Ecommerce in Spain

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 Spain.

SPAIN

1. The Backdrop

Spain is a diverse and culturally-rich country in southwestern Europe, operating under a Parliamentary Monarchy and having a population of ~46 mn over an area of 505,992 sq. km. Its GDP has grown from EUR ~1,035.2 bn in 2014 to EUR ~1,139.5 bn in 2017 (CAGR of 3.3%) and is forecast to reach EUR ~1,170.9 bn in 2018, at a year-on-year growth of 2.8%. While the declining number of births caused the population to shrink from 2015 to 2016, the number of Spaniards are nevertheless projected to increase slightly by 0.1% this year. Majority of the inhabitants here are less than 55 years of age (~70%), with almost 45% ranging from 25-54. Such demographic breakup is particularly opportunistic towards forward-looking, technologically-advanced markets that take into account the needs of the young generation. A large part of this includes digitization– whether it be for routine work, leisure, banking, payments, or shopping (i.e. ecommerce).

This change can be seen through the rise of internet usage, with the country having a fairly comprehensive internet user base of 87%, which is growing at 2.6%. Almost over 90% of all Spanish age groups are going online.

In terms of performance, Spain ranks 12th out of 86 countries and 7th out of 18 EU countries on the Inclusive Internet Index, which outlines the current state of internet availability, affordability, relevance and readiness. While readiness is there (given that there is positive acceptance and capacity for digital building), the country stumbles upon availability. This highlights the need to create/upgrade an apt infrastructure base that allows users to freely access the online space. Meanwhile, relevance can also be further worked upon by connecting more with the local population, especially when culture diversity is high with there being over three foreign languages widely spoken in addition to Castillian Spanish.

Logistically, Spain ranks 23rd on the LPI (Logistical Performance Index), reflecting a fairly established customs clearance process, trade and logistical services quality, as well as transport infrastructure. It is fair to say that the government is taking additional steps to improve processes/systems on the e-platform, given that the country ranks 17th on the E-Governmental Development Index, which highlights its concurrent past and present investments in telecommunication, human capital and online services.

Meanwhile the ease of doing business is only satisfactory at the 28th position, which may have been impacted by ongoing political uncertainty in various parts of the country. However, a stable and conducive environment is highly needed for players across various industries, especially SMEs competing in the cyber market, which have to maneuver amidst big players such as Amazon that hold a secure value chain. Gaining trust and predictability can otherwise become a challenge, which is pertinent given the increase in online dependency.

On a macro level, it is certain to say that Spain is up for a positive e-development, given that the dominantly young population steadily embed technology into their daily life. However, this is not to say that the growth is going at its full potential; the current trend can garner quicker momentum if the development of requisite infrastructure and human capital also kicks in. This means utilizing the labor market towards technologically-advanced products/services, which is not too challenging given current job market dynamics. For example, while unemployment in the country has steadily fallen from its peak of 26.1% in 2013 to ~17.2% in 2017 (down by ~34%), many of the younger workers are still unemployed. Concurrently, there is also a shortage of a highly-skilled talent pool that can pitch in towards the upcoming digital revolution. In this sense, there is a strong opportunity to channel the available young talent towards this market, provided that ICT salaries are increased and people are made mobile.

2. The Vibrant ECommerce Sphere 

Regardless of the current infra & human status, Spain houses a vibrant ecommerce sphere, with big players investing heavily in the market. Interest is huge and activity is high, given that consumers have become so habitual withthe e-platform.

Online Purchase on the Rise 

The number of Spaniards buying online has steadily risen from ~17.2 mn in 2014 to ~22.4 mn in 2017 (CAGR of 9.2%). This is projected to rise by another 7.5% this year, reaching over 24 mn e-shoppers by 2018. Most of the purchases made here go up to the EUR 499 price range, with there being a little share in items priced above that. This highlights that most online buying is geared towards goods/services that are required to be purchased frequently, yet not too expensive in nature. These purchases may then be utilized towards a sharing economy, which itself has gotten popular with peer-to- peer platforms.

Gender-wise, while both males and females readily make use of the ecommerce platform, men spend the most online and their preferences vary when it comes to selecting a particular market - i.e. the former spending more on electronics, furniture & appliances and toys/ hobby/DIY, while the latter going for fashion, food & personal care purchases. This is why there is a huge variety in the types of purchases made by consumers in 2017; Travel and Holiday Accommodation topped the chart with a 37% share of shoppers, which was subsequently followed by Clothes/Sports Goods, Tickets for Events and Household Goods, constituting a share of 31%, 28% and 21% respectively.

Supplier wise, domestic players remain top priority for Spanish consumers, with sales from national sellers constituting 83% of the market. Nevertheless, purchasing from sellers with an unknown country of origin is also gaining traction, rising from 11% of cross border sales in 2016 to 17% in 2017.

Going Mobile

Browsing online need not only occur on traditional computers, given the emergence of a multitude of devices – i.e. smart- phones, tablets, consoles etc. In fact, majority of online research today is being done on mobiles, with consumers preferring the ease & convenience by which they can input, search, swipe and buy amidst great deals while on the move. Over 37% of Spanish shoppers have engaged in m-commerce in 2017, which is an 8% rise from 2016. Various apps have therefore cropped up in the shopping domain, with AliExpress and Wallapop being predominantly popular across both the iOS and Android platforms. This whole movement is more at par with today’s Generation Z, who barely invest in large machines at home; for them, internet activity is all mobile.

This trend can significantly turnaround ecommerce dynamics head. Though 95% online shoppers prefer using the desktop to make purchases, mobiles are next in line, becoming a choice of 37% shoppers in 2017 shoppers as compared o 29% in 2016.

The E-Payment Appeal 

The rise of various e-payment mechanisms have further fueled the e-shopping sphere, with Spanish consumers majorly making use of platforms such as PayPal (preference of 77% shoppers) or direct debit/credit cards (preference of 50% and 48% respectively). Usage of cash is slowly depleting in comparison to online platforms and prepaid mobile wallets, mainly due to the efficient and instantaneous nature these contemporary options have to offer.

Buzz Around Social Media 

Online networking has become highly popular, given that social media penetration has increased from ~19.9 mn people to ~21.3 mn in 2017 (CAGR of 2.4%). Facebook remains the most dominant platform, capturing a consumer respondent share of 27%; it is followed by YouTube, Twitter and Google, with a share of 15.6%, 15.0% and 13.2% respectively.

Social Media is a highly important review domain for ecommerce companies and hence keeping it up-to-date is critical in order to make it an important driver for growth. Consumers are influenced by various mediums when deciding to make a purchase. While having a highly mobile and responsive website is the most critical factor here, a brand’s social networking presence also has a role to play. Goal would be to have many “likes” and “thumbs up” on a brand’s page, instead of grievances.

Soaring Market Sentiment 

All these factors result in a positive ecommerce market ahead, with B2C turnover growing from EUR ~12.4 bn in 2013 to EUR ~23.9 bn in 2017 (CAGR of 17.9%), which is forecast to further rise to EUR ~28.0 bn in 2018. Meanwhile the E-GDP share of total GDP has also steadily grown from being ~1.2% in 2013 to ~2.1% in 2017; it is expected to further incline to ~2.4% in 2018.

This trend would continue to rise as large online marketplaces flourish, providing Spanish SMEs and other smaller players with an ideal avenue to reach to both local and international consumers.

3. Key Challenges

While the buzz around ecommerce will only grow ahead with time, players would still need to address some key issues to iron out obstacles in the online sphere.

Meeting Efficiency Demands 

Consumers opt for the online platform due to the added convenience it has to offer – i.e. on product offers, price, trust, recommendation – and hence meeting all these demands can often be hefty. While generally Spanish consumers encounter fewer problems when buying online in comparison to the EU average, firms are better off in further refining their logistics in terms of delivering quality goods on time, reducing technical failures and providing information clarity. This is because a majority of consumers would only buy online again based on their previous positive experience.

Out of all the problems, delivery speed continues to remain top priority. As per survey preferences, over 80% consumers prefer home delivery, with companies such as Amazon setting expectations high by guaranteeing same day/next day options. At the same time, Spanish companies that sell cross-border struggle with shipment due to rising costs, as well as maintaining strong local return policies because consumers do not like to directly ship to foreign locations. The management of strong
and efficient logistics has become the need of the hour, with firms have to invest properly in real-time inventory/ shipment management systems.

Designing the Consumer-Centric Omnichannel Journey 

Today’s purchase journey is far from singular, with consumers demanding a wide variety of avenues – online and offline – that work in tandem to provide the unique omnichannel experience. While online shopping has become the trend - with 87% surveyed buyers preferring to buy from stores that only sell electronically – many shoppers also refer buying from multichannel stores. This is because both types of distribution channels have their own benefits and pull-back points, holding a varied degree of importance as per the nature of goods/services being purchased. Firms are encouraged to meet this dynamic demand by having all kinds of channels fully equipped and responsive, based upon each consumer’s unique need and preference for a customized omnichannel process.

IT systems such as CRM (Customer Relationship Management) can be adopted to proactively handle consumer behavior while a channel agnostic strategy will help boost engagement.

Keeping up with Regulatory Norms 

Along with added ease technology brings with it a range of sensitive issues such as data security, privacy and fraud prevention. Cybersecurity has become paramount in today’s day and age and firms in the ecommerce platform are required to comply with all the requisite regulations in order to operate as well as win consumer trust. This year has brought a radical change with the introduction of the GDPR (General Data Protection Regulation), which will see various companies set up

a stringent data processing & management system, in order to ensure information safety. Administrative costs may spike up in the short run; however, it will help the tech industry increase transparency across the system.

Even a single security breach can dampen consumer confidence, which will in-turn follow with fewer sales. Hence, players must be willing to invest in advanced mechanisms such as biometrics that lead to more authenticated identification. Both businesses and consumers value have multiple layers of security protocols when transacting online because it makes them feel safe. This avenue is therefore pristine.

4. Way Forward

Looking at the big picture, the ecommerce activity in Spain is tuning in on a high note, with consumers readily making use of online channels as they spend their time browsing the internet. While there is still room for further infrastructure development and the creation of a digitally-skilled labor pool, these factors should steadily iron out as firms invest more in training and resources.

However, this is not to say this growth will continue on in a static manner. There will be many more industry-wise overturns as innovations such as artificial intelligence, big data and blockchain gain center stage. These mechanisms can be used to not only understand, predict and execute consumer demand preferences (in terms of both product, channel & logistics), as well as displace traditional information management systems. The ultimate goal would be to incorporate the new technology, keeping in line with all regulatory norms so as to build trust across the value chain.

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