EU Online Retailing 2011 - Massive Potential

June 8, 2011 - PRLog -- In 2010 one in every €25 spent on retail across to EU went through the online channel. Online sales of physical goods, excluding services (such as tickets, airfares, digital downloads, financial products, online gambling etc), traditional mail order sales and C2C sales (through the likes of eBay, PriceMinister) stood just shy of €100bn, having grown by a CAGR of 23.8% over the last five years or by 190% in nominal terms, all the way through the deepest recession the continent experienced in 60 years.

Average online spend (calculated on a household with broadband connection basis) across the EU 27 declined between 2005 and 2009 before sharply rebounding in 2010 to €764, mainly as a consequence of broadband penetration outpacing online sales over the period.

In 2010 EU online retailing was clearly dominated by the three major EU markets, the UK, France and Germany followed by the Netherlands and Scandinavia, showing a clear bias towards Northern Europe, with the most advanced member states of Central Eastern Europe emerging surprisingly high up the table, Poland is already the fifth most important online market within the Union. Turning south, both Italy and Spain’s online markets arguably show the biggest potential for online development as broadband penetration and online spend is still relatively low and we expect both markets to rapidly catch up over the next decade.

Indeed the Spanish market is an interesting case in point, as Spaniards spend more online on goods coming from abroad (with the US and the UK major exporting markets) than from their own domestic market, highlighting the massive opportunity for the likes of El Corte Ingles, Zara, Mango or Mercadona (to name but a few) to develop the domestic market further.

The Scandinavian markets – while quite small on their own – show a considerable degree of online cross border shopping too, attributable to the fact that the markets share close linguistic ties (Finland being the exception) – and exhibit a high degree of social trust which has transferred to online retailing as well. Germany is another market that sees many orders from its northern neighbours.

While the UK online market is by far the biggest in actual size followed by France and Germany, Danes are the EU’s most avid internet shoppers, calculated on a broadband connected average household spend basis (excluding the outlier Luxembourg). On average Denmark’s online shoppers spent €1,462 on physical goods in 2010, leading the UK, France and fellow Scandinavian markets Finland and Sweden.

The broad development in online retailing over the 2005-15 period can be characterised as moving from multichannel in 2005 to m-commerce in 2010 and towards internationalisation by 2015. As such a massive prize awaits the winning retail players, serving potential customers across the whole EU market or 126m connected households as of 2010. We forecast that this number will gently rise to 163m households over the next 5 years.

While much of the historic growth of online retailing has been driven by increasing broadband penetration, the rapid growth spurt is now over. Broadband penetration rates will soon reach a natural ceiling in most of the more advanced online markets of north and western Europe. This means that retailers now have to focus on driving average basket sizes up. On top of this the competitive environment has become considerably tougher with the number of online retail businesses soaring across the EU over the last decade. Arguably, this is another reason why retailers need to think beyond the national online market and in a true paradigm change need to adopt a pan EU perspective.

We expect the nature of online retailing to change significantly going forward, current cross border shopping trends are set to intensify, especially where linguistic similarities exist, so for example in France, (Walloon) Belgium and (non EU) Switzerland; Germany and Austria; Holland and (Flamish) Belgium and so on.

One growth impetus will come from the EU commission, as it has targeted online retailing as a trailblazer for the integration of the common consumer goods market. Combining with the political push are technological developments such as the emergence of m-commerce and truly cross border social networks and price checking sites. Indeed by 2015 we should already be on our way to a far more global online environment, with sales from and to North America and even Asia (South Korea, Japan) rising steadily in importance as well.

For online retailing the future is rosy, and by 2015 we expect the retail universe to have considerably moved closer to a reality where EU shoppers order their wine, fine foods and clothes from Italy, France and Spain, their furniture from Scandinavia, DIY equipment and musical instruments from Germany and CEE, books and DVDs from the UK, etc whilst other sectors such as consumer electronics and media will become even more globalised than they currently are.

Finally, another change will occur in the rankings, we forecast that by 2015 France’s online sales will have leapfrogged those of the UK, however as with any comparison involving the UK and the Eurozone this will be dependent on currency exchange rate fluctuations. Overall EU online retailing will remain dominated by the same countries in 2015, with both Spain and Italy catching up significantly.

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