Ecommerce in Switzerland
Given the digitization spree, ecommerce as a global marketplace has gained significant momentum. This report aims to understand, highlight and evaluate the growth of this industry in Switzerland, as well as present the challenges and opportunities for businesses.
1. The Backdrop
Switzerland, officially known as the Swiss Confederation, is a diverse and multilingual country located in Central Europe, with a population of ~8.5 mn covering an area of 41,290 sq. km. Its GDP has grown from CHF 623.8 bn in 2012 to CHF 670.9 bn in 2017 (CAGR of 1.5%), and is forecast to reach CHF 681.6 bn in 2018, at a year-on-year growth of ~2%. The Swiss population is projected to grow by another 0.8% this year, with majority of the constituents being under the 55 age bracket (69.6%) and over 43% being concentrated between the ages of 25-54. This particular demographic window is not just beneficial for accelerating economic growth but also giving momentum to contemporary markets such as ecommerce. The country already hosts a strong and well-connected infrastructure framework that keeps an internet user base of 95% growing at 2%. For example, 9 out of 10 households had internet access in their homes as of 2017. Meanwhile, online sentiment is growing rapidly (from 84% of the population engaged in online activity in 2014 to 90% in 2017), with locals spending around half their “awake time” on digital devices. Prospects look high for the digital market to keep soaring ahead.
In terms of performance, Switzerland ranks 22nd out of 86 countries and 21st amongst 30 other high-income countries on the Inclusive Internet Index, which outlines the current state of internet availability, affordability, relevance and readiness. While availability is there (due to high usage rates of fixed-line broadband and mobile), the country stumbles upon relevance, highlighting a greater need to build domestic connect, particularly through local language content. Switzerland encompasses a multitude of official languages such as French, German, Italian and Romansh. Even though English is predominantly spoken, there is an internet penetration of over 75% amongst all spoken languages, with German, French and Italian households holding a share of 89%, 88% and 81% respectively. Therefore, linguistic preferences cannot be overlooked.
Logistically, Switzerland ranks 11th on the LPI (Logistical Performance Index), highlighting a strong customs clearance process, trade and logistical services quality, as well as transport infrastructure. Ease of doing business is moderate – while the country is strategically located with strong linkages to nearby markets, legal obligations can be onerous, especially for SMEs. Holding high ethical standards has become paramount to maintaining a sound corporate repute, which is why organizations spend substantial time & resources on building a strong framework of procedures, internal controls, and a proactive compliance department. Given that cyber transactions are largely intangible in nature, it is pertinent to develop trust through ensuring transparent business activities.
On a macro level, the Swiss response towards digital trends is very much positive as internet usage has increased across all demographics in 2017, with over 40% of the population browsing more than 5 hours a week. Even the older population aged 75+ has increased internet searching by over 54% in 3 years. Generally, online presence and purchasing are strongly correlated with education, which presents a strong opportunity for e-companies, given the high concentration of young, tech-savvy inhabitants.
2. Bustling Ecommerce
Looking specifically at purchases, Switzerland hosts a vibrant ecommerce landscape, wherein Swiss consumers actively engage with domestic and international retailers for the best omnichannel experience.
Greater E-Shopping in Thriving Online Marketplaces
Online purchasing has increased year-on-year, constituting over 6.6 mn e-shoppers, with each spending around CHF 628 during 2017. Digital devices are largely used in the clothing category, followed by other non-durable purchases such as transport, tickets, food, books, shoes etc. While gender-wise purchase preference varies, with males largely utilizing ecommerce to purchase high-priced luxury/electronic goods as opposed to females who generally make purchases in cosmetics/food, the impact of this is negligible for Switzerland, given its balanced gender mix. Hence, various product groups have reportedly been purchased over the year.
Along with this, large online marketplaces such as Amazon are on the rise, which present a lucrative opportunity for sellers to expand their reach. Entering a new market is a cumbersome process that comes with various strings attached, such as being able to meet the legal obligations, perform well logistically, develop the required infrastructure, connect with locals etc. Hence, SMEs regularly capitalize upon online marketplaces as a fast and cost-effective means to test out products in new countries. This is especially useful when a firm has exclusive products to sell, which cannot be imitated or sourced easily from competitors – customers’ varied preferences across different regions, as well as the prevailing competitive environment can be experienced beforehand, without the risk of losing out to other marketplace participants.
In terms of the online retail environment, Digitec.ch takes the lead in the Swiss market with a revenue of CHF 704 mn in 2017; this is followed by Zalando.ch, Amazon.de and Nespresso.ch, generating a revenue of CHF 534 mn, CHF 475 mn and CHF 375 mn respectively.
Increased Logistical Options & Convenience
Delivery speed and payment convenience are core factors Swiss consumers take into account when choosing between products/suppliers. Swiss Post is the most preferred provider due to its varied network and most consumers are prepared to wait for delivery, as long as doorstep service is provided – this being more popular than the Click & Collect feature. Meanwhile, having a variety of payment options helps instill trust in consumers, with exact payment preferences varying as per the recipient’s primary language. For example, French and Italian speaking buyers prefer to pay for online goods in advance with credit cards, while German speaking buyers prefer to pay once invoiced following receipt of goods or with PayPal. Hence, provision of a multitude of payment options is a must. Currently, Invoices were the most used payment method as of 2017, with a utilization rate of 44%.
While payment via self-service cashiers is still popular, accounting for 42% of consumer payment methods on various digital devices, mobile usage also holds growing potential. Over 46% consumers show interest in using the mobile payment mechanism in the future. This is in line with the current online buying behavior – though PC shopping is the status quo (constituting 41% of monthly transactions), consumers are beginning to make more frequent use of tablets/mobiles, with “Wish” being the most popular Google Play Store shopping app at a download rate of 52,610.
In-fact, digital devices are readily used in the beginning of the shopping journey, with over 83% of consumers using devices to search for products/goods/services in their office/home/outside/instore. Out of this, smartphones are the most popular devices used in-store. Given the increased ease and convenience of making “smart” payments through smartphones, these devices can further be used across the latter part of the shopping journey, helping drive the ecommerce buzz forward.
Power of Social Media
Social media also has an important role in shaping consumer purchase decisions. Facebook leads the Swiss market with a 75% penetration rate and hence influences the consumer journey, along with Youtube, merchant/third-party blogs etc. Over 34% of consumers also choose to follow or become a “fan” of the brand via social media, with some scrolling further to read reviews, share updates and click on other sponsored posts. In view of this, while search advertising generates the greatest revenue for advertisement players, most companies are also effectively utilizing Facebook, Linkedin and Twitter to place products.
Strong Cross Border Involvement
Swiss consumers have a strong preference towards cross-border purchasing, with over 64% of online shoppers buying from a foreign webshop in 2017. Germany is the popular shopping destination, accounting for 51% of online cross-border shopping expenditure in European countries by Swiss consumers (2017); this is followed by the US, France, China and the UK, holding a share of 22%, 24%, 23%, and 13% respectively. The high value of the Swiss Franc, coupled with “digitally enabled pricing transparency” helps build trust for consumers to transact across the border. This is why many believe the market share of foreign ecommerce suppliers to rise significantly over the next few years.
Positive Market Sentiment
Market sentiment is strong, given that B2C turnover, which has increased at a CAGR of 8.1% over 2014-17, is projected to grow by 10% and reach CHF ~6.9 bn in 2018. Meanwhile, E-GDP’s share of total GDP has also steadily grown from being ~0.8% in 2014 to ~0.9% in 2017; it is forecast to cross the 1% mark in 2018.
This is in line with a positive market sentiment, with respondents believing ecommerce sales to substantially rise in their respective industries, amidst the dominance of a few big suppliers.
3. Key Challenges
Though the ecommerce activity net has developed steadily till date with bright prospects ahead, there are core issues firms must address as they enter and expand their operations.
Rising Digital Costs
While digitization generates sizeable returns, it comes with costs. 4 key expense areas for Swiss companies include People, Systems, Regulation and Platform investment. Maintaining quality staff with a low attrition rate is crucial to instill quality and such talent retention drives up sums. With that, many firms are still using “legacy systems” that can bring up compatibility issues when switching to newer machines; finding solutions around them can be costly. Meanwhile, investing in value-added systems such as CRM, cloud-technology, automation etc., as well as complying with onerous requirements, also add to bills. These are needed given that efficiency is key in ecommerce, with consumers going through prior research before buying the best deals and requiring quality delivery options.
Maintaining high ethical standards is also as important in ecommerce – i.e. being able to address social/societal/environmental issues, along with anti-bribery concerns, anti-money laundering etc. The biggest challenge is to ensure sustainable sourcing of products, stemming from fair-trade policies and sound labor practices.
Issues on privacy and security are common across the cyber domain. Over 72% of Swiss consumers value privacy with businesses, agreeing that organizations should be more transparent or upfront with how they use their information. While surprisingly the number of consumers using software security has gone down from 78% in 2010 to 67% in 2017, over 65% of them are worried on information being hacked/leaked. With that, the GDPR (General Data Protection Regulation) is out on the table this year; though Switzerland is not under pressure for the May deadline, companies would eventually have to ensure proper systems to ready themselves for this paradigm shift.
Hence, cybersecurity and cyber safety should be at the forefront of business strategy for any player, with identity and transaction protection included at all stages to make sure data is protected in the absence of any additional security software.
Managing Cross Border Obligations
Cross border trade comes with the requirement to fulfill numerous cross border obligations. Much of this incurs being able to comply with the local laws and meet tax duties. For example in Switzerland, VAT obligations are important for foreign companies with foreign-based ecommerce to become liable for Swiss VAT payments from 1 January, 2019 onwards. The obligation here depends on the global turnover rather than the sole amount of located transactions and hence firms must structure their offshore activities accordingly so as to discharge tax duties without incurring hefty expenses.
4. Way forward
The digital revolution is inevitable and therefore industries such as ecommerce will only embed further into the traditional buying cycle. Consumers are opting for an ominichannel purchase experience, where they can get superior quality through cost-effective mechanisms. Physical location and accessibility will no longer be obstacles as long as there is online connectivity.
In a diverse country such as Switzerland, being able to make the trust and connect with local customers is a must. Consumers demand information – as is in the case of the Swiss luxury watch market – where a majority do price/product research beforehand. Given that details are provided at fingertips, people forecast authorized online dealers to actively contribute in the watch market.
Big data analytics can also be used to predict consumer demand and preferences beforehand. Meanwhile, robotics & automation can help design innovative logistical solutions in real-time, while blockchain technology can map the link on how products are sourced across the value chain. Key lies in their effective adoption and integration.