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E-commerce Spotlight: Countering market fragmentation in Europe


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E-commerce Spotlight: Countering market fragmentation in Europe

This is part 1 of a 4-part series aboutdifferent e-commerce markets around the world. covers China, 3 discusses India, while looks at e-commerceactivity in South Korea.

E-commerceplayers in Europe may have gone from strength to strength, but fragmentation remainsa key hurdle as the online shopping habits and preferences of consumers inEurope vary across the continent. While some countries have a high internetpenetration and many online retail-savvy shoppers, such as , Germany andFrance,Central and Eastern Europe experience the lowest e-commerce activity.

A2015 e-commerce reportfrom state-owned Nordics logistics giant PostNord shows that British and Germanconsumers buy clothes online the most. Meanwhile, home electronics tops theItalian chart for the most common online productcategory. When it comes to payment methods, using a debit card or credit cardis commonplace in most European markets while and similar providers scorehighly in Italy and Spain. Interestingly, a high proportion of Germanshoppers prefer to pay by invoice and, with cross-border e-commerce on therise, Scandinavian consumers are the most likely to shop online on sites basedoutside their home markets.

Withso much diversity in the European market, pan-European online retailers face aunique set of challenges.

Fora start, Europe's physical barriers to trading do not exist in other singlemarkets like the U.S., making it "stubbornly difficult" for retailersto move goods across the region, according to Bryan Gildenberg chief knowledgeofficer at Kantar Retail.

"Movinggoods over large, physical space is demonstrably harder than it is in theU.S.," Gildenberg said in an exclusive interview, pointing out that labor,petrol and transport are expensive.

Hetherefore believes the advantages Europe's online retailers get fromcontinental scale are "muted," simply because that scale becomes moreexpensive to leverage in the current environment. The structure of Europe'smajor cities further poses a problem for e-commerce businesses from a scalingand logistics perspective.  

"Thepopulation of Europe is very spread out. With the exception of the U.K, you'vegot relatively medium-sized cities spread out all over the continent,"Gildenberg noted.

Spainis another example, as approximately 60% of the population lives near majorcities Madrid and Barcelona. However, Gildenberg pointed out that purchasingpower is dramatically distributed in other major economies such as France,Germany and Italy; each have around a dozen cities of equal economic importancebut geographically spread far apart.

Someargue, on the other hand, that market fragmentation could work to the advantageof European e-retailers preparing to tackle the challenges that come withinternational expansion.

"Oncea retailer has localized to accommodate cultural preferences within Europe, andcustomer service in multiple languages, it is better poised to expand into therest of the world, where all of these challenges are additional to marketbarriers," according to Martin Shaw, an analyst at InternetRetailing.  

MaxMueller, managing director at Stylight, a Munich, Germany-based online fashiondiscovery startup, agreed with this view and added that European e-commerceplayers tend to internationalize their offering far earlier than their Americancounterparts in order to achieve much-needed scale to compete.

"Thedomestic market in the U.S. offers much larger room for growth which means thatU.S. players tend to rely on their domestic market for longer periods oftime," Mueller said in an interview.

Aplayer that achieves a degree of success in Europe is prepared for much largerinternational growth, Mueller said. As such, he insisted that European playersthat lead globally, like ASOS or Net-A-Porter, can attribute a large part of their globalsuccess to the "large diversity in the European market."  

Therefore,while the lack of a single market poses logistics challenges for onlineretailers, it may also be what gives them an edge globally.


Asecond barrier to e-commerce growth in Europe is the different levels ofinternet penetration in the region, which is undoubtedly linked to e-commercesaturation in the individual markets.

Figuresfrom the European Commission estimate that the proportion of online shoppersacross its member states ranges from 18% of internet users in to 87% in the United Kingdom, and peaking at 92%in Luxembourg.

However,Gildenberg noted that online shoppers make up a large proportion of consumersin countries with a relatively low internet penetration. For instance, Romaniane-commerce event organizer GPeC estimatesthat of Romania's 11 million internet users, 6.7 million have shopped online atleast once, while 1.4 million shoppers have used a mobile device to make apurchase.

"Iwould say that e-commerce is a big deal in every country in Europe but in someit is a big deal with a markedly small proportion of the population,"Gildenberg said.

Despitethe disparities in internet penetration, Mueller insisted that mobilepenetration in e-commerce remains fairly constant across the continent. Herevealed roughly 50% of Stylight's sales are generated on mobile, in line withindustry standards. Though these figures are slightly higher in the, Mueller said that most of its markets in Europe exceed the 40% mobilethreshold.

Yet,as online retailers grapple with discrepancies in internet and smartphonepenetration across the region, the European Commission's ambitious push for a digital singlemarket could go a long way in boosting the number of online shoppers inEurope. Among the proposals are plans to target the e-commerce sector byintroducing cheaper and more transparent pricing in cross-border parceldelivery.

Shawbelieves this will also be a big boost to less established ecommercebusinesses. He argues that new companies in the viral phase of their growthwill expand more rapidly as a consequence of being in a "larger petridish."

However,"there is still the caveat that - even with a single market - Europe willbe far from homogenous," Shaw added.

Outsideof logistics as well as internet and smartphone penetration, e-commerce playersin Europe also have to deal with the language and cultural barriers in each newmarket. Running a pan-European business therefore requires a localized approach.

Overthe years, e-commerce businesses have deployed a number of marketing tactics tobetter engage local communities, among them targeted advertising, social mediaand personalization.

YetShaw argued that while technology is a key enabler in appealing to newconsumers, online retailers still need to focus on the "nuts and bolts"of powering an e-commerce business.

Hecalled the pace of innovation in retail “breathtaking” and pointed out thatevery new technology is referred to as “game changing,” so he cautioned retailboards need to sift through the hype and tripe in order to effectively assesscosts and benefits to their business.

"Thisbecomes difficult when the everyday demands of the business leave little timeto consider strategy around development and procurement,” Shaw said, concludingthat “the key challenge is to be informed.”