INTERNET VS. STORE BASED RETAILING: THE GLOBAL MOVE TOWARDS OMNICHANNELS

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1 INTERNET VS. STORE BASED RETAILING: THE GLOBAL MOVE TOWARDS OMNICHANNELS

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3 INTERNET VS. STORE- BASED SHOPPING: THE GLOBAL MOVE TOWARDS OMNICHANNEL RETAILING EXTRACT FROM THE REPORT INTERNET VS STORE-BASED SHOPPING: THE GLOBAL MOVE TOWARDS OMNICHANNEL RETAILING CONNECT WITH US EUROMONITOR INTERNATIONAL 2014

4 As consumers continue to blend their off-line and on-line activities, from showrooming and retail apps to sofa shopping and click-and-collect, the lines between internet retailing, e-commerce and physical retailing are becoming increasingly blurred. Big retailers are taking an omnichannel approach by merging their offline, on-line and mobile capabilities to create a seamless experience for shoppers. This report studies the impact of omnichannel trends on global retailing. iv EUROMONITOR INTERNATIONAL 2014

5 CONTENTS 3 EXECUTIVE SUMMARY Growth Drivers Internet Retailing Trends Behaviour and Characteristics of Online Shoppers Retailer Strategies Outlook 12 CHARTS Global Internet Sales by Category 2013 Global Internet Sales Versus Total Sales Internet Sales in Leading Countries 2008/2013 Internet Sales Versus Total Sales In Leading Countries 2013 Global Internet Sales as a % Total Sales by Category 2008/2013 Mobile as a % Total Internet Sales by Country 2011/2012/2013 In-store Versus Online Shopping for Non-essentials, by Country 2012 Forecast Internet Sales In Leading Countries 2013/ ABOUT EUROMONITOR EUROMONITOR INTERNATIONAL

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7 EXECUTIVE SUMMARY Growth Divers Internet retailing and smartphone use are fast changing the way people approach shopping. Consumers can now buy virtually anything, any time, and have it delivered from anywhere in the world. The main drivers of e-commerce growth have been the search for value and convenience; increased access to the web; faster download speeds; improved shipping and online payment methods; and the shift towards mobile devices, such as smartphones and tablets. Internet shopping has transformed dramatically since its emergence in the mid-to-late 1990s. In the face of competition and innovation from the likes of e-commerce giants such as Amazon and Alibaba, store-based retailers have been forced to up the ante in recent years. Actions have included the addition of online shopping capabilities, the development of mobile shopping apps and a shift towards omnichannel retailing, whereby consumers can access a retail brand simultaneously in a number of different ways. 4G is now being rolled out across the world, offering even faster mobile broadband access and driving a surge in data usage, while the number of Wi-Fi spots has also mushroomed, enabling people to log on in to their devices without having to rely on mobile networks. The growing practice of showrooming whereby consumers visit physical stores to examine an item in person, then order it online at a lower price has resulted in traditional retailers scrambling both to add their own online outlets and to incentivise shoppers to buy in stores. EUROMONITOR INTERNATIONAL

8 EXECUTIVE SUMMARY Although internet regulations are tightening, security concerns are still a major deterrent to internet shopping. Many consumers are wary about giving their credit card details online and worry about their data being stolen or misused. As a result, new payment methods are being developed. PayPal dominates the market for alternative web payments, while digital wallets, such as Google s Instant Buy and Visa s V.me, store consumers payment information in the cloud to reduce the steps to purchase. Furthermore, new regulations are being introduced on national and regional levels to help protect consumers in the face of soaring internet sales. In 2014, consumer rights legislation came into force in both the EU and China obliging companies to accept no quibble returns. Internet sales have benefited from the new culture of thrift, whereby consumers aggressively search out online bargains, whether from discount retailers such as Amazon, group buying websites such as Groupon or via daily deals or one off sales events, such as Black Friday. The search for value has also become easier with the proliferation of price comparison websites. However, these have exacerbated the problem of showrooming, as consumers are able to view and try products in stores before finding the lowest price for those products online. Internet Retailing Trends Although e-commerce still accounted for just 5% of global retail sales in 2013, its growth has been spectacular, with internet sales soaring by 127% in current value terms to reach a value of US$638.6 billion in While the US remained the world s largest market for internet retailing in 2013, with sales of almost US$208 billion, China is fast catching up. Sales there reached almost US$99 billion, although on a per household basis, values remained very low. In terms of online sales as a proportion of total retail sales, the most developed markets were South Korea and the UK, where internet sales accounted for 13% and 10% of total retail sales, respectively, in EUROMONITOR INTERNATIONAL 2014

9 EXECUTIVE SUMMARY E-commerce remains virtually undeveloped in emerging markets such as Venezuela, Malaysia, India, South Africa, Indonesia and the Philippines, where less than 1% of retail sales were made online. Apparel and footwear represented the largest internet retailing category in 2013, accounting for a fifth of the market, following substantial current value growth of 157% since This was followed by consumer electronics and media products, with respective shares of 18% and 10%. The widespread availability of high-speed internet has led to easier and faster downloading and streaming of digital entertainment. As a result, sales of digital music, e-books, films and games have grown rapidly, at the expense of CDs, printed books, DVDs and physical games. With convenience a key consideration for those in work and fuel prices at an all-time high, online grocery shopping is appealing to a growing number of time-poor consumers. While still a very small sector, its sales more than doubled in current value terms between 2008 and 2013, to almost US$42 billion. The consumer appliances category made the most spectacular progress, with sales soaring in current terms by 258%, to almost US$36 billion. Growth was driven by the wide product choice, low prices, the ability to compare prices and low shipping costs associated with the likes of Amazon. The online beauty and personal care category has benefited from a growing number of consumers trying out products in stores then buying them online, or making repeat purchases of brands and products they know and trust. The e-commerce boom has hit specialist retailers hard. In all categories, sales of specialist retailers grew at a relatively slow pace over the review period, as they faced growing competition from store-based supermarkets and mass merchandisers, as well as e-tailers. The rapid growth of smartphones and tablets, which allow access to the internet anywhere and at any time, has led to growth in the number of shoppers making purchases on the move or while relaxing at home (a practice known as sofa shopping ). At a global level, actual sales made through smartphones and tablets have not yet made a significant impact on e-commerce but they continue EUROMONITOR INTERNATIONAL

10 EXECUTIVE SUMMARY to gain traction. In countries where PC ownership is still relatively low, smart devices have emerged as the primary way of accessing the internet. M-commerce is particularly highly developed in Japan. Here, as much as 35% of internet sales were made with a mobile device in This channel has also made dynamic progress in the UK, where its share rose from just 4% in 2011 to 20% in Behaviour and Characteristics of Online Shoppers Despite the rapid growth of e-commerce, Euromonitor International s Out And About Survey of 2012 found that 83% of the online shoppers surveyed still prefer visiting physical stores for essentials, as they appreciate the immediacy of this type of purchasing. Shoppers tend to be more flexible when looking for non-essential personal goods, such as clothing, books and games, that they do not require instantly. Dedicated online shoppers are more likely to come from developed countries, with the highest concentrations in Germany and the UK. Trust in online shopping varies between emerging and developed markets. Almost one third of in-store shoppers in emerging markets do not trust online payment security, whereas less than a fifth of those in developed countries share this concern. The most commonly selected reasons for preferring online shopping were found to be price and flexibility (each with 62%). This was followed by time savings and the ability to buy products or brands that are not available nearby (59% and 50%, respectively). Consumers in emerging markets, where in-store offerings and types of physical retailers may be more limited than in developed countries, were particularly enthusiastic about the ability to buy a variety of brands online, including those not locally available. 6 EUROMONITOR INTERNATIONAL 2014

11 EXECUTIVE SUMMARY The ready availability of product information, price comparisons and online reviews was a key motivation for 42% of internet shoppers globally, but was particularly important in China and Turkey, where this factor was selected by 59% of respondents. In the US market, where sales taxes vary from state to state, the use of online shopping as a way to avoid sales tax was selected by as many as 39% of respondents. The survey also confirmed the growing use of technology to gain knowledge about products and services: 35% of respondents said they would be more likely to turn to their smartphone to check a website for product information than to ask for help in-store (29%). Euromonitor International s more recent Global Consumer Trends survey for 2013, which covered online respondents in nine countries, confirmed that it is still the case that only a minority of consumers regularly purchase items online. The most popular purchases were found to be downloadable items (excluding tickets), bought at least once a month by over a fifth of respondents. This was followed by apparel and footwear (18%) and groceries (17%). The survey revealed that types of online purchase vary according to age group and gender. The youngest age group (15-29) is most likely to regularly purchase downloadable items, as well as apparel and footwear, and electronics, from the internet. Online groceries and household essentials, as well as beauty and personal care products, were found to be most commonly purchased by those in the age group. This is largely a matter of convenience, since many consumers in this age group have young families. With regard to gender differences, women were found to be most likely regularly to buy groceries, apparel and footwear, household essentials, and beauty and personal care online, while slightly more men than women regularly purchase downloadable items and electronics online. India has among the lowest internet penetration rates in the world. Online consumers in this market were most likely to regularly buy both downloadable items and beauty and personal care products. EUROMONITOR INTERNATIONAL

12 EXECUTIVE SUMMARY A comparison of Euromonitor International s Global Consumer Trends surveys for 2011 and 2013 revealed a significant increase in the use of mobile phones to purchase items and services across all countries. In both China and India, as many as 62% of the online respondents who took part in the survey claimed to buy an item or service via their phones at least once a month. The US showed the most progress in this respect, with 44% of US respondents saying they regularly make purchases via a mobile phone in 2013, compared with just 25% in Globally, the propensity to make mobile purchases declines sharply above the age of 44 years. 47% of respondents aged said they purchase items via their mobile phones at least once a month, compared with just 28% of those aged 60+. Retailer Strategies Although the e-commerce industry is slowly consolidating, it is relatively new and still in a state of flux. Outside of the big four players (Amazon, Tmall, ebay and Apple), the market is still extremely fragmented, with 13 of the top 20 brands still taking a share of less than 1%. Amazon increased its global dominance during the review period, raising its market share from 8% to almost 12%. The company has expanded via both acquisitions and organic growth, focusing on both diversification and geographic expansion. China s online market place, Tmall (Alibaba Group) came virtually out of nowhere over the review period to rank second in the world in 2013, with a share of 7%. This was due to its strength in the Chinese market, where it accounted for 45% of internet retailing sales. Store-based retailers continued their move into the online arena in order to become true bricks-and-clicks players over the review period, while pure-play internet retailers focused on adapting their models for m-commerce and the delivery of media content via digital channels. 8 EUROMONITOR INTERNATIONAL 2014

13 EXECUTIVE SUMMARY The move towards omnichannel retailing intensified towards the end of the review period, as retailers strove to create a more seamless approach to shopping, whereby consumers could access their brand anywhere at any time and use more than one channel to complete a transaction. Offering an omnichannel shopping experience by using the same database of products, prices and promotions across all channels simultaneously allows retailers to track their customers across all channels in order to gain a better profile of their needs and preferences. Linked to this is a move towards adding digital concepts to stores to enhance the shopping experience. Stores are increasingly blending their online operations with in-store functionality, for example by providing in-store tablets and kiosks for information and ordering. Both pure-play and store-based internet retailers are developing dedicated shopping apps to enhance the buying process. These offer services such as in-store navigation, product search capability, information about items, instant discount coupons and product ratings and reviews. The rise of smartphones with embedded GPS technology allows retailers to create a highly targeted, relevant and contextual message that can be delivered to the customer at exactly the right moment in exactly the right place. Another concept being used by retailers as a way to straddle the line between advertising and commerce is that of virtual shopping shelves, which allow shoppers to scan the products on printed posters placed in high traffic locations, such as metro or rail stations. Internet retailers are improving the user experience by making websites clear and attractive; simplifying the checkout process; offering online advice and reviews; displaying 360 degree images and videos of products; and offering cheap or free returns. Checkout processes are being streamlined by allowing users to create a profile (enabling companies to save contact details for future purchases), track past orders; receive recommendations for related purchases; add items to wish lists and pay via PayPal. EUROMONITOR INTERNATIONAL

14 EXECUTIVE SUMMARY Increased offers of free shipping both ways have contributed to higher sales of certain products, like apparel and footwear. Companies are using a variety of methods to reduce the number of returns, such as more detailed sizing information and the use of virtual fitting rooms. E-tailers are also working towards speeding up delivery, for example, by bringing shipping in-house, introducing subscription delivery services and click-and-collect options, building more fulfilment centres or shipping direct from stores, and collaborating with couriers or retail partners. In order to combat the practice of showrooming, retailers are incentivising shoppers to buy in stores or online from the retailer s own site; price matching; increasing in-store services or entertainment; and negotiating exclusive contracts with manufacturers. Some e-tailers are opening physical locations to engage better with customers and give them the opportunity to test, touch or try on products before buying them. Some of these stores use their websites as a virtual back room, ordering items as needed for shipping directly to customers. Subscription services, consisting of automatic monthly purchases, offer retailers the promise of guaranteed recurring revenue and a hive of customer data, while consumers benefit from the convenience and element of surprise and anticipation offered by this type of service. Beauty box services are common in Asia (especially South Korea); while in the US, apparel and footwear subscription services have become popular, whereby a personalised selection of products is offered to customers on a monthly basis, based on their stated preferences. Subscription services for baby essentials, such as Amazon s Subscribe and Save programme, which offers free shipping and savings of 15% on items such as nappies (diapers) for enrolees, are popular among new parents, due to their convenience. 10 EUROMONITOR INTERNATIONAL 2014

15 EXECUTIVE SUMMARY Outlook Strong growth is forecast for the e-commerce market over the period. Overall, sales are expected to increase by 89% in constant value terms, taking the internet share of total retail sales from 5% to 8% by Apparel and footwear is one of the areas that offers the most potential for expansion, with sales set to more than double in constant value terms between 2013 and It will benefit from the development of augmented reality tools and more convenient shipping options. Online media products sales are predicted to grow by 78% over the forecast period, driven by the move towards digital adoption of content via new services such as Amazon s firetv, which will offer streaming video for services such as Netflix, Hulu, YouTube and Amazon Prime Video. Other particularly strong areas of growth will include consumer appliances and grocery. Food and drink internet retailing offers a convenient solution to time-pressed consumers, and will be driven by innovation in click-and-collect options, such as the ability to pick orders up from train stations. In terms of absolute sales, the US and China will dominate the internet retailing scene over the next five years, with the US seeing further growth of 71% in constant value terms, and sales in China rocketing by 206%. Growth in China will be driven by the greater penetration of the internet into more remote areas, the growing use of smartphones, and efforts by the government to regulate online shopping and provide a standardised and safe shopping environment to consumers. In the US, internet retailing faces a possible threat in the form of taxes. Federal legislation (which already exists on a state level in some places) may be enacted that requires state sales taxes to be collected on every e-commerce transaction. Other major markets in which sales are expected to more than double in constant value terms over the forecast period include Australia, Italy, Belgium, Mexico, Turkey and Greece. EUROMONITOR INTERNATIONAL

16 CHARTS Global Internet Sales by Category 2013 Source: Euromonitor International 12 EUROMONITOR INTERNATIONAL 2014

17 CHARTS Global Internet Sales Versus Total Sales Source: Euromonitor International EUROMONITOR INTERNATIONAL

18 CHARTS INTERNET VS STORE-BASED SHOPPING: THE GLOBAL MOVE TOWARDS OMNICHANNEL RETAILING Internet Sales in Leading Countries 2008/2013 Source: Euromonitor International 14 EUROMONITOR INTERNATIONAL 2014

19 CHARTS Internet Sales Versus Total Sales In Leading Countries 2013 Source: Euromonitor International EUROMONITOR INTERNATIONAL

20 CHARTS Global Internet Sales as a % Total Sales by Category 2008/2013 Source: Euromonitor International 16 EUROMONITOR INTERNATIONAL 2014

21 CHARTS Mobile as a % Total Internet Sales by Country 2011/2012/2013 Source: Euromonitor International EUROMONITOR INTERNATIONAL

22 CHARTS In-store Versus Online Shopping for Non-essentials, by Country 2012 Source: Euromonitor International 18 EUROMONITOR INTERNATIONAL 2014

23 CHARTS Forecast Internet Sales In Leading Countries 2013/2018 Source: Euromonitor International EUROMONITOR INTERNATIONAL

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