account.

http://www.euromonitor.com/http://www.euromonitor.com/


Demand

Supply Infrastructure

This global briefing will look at the interaction between demand, infrastructure and supply in internet

retailing, and the differences between Western and Eastern Europe.

Demand will be shown in terms of sales data for countries and regions, and will be provided and analysed

both in terms of the internet retailing channel and at a product level.

The report does not claim to be comprehensive, but rather seeks to offer high-level insight into key

changes and developments taking place in the retailing industry in 2011 and in the period to 2016.

Objectives and parameters of global briefing

INTRODUCTION



INTRODUCTION

Key findings

Western Europe competes

for place as leading

internet retailing market

In 2011, Western Europe was the second largest region, after North America, in

terms of sales generated over the internet. Eastern Europe was fourth, but is

likely to lose this position to Latin America, which is enjoying faster sales growth.

Broadband penetration

holds back sales in a

number of markets

The ease with which consumers access the internet is a driving factor in whether

they will do so. Comparatively low penetration rates for broadband internet

access in some countries in Europe limits growth opportunities for the channel.

Product sales differ

markedly by region

The prevalence of broadband access in Western Europe means that

downloading of digital goods is easier and more widespread than in Eastern

Europe. Apparel and housewares sell better in the former region as well.

Cross-border sales grow

in importance, pointing to

positive future online

Greater levels of travel and growing confidence in the legal framework in the EU

has led to consumers increasingly shopping across borders. In future, the

internet should boost the amount of spending generated between countries.

Internet retailing continues

to evolve

As internet retailing matures, new business models (flash sales, group buying

and member-only sites) have emerged. This evolution, coupled with cross-

border sales, will ask further questions of retailers pricing and delivery options.

Channel set to account for

increasing share of retail

industrys sales in future

By 2016, internet retailing is expected to account for 3.5% of total retail value

sales in Eastern Europe and 5.7% in Western Europe, up from 1.1% and 1.8%

in 2006. The pace of growth is going to be disruptive to existing retailing

business models, limiting the need for a huge number of stores in certain

product areas, or removing their need almost entirely, for example book stores.

However, while the channel provides threats, it also provides opportunities to

retailers and manufacturers alike.


INTRODUCTION


CONTEXT

INTERNET RETAILING IN EUROPE A

PRODUCT VIEW


SALES



EUROPE


In 2011, North America is expected to maintain its lead over Western Europe, remaining the region generating the most sales through the internet retailing channel.

The growth in value sales over the last five years has pointed towards the US, which accounts for 97% of North America's internet retailings sales, becoming a more mature market, while many countries in Western Europe are continuing to grow very quickly. As such, the difference between the value of sales generated over the internet in Western Europe and North America, which stood at US$27.9 billion in 2006, and US$6.5 billion in 2011, will continue to shrink in future.

Eastern Europe is a distant fourth, competing with Latin America. Between 2006 and 2011, Eastern Europe enjoyed stronger growth in value sales (27% CAGR) compared to Latin America (24%). Eastern Europes growth has been boosted by trends deriving from, and companies operating in Western Europe. However, in the future, Latin America is forecast to enjoy stronger growth (14% CAGR versus Eastern Europes 12%), so the gap between the two regions will close.

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Asia-Pacific Australasia Eastern Europe Latin America Middle East andAfrica

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Internet Retailing Sales by Region in 2011

Internet retailing and Europe 2011: In context

INTERNET RETAILING AND EUROPE: IN CONTEXT



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Leading Countries: Internet Retailing Sales 2011 Key: US = United States;

GB = United Kingdom;

JP = Japan;

FR = France;

DE = Germany;

CN = China;

KR = South Korea;

BR = Brazil;

RU = Russia;

NL = Netherlands;

CA = Canada;

IT = Italy;

PL = Poland;

FI = Finland;

SE = Sweden

In terms of the countries that generate the largest value of sales over the internet, markets within Western and Eastern Europe dominate, accounting for nine of the 15 largest internet retailing markets globally.

The size of the US internet retailing channel overshadows all others, accounting for 33% of sales generated over the internet globally in 2011. The country is home to a number of the largest internet retailers, such as Amazon, eBay and Apple, which are also leading the way in terms of advancing the manner in which consumers interact with them. Amazon has expanded its product range and touch points with consumers with the addition of the Amazon Fire, eBay has moved strongly into mobile-based internet retailing, and Apple has tied consumers into purchasing more downloadable content from it through the introduction of iPods, iPhones and iPads.

In a number of cases, US-based companies are amongst the largest internet retailers in the other markets shown below, but local champions have also emerged. GS Holdings Corp in South Korea and Merlin.com.pl Sp zoo in Poland have shown how trends started elsewhere have been adopted in markets globally.

Internet retailing and Europe 2011: The country view




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Czech Republic

Belgium

Norway

Switzerland

Netherlands

Germany

Austria

Japan

Sweden

France

USA

South Korea

Denmark

Finland

United Kingdom

Per Capita Sales (US$)

Leading Internet Retailing Markets: Sales Per Capita in 2011

Although the US is the largest internet retailing market

globally, analysis of spending in per capita terms

highlights how retailers can target countries where

individual consumers are spending the most.

While a number of countries are among both the

highest overall spenders and the highest per capita

spenders, such as the UK, France and Japan, sales

per capita data highlight smaller markets like Austria,

Switzerland and Norway, where consumers are

spending an average of US$300 each.

These markets are likely to provide internet retailers

with opportunities in the short term. Consumers are

already purchasing goods over the internet, and thus

are apparently willing to input personal and bank

details online. This is one less barrier for retailers to

overcome when trying to push online, and so both

locally-based retailers and companies expanding their

online operations abroad should seriously review the

opportunities provided by such markets, as, despite

their small populations, they provide short-term gains

to build sales and brand awareness online, which will

provide long-term support to sales growth.

Internet retailing and Europe: The country view in per capita terms




In the combined market of

Western and Eastern Europe,

the UK, France and Germany

dominate, accounting for 64% of

total value sales.

The UK is the most mature

internet retailing market, having

benefited from the early

adoption of e-commerce

strategies by Tesco and Next,

and the arrival of US-based

retailers like Amazon and

latterly eBay.

In a number of cases, the steps

taken by companies in the UK

and US are being adopted by

start-up companies in other

markets. From France emerged

Vente-privee, while from

Germany came Zalando, a

footwear retailer based on a

business model made popular

by US-based Zappos.com.

Spending by market through internet retailing


Share of Internet Retailing in Western and Eastern Europe in 2011

United Kingdom France Germany

Russia Netherlands Italy

Poland Finland Sweden

Denmark Other European markets



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Varied Spending Over the Internet in Europes Other Markets in 2011

Per capita

2011 Growth

Outside of the leading markets in Europe, the development of internet retailing is markedly different from

country to country. Western European markets are the most developed, with Austrian consumers spending

almost US$298 each, while Eastern European consumers spend a lot less.

Within the second tier of internet retailing markets in Europe are countries like Spain, Portugal and Greece, Western European markets that are lagging per capita spending of other countries within the region. In these four markets, broadband penetration rates are lower than the Western European average, underlining the importance of high speed internet access as a support for internet retailings growth. Broadband penetration in Western Europe reached 64% of households in 2010, but in Spain the share was 58%, in Greece 52%; in Italy 53% and in Portugal only 47%.

This low penetration of broadband is likely to be a limiting factor for these countries sales growth into the

medium term.

Spending over the internet: The other markets in Europe


Key: AT = Austria; CH = Switzerland; NO = Norway; BE = Belgium; CS = Czech Republic; IE = Ireland; SK = Slovakia; SV = Slovenia; HU = Hungary;

LT = Lithuania; PT = Portugal; ES = Spain; GR = Greece; CR= Croatia; TR = Turkey; UK = Ukraine; RO = Romania

Note: Belarus, Bosnia-Herzegovina, Bulgaria, Estonia, Georgia, Latvia, Macedonia and Serbia are present in Euromonitor Internationals data but per capita

spending is less than US$100 and, therefore, do not appear on the chart.


INTRODUCTION


CONTEXT

INTERNET RETAILING IN EUROPE: A

PRODUCT VIEW


SALES



EUROPE


Differences exist between Western and Eastern Europe

The different paths of development of internet retailing in Eastern and Western Europe have affected the

share of sales accounted for by different products.

The presence of higher speed broadband has enabled consumers in Western Europe to download digital

media products much more quickly than those in Eastern Europe, to the extent that slow paced internet

connections in the latter region are limiting growth in downloadable content. As such, media products

account for only 9% of internet retailing sales in Eastern Europe, compared to 16% in Western Europe.

Apparel and food and drink struggle to make headway in Eastern Europe

Other product areas that account for a much larger share of sales in 2011 in Western Europe than in

Eastern Europe include apparel and food and drink, which require more developed supply chains than

those for other non-grocery products. For apparel, the need to be able to take back unwanted goods is

something that retailers have struggled with in many instances, while food and drink necessitates

warehousing and/or delivery vans that have the ability to keep fresh, chilled and frozen food in a state that

is acceptable to consumers. In both instances, the maturity of the channel in Western Europe has benefited

the retailing of these products, while further development is required in Eastern Europe.

But some products do not sell over the internet in either region

Beauty and personal care, consumer healthcare and consumer appliances account for comparatively small

shares of sales through the internet in both Eastern and Western Europe, representing no more than 6% of

total internet retail sales in either region. Consumers shopping habits, which centre on wanting to gain

advice, trial and/or see the physical products, in respect of each item inhibits their sale over the internet,

and is likely to continue to do so in the medium term.

Sales by product: Western versus Eastern Europe

INTERNET RETAILING IN EUROPE: A PRODUCT VIEW



0%

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2011

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Eastern Europe

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2011

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Western Europe Other Products

Toys and Games

Media Products

Housewares and HomeFurnishings

Home Care

Food and Drink

DIY and Gardening

Consumer Healthcare

Consumer Electronics

Consumer Appliances

Beauty and Personal Care

Apparel

Sales by product: A regional comparison


Internet Retailing: Sales by Product 2011



02468101214161820

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APP MP CE F&D HHF CA BPC DIY CH T&G HC

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Sales Performance by Product Category 2006-2011

Sales added 2006-2011 Value growth 2006-11 CAGR %

Key: APP = Apparel; MP = Media Products; CE = Consumer Electronics; F&D = Food and Drink; HHF = Housewares and Home Furnishings;

CA = Consumer Appliances; BPC = Beauty and Personal Care; DIY = DIY and Gardening; CH = Consumer Healthcare; T&G = Toys and Games;

HC = Home Care;;

Apparel, media products and consumer electronics added the most sales between 2006 and 2011 in

Western Europe, generating a further US$12.4 billion, US$11.8 billion and US$11.3 billion, respectively.

Together, the three product areas accounted for nearly 50% of all new sales generated over the internet

during the period.

Apparel built on its heritage of being a product that has traditionally sold well through catalogues, garnering significant sales growth. Sales were boosted by the launch of internet-only apparel retailers, like Asos in the UK and Zalando in Germany, as well as by the expansion of product ranges to include clothing and footwear products by established internet retailers, like Amazon, Otto and Tesco.

Despite the fast pace of growth enjoyed by all product areas, for many this occurred from a small base,

meaning that the value of additional sales generated was low. In the medium term, those product areas that

have thus far struggled to gain traction online are likely to continue to suffer.

Western Europe: Sales added 2006-2011




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Sales Performance by Product Category 2006-2011

Sales added 2006-2011 Value growth 2006-11 CAGR %

The difference in the size of sales added over the internet between Western and Eastern Europe was marked between 2006 and 2011, underlining how much potential for growth there is in the latter region.

While there were differences in size, the same three products added the most sales in Eastern Europe as in Western Europe, albeit in a different order. In both regions, consumer electronics, apparel and media products added the most sales between 2006 and 2011, underlining how easily the products can be sold through the channel and how ready consumers are to shop for them through the medium too.

As broadband speeds pick up in Eastern Europe and household penetration rises, so sales of media products are likely to shift from physical products to digital ones. As this occurs, media products are expected to generate further sales over the internet.

Eastern Europe: Sales added 2006-2011


Key: APP = Apparel; BPC = Beauty and Personal Care; CA Consumer Appliances = ; CE = Consumer Electronics; CH = Consumer Healthcare; DIY = DIY

and Gardening; F&D = Food and Drink; HC = Home Care; HHF = Housewares and Home Furnishings; MP = Media Products; T&G = Toys and Games



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Apparel Internet Retailing: Value Sales 2006/2011

2006

2011

Key:

GB = United Kingdom

DE = Germany;

FR = France;

NL = Netherlands;

RU = Russia;

FI = Finland;

IT = Italy;

SE = Sweden;

DK = Denmark;

AT = Austria

In 2011, the value of sales by region for apparel retailing reached US$21.9 billion for Western Europe and

US$2.1 billion for Eastern Europe.

The UK was the largest market for apparel internet retailing in Europe in 2011. Between 2006 and 2011,

the country added a further US$5.1 billion in sales, with the country accounting for 37% of Western

Europes apparel internet retailing sales in 2011, up from 33% in 2006.

Russia was a notable market in that it added just under US$1 billion between 2006 and 2011. This made it

the fifth largest market for apparel internet retailing in Europe in 2011.

Apparel internet retailing: Value of sales, 2006 and 2011




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Distribution of Apparel Products: Eastern Europe 2005-2010

Other channels Internet retailing

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Distribution of Apparel Products: Western Europe 2005-2020


Despite the growth in internet retailing of apparel, the internet still accounts for only a small share of total

apparel retail sales: 2% of Eastern Europes US$101 billion industry, and 5% of Western Europes US$427

billion total sales.

The small share of total apparel sales accounted for by the internet suggests that there might be long-term

growth opportunities. Department stores in both regions have yet to leverage their online presence, while

brands, especially in the luxury sphere, have further opportunities to grow their sales by utilising the

strength of their names to sell across borders and in markets where they do not have a retail presence.

The disparity between the regions also highlights the opportunities for growth for apparel to be sold over

the internet in Eastern Europe in particular. If the regions internet retailers enjoyed the same level of

penetration as those in Western Europe, then an additional US$5 billion of sales would have been

generated over the internet as compared to in stores, underlining how the growth of the internet provides an

opportunity, but also a significant threat to store-based channels.

Apparel internet retailing: The opportunity remains




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Food and Drink Internet Retailing: Value Sales 2006/2011

2006 2011

Key: GB = United Kingdom; FR = France; NL = Netherlands;

DE = Germany; BE = Belgium; IT = Italy; CH = Switzerland;

ES = Spain; SE = Sweden; IE = Ireland

In 2011, the value of sales generated by food and drink

internet retailing reached US$12 billion in Western

Europe and US$658 million in Eastern Europe.

The product area generated much lower levels of sales

compared to apparel in both regions, despite emerging

earlier as a business model in a number of countries.

The UK is the largest market by far, accounting for over

half of the additional sales generated in Western

Europe between 2006 and 2011.

However, its lack of widespread growth highlights how

the UK trend is far from universal in Europe. Although

growth is becoming apparent in some markets, the

channel still accounts for only a small share of sales.

France, though, may provide a view of where the

market may be heading. Retailers like Auchan,

Carrefour and Casino are adopting a different business

model to retailers in the UK by encouraging consumers

to pick up products at stores rather than having them

delivered. This gives retailers the chance to leverage

their store base and the opportunity to sell on-the-go

products or items they had forgotten to consumers who

had completed the majority of their shopping online.

Food and drink internet retailing: Value of sales, 2006 and 2011




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Distribution of Packaged Food Products: Eastern Europe 2006-2011


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Distribution of Packaged Food Products: Western Europe 2006-2011


As with apparel, strong growth for food and drink

internet retailing has not impacted greatly on the

distribution of packaged foods, which is one of its

main constituents.

Overall, internet retailing has gained only limited

penetration in both Eastern and Western Europe,

accounting for a negligible share of sales in the

former region, while in Western Europe, despite

the influence of the UK, only 1.5% of sales are

generated over the internet.

As with apparel, though, if Eastern Europe were to

enjoy the same penetration rates for internet

retailing as Western Europe, it would mean that an

additional US$2 billion of sales would have been

generated over the internet and not in stores.

The low penetration rates in Western Europe after

a long period of development, especially in a

market like the UK, suggest that internet retailing

may not a development that consumers want.

However, to remain competitive, it is likely that

retailers will feel they have to offer such a service if

one of their rivals does.

Food and drink internet retailing, is there further growth to come?



INTRODUCTION


CONTEXT


PRODUCT VIEW


SALES



EUROPE


22 24 26 28 30

2006

2008

2009

2010

% of consumers

Percentage of Consumers, At Least One Cross-border Purchase 2006-2010

Note: Data for graphs on slides 21 and 22 come from the 5th edition of the

European Commissions Consumer Conditions Scoreboard, March 2011

The growth of the EU and consumers ability to

move freely within its borders has increased the

share of sales made by shoppers across

borders.

Much of this growth in cross-border sales has

come from consumers travelling abroad, with

only a small proportion coming through distance

sales channels, including the internet.

However, the growing propensity for consumers

to shop across borders highlights an increasing

realisation that buying from another country can

provide lower prices and a wider range of

products or brands, aided by the fact that EU-

wide laws provide protection when they do so.

The internet as a channel is likely to benefit

greatly from this growing consumer awareness

of cross-border purchasing. As a channel, the

internet enables consumers to purchase easily

from another country, and as shoppers move

purchases online to local retailers, so the

opportunity for companies in other countries will

emerge.

Number of consumers undertaking cross-border purchases grows

THE IMPORTANCE OF CROSS-BORDER SALES



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Cross-border Purchases by Consumers with Internet at Home (%) 2010

Key: MT = Malta; LU = Luxembourg; IE = Ireland; AT = Austria; CY = Cyprus; DK = Denmark; FI = Finland; CS = Czech Republic; BE = Belgium;

SE = Sweden; NL = Netherlands; FR = France; SK = Slovakia; GB = United Kingdom; GR = Greece; EE = Estonia; LT = Lithuania; LV = Latvia;

SI = Slovenia; DE = Germany; ES = Spain; PT = Portugal; HU = Hungary; IT = Italy; BG = Bulgaria; PL = Poland; RO = Romania

Although 36% of all EU citizens have made a purchase over the internet from a retailer in their own country, only 9% have made a cross-border purchase. Nevertheless, business-to-consumer internet retailing generated sales worth US$131 billion in 2011, thus an estimated US$12 billion of sales occurred across borders.

The incidence of cross-border sales is highest amongst consumers in smaller countries who potentially have less access to certain brands or products, those with geographical or linguistic links with larger countries, and those where there is a high penetration rate for broadband access.

Ultimately, the high share of consumers from markets like Malta, Luxembourg and Ireland does show that consumer concerns regarding cross-border shopping can be overcome and, therefore, retailers will need to be increasingly aware of both the opportunities and threats that it provides.

Cross-border purchases highest in small retail markets




Unique Visitors to Amazon.co.uk: July 2011

UK Germany Ireland Netherlands Spain Other markets

Note: Data for graphs on slides 23 and 24 come from panel data taken in October

2011 for July

Amazon.co.uk benefits from being a strong

brand operating in a market where

consumers are used to purchasing over

the internet.

Despite this, almost 22% of consumers

who visited the site in July 2011 did so

from markets outside the UK.

The highest share of consumers from

abroad came from Germany and Ireland,

but there was a broad number of countries

whose shoppers visited Amazon.co.uk

during the month.

The breadth of countries highlights the

threat of cross-border sales to locally-

based retailers. Companies from other

countries immediately become competitors

and, therefore, retailers need to be aware

of a whole new range of rivals. They will

also need to be aware of their new

competitors pricing, product range,

delivery times and offerings, and react in

order to remain competitive.

Amazon.co.uk highlights opportunities of cross-border sales




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Number of Unique Visitors to Amazon.co.uk by Country: July 2011

Note: The graph shown above gives data on countries contained in other markets on the previous slide

Key: NL = Netherlands; IE = Ireland; AT = Austria; SE = Sweden; DK = Denmark; BE = Belgium; DE = Germany; FR = France; FI = Finland;

ES = Spain; GR= Greece; IT = Italy; CS = Czech Republic; PT = Portugal; SL = Slovenia; HU = Hungary; PL = Poland; RO = Romania;

BU = Bulgaria

3.3 million consumers from markets outside the UK visited Amazon.co.uk in July 2011, with a third of those coming, combined, from Ireland and Germany.

The presence of Germany as supplying the third largest number of visitors underlines the attraction of Amazon.co.uk specifically, given that Amazon also operates a site based in Germany. The different range of products available on the UK site, which includes a wider range of English language movies and books, is augmented by the third party sellers that market products through it, again enlarging Amazons range, while German consumers buying presents for people in the UK add another boost to Amazon.co.uks visitor numbers.

As Amazon looks to add country-specific sites in Europe, it is clear from the number of consumers visiting Amazon.co.uk that there is likely to be an appetite for such a site in a number of markets.

Amazon.co.uk: Where visitors from other markets come from



INTRODUCTION


CONTEXT


PRODUCT VIEW


SALES



EUROPE


Demand

Supply Infrastructure

There is strong and growing demand from consumers

for internet retailing solutions that enable them to shop

conveniently for a wide range of products at competitive

prices.

In a number of markets, these same consumers are

shopping across borders, using the internet to

purchase from retailers products or brands that they

are unable to buy in their own market, or at prices

unavailable elsewhere.

Retailers have reacted to this growing demand for

internet retailing by launching fully transactional

websites either in a single country or across multiple

markets.

However, not every consumer is taking this step,

especially in respect of cross-border sales. Much of this

is down to the capacity of infrastructure to support

consumers ability to make a purchase either online or

across borders.

In the medium term, retailers will have to address

consumers concerns regarding cross-border sales. In

relation to Europe, some help will come from legal

changes in the single market of the EU.

Internet retailing: The importance of infrastructure




Broadband penetration

Improving returns policies

Easier shopping

environment

Although the penetration rate of reliable, high speed internet access is not uniform across Eastern and

Western Europe, the number of homes with such access has risen in recent years, making it easier for

consumers to shop over the internet.

This rise in the penetration of broadband access has been met by an increase in the number of retailers

offering consumers e-commerce solutions. However, what has made consumers increasingly happy to

shop online is the fact that retailers have improved their supply chains to enable shoppers to send back

products with more confidence than previously. Returning products bought online was traditionally quite

difficult, but following investment retailers have made it easier for shoppers to send back products and get

refunds. Armed with the confidence that they will get their money back if they do not like the items for

whatever reason, consumers have become more willing to shop online.

Infrastructure: Positives exist from recent years




Broadband access differs

greatly across Europe. About

64% of households in Western

Europe have broadband

access, but in Eastern Europe

this falls to 31%.

However, as noted previously,

there are differences within

each region which will make

some countries easier to target

for retailers attempting to

globalise or regionalise their

internet retailing presence than

others.

Within Western Europe,

Austria, Greece, Italy, Portugal

and Turkey lie below the

regional average, while in

Eastern Europe, Slovenia lies

about the Western Europe

average, with Estonia and the

Czech Republic close behind.

0%

25%

50%

75%

100%

AT BE CY DK FI GR IC IT LU NL NO PT ES TR GBSh

are

of

ho

us

eh

old

s

Western Europe: Share of Households with Broadband Access in 2010

Key: AT = Austria; BE = Belgium; CY = Cyprus; DK = Denmark; FI = Finland; GR = Greece; IC = Iceland; IT = Italy; LU = Luxembourg; NL = Netherlands; NO = Norway; PT = Portugal; ES = Spain; TR = Turkey; GB = United Kingdom

Penetration of broadband internet connections in Europe


0%

10%

20%

30%

40%

50%

60%

70%

BL BO BU CR EE GG LT MO PO RO RU BS SK SV UK

Sh

are

of

ho

us

eh

old

s

Eastern Europe: Share of Households with Broadband Access in 2010

Key: BL = Belarus; BO = Bosnia; BU = Bulgaria; CR = Croatia; EE = Estonia; GG = Georgia;

LT = Lithuania; MO = Montenegro; PL= Poland; RO = Romania; RU= Russia; BS = Serbia;

SK = Slovakia; SV = Slovenia; UK = Ukraine



Hindrances

to sales

Pricing and payment

Shipments

Localisation of product choices

Localisation of marketing

needs

Lack of a legal

framework

Copyright

Language: site and

customer service

Despite the positive elements highlighted, there

are still a number of factors holding back the

expansion of internet retailing in a number of

markets, especially across borders within Eastern

and Western Europe.

The lack of a legal framework that protects

consumer rights in the same way from country to

country acts as a drag on cross-border sales. Also,

due to specific country delivery options, retailers

have to face differing consumer expectations:

some require one hour delivery slots, while others

are happy to wait in all day. Retailers will have to

be aware of these differences before extending

their internet retailing offer into a new market.

One of the biggest hurdles that a retailer will have

to overcome is in relation to the local differences

required of their web site, in terms of language, the

product offering, the need for different sizes,

colours or designs, and in relation to customer

service, where a retailer may have to converse with

consumers in a foreign language. Localisation of

offering will require a lot of thought.

Infrastructure: Large number of negatives remain in 2011




Amazon.fr

France

United Kingdom

Germany

Switzerland

Belgium

Austria

Other markets

Amazon.de

Consumers ability to understand the web site they are shopping through is highlighted by the differences in

where the users of Amazon.fr (France) and Amazon.de (Germany) are based. The majority of people

visiting Amazon.fr or Amazon.de come from the sites local market. In both cases, the domestic share is

much higher than that for Amazon.co.uk, which is written in English and is thus more widely understood.

For both Amazon.fr and Amazon.de, the leading countries for non-domestic customers are neighbouring markets with cultural and linguistic similarities. For France, this has led to Belgium being the most important market for visitors, while for Germany the number of shoppers visiting from Belgium is negligible.

As retailers expand their online presence, translating their web site into local languages appears to be a

necessity. Given differences in terms and understanding, this translation will need to be done from the

bottom up, rather than through relying on consumers using automated online translation services.

Amazon.de and Amazon.fr underline the importance of language


Note: Data for pie charts comes from panel data taken in October 2011 for July

Unique Visitors to Amazon.fr and

Amazon.de in July 2011



The use of the internet to expand either globally, eg US-based businesses targeting Western or Eastern Europe, or regionally, asks different questions of the company, depending on their starting point eg with or without stores and will vary according to whether the company is a retailer or a manufacturer.

For those companies that are existing retailers with stores in a given market, using the internet as a way to broaden their presence appears like a good strategy. It enables the company to expand where consumers have a knowledge of their brand or products, and where demand is present. This can allow the retailer to work out where to open stores in future, or where to invest their marketing spend in order to continue to increase brand awareness.

However, for UK- or US-based retailers, consumers knowledge of a brand may be limited to the expatriate community and, therefore, while demand may be present in a given market, the opportunities for growth may be limited.

Extending a companys online presence, while cheaper than opening stores, is not a decision that can be taken lightly, given the importance of language, the need to lengthen supply chains, the requirement that returns can be made easily, and the need to invest in marketing. As such, while expanding geographical presence using the internet is positive, retailers will have to be careful when identifying the markets to expand into.

Different models for growth: Bricks and mortar brands




As with store-based retailers expanding into new markets, pure e-

commerce companies need to be aware of the pitfalls that can come

from entering new countries without a strategy that supports this growth.

Building a brand presence online requires less investment than building

stores, but in a crowded marketplace pure e-commerce players will

need to market themselves strongly, spend on search engine

optimisation to make sure they come as close to the top as possible,

and target the next country market which has the potential for the

addition of a country-specific web site.

The strategy employed by Amazon.com Inc and Asos Plc, as they have

expanded their presence in Europe, is instructive in showing how

successful retailers have undertaken this development in recent years.

In the case of both companies, they built a presence in the UK, Asoss

home market, and through the wider use of English in Europe gained

insight into which countries consumers were interested in their

products. This step, allied with analysing which countries would provide

the strongest medium term growth opportunities, enabled them to then

establish country-specific web sites in markets like Germany, France,

Italy and Spain. As Amazon and Asos expanded into the new markets,

they translated the web sites in full to make sure that locally-based

consumers would be able to shop through the web sites as easily as

possible.

Different models for growth: Pure e-commerce




Mirroring the steps taken by pure e-commerce retailers, the internet has enabled

manufacturers increasingly to sell directly to consumers. Dell highlighted the

opportunities for manufacturers to extend their supply chains to deliver directly to

consumers, cutting out third party retailers, a step that a number of companies have

taken since.

Apple has taken Dells development online a step further by enabling consumers to

download digital content, from music to films, alongside selling its hardware over

the internet. Although digitising content is not a step that every retailer can take,

Apple approached the selling of a product in a different way, using the internet to

make it more convenient for consumers to purchase goods than was traditionally

the case.

For product areas where margins are very thin, such as consumer electronics and appliances, and where the number of specialists operating such stores is dwindling, manufacturers will have to find ways to use the internet to sell directly to consumers. Not only does this channel provide a way for brand owners to generate better margins, but it will also enable them to identify which customers are loyal to their brand and allow them to target them on an on-going basis as and when new products are launched.

However, this step is not only for manufacturers of non-grocery products. The

success of Diapers.com in the US shows that consumers are happy to shop for a

range of products on line, if there is an advantage in doing so. This step will ask

new questions of manufacturers supply chains and require them to think in new

ways, but with others already doing it, the benefits clearly outweigh the negatives.

Different models for growth: Manufacturers selling to consumers



INTRODUCTION


CONTEXT


PRODUCT VIEW


SALES



EUROPE


0%

2%

4%

6%

8%

10%

12%

CS HU LT PL AT FI FR DE NL GB

Sh

are

of sa

les

Share of Total Retail Sales Accounted for by Internet Retailing 2006/2011/2015

2006 2011 2016

Key:

CS = Czech Republic;

HU = Hungary;

LT = Lithuania;

PL = Poland;

AT = Austria;

FI = Finland;

FR = France;

DE = Germany;

NL = Netherlands;

GB = United Kingdom

The internet retailing channel will account for an ever larger share of the total retailing industrys sales in the future. In 2006, internet retailing accounted for 1.1% of sales in Eastern Europe and 1.8% in Western Europe. By 2016, these shares are expected to rise to 3.5% and 5.7%, respectively.

However, in markets like Finland and the UK, the share is set to be much higher, with internet retailing accounting for more than 10% of all sales.

The performance of the channel is not set to be uniform across all product areas, but the trend towards internet retailing accounting for an ever higher share of value sales is evident. The growth of the channel will provide retailers and manufacturers with new opportunities and new threats. On the positive side, it will enable them to improve the way they sell to consumers and to build stronger ties with shoppers by building up knowledge about them. However, on the downside, there is the threat of a growing number of competitors, such as grocers, selling a wider range of products online, and retailers selling across borders, that companies will have to deal with.

Internet retailing to account for growing share of industrys sales

THE FUTURE OF INTERNET RETAILING IN EUROPE



0

50

100

150

200

2009 2010 2011 2012 2013 2014 2015

Mill

ion

un

its

Number of Smartphones Sold by Year 2009-2015

Eastern Europe Western Europe

0

10

20

30

40

50

2009 2010 2011 2012 2013 2014 2015

Mill

ion

un

its

Number of Tablets Sold by Year 2009-2015

Eastern Europe Western Europe

Mobile technology, in terms of smartphones and tablets, has permeated very quickly into the consumer

base. By 2015, annual sales of smartphones in Europe are predicted to reach 150 million, while 40 million

tablets will be purchased, from a standing start in 2009.

The launch of the Amazon Kindle Fire tablet in September 2011, the continued evolution of Apples iPhone

and smartphones from other handset manufacturers is widening consumer adoption, leading many

shoppers to have such technology with them at all times.

The growing presence of these technologies in consumers pockets will enable them to research products

and to check prices in stores, but it will also allow them to purchase the items from the cheapest retailer

through the same internet access. This change in how and where consumers access the internet will

provide the internet channel with further growth opportunities and is likely to give sales growth added

momentum in the medium and longer term.

Influence of mobile technology set to aid growth of internet retailing




Social

Deals

Mobile

The adoption of tablets and smartphones by consumers, and emerging business models that utilise the internet in new ways are leading to an evolution of how internet retailers interact with consumers.

Mobile internet; m-commerce

Internet retailing on smartphones or tablets is creating a consumer base that is always ready to shop or interact with retailers. The growth of mobile apps enables retailers to know when consumers visit their stores and to provide them with greater level of product information. Ultimately, this helps blur the line between internet and store-based channels.

Social internet, social commerce

Selling through portals like Facebook or generating sales over Twitter is an increasingly social way for companies to sell their products to consumers.

Deals

Coupon sites like Groupon and LivingSocial are being joined by flash sales and member-only sites to create new business models that attract new consumers to the internet by offering discounts or unmissable deals. These sites also offer consumers products or brands that have traditionally had a minimal presence online, which boosts the number of people wanting to shop online.

Internet retailing is going social and mobile




WIN

NE

RS

L

OS

ER

S

In Western Europe, internet retailing is forecast to

grow at a CAGR of 9% in constant value terms

between 2011 and 2016, while Eastern Europe will

see sales expand by an annual average of 12%.

However, not all products are set to benefit from

this pace of sales growth in Europe. Apparel is

expected to see a greater number of consumers

shop for its products online. Boosted by the trends

being seen in 2011, further retailers are expected

to add apparel ranges online, which will quicken

the pace of sales growth in future.

Similarly, items like consumer electronics and

fragrances, which are very brand led, are expected

to sell well over the internet in future.

By comparison, consumer appliances, purchases

of which centre on features, are likely to remain

popular store-based purchases. Mirroring this

difference within a broad product area is the fact

that goods like make-up are not expected to grow

strongly online, as consumers want to try or

receive information about the product before

buying. This factor will limit such products growth

online in the medium term.

Products expected to grow sales online

Products likely to see limited growth online

Apparel

Consumer electronics

Fragrances

Non-perishable food and drinks

Media products

Consumer appliances

Consumer healthcare

Beauty and personal goods

Perishable food

Traditional toys and games

Success probabilities by product




According to Euromonitor International, internet retailing is defined as follows:

Sales of consumer goods to the general public from businesses via the internet;

Includes mobile retailing (m-commerce);

Sales data are attributed to the country where the consumer is based, rather than where the retailer is

based;

Payment can be made through a store card, an online credit account or on delivery of the product;

Includes downloads.

Excluded from internet retailing are:

Consumer-to-consumer sales;

Sales of motor vehicles, motorcycles and vehicle parts;

Tickets for events (sports, music concerts, etc) and travel;

The sales of holidays;

Revenue generated by online gambling sites.

Definitions

REPORT DEFINITIONS



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Documents

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