E-commerce in Italy

Given the digitization spree, ecommerce as a global marketplace has gained significant momentum. The report aims to understand, highlight and evaluate the growth of this industry in Italy.

ITALY

1. The Backdrop

Italy (known as the Italian republic) is a culturally- driven country in south central Europe, best known for its artistic, historic and geographic diversity. It has a population of ~59.3 mn inhabitants, spread over an area of 301,340 sq. km. Economically, the GDP has increased from EUR ~1,542.9 bn in 2014 to EUR ~1,594.1 bn in 2017 (CAGR of 1.1%) and is forecast to reach EUR ~1,618.6 bn in 2018, at a year on-year growth of 1.5%. The country is currently facing a steady decline in its birthrate and immigration, which has caused the population to dwindle by 0.2% from 2015 to 2017; it is expected to drop by another 0.1% this year, becoming ~59.3 mn in 2018. Nevertheless the demographic mix is relatively young, with majority of the population (~78.5%) being less than 55 years of age and over 42% between the ages of 25-54. Hence, there is a strong opportunity towards utilizing this large working class population towards upcoming markets concentrated in the digital-space. This is evident through the persistently rising internet usage  amongst Italian people, which has culminated into a current internet user base of 73%, growing by ~4.2%. Over 85% of inhabitants up to 44 years of age are going online, along with ~60-80% of those aged from 45-64. E-activity is disseminating across generations.

In terms of performance, Italy ties up with Taiwan in ranking 19th globally and 13th in the EU on the Inclusive Internet Index, which outlines the current state of internet availability, affordability, relevance and readiness. While relevance is quite strong (standing 8th amongst 18 EU countries and 11th worldwide), the country stumbles upon readiness. This means while the existence of locally-relevant content is there (which is paramount given the considerable level of linguistic diversity), greater effort is required to build the requisite skill-set, cultural acceptance and design encouraging policies to boost e-adoption. Concurrently this should also boost the availability score, as people start having a favorable infrastructure and institutional base to access the internet, hiking up usage levels.

Logistically, Italy ranks 21st on the LPI (Logistical Performance Index), reflecting a fairly well established customs clearance process, trade and logistical services quality, as well as transport infrastructure. The government is also taking steps to further develop telecommunication, human capital and online services, given that the E-Government Development Index stands moderately well at 22nd position.

However the ease of doing business can be further improved upon, which currently sits average at 46th. This may stem from the increased complexity embedded in the Italian financial & legal environment. Factors such as differing charts of accounts, individual specificities in employee pay slips, as well as the convoluted interplay between fiscal & accounting rules, all add up onerous responsibilities on smaller companies. These hurdles can become especially burdensome in the cyber environment, where SMEs are also required to keep up with latest technological developments, monitor both tangible & intangible activities and compete amidst large marketplaces. The Death by Amazon index illustrates one of such many examples. Hence, these impediments must be ironed out in order to create a level playing field that is very much needed in the time of greater online activity.

On a macro level, Italy seems to be going for a steady e-development, with the digitization of daily life. However, this growth can be better channeled by having more fresh blood enter the working system.
For example, while the overall unemployment rate has slightly gone down from its peak of ~12.6% in
2014 to ~11.3% in 2017, many young people are still unemployed. The local labor market therefore needs to utilize the available youth and equip them with the requisite skill-set for high-growth sectors. Such an environment is critical for further developing the digital economy at a country-wide level.

2. Bustling Ecommerce Activity  

Digitization has fueled the ecommerce market in Italy, with many purchasing goods/services “on-the-go.” It is a dynamic landscape where people are steadily becoming regular e-shoppers who are concerned about their entire purchasing experience, demanding real-time service along the way.

Online Purchases Kicking In 

Italy witnessed a substantial surge in online buying in 2016, with e-shopper penetration having increased by almost 6% over a year. Though the numbers stabilized after the shoot up – owing to the declining overall population – the online buzz is still relevant. Tourism leads online sales with a share of 28%, which is followed by other diverse sectors such as Computer Science/ Electronics and Clothing, having a share of 18% and 17% respectively.

Meanwhile gender preferences also influence where ecommerce is driven to. For example, while women focus their e-shopping towards Fashion, Food & Personal Care and Furniture & Appliances, men largely go for Electronics & Media and Toys/Hobbies/DIY. This has resulted in various sectors registering a strong ecommerce growth rate over the last 4 years, with markets such as Health & Beauty and Fashion having risen by 38% and 28% respectively. In fact fashion and design still have huge growth potential ahead, particularly for businesses involved in cross-border sales.

Cross Border Gaining Buzz 

While Italian stores remain the most popular constituting 33% of sales, sellers with different countries of origin have also gained traction – i.e. share in cross border shopping increasing from 6% in 2016 to 9% in 2017. Meanwhile, outbound activity has also increased with Italian ecommerce companies setting up multilingual websites and looking abroad to develop sales. Germany is the most popular online destination, becoming an investment hub for over 53% domestic ecommerce players, followed by France, the UK and the US. Around 18% firms are also investing in the Asian continent such as China.

The emergence of various payment mechanisms have also opened up this sphere, as consumers can easily transact across borders. Digital wallets are highly popular, with over 51% consumers choosing to use avenues such as ApplePay/Samsung Pay/Amazon Pay etc. Stores value cards and traditional visa/mastercards are also next in line, with cash-on-delivery only accounting for a 17% preference share. The usage of fiat money will further diminish over time as cross border activity ramps up even more.

Shopping Becomes Socially Mobile 

Mobile-shopping (popularly known as m-commerce) has also gained traction, with over 51% of online shoppers in Italy making use of this platform to buy goods/services in 2017. Around 48% consumers used smartphones and 24% used tablets to go mobile. Once logged in, easy navigation and clear information/product pictures help them with their buying journey.

This behavior has subsequently led to a waterfall of e-shopping applications as over 77% consumers make use of “ smart-apps” for shopping on their smartphones. Popular names here include Amazon Mobile, having been downloaded over 95,000 times in 2017, which is followed by Shpock l‘App-Mercatino Annunci, AliExpress, Zalando and Privalia. Over time mobiles will jump from the current usage rate of 48% to over 70%, taking over desktops as the most frequently used device for e-purchasing.

However this “mobility” is not restricted to buying alone. Consumers are also making use of social mobility to look up suitable companies, communicate with other fellow buyers and write reviews. For example, over 61% of respondents say they publish comments and rate products on seller websites or social networks. Hence, this has become a crucial marketing tool that directly influences the potential user rate and future revenue. Technically, while over 50% of Italian companies believe that the traceability of the magnitude of social media on sales is uncertain, the impact is still there. It is merely more qualitative in nature. Hence, it is not surprising that social platforms are considered part of the ecommerce marketing budget, standing right behind search and display advertising. Firms must exercise due caution on being highly responsive towards what goes on popular networking sites such as Facebook, Instagram, Youtube etc., striving to get more “thumbs up” than “thumbs down.”

The Need for a "Complete" Shopping Experience 

Today’s consumer is no longer singular; he/she rather demands a holistic purchasing journey, that is a complex mix of both online and offline channels (omnichannel). E-shopping is not a zero-sum game as Italian consumers still utilize brick-and- -mortar stores when buying highly perishable or tailor-made goods. This need for variety in shopping modes in-turn fuels the growth of ecommerce.

Currently, ~17% local companies have a high omnichannel implementation while 37% and 12% have either started to develop it or launch it in 2018 respectively; yet there are still 34% of the lot that believe either this avenue is not applicable for them or they do not anticipate to develop it. This approach should not be taken as omnichannel growth is needed for all kinds of sectors connected with ecommerce. Hence, many more Italian firms need to embed this tailor-made consumer journey, which will in-turn boost ranking in the Omnichannel Retail Index (with Italy currently standing at the third last position). Working with personal data is critical (as per 65% of surveyed firms), in order to drive this experience. With this, players also need to understand the purchase behavior and consumer interaction with other channels, deciphering what steps are the crucial “pain points.”

Positive Market Uptake 

Revenue wise the ecommerce market is going strong, with B2C turnover increasing from EUR ~11.4 bn in 2013 to EUR ~21.2 bn in 2017 (CAGR of ~16.9%) and forecast to further rise to EUR ~23.1 bn in 2018. Meanwhile the E-GDP share of total GDP has steadily grown from being ~0.7% in 2013 to ~1.3% in 2017; it is expected to further climb to ~1.4% in 2018.

However, there is room for improvement as Italy lags behind mature ecommerce markets such as the UK, US, Germany etc. that have an online retail penetration of 19%, 15% and 14% respectively compared to the country’s 6% rate. Firms therefore should form alliances across the entire purchasing journey through incremental innovations – i.e. automated shipping, voice assistant, augmented reality etc.

3. Key Challenges

While the drive towards ecommerce maturity is inevitable, it has its own share of hurdles that need to be overcome. Firms are expected to address these issues as early as possible, so as to avoid setbacks.

Being Efficient and Effective 

Today’s consumer does not only demand an omnichannel journey but one that is free from potholes and includes everything in real-time. Technological advancement has raised the bars for everyone to get everything on-time, without geographic barriers in place. This potentially creates a challenge for ecommerce firms as they have to be on their feet at all times.

Logistics is one of the greatest concerns in this area as delivery cost, speed and place are top most concerns for 68%, 58% and 54% online shoppers respectively. Nevertheless this is also one of the most common hurdles faced by shoppers. Over 85% of consumers prefer home delivery, followed by delivery to a workplace, alternative address, post office etc. Hence, firms are required to keep their logistics flexible (offering a variety of delivery places/timings), rapid (same-day, hour-by- hour delivery), and responsive (having in-store support). Care must also be taken in the after-sales process, assisting consumers with returns/refunds/exchanges, especially so when it is a valuable feature. For example, over 73% shoppers claim having to pay for returns to be the biggest barriers towards e-purchases, which is followed by a complicated returns process, absence of returns policy etc.

Adhering to Onerous Rules & Reponsibilities 

Apart from financial accounts, Italy also houses a stringent legal ecommerce sphere. For example, consumer returns is not only a preference but a legal right, given the country having implemented a hefty consumer’s code in 2014 that has introduced the right to rethink and withdraw on client acquisitions. Meanwhile, the GDPR (General Data Protection Regulation) also calls in for a greater need to protect consumer data. Along with this, tax implications further add to the responsibility bucket with the introduction of the Web Tax in 2018; both resident and non-resident companies become liable should they cross the 3,000 B2B transaction threshold. Given that 30% of ecommerce revenue in Italy is from abroad, this added burden can act as a short-term dampener for the industry. However, in the longer term this will help to add transparency to the system.

Building E-Trust Amongst All 

Adherence to simply legal duties is not enough. Consumers (especially “the millennials”) also expect digital firms to be ethically sound all across the value chain, adopting sustainable practices such as those catering towards the environment, employee well-being, diversity etc. This, along with taking extra steps to avoid cybersecurity threats (through the use of biometrics & multilayer authentication), is pivotal in order to establish “e-trust” amidst consumers and every stakeholder involved in the ecosystem, taking ecommerce forward.

4. Way Forward

In a nutshell, ecommerce can and will grow at a steady pace in Italy, given that online activity is running strong. While the Italian market is not as mature as other markets in the EU, there is a lucrative opportunity for players to gain in, as long as they are able to comply in the tight financial and regulatory sphere. Concurrently, there is also an opportunity for local players to step outwards and capture markets in other geographic locations.

The core remains on how well firms are able to manage their dispersed value chains, making use of information systems such as CRM and advanced technological features such as robotics/artificial intelligence, turning from reactive to proactive in consumer management. Providing a highly responsive multidimensional omnichannel experience to a multi-varied con- sumer base becomes key.

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