internet retailing blazing growth path -...

Internet Retailing Blazing Growth Path

June 2011

© Euromonitor International

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Retailing: Internet

Introduction

Post-Recession Consumer

Key Domains

Stars in the Virtual Economy

What Does the Future Hold?

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Retailing: Internet

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Scope

Introduction

• This briefing covers the following retail distribution channels, focusing on 2010.

Retailing

Grocery Retailers Non-Grocery Retailers Non-Store Retailing

Internet Retailing





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Retailing: Internet

• The core objective of this report is to examine the state of global internet retailing in 2010, including any impact that continued global economic uncertainty is having on the performance of specific markets.

• The report will compare and contrast sales performance globally in terms of how different markets are contributing to global growth in value terms.

• Developed and developing markets are contrasted and in doing so, lessons learnt will be highlighted and conclusions drawn on how overall performance is changing and key factors impacting it.

• Key product categories contributing significantly to internet retailing growth are examined in detail in reviewing key geographies and retailers.

• Key trends within the industry such as m-commerce, coupon sales and flash sites are highlighted and their impact on internet retailing examined.

• The report does not claim to be comprehensive, focusing on key industry categories, but rather seeks to offer high-level insight into key changes in the market at a time of manifest macroeconomic instability.

Objectives of the report

Introduction




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Retailing: Internet

US$317 billion online sales in 2010

Compared to individual countries’ retail sales, the global internet market would rank in the top 10 and be similar in size to Canada or Russia, for example.

Online performancedepends on more than just business model alone

The two biggest and fastest growing online retailers Apple and Amazon, a pure player and a multichannel retailer, are evidence that company strategy and execution are more important than model alone.

Consumer squeeze on spending impacts online sales positively

Following constrained consumer spending, the online channel has benefited within most fast moving industries increasing in 2010 in share of the distribution with wide-ranging products; from apparel to pet care.

Internet retailing concentrated within just a handful of countries

The top 10 biggest online markets together account for 85% of global internet sales and within those developed markets in North America, Western Europe and Asia Pacific lead the way.

The US and EU are the biggest markets

Combined online sales in the EU are US$104 billion in 2010, making it only comparable to the US in size, however it remains a very fragmented market.

Media is fastest-growing product online in the last five years

Overall sales of media products are undergoing a long-term and structural shift away from physical products to digital music and e-books.

M-commerce opens new frontiers

M-commerce has come to the forefront in internet retailing in 2010 with the rise of the smartphone and tablet devices, with Japan taking the lead in this form of online sales.

Internet retailing to grow five times faster than store-based retail

While online access will continue to expand in developed markets in double-digit growth terms, the biggest growth will be in Asia Pacific. China is expected to have 700 million online users compared to 280 million in the US by 2020.

Key findings

Introduction




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Retailing: Internet

Introduction


Key Domains






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Retailing: Internet

• With developed and emerging economies alike suffering a downturn in the course of 2008 and 2009, the global retailing market followed suit.

• Internet retailing was not entirely immune to the trend. Although sales through this channel remained strong at double-digit growth, they slowed down over 2008 and 2009. The impact on internet retailing would have been even stronger had sales of travel services been included in the comparison. Overall the slowdown in online sales was softened by growth in the number of consumers who used the internet to shop. This helped offset some declines in unit prices of products sold online.

• The economic downturn exercised even more pronounced impact on store-based sales, as consumers either cut out some discretionary purchases or embarked on shopping around for better deals, producing a combined effect of lower prices and purchase occasions.

• 2010 witnessed a rebound in both store-based and internet sales growth as overall economic conditions improved. Positive development aside, however, some lasting impact from the recession on how consumers shop is expected, by accelerating some existing trends such as consumer migration online and creating some new trends such as the active search for value.

The impact of the recession


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• One of the main benefits for internet retailing is that this new consumer mindset has accelerated migration online. The online channel has been a major beneficiary, with the share of online sales in almost every industry on the rise, from apparel to pet care. Online food and drink sales, however, still lag behind this trend.

• Similar to the increase of online sales there has also been a rise in discounters and “dollar” stores.

Big squeeze on spending: The new consumer mindset


• Although the global economy is recovering, the lingering impact will remain for longer and will negatively impact consumer spending which will remain frugal and tightly controlled for some time.

• The constraints will mainly affect consumers in developed markets. However, these consumers still generate the bulk of online sales.

• Among the key factors constraining consumer spending remain:• Stagnant income growth - with constrained salary growth in

real terms;• High level of unemployment;• Wealth destruction through lower house prices and declines

in stock valuations;• High levels of personal debt or increased savings which

generally limit domestic demand;• Increasing prices of food and fuel especially in 2011 which is

expected to impact shopping trips in markets such as the US.• All these will inevitably put pressure on the level of consumer

spending, impacting online sales as well.• During the growth spurt years pre-2008/2009 consumers grew

accustomed to more upmarket, premium products. While post-recession consumers search for value, this does not necessarily equate to lower-quality products. They may not want to compromise on quality so the search is for cheaper options, for example making things last longer, buying second-hand, DIY etc.

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Introduction


Key Domains






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Retailing: Internet

• In 2010 overall internet retailing generated US$317 billion in sales. Compared to individual countries’ retail sales, the global internet market would rank in the top 10 and be similar in size to the total Canadian or Russian retailing market, for example.

• In turn the US and EU internet retailing sizes fall within the top 20 retail markets and are comparable to the retailing markets of the Netherlands, Indonesia and Poland, individually. The overall scale of internet retailing is making it a very attractive market for both pure players, traditional retailers and manufacturers alike who are all trying to tap into the potential it offers in order to find new areas for growth.

Ecommerce in the top 10

Key Domains

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Retailing Grocery RetailersNon-grocery Retailers Internet Retailing

• Within overall retail, internet retailing grew in double-digit terms, much more strongly than the other retail channels and consistently throughout the review period.

• While store-based channels continued to slide in both 2008 and 2009, internet retailing growth was more uniform, as higher numbers of consumers moved online to search for better prices which compensated for any price reductions which might have eroded average value sales.

• Within store-based retailing, non-grocery in particular suffered the most in the downturn, as consumers focused on limiting their non-discretionary spending, postponing some purchases and cutting back on others, while grocery retailers such as supermarkets/hypermarkets, and particularly discounters, remained more resilient or grew again benefiting from consumers’ search for value.

• Although internet retailing showed strong growth, different geographic regions performed differently; however in all cases internet retailing maintained stronger growth than store-based channels.

Internet retailing in context

Key Domains




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Retailing: Internet

• Developing markets have been driving growth in 2010. Latin America and Asia Pacific achieved the highest growth rates in 2010, almost 25% in fixed currency year-on-year terms, while North America and Australasia the lowest. In historic terms over the review period Eastern Europe and Latin America performed the best, with Eastern Europe lagging behind in 2009 and 2010 due to strong overall contraction observed in these markets. At the same time, Asia Pacific benefited from the explosive growth of almost 90% observed within the Chinese internet retailing in 2010.

• Despite the rapid growth Latin America and Eastern Europe still represent a fairly small share of global internet sales with a combined share of less than 10%, while the bulk of sales is still concentrated and generated within the developed markets of Western Europe, North America, and Asia Pacific. These also accounted for the biggest dollar increase and had a combined 89% share of all new sales in 2010. Within Asia Pacific the bulk of internet sales are generated within Japan and South Korea, however China is rapidly catching up, having moved to third place in 2010.

Asia Pacific and Latin America lead the growth

Key Domains

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Retailing: Internet

• Internet retailing sales are concentrated within only a handful of countries. In 2010, the top 10 biggest online markets together accounted for 85% of global internet sales and within those the difference between developed and developing could not be more pronounced. Within the top 10 markets by sales only the three largest BRIC markets, China, Brazil and Russia, are present.

• In per capita terms, only the developed markets within Asia, Europe and the US rank at the top, with Canada missing from both rankings highlighting its lower penetration of internet retail. Within the European markets there is also a shift between the biggest and the most developed. Germany is being replaced by some of the smaller but more developed Northern European markets and Switzerland which boast a more developed internet retail.

• The top five markets which lead in both actual and per capita sales account for 70% of global internet sales. These markets also offer the best opportunity for immediate expansion due to the established consumer base and sales growth. All the top five markets were impacted by the economic downturn, suffering a slight contraction in 2009, yet in actual terms these markets generated the biggest increase in overall internet sales for 2009-2010. And while developing markets offer rapid growth and promising future potential, actual sales are still limited and relatively small compared to developed markets.

Top 10 internet markets

Key Domains

US$ per capitaUK 580Denmark 470USA 360South Korea 350Finland 330France 320Sweden 310Japan 290Switzerland 280Netherlands 260EU 209

Top 10, US$ billionUS 110EU 105Japan 37UK 36Germany 20France 20South Korea 17China 12Brazil 8Russia 7Netherlands 4

Top 10 internet retailing markets:

Actual salesPer capitaBoth actual and per capita terms




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Retailing: Internet

The US is the biggest market accounting for almost a third of global sales; in size it is comparable only to the combined EU market. In per capita terms, however the US is much lower than the UK with US$360 compared to US$580 in the UK. This clearly indicates that if the US market is to reach the same penetration as the UK, it still has room for growth. Internet retailing growth remained strong even during the downturn as many consumers increasingly moved online to search for better deals. Growth in coupon services and daily deal sites such as Groupon is a clear indication of consumer interest in lower prices. In the last couple of years, brick and mortar retailers in the US have placed internet retailing at the heart of their retail strategy integrating the channel more fully in their operations.

The UK enjoys the highest per capita spend globally and a very high share of internet sales as a proportion of retail sales. High spending on a wide variety of products helped increase UK sales. One of the reasons for the high per capita online expenditure in the UK is the popularity of all types of fmcgproducts sold online. In addition to the traditional internet products such as electronics and media, the UK also has one of the highest shares of grocery sales online. Early adoption of the online sales model by leading UK grocery retailers has laid the foundations for strong growth in online sales of grocery products supplementing or replacing some consumers’ weekly trip to the supermarket.

Japan is the second biggest internet market but with much lower per capita spending. It ranks eighth globally, and has a relatively underdeveloped online market. Internet sales represent only 3.2% of total retail sales, and are much lower compared to those of the UK or the US. This is attributed to the relatively low share of PC penetration in Japan compared to other developed markets. Instead, the country boasts a much higher penetration of game consoles such as Playstation. Mobile phones have emerged as a key means of accessing the internet particularly for younger consumers, so it is not surprising that Japan boasts much higher share of mobile internet sales compared to any other market.

Developed markets

Key Domains

Leading Developed Internet Retailing MarketsCountry US$ billion US$ per capita % retailUS 110 360 4.0Japan 37 290 3.2UK 36 580 7.7EU 104 210 3.4




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Source: Eurostat community survey on ITC usage

Case study: EU a fragmented internet market

Key Domains

• Combined online sales in the EU reached US$104 billion in 2010, largely comparable in size to the US. The combined sales of the 27 EU members posted a 21% CAGR over the period 2005-2010, slightly ahead of global growth, and are expected to post an 11% CAGR over the next five years, slightly lower than the global average. While harmonisation and the single market have been at the heart of EU growth over the years, the same cannot be said for internet retailing, at least not yet.

• There still exist a number of barriers which are limiting the uniform development of online sales throughout the EU. A recent study by Eurostat found that only 9% of consumers ordered goods or services from another EU country, compared to 36% ordering from domestic markets in 2010. Cross border trade is growing at a much lower pace than overall internet retail due to a number of constraints.

• In addition to the 23 official languages in the EU, consumers engaging in internet shopping from businesses based abroad need to consider different rates of VAT and other taxes which might be applicable and the somewhat limiting delivery options. Payment options also widely vary. While credit and debit cards are widely used in the UK, German consumers prefer to use bank transfers or the post office, and payment on delivery is a popular method within Eastern European markets.

• Deliveries and more specifically lack of suitable delivery options can be one of the biggest obstacles to EU-wide internet retail. At present there is no unified approach, with each retailer offering different options and prices. The EU Commission has drafted plans to make mandatory, delivery to any part within the EU. Currently industry associations are worried that this and other provisions within the Directive will increase costs of doing business. On the other hand, clear rules and costs to the consumer could increase cross border trade particularly within the smaller EU markets which might not be tempting enough for retailers from other EU countries to establish presence. Increased cross border online sales could have the spill over effect of increasing competition in local markets and for local retailers.




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Retailing: Internet

• While the variation between markets is partly due to different purchasing powers (which remain most evident between the Eastern and Western EU members) this does not account for all variations.

• Better internet infrastructure such as PC ownership in households and penetration of faster ADSL, or broadband internet is higher within the northern Western markets, yet southern consumers still seem to prefer traditional retail methods compared to their northern counterparts.

• However with better pricing online it is expected that consumers who are still reluctant to use the internet to shop will be more tempted to move online. Proliferation of member-only websites in Spain for example shows how consumers are embracing deals online.

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Note: East/West division based on Euromonitor International geographic groupingsUK, Denmark, Finland, France and Sweden sales fall outside of scale

• Growth and development in internet sales within the individual EU markets remains disparate, with the north European and Western markets achieving the highest penetration of online sales, while the south European and Eastern markets enjoy much lower penetrations. At one end of the spectrum is the UK with an enviable US$580 per capita spend, while at the other is Bulgaria with just US$5. Northern European markets are enjoying faster adoption of the internet, with Germany lagging slightly at the lower end of the spectrum compared to its Northern peers.

EU: The north/south divide

Key Domains




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Retailing: Internet

China, the biggest emerging market, also has the highest potential for growth, due to the current very low level of online sales. Per capita spending in 2010 is just US$9 compared to over US$40 in both Brazil and Russia. Chinese consumers are also very price conscious and prominent bargain hunters. They use the internet to search for better prices. The Chinese online market is characterised by a high level of C2C sales, which so far have been competing with B2C internet sales. However in 2010 the biggest C2C player, TaoBao, part of Alibaba Group, launched a B2C portal, Tmall, which has been very successful achieving a 35% market share in its first year, and driving overall growth for the market.

Brazil is the second biggest emerging market, and also the biggest market in Latin America. Internet retailing is competing with direct sales in both Brazil and the rest of Latin America, where direct selling is a bigger non-store channel than the internet. One of the reasons for this is that consumers in Latin America prefer the social aspect, the interaction and the ease of accessing products through the direct selling channel. The other reason is that direct selling can reach even consumers in remote locations, and those that do not necessarily have online access.

Russia is similar and has an even wider geographical area than Brazil and China, and not surprisingly the majority of direct sales are concentrated in the two main metropolitan areas, Moscow and St Petersburg. Delivery is still a problem as the postal system cannot be relied upon, forcing retailers to invest in their own delivery networks. This, combined with higher disposable incomes within Moscow and St Petersburg, has limited sales to these two markets. Similar to other emerging markets, electronic payment and penetration of payment cards are relatively low, which has been generally overcome with the wide adoption of payment on delivery.

Emerging markets

Key Domains

Leading Emerging Internet Retailing MarketsCountry US$ billion US$ per capita % retailChina 12 9 1.1Brazil 8 42 3.1Russia 7 46 2.1




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• There remain some key differences between developed and emerging markets in terms of internet retailing growth and development. PC and internet penetration are among the key limiting factors for the adoption of e-commerce. In addition, low adoption of electronic payment methods such as debit and credit cards, and weak delivery systems are also limiting online sales.

• The number of PCs per 100 inhabitants and also card payment transactions per capita in emerging markets is still low. However companies in emerging markets are finding ways around this. For example, payment on delivery is a popular method in markets such as Russia or China which also solves issues related to product or credit card fraud. Some online companies are investing in their own delivery networks as well, to circumvent weak postal services or to combine with payment on delivery.

• Different levels of retail infrastructure also have a different impact on online sales; in more developed markets high competition from the high street, and lower sales through store-based channels are pushing companies to invest more in e-commerce which is not necessarily the case in emerging markets. Traditional brick and mortar retailers are still enjoying rapid growth through expansion of retail outlets.

Electronic payment and PC penetration constraints

Key Domains

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Introduction


Key Domains






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• Online performance depends on more than just business model alone. Among the best performers in 2009-2010 are both pure internet players and multichannel retailers.

• At the top the two fastest-growing online retailers are Amazon and Apple, a pure player and a multichannel retailer, respectively, evidence that company strategy and execution are more important than model alone.

• The majority of the top 20 online retail brands are US based, and most of them continue to generate their sales in a limited number of markets.

Brick and click the top 20 online retailers


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• Three product categories, consumer electronics, apparel and media products, have remained the top-selling categories over the internet in the last five years, accounting for just under 50% of all product sales online.

• Media products have achieved the highest growth despite the decline in book and CD sales, due to the shift to digital formats.

• Consumer electronics remained the most popular product online, since 1999, however apparel is quickly catching up with it and growing faster.

Media, electronics and apparel lead internet sales


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Retailing: Internet

• Amazon is the biggest internet retailer, holding on to its leading position in 2010. The key to the company’s success is its investment in good customer service, wide product portfolio and very competitive prices. Amazon reacts to price changes by other companies very quickly and updates its own prices almost immediately as it tries to offer the best price online.

• This internet retailer is further helped by its wide geographical reach. The company delivers to more than 160 countries, and has operations in seven national markets. Italy was the first new international market since 2004, opened in 2010. Amazon is now planning to open a dedicated Spanish website in the near future. It still generates the biggest share of its sales in the US, where it also has the highest market share.

Amazon strengthens its hold


Amazon Country-specific Websites

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Retailing: Internet

• Media products continues to be a key category for Amazon. The company has been trying to reduce its reliance on media products and in 2010 the share of media products fell below 50% of company sales.

• Yet media products remains an important driver for growth. This is not surprising as global media sales reached US$41 billion and the product category was the fastest growing between 2005 and 2010.

• Overall sales of media products are undergoing a long-term and structural shift away from physical products to digital. This creates challenges for companies such as Amazon as well as opportunities. The company has been in direct competition with Apple since the launch of iTunes. In 2010 digital music in the US market surpassed CD sales for the first time.

• A similar pattern seems to be emerging in 2011 within books and publishing, with Kindle books outselling paper formats in April. Kindle and Cloud Drive, which allows customers to save files on the internet, are at the heart of Amazon’s media digital strategy to strengthen loyalty and increase traffic to its sites.

• The company boosted its competitive advantage for e-books with aggressive promotions and strong sales of the Kindle device in order to lock consumers into buying its e-books. E-books outsold printed books on Amazon’s site in volume terms at the end of 2010 and the trend is likely to continue.

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Kindle and the cloud at the heart of the Amazon strategy


• Amazon is already making plans beyond the Kindle by focusing on supplying its content to other devices. It launched an app for use on Android, Windows tablets and for iPad for users to read Kindle books on these devices.

• Amazon was the first major company to launch a “cloud” service for music offering consumers the opportunity to stream purchased songs through a browser, and virtually from any location, beating both Apple and Google, and offering an unique service to consumers.




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• I contrast to Amazon, Apple operates a multichannel strategy with brick and mortar stores, online sales and sales through mobile devices. The company sells mostly its own consumer electronic products online and through its stores, and digital- only products through iTunes, iBookstore and the App Store.

• Apple’s strategy is one of the best examples of the integration of online and store-based sales with both channels supplementing each other. Apple’s penetration within the electronics and appliance specialists channel is relatively small with just over 300 stores, which ranks it 48th globally by number of stores. On the other hand, its strong sales rank it as the sixth biggest electronics and appliance specialist. On the one hand, this big difference in rankings is due to the premium products Apple sells, but on the other is linked to the wide penetration the company achieves through its iconic store design but also through the integrated online services it offers. Company online sales are also boosted by its retail presence as often products are viewed in-store and subsequently purchased online.

• Similar to Amazon, the majority of Apple’s online sales are generated through media products. Apple for example is the leader in sales of digital music in the US, ahead of Amazon. The company also created a marketplace for software for mobile phones when in 2008 it launched the App Store which is the leading marketplace in both number and value sales of mobile apps. At the same time, the company is lagging behind Amazon in e-book sales due to the universal availability of the Amazon Kindle reading application across platforms and a more limited section of titles available through the iBookstore.

Apple


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Electronics and Appliance Specialist Retailers

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Electronics and Appliance Specialist Retailers Share




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• In contrast to online food and drink sales, consumer electronics is a key product category for internet retailers. Pure players and multichannel retailers such as Amazon, Apple, Dell, eBay are all well-established players in the virtual domain.

• The category is characterised by strong competition between pure players and multichannel retailers. There has been close integration of internet retailing into the multichannel strategies of consumer electronics retailers as consumers increasingly browse products in-store and purchase online in search of better prices.

• The growth of DSG, the owner of PC World, Currys, Dixons and Pixmania was driven by developing close synergies between store-based and internet retailing services such as Reserve & Collect, as customers “migrate to well-known branded retailers who provide the convenience of the internet combined with store collection.”

• Metro, on the other hand, which is the largest consumer electronics player in Europe remains store-focused. Acquisition of the pure-play internet retailer Redcoon in Germany in spring 2011 marks new ambitions in internet retailing, which will see it compete directly against its Media Markt/Saturn websites to be launched later in 2011 in Germany.

• New devices such as tablets and e-readers have been driving electronics sales in 2010 with digital formats in turn driving sales for the devices. E-readers and tablets are expected to drive sales of media products such as e-books and apps, and increase the market for subscription streaming services such as those offered by Netflix and LoveFilm.

Consumer electronics competition online intensifies


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• Online food and drinks sales are still at a very early stage of development, with overall sales of US$22 billion or just 7% of total internet retailing. Within packaged food, the internet retail share is even smaller, at less than 1% in 2010.

• The UK is the most mature market for food and drinks sales online; enjoying both the highest per capita spend and the largest overall sales of US$4.5 billion.

• The UK market has been largely driven by strong online commitment from leading grocery retailers which have invested in the category over the years with the successful home delivery model. With the help of the store pick-up and home delivery model, grocery internet retailers have succeeded in reaching the majority of UK’s population.

• The remaining developed markets have still relatively underdeveloped online grocery sales, as retailers are more cautious about investing in internet retailing capabilities in particular for perishable food items.

• Different shopping habits make online shopping for groceries less popular in other countries, in particular in countries where grocery shopping is based around smaller but frequent trips to local grocery stores or supermarkets.

• However, the market size reached in the UK illustrates that there is significant growth potential in the other markets as well, particularly in markets where consumers have one or two big shopping trips a month to the supermarket. Growing petrol costs are bound to drive consumers online. Major grocery retailers are already starting to enter the channel and to trial different delivery methods.

Early stages of food and drink internet retailing


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• Within the UK, Tesco is the largest retailer overall and also the largest internet retailer offering both groceries and a wide range of non-grocery products. It benefits from a dense and well-developed store network that supports the development of internet retailing through store pick up. Tesco’s strong internet offer has allowed it to increase its reach both for grocery and for non-grocery products.

• Other major grocery retailers have equally ambitious growth plans. Three of the top four UK grocery retailers (J Sainsbury, Tesco and Wal-Mart) have already established online presence, however unlike Tesco, the other two’s reach is confined mostly to grocery products.

• Ocado is the only pure-play internet retailer, working in partnership with Waitrose. The company floated in 2010 and became profitable in that year. Plans to build new infrastructure to support rapid sales growth are already in place. However, its difficulty reaching profitability shows the challenges for internet retailers which do not have the direct support of a large store-based chain and deliver from central depots.

• Sainsbury’s sales of groceries have been boosted by offering click and collect at more stores. The company has also started to trial non-grocery items.

• Wal-Mart, operating in the UK through Asda, plans to boost non-food sales and grow in the Southeast.

• Morrison is the only one of the top four grocery retailers with no presence online. The company bought a pure-play company, Kiddicare.com, in early 2011 in order to build its online platform and invested in 10% of the US online grocer FreshDirect.

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

US

$ m

illion

, exc

VAT

UK - Internet Retailing 2007-2010

2007 2008 2009 2010

UK grocery retailers set the trend





28

Retailing: Internet

• The two leading French retailers Carrefour and Casino are displaying contrasting strategies.

• Casino is a major internet retailer through Cdiscount.com, focusing on non-food products. Internet retailing sales offset hypermarket saturation. The company started offering click and collect deliveries at convenience stores and supermarkets. Carrefour on the other hand has a modest online presence which could undermine growth. It considers acquisitions to boosts its prospects.

• In the US, Royal Ahold and Wal-Mart are the key players, together with pure player FreshDirect.

• Ahold, the pioneer in US online grocery retailing through peapod.com is presently operational in 11 eastern states. Wal-Mart, on the other hand, has strong share in internet retailing due to the popularity of its in-store collection services. In late 2010, it added same-day collection service on orders taken before 18.00hrs for consumer electronics and video games in selected cities. This test launch demonstrates confidence in its operational efficiency.

• Key players in Germany have little or no online presence. The strong power of discounters is limiting the scope for traditional supermarkets due to the price pressure and low margins which make online deliveries unprofitable.

• In 2011, Rewe rolled out a click and collect service in Frankfurt , while in 2010 Lidl teamed up with the Apo-Discounter mail order pharmacy to offer beauty products online.

• Shopping habits play an important role, with more frequent shopping trips in France and Germany making online shopping for groceries less popular.

0400800

1,2001,6002,0002,4002,800

Wal-Mart Stores Inc

Royal Ahold NV

US

$ m

illion

RS

P ex

c sa

les

tax

US - Internet Retailing

0200400600800

1,0001,2001,400

Casino G.-P. SA Carrefour SA

US

$ m

illion

RS

P ex

c sa

les

tax

France - Internet Retailing

2007 2008 2009 2010

Online grocery still small in key markets





29

Retailing: Internet

• Customers are becoming increasingly confident in shopping for clothes online. They are no longer just surfing but also actively buying, making apparel sales one of the fastest-growing categories online in 2010.

• While pure-play internet retailers such Zappos, Asosand eBay recorded early successes, store-based retailers are developing their online models rapidly.

• Department stores have already established a strong online presence. The US retailers were early entrants in internet retailing which helped them secure a lead. In the UK, John Lewis, House of Fraser and Marks & Spencer are already major online players and using the internet for international expansion, with all of them offering shipment to the EU and further afield. • Major clothing and footwear retailers have been relatively slow to enter online retail. Inditex and H&M opened online stores only in 2010. However their wide store networks offer opportunities for cross channel synergies such as click and collect services, easy returns and dedicated promotions. 2010 and 2011 have been the years of international online expansion for apparel retailers, with Inditex, GAP and H&M opening online stores in a wide number of markets, which is expected to provide a significant boost to apparel sales over the internet.

Nongrocery retailers: Apparel


0

5

10

15

20

25

30

35

40

45

50

2007 2008 2009 2010

US

$ bi

llion

exc

VAT,

fixe

d cu

rrenc

y

Clothing and Footwear Internet Retailing 2007-2010

North America Western Europe Asia Pacific




30

Retailing: Internet

• Further to this, Japan has relatively lower penetration of PCs per capita compared to other developed countries, as more consumers have opted for a Playstationinstead. Initially this also dampened online usage.

• In turn, Japan’s internet connectivity has been heavily influenced by the development of the mobile (cell) phone as a key means of connection, most notably for younger consumers who are frequently on the move as well as those who live in more outlying regions where fixed line connections are either expensive to install or simply unavailable.

• M-commerce has really come to the forefront in internet retailing in 2010 with the rise of the smartphone and tablet devices, which has allowed easier access to the internet on the go and away from the PC.

• It is most prominent in Japan, where it accounts for almost 20% of all online sales. One of the reasons for this is the early introduction and wide adoption of QR bar codes. Software reading bar codes has been installed by default on mobile phones. Network operators have also invested in educating consumers how to use QR codes.

• In turn, QR codes have facilitated m-commerce; printed codes on advertising allow for easier redirection to URLs, especially useful when looking at magazines or newspapers while commuting. As a result along with digital products such as music and ringtones, apparel has been at the top of purchases through mobiles.

• Internet retailing in Japan has developed in an unique Japanese way, quite different to the path seen in other developed markets.

• Usage of the internet was constrained by the difficulty in making searches in the Japanese language, which was not resolved until Google developed its Japanese language search function in 2002. Japan has also lagged South Korea in terms of speed of broadband and penetration, although this has increased rapidly.

Mcommerce in Japan





31

Retailing: Internet

01020304050607080

Asia Pacific Australasia Eastern Europe Latin America Middle East and Africa

North America Western Europe

% s

hare

Share of Smartphones 2009-2010

2009 2010

• In Western Europe and North America, m-commerce has taken a slightly different route, spurred by the proliferation of smartphones such as the iPhone and android phones, and apps and mobile-enabled websites for these phones. No matter which route is taken, simplicity and ease of use are key for successful implementation. A recent study by Harris Interactive conducted on behalf of Tealeaf has revealed that more than 80% of users of m-commerce in the US have experienced problems such as websites or apps either too slow, not providing enough product details or simply awkward to use.

• Successful m-commerce apps, or websites need to utilise the tools and specifics unique to the medium. Effective implementation of some unique features of mobile phones can be found in the eBay or Amazon apps for example. Both eBay and Amazon reported very strong sales through mobile devices in 2010 thanks to the way they designed their apps.

• eBay for example is using push notifications extensively to alert the user if the action is finishing or if he/she is being outbid. Amazon has introduced a bar code reader. Combined with the broad Amazon product portfolio it offers a convenient price comparison tool for shoppers while browsing retail stores; if they find the same product for cheaper they can order it directly.

Smartphone explosion to boost mcommerce





32

Retailing: Internet

• Another prominent development during 2010 has been coupon sites and member-only group buying sites. • Frugality has emerged as a major consumer trait following the downturn, and in this respect it is not surprising that

Groupon was valued at close to US$5 billion, and Google tried to purchase the site valuing it at US$6 billion at the end of 2010.

• Following major consumer interest, Groupon has expanded to more than 30 countries with over 50 million subscribers and is aiming to be the company to reach US$1 billion sales in the shortest time. The success behind Groupon is its relatively simple and straightforward business model. Every day the company offers through its website or e-mail a daily deal on goods or services with substantial discounts of 50-70%. The popularity of the service grows as users share with friends.

• Member-only sites offering group purchases have not made headlines to the same respect as Groupon, however these have also built their business model on frugality offering branded, designer goods at large discounts. While coupon sites specialise in local deals and experiences, flash sites work as outlet stores which sell excess inventory at large discounts.

• Both discount models are becoming mainstream; Amazon has invested in Living Social, Groupon’s key competitor, and also bought BuyVIP, a German member-only site. Google and Facebook are also planning coupon services.

• The discount models have clearly benefited from constrained disposable incomes and consumers’ desire to maintain as much as possible similar experiences and the brands and products they were used to before the downturn.

0200400600800

1,0001,200

Vente-privee (France) Show Room Prive (France) RueLaLa (US)

Selected Private Sale Websites 2008-2010

2008 2009 2010

Frugality as a business model





33

Retailing: Internet

Introduction


Key Domains






34

Retailing: Internet

Latin America hottest region


• Considering the key developments online, Euromonitor International expects the internet retailing market to continue its strong growth. Latin America will see the highest growth over 2010-2015, followed by Asia Pacific. Western Europe, and Africa and Middle East will register the lowest growth over the forecast period. Latin Americabenefits from very strong growth in Brazil, Argentina and Chile, while in Asia, China remains the driver for growth.

Regional Performance20102015 % CAGR

1518

1314

1012

14%

17%

15%

13%

12%

11%

14%




35

Retailing: Internet

• Looking at actual contribution over 2010-2015, Asia Pacific, North America and Western Europe are expected to generate 84% of all new sales.

• Despite the very rapid growth in emerging markets, the large developed markets will continue to generate the majority of new sales. Growth in internet retailing is still dependent on physical infrastructure such as PC penetration, broadband access, payment methods and reliable delivery systems, which are still insufficiently developed in emerging markets.

• The high level of such systems is benefiting developed markets. In addition, growth within internet retailing is benefiting from both supply- and demand-led factors.

• Demand for cheaper products, convenience, and wide product choice, in addition to adoption of web 2.0 features such as video-rich websites, product recommendations from friends are driving consumers online.

• On the other hand, both pure players and multichannel retailers, particularly in developed markets, are stepping up their investment online in a race to capture higher share both within the market and consumers’ minds.

Developed markets continue to dominate


25%

37%

1%

5%

4%1%

27%

Internet Retailing - Share of Total Additional Value Sales Contributed by Each Region over

2010-2015

Western Europe North America

Middle East and Africa Latin America

Eastern Europe Australasia

Asia Pacific




36

Retailing: Internet

0200400600800

1,0001,2001,4001,6001,8002,000

2005 2010 2015 2020

Milli

on

More Than 40% of the World’s Population Will Be on the Internet in 2020

Internet Users Internet Subscribers

Internet continues to reshape the world


• General internet penetration will increase significantly. By 2020, 40% of the global population is expected to be online reducing the digital divide between developed and emerging markets.

• The biggest growth will be in Asia Pacific. For example, China is expected to have 700 million online users compared to 280 million in the US.

• Higher numbers of online users will help increase overall growth in internet retailing over the forecast period, especially within emerging markets.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2010 2015 2020

Sha

re %

Half of All Internet Users Will Be in Asia by 2020

Asia Pacific AustralasiaEastern Europe Latin AmericaMiddle East and Africa North AmericaWestern Europe




37

Retailing: Internet

• Globally, internet retailing is expected to post a 13% CAGR over 2010-2015.

• Grocery and non-grocery store-based retailers will post CAGRs of just 2-3% over the same period.

• Internet retailing will be the fastest-growing channel, also increasing faster than other non-store channels.

• Within the top 10 fastest growth markets, China will lead in both CAGR and actual increase terms on the back of rapid increase in its online population and the uptake of the internet not only for searching for better prices but also for shopping.

Internet strong growth to continue


2.2

2.8

13.3

3.4

-3.1

-0.7

Grocery Retailers

Non-Grocery Retailers

Internet Retailing

Direct Selling

Homeshopping

Vending

Channel Performance % CAGR 2010-2015

Top 10 Fastest Growing Internet Markets

Country % CAGR2010-2015

Absolute value growth US$ million 2010-2015

China 41.8 54,322Mexico 29.9 2,503Serbia 25.6 67Indonesia 22.0 18India 21.1 1,135Hungary 18.1 534Portugal 17.8 525Argentina 17.7 1,153Czech Republic 16.9 1,445Brazil 16.6 9,462




38

Retailing: Internet

Conclusion


The number of internet users will grow by 32% by 2015,

and by 2020 the majority of online users will be in Asia

Pacific, which will boost online sales significantly

Internet retailing to grow five times more strongly than overall

retail by 2015

Frugality to remain in the short term, particularly in

developed markets impacting internet retailing

positively

Emerging markets, particularly BRICs, to exhibit

strong organic growth in online consumers, although PC penetration, payment and

delivery methods remain major constraints on growth

M-commerce is becoming increasingly important and

further blurring the lines between channels as

consumers are able to shop online while in retail stores

Traditional retailers moving more aggressively

online even in non-traditional categories such

as food and drink




39

Retailing: Internet

• All values expressed in this report are in US dollar terms, using a fixed 2010 exchange rate.• 2010 figures are based on part-year estimates.• All forecast data are expressed in constant terms; inflationary effects are discounted. Conversely, all historical data

are expressed in current terms; inflationary effects are taken into account.• Retailing coverage: Grocery retailers, non-grocery retailers and non-store retailing.• Non-store retailing - the retail sale of new and used goods to the general public for personal or household

consumption from locations other than retail outlets or market stalls. Excludes specialist retailers of motor vehicles, motorcycles, vehicle parts and fuel. Also excludes foodservice, rental and hire, and wholesale industries.For the purposes of this study, non-store retailing is the aggregation of vending, direct selling, homeshopping and internet retailing.• Internet retailing - sales of consumer goods to the general public via the internet. Consumers purchase goods

online through the web platform.Sales data are attributed to the country where the consumer is based, rather than where the retailer is based. Also includes orders placed through the web for which payment is then made through a store card, an online credit account subsequent to delivery or on delivery of the product. This payment may be by any mode, including postal cheque, direct debit, standing order or other banking tools.Includes mobile retailing (m-commerce), whereby consumers use wireless devices, such as a mobile phone, PDA, BlackBerry, to connect to the internet and purchase the goods online.Excludes sales of wallpapers and ringtones. Includes digital music and movie downloads. Example brands include Amazon.com, Zappos.com, Apple.com, Tesco.com, Dell.com, Coles Online, Quelle and Americanas.Internet retailing excludes sales of: (a) products generated over consumer-to-consumer sales sites, such as eBay. All sales over such sites are excluded, even if they were generated by companies operating through the site; (b) sales of motor vehicles, motorcycles and vehicle parts; (c) tickets for events (sports, music concerts etc) and travel; (d) sales of holidays; (e) revenue generated by online gambling sites; (f) quick delivery services of food, magazines, household goods and DVD rentals, for example: MaxDelivery.com, LicketyShip.com, Netflix.com, LoveFilm; and (g) returned products/unpaid invoices.

Report Definitions

Definitions




40

Retailing: Internet

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