Ecommerce – A European Perspective
GLOBAL HEAD OF SERVICES SECTORS
“Ecommerce is greatly reshaping the business landscape and affecting actors in a majority of industries on many different levels, bringing new opportunities and challenges for all. It is important for actors to be prepared and knowledgeable about these aspects, and to find solutions. At Mazars, our experts advise clients on topics such as tax & legal, ethics & compliance, logistics & footprint, digitalization & technology as well as business models and customer experience, all of which are evolving with the emergence of ecommerce. We see a great potential for those actors to prepare for and respond to this new context.”
1. The Regional Backdrop
Europe is a historically and culturally vibrant continent in the Northern Hemisphere, encompassing a diverse geographic, demographic and architectural mix. It houses ~809 mn people over an area of 10,180,000 sq. km., divided into 47 sovereign states of which the Russian Federation is the largest and most populous. Amongst all countries, the most prevalent form of government is Parliamentary Democracy, in most cases in the form of a Republic. Ever since the Age of Discovery, Europe has played a predominant role in global affairs, with historical landmarks such as the Industrial revolution and Napoleonic Wars having a substantial role in shaping its present-day geographic organization.
At a global level, the European region is known for its unified market coined as the European Union (EU), which is an economic partnership between 28 European countries that came into existence in the aftermath of World War II. The intent was to foster economic cooperation between various members, which subsequently resulted in the abolishment of tariffs in 1986. Further in 1998, 12 member states decided to introduce a common currency (EURO), with the Eurozone expanding to 19 countries. Such unity has always flowed well in the upturn of globalization, linking people, capital and trade across borders; it also tunes well with the recent emergence of digitized economies, which further stress upon breaking territorial borders. However, maintaining the same is a drawn out process, given the uptake of sudden events such as the UK’s decision to leave the EU in 2016 (Brexit). The final strait of Brexit, poised to take place in March 2019, will showcase how well the unified market procedurally lets members in and out, without disrupting the harmony of the entire system itself.
People and Numbers at a Growing Trajectory
Demographic-wise, the European population has witnessed a marginal growth at a CAGR of 0.3% from 2013 to 2017, and is forecast to reach ~811.7 mn people this year. Out of this, Western Europe has the largest population, standing at ~24.7 mn (31% of the regional share). While majority of the population (~42.4%) is concentrated in the 25-54 age bracket, the 65+ age group is steadily developing as well. Currently, Northern and Central Europe house majority of the elderly class, which takes up ~15-17% of the total population. This calls for an ever growing need to utilize the current working group and adopt contemporary practices that take forward economic growth in the long run, being able to sustain the aging demography over the years. Resource utilization becomes key.
On the economic front, Europe’s GDP is currently placed at EUR 17.0 tn, moving at an increasing trajectory. Recovery from the Global Financial Crisis, coupled with various incidents of political uncertainty was slow; it took a full 8-year turn before member states could lift the volatile hits & misses and kick GDP levels back up. Within this, while Northern and Western Europe lead the sphere in relation to current GDP per capita levels, countries in Central and Eastern Europe have started to rapidly develop, due to factors such as the recovery of Germany, increasing demand for exports leading to more jobs, rising consumption etc.
For example, unemployment has been steadily decreasing across all parts of the region over the last 2 years, with the greatest change being in Southern Europe of 7.2%. This proves quite beneficial for the entire Eurozone as income disparity within the region starts to wane off.
Varying Infrastructural Growth & Development
Logistically, European countries vary significantly in their placement on the LPI (Logistical Performance Index), which reflects perceptions of a country’s customs clearance process efficiency, trade & transport-related infrastructure quality, as well as the ease of logistical services. While Germany, Luxembourg, Sweden and the Netherlands peak out with a score of ~4.20 or more, others such as Albania, Belarus or Montenegro sit out at a score of ~2.4. This indicates a high level of infra development disparity within the region.
Meanwhile, Denmark and the UK lead the rank in terms of ease of doing business, which examines the extent to which the local regulatory environment is more favorable for starting and/or operating a local firm. This factor has become of paramount importance now, given the large amount of startup activity that has kicked off at a global level; technological development is rapidly changing the scope and nature of various industries and hence creating opportunities for many new entrants to capitalize upon. Having a conducive environment for players to participate in such emerging trends becomes critical, facilitating constant innovation and growth.
2. The Digitization Buzz
The present-day dominantly young population has helped to jumpstart the region into digitization, where people are increasingly adopting the electronic platform in their daily lives. This translates into Europe’s rising internet penetration that has grown from a user base of ~77.6% in 2015 to ~81.2% in 2017; it is expected to further climb to ~83.1% by this year. While all regions have a relatively high net access of at least 66%, Northern Europe tops the chart with a penetration rate of ~94.8%. Within this, Sweden is number one with almost 10 mn people (99.7%) browsing the e-sphere. This activity is expected to increase rapidly throughout Europe. Just about everyone is going online.
Growing Ecommerce Activity Into Play
A high level of internet activity has played quite positively for the ecommerce market, with people utilizing the internet of things (IoT) to make a variety of purchases. Nevertheless, internet access and online shopping differs significantly in the EU, with generally half the number of net users making use of the ecommerce channel. Online shopping generally ranges from 82% to 13%, with much of the activity concentrated in markets such as the Netherlands, Switzerland, Sweden, Denmark etc. Countries such as Italy, Cyprus, Serbia, Croatia, Bulgaria, and FYR Macedonia do not even have an e-shopper base of 35%. Hence, there still exists a huge opportunity for new entrants to spur up online buying.
In fact, the retail market bears high prospects, with companies such as Schwarz (Lidl) making a revenue of EUR ~97 bn in 2017. Meanwhile, a diverse set of names such as Amazon, Argos, Bonprix, Currys, Debenhams etc. dominate the online retailing sphere. Alongside this, Apple, Boots H&M, IKEA, Nike, Zara and Tesco are also regarded as “Elite Retailers” – ones having a hyper sophisticated distribution channel all across Europe. This advanced logistical structure is what guarantees success.
The Rise of Marketplaces
One crucial trend in the ecommerce sphere has been the rise of marketplaces, which have gained significant momentum over traditional retailers. Pan-European brands are giving intense competition to in-country giants, due to their larger impact and performance. These include players such as Amazon and eBay that race ahead in terms of their website ranking, as well as the Alibaba Group that is moving in from Eastern countries. They strive towards capturing the growing ecommerce market by developing a customized and convenient platform that encourages online retail on a single avenue. This can be achieved through multiple strategies – i.e. buying companies in full as done by Amazon or taking a minority stake to capture a greater number of companies as done by Alibaba.
Revenue wise, these marketplaces own ~56% of cross border ecommerce, with an increasing presence in various markets; for example, Amazon is expected to take up 50% of the US market by 2020. In fact, this platform holds a substantial base, selling a diverse range of goods across the globe. For example, 33.5% of all UK online spending happens on Amazon, alongside the activities of other key markets such as Germany & Japan.
3. What Are the Driving Factors?
In a nutshell, ecommerce in the European region is driven by a variety of factors that are rooted in changing consumer habits towards the digital sphere. Shopping nowadays is no longer a planned one-way process where a potential consumer deciphers on having a need and then looking over a nearby store to fulfill it. Rather, it is a multi-communicative model where sellers approach potential buyers from various channels on a real-time basis, creating a need rather than simply addressing it.
Online Shopping Gaining Traction
The European e-retail space is rapidly growing, with even more potential to soar ahead. This is because a large number of people are now switching to alternative electronic modes of payment for at least one part of their shopping journey – i.e. pre-sale browsing, actual purchase, payment, after sales request etc.
Product wise, consumers utilize the online channel for making a diverse range of purchases. Each transaction can range between less than EUR 50 to even greater than EUR 1,000. Nevertheless, majority of buyers spend between EUR 100-499, highlighting a greater demand for goods that are not too costly in nature.
These are rather fairly-priced non-durable goods that have a low-medium shelf life. This translates well with the average consumer profile, who is generally aged from 16-54. Specifically, people aged 25-54 purchase the most frequently online, with students and those with higher formal education being the regular e-shoppers that constitute 82% and 70% of the lot respectively. Hence, their purchase basket leans lesser in the Medicines/Healthcare category and rather is concentrated around Clothing & Sports Goods, which is the top choice as per 36% buyers in 2017. This is closely followed by products/ services in Travel & Holiday Accommodation as well as Media & Computer Software, standing at 31%. These consumers are tech-savvy, with a moderate level of income to spare. Hence, they require information and great deals on their fingertips. They require access to information, expertise and validation at every stage of the journey, with complementing in and out-of-store channels.
Lookout For the Omnichannel Experience
The growth in online shopping does not merely rest upon electronic platforms. Rather, the modern-day consumer rarely has a singular journey and demands an amalgamation between the cyber sphere and physical touch points – i.e. allowing the buyer to purchase online and return physically or browse online and order through a physical store etc. Firms are required to take the requisite steps to address this need in a timely manner. An omnichannel journey is no longer a luxury, but an increasing necessity.
Successful adoption of this starts at the top, with the leader envisioning how to add, consolidate & streamline business processes, become data driven and shift towards real-time services, being able to offer a personalized, customer-centric experience. Digital transformation needs to embed within each and every person of the firm, instead of operating in a silo at a departmental level. Retail firms need to look towards adopting decentral commerce, building services such as “click & collect”, same day delivery to the nearest consumer location, customized loyalty/selection programs etc.
Being able to structure, understand and articulate all kinds of customer-related data becomes paramount; firms must make sure they have the right competencies in place to make this happen. This includes a proper utilization of artificial intelligence (AI) and robotics, which will become a core driver behind effective customer relationship management (CRM) in the long run. Machine learning is an important component here, facilitating the analysis of large chunks of data that helps companies take a proactive approach. An example here is Netflix, which can predict what its viewers would like before they even know themselves; this enables the media services supplier to make the appropriate recommendations beforehand, helping generate more consumer interest. Meanwhile, firms such as Amazon utilize AI to guide customers on what they are looking for through its “Echo Look”; such an approach does not merely address demand but actually builds potential demand itself.
Leaning Towards the Social Touch
Ecommerce is not only driven by customer demand, but also their experiences. The power of today’s social media applica- tions go beyond the ordinary sharing of photos, statuses and events. People are increasingly making use of platforms such as Facebook, Twitter, Instagram, Youtube etc. to engage in “social sharing” – i.e. communicating about their joyous retail experiences, as well as grievances. Social listening has therefore become a critical tool for players to rapidly address service concerns; otherwise it can sabotage its corporate image in front of millions of users. This goes forward a long way for online retail players who are here to stay – they should take all necessary steps to make social media a positive marketing tool, not a complaint platform.
Prospects High For A Flourishing B2C Market
Going Cross Border
The buzz is not only around Western Europe. Southern European e-commerce is also steadily emerging, with e-growth expected to hike from 14% in 2017 to 18% in 2018. This also extends into Central and Eastern Europe. For example, though Romania’s e-commerce surged the highest in 2017 at 37%, Macedonia & Portugal have the highest amount of cross-border e-purchases, standing at 85%. Meanwhile, Slovenia has the highest cross-border e-purchase growth rate of 6% when some countries actually experienced zero/negative growth.
This is in line with a steady growth in buying internationally. For example, while domestic sellers dominate with 50% of online shoppers having made national e-purchases, 24% of the lot shopped abroad in 2017. Ordering from other EU countries registered the strongest growth, while purchases from other countries or origin gained greater appeal. However, not many countries have been able to capitalize a high growth in this area due to potential challenges in managing cross-border e-commerce amidst distinct consumer habits and identities. It is all about developing a unified communication channel that balances local know-how with global fraud awareness, in order to keep experience high and cybercrime low.
A highly advanced logistical framework is needed that takes care of cost-effective warehousing, compliance with custom norms across borders, as well as preferred delivery choices, with speed being of top priority. Customers need to be able to track and trace their deliveries, especially when it involves international travel; they need to be notified on a timely basis and provided real-time assistance should their goods reach them in faulty condition. Such factors keep e-tailers vary before stepping into cross-border commerce. Nevertheless, regardless of the route chosen, players continue to enter into the e-commerce market.
4. What Are the Impediments?
While the ecommerce framework is here to grow throughout Europe, it is not free from challenges. The ease, convenience and instantaneous nature of online activity can become dreary when firms have to tackle dynamic consumer needs/preferences that constantly change and significantly deviate from each other. Hence, it is of utmost importance that companies are on their feet to address issues as they arise.
Entering A Market Unprepared
One of the greatest mistakes SMEs make is enter a market unprepared. This often results in the product offering not being adapted to local consumer needs and preferences. Firms end up having insufficient knowledge of the local legislation or a specific country characteristics when it comes to pricing, language, timing of promotions, marketing etc. These factors are crucial to address in order to build trust. Plus, providing adequate customer support is also important – i.e. giving off easy returns & delivery. For this, SMEs are encouraged to enter foreign markets through a “standardized” gate such as online marketplaces (which explains why they are gaining great appeal). Localization should also not be taken lightly; simple things, such as having a support number in place, VAT declaration, shipping particulars etc. can be game changing. Speed should not be given undue importance; entering into a foreign market without having the homework done can be much costlier.
Making Security A Priority
The online world is not free from controversy, especially when there have been a substantial number of incidents involving cybercrime. These events have made many potential consumers vary of using the e-channel,
in fear their funds and information can be at stake. Hence, firms are required to adopt and invest in a sophisticated security management framework that utilizes advancements in multi-layer authentication and communication to prevent fraudulent transactions.
A sound IT system should be in place to manage company & consumer privacy, especially in sensitive industries such as healthcare and financial services. In the long run, an effective data management structure and platform will also help companies comply with stringent data protection regulations – especially with the onset of the GDPR (General Data Protection Regulation) that becomes a critical trust factor amidst users.
Implementing A Decentralized And Integrated Platform
The management of various dynamic security concerns, real-time logistics, customer sales etc. can be a cumbersome process. Firms can risk out losing on sales if a timely feedback response loop is not in place, as well as mechanism that tracks the value-add of such an e-strategy. A wide variety of success stories till date point out the importance of establishing a centrally-managed e-commerce delivery platform, where firms can easily track how much spending is channeled towards managing this platform (i.e. through licensing fees, development costs, agency expenditures etc.). Having a fragmented set of e-commerce systems is not only unorganized but also leads firms to overlook significant hidden costs. In addition, employees in various subsidiaries would only stay motivated if they also have a hand in learning and formulating the development of the holistic e-strategy. Meanwhile, customers will benefit from having a singular view of a firm’s e-delivery model, helping build unity and loyalty across various brands. Information, as well as resources, can be quickly disseminated and processed across borders. Security features can be rolled out at a firm-wide level, helping negate vulnerabilities in disconnected solutions; different units will no longer be competing but rather synergizing with each other, on a real time basis. Given the current consumer profile, this increased efficiency is of high importance.
However, adoption to such unified platform should ideally occur on a gradual basis, starting with pilot runs on a specific subsidiary and then slowly extending its operation to others. This will give time for people and processes to become duly accustomed, helping curb any unexpected misfits. It will also help companies take country or market-specific factors into account, where e-commerce is governed globally and customized locally.
5. Way Forward
As a big picture, the rise of e-commerce activity in the entire European region is inevitable. Digitization is up and running, with people readily demanding products/services “on the go.” The art of “interneting” has become popular in this regard, which will only take online shopping forward. However, the growth will not be static. Rather, firms must gear up to grapple with constant changes given that various technologies and processes will come into play that consolidate the product/service value chain, making it easy for stakeholders to communicate through the line.
This includes Blockchain technology, which will disrupt current e-commerce by decentralizing control and cutting out the middlemen. This offers a range of opportunities for firms to upgrade security & control, as well as ramp up customer trust by being able to ensure complete traceability of goods from production to sale and shipment. Such an approach cuts back on fraudulent/fake goods, helping authenticate each & every sale. Concurrently, Blockchain technology also helps legitimize consumer reviews on various platforms, compensating both writers & moderators, as well as building credibility. Meanwhile, the rise in connected devices presents numerous opportunities for customers to interact via a range of medi- ums. In fact at some point, buying online can actually take place without any actual human interaction and rather through digitally dispersed, instantaneous touch points. Customers would readily buy into these supposedly “micro-moments” as long as they are relevant and do not invade their privacy. Firms would therefore need to make sure each automated experience is automated yet invisible in nature. Given that switching costs are radically going down, it will not take much time for a buyer to make the move if a certain experience does not turn worthwhile.
Even though Gen Z makes up 9% of the EU population, they will only grow ahead. Hence, firms must be vary that they demand a slick retail experience when it comes to online shopping. They rarely want to deal with multiple, detached systems when trying to input/source data; rather, they want everything integrated into a single platform. This also goes for employees. If companies want to hire the right talent who is well-versed with upcoming trends, they must host the requisite digital-native work environment to keep them motivated. Change will be the only constant factor in the digitized world.
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