TRENDS Includes Consumer Technology Adoption Study data

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1 TRENDS Includes Consumer Technology Adoption Study data Europe s ecommerce Forecast: 2006 To 2011 Net Retail Will Soar From 103 Billion To 263 Billion by Jaap Favier with Michèle Bouquet EXECUTIVE SUMMARY In the coming five years, the number of Europeans shopping online will grow from 100 million to 174 million. Their average yearly Net retail spending will grow from around 1,000 to 1,500, as UK Net consumers outspend even their US counterparts online. Overall, this will cause European ecommerce to surge to 263 billion in 2011, with travel, clothes, groceries, and consumer electronics all above the 10 billion per year mark. TARGET AUDIENCE Chief marketing officer/senior marketing executive, interactive marketing executive, market research/ customer insight executive ecommerce KEEPS GROWING Two years ago, Forrester predicted that European ecommerce would grow to 57 billion in We thoroughly reviewed our predictions, taking into consideration growing numbers of online shoppers, the extensions of their Net shopping lists, and the growing sophistication of online retailers. More Online Europeans Spend More Online Consumers who start to go online do so mostly to use . But after a number of months, many of them discover the convenience and attractive prices of online shopping. The number of Europeans shopping online has increased by 37% in the past two years. At the end of 2003, 48% of Europeans went online at least once per month, and 19% had shopped online; two years later, these numbers had soared to 54% and 26%, respectively (see Figure 1). Net shoppers are spending more online. The average online shopper has increased his quarterly Net spending by 10%, from 244 in Q to 268 in Q Combined with the increase in the number of online shoppers, total European ecommerce grew 50% in two years. By 2011, 73% more Europeans will have become online shoppers. The online population in Europe will keep growing, from 189 million consumers in 2006 to 242 million in 2011 or from 58% to 74% of the adult population. As both new and experienced Net consumers gain more confidence online, the number of online shoppers will grow from 100 million to 174 million over the same period. Headquarters Forrester Research, Inc., 400 Technology Square, Cambridge, MA USA Tel: / Fax: /

2 Trends Europe s ecommerce Forecast: 2006 To Figure 1 Forecast: Drivers Of Online Retail Growth In Europe, 2006 To % 60% Percent of population aged 16 and above online 40% 20% Percent of population aged 16 and above who shop online 0% 2003* 2004* 2005* Online population 48% 52% 54% 58% 63% 67% 70% 73% 74% Online shoppers 19% 23% 26% 31% 36% 41% 45% 50% 53% Base: European consumers aged 16 and above *Source: Forrester s ECTAS Q4 2003, Q4 2004, and, Q Surveys Retailers Have Become More Sophisticated To serve the growing online masses, retailers and service providers have upped their Web presence. Comparison shopping sites help online buyers. By transforming online consumers into more astute shoppers who feel confident about their purchase decisions, comparison sites like Kelkoo have grown in popularity in Europe and have pushed ecommerce forward. With 8.5 million monthly unique visitors, Kelkoo.fr is the second most visited ecommerce Web site in France and Kelkoo.co.uk the third most visited in the UK, with 6.4 million monthly unique visitors. 3 Retail executives buy into ecommerce. Afraid of cannibalization, most retailers in 2002 kept ecommerce well away from their high-street stores. But today, Casino is celebrating its online electronics discounter Cdiscount after it saw its revenues jump by 82% in 2005 to 383 million. In May 2006, HMV and Waterstones announced their intent to sever their hosting agreements with Amazon.co.uk, stating that ecommerce was too important to leave to a third party. 4 Multichannel retailers battle with dot-coms. Let s face it many retailers got involved with ecommerce in the 2000 dot-com craze just to inflate their shares; during the bust, online operations became orphans. But today, ebay and Amazon shares are rising steadily, while traditional retailers are under attack from discounters. Executives realize that they need to invest in their Net shops to avoid being marginalized online by the likes of Pixmania, which outperforms Dixons in online sales. ONLINE RETAIL SALES WILL MORE THAN DOUBLE BETWEEN 2006 AND 2011 Fueled by improved supply, the average annual spend per online shopper will increase from 1,000 to 1,500 (see Figure 2). Multiply this by the growing number of Net shoppers, and European ecommerce will grow in the next five years from 102 billion in 2006 to 263 billion in 2011, including retail revenues through auctions. 5

3 Trends Europe s ecommerce Forecast: 2006 To Figure 2 Forecast: Yearly Online Spend Per European Online Consumer, 2006 To ,000 Online spend per European online shopper 1,800 1,600 1,400 1,200 1, ,026 1,132 1,235 1,346 1,446 1,536 Country Highlights: The UK Will Still Lead Online Sales In 2011 Two years ago, Forrester estimated that Germany s online sales would surpass the UK s by But the UK ecommerce market continues to outrun the German one, despite Germany having more online shoppers in absolute terms. Our forecast shows that (see Figure 3): UK ecommerce even bests the US. The average UK online shopper will spend 1,744 online in 2006 a higher percentage of his retail budget than of his US counterpart s and 2,410 in These ardent shoppers will drive UK ecommerce from 43 billion in 2006 to 76 billion in 2011, 29% of total European Net retail. Online shopping is the norm, with multichannel retailers like Argos integrating their Web businesses with their stores via functions like online store inventory display. Net grocery purchases from firms like Tesco are key in putting the UK ahead of the US. 6 Germany stumbles over low-spending online punters. German consumers are less bullish about their financial situation and continue to spend less online than UK consumers. The average German online consumer will almost double his online purchases, from 786 in 2006 to 1,441in 2011 almost half of what UK Net consumers spend online. The sheer scale of shoppers 43 million in 2011, a quarter of all online European shoppers and especially those looking for bargains at ebay and travel sites like Opodo.de ensures Germany s strong second place on Europe s ecommerce map. France thrives on dot-com action. France is a dot-com stable, with thoroughbreds like Pixmania and GO Voyages giving traditional retailers a run for their money. In the coming years, the growth of the French online retail market will outpace that of the UK and Germany, more than tripling its size to 39 billion in Online spending per French Net shopper will remain roughly on a par with the European average.

4 Trends Europe s ecommerce Forecast: 2006 To The Netherlands leads the Benelux. The online retail market in the Benelux is and will remain roughly half the size of the one in France. But the Benelux market is far from uniform: The Netherlands has the most Net shoppers, but their yearly online spend is low only 688 in 2006, compared with 851 in Belgium. Having a dense retail network gives the Dutch a bigger incentive to research products online, but buy them at the store. The Nordics finally embrace ecommerce. Average online spend per Net shopper in Sweden and Norway is almost as high as in the UK; online Swedes will raise this to more than 3,000 by 2011, including spending more than 300 on clothing online. Online Danes today spend less than half of what their Norwegian counterparts spend on the Net, but will reduce the gap by quadrupling their online spend by The rest of Western Europe brings up the rear. Spain and Italy together make up a quarter of Western Europe s population and a fifth of its Net population, but jointly account for less than 7% of its ecommerce. In the next five years, their share of online retail will gradually rise to nearly 10%. While Portugal and Greece trail their Mediterranean neighbors, Switzerland and Austria are at the other end of the spectrum: Their share of online retail will keep pace with Germany s. Category Highlights: Leisure Travel Remains The Top Money-Spinner Online Europeans learned to shop online at sites like Amazon and Expedia for CDs, books, and airline tickets products that don t necessarily offer the great high-street shopping experience that shoes do. But the more experienced online shoppers keep expanding their Net purchase categories, which will lead to (see Figure 4): Travel losing a fraction of its massive lead. Today, one in three of the euros, pounds, or kronor that consumers spend online go to leisure trip bookings. Online travel spending will grow by 133% to almost 77 billion in 2011 making it the biggest grower in absolute terms but its share of total retail will decline to 29%. Clothing will see its online turnover grow from 10 billion in 2006 to more than 31 billion in Big winners will be catalog retailers like Neckermann, Otto, and La Redoute, which are refining their decades-old CRM best practices for the Net. Alcohol enjoying the highest growth. While probably unrelated, online sales of alcohol and sports equipment will see the highest growth in the next five years 283% and 245%, respectively but jointly won t account for more than 4% of total online purchases. Along with travel and clothing, food and beverages and consumer electronics will see Net revenues increase to more than 10 billion across Europe as the likes of Ahold and Media Markt keep persuading consumers to click the buy button.

5 Trends Europe s ecommerce Forecast: 2006 To Figure 3 Forecast: European Online Retail Sales By Country, 2006 To 2011 The spreadsheet detailing this forecast is available online. 300,000 Online retail sales 250, , , ,000 Rest of Europe Nordics Benelux Spain Italy France Germany 50,000 UK 0 Country breakdown UK Germany France Italy Spain Benelux Netherlands Belgium Luxembourg Nordics Norway Sweden Finland Rest of Europe Switzerland 43,070 22,892 12,254 3,765 3,048 3,450 2, ,987 2,846 51,155 58,579 65,318 71,222 76,412 29,671 37,281 45,444 53,859 62,298 16,590 5,309 4,077 4, ,592 3,874 2,170 2,254 21,675 7,220 5,294 6, ,244 5,075 2,590 3,172 27,275 9,444 6,706 8, ,914 6,371 3,005 4,293 33,107 11,906 8,279 9, ,579 7,705 3,408 5,573 38,844 14,520 10,001 11,783 3,619 4,759 6,007 7,309 8, ,233 9,004 Denmark 1,356 1,889 2,551 3,321 4,166 5,046 Austria 1,764 1,551 1,196 3,791 6,926 1,737 2,445 3,314 4,326 5,422 Ireland ,194 1,662 2,520 Portugal ,117 1,457 Greece Total Europe , , , , , ,954 (numbers have been rounded) CAGR 12% 22% 26% 31% 27% 28% 27% 45% 21% 26% 30% 17% 35% 35% 47% 40% 51% 21%

6 Trends Europe s ecommerce Forecast: 2006 To Figure 4 Forecast: European Online Retail Sales By Category, 2006 To 2011 The spreadsheet detailing this forecast is available online. Apparel Clothing Footwear Jewelry/watches Electronics Computer hardware Consumer electronics Event tickets Flowers Groceries Alcohol Food/beverages/household supplies Health/beauty Home products Furniture Garden/tools/DIY Home appliances Household goods Leisure travel Media Books Music Software Videos Recreation Sports equipments Toys Video games European online retail sales by category ,446 18,873 23,993 29,639 35,577 41,547 10,035 2,669 1,743 13,823 5,806 8,016 5, ,156 1,552 5,284 3,321 12,208 1,952 4,008 3,001 3,247 32,959 8,833 4,960 1,100 1,257 1,516 3,824 1,274 1,404 1,147 13,445 3,354 2,074 17,139 7,115 10,024 7,127 1,066 13,736 2,208 7,071 4,456 15,986 2,530 5,235 3,889 4,332 41,325 10,747 6,019 1,296 1,538 1,895 4,880 1,746 1,751 1,383 17,500 8,921 1,369 % of 2011 retail* 8.8% Europe s total online retail sales 102, , , , , , % (numbers have been rounded) *Online sales as % of total sales per category 4,065 2,428 20,681 8,573 12,108 17,930 3,039 9,149 5,741 20,134 3,189 6,567 4,850 5,529 50,241 12,662 7,065 1,489 1,828 2,280 6,035 2,294 2,127 1,615 22,052 4,778 2,809 24,310 10,115 14,195 10,920 1,716 22,773 3,988 11,593 7,192 24,603 3,921 8,071 5,841 6,771 59,279 14,507 8,074 1,669 2,111 2,653 7,273 2,922 2,510 1,841 26,896 5,473 3,208 27,920 11,655 16,265 12,978 2,101 28,171 4,989 14,411 8,771 29,252 4,698 9,735 6,806 8,013 68,104 16,220 9,019 1,830 2,372 2,999 8,575 3,629 2,887 2,059 31,810 6,132 3,605 31,296 13,118 18,178 14,972 2,512 34,249 5,944 17,891 10,415 33,929 5,493 11,506 7,745 9,185 76,755 17,773 9,884 1,974 2,605 3,310 9,921 4,398 3,254 2, % 8.5% 9.9% 29.5% 43.0% 24.1% 33.7% 10.4% 3.5% 6.2% 2.2% 14.0% 9.5% 6.7% 7.7% 15.8% 11.8% 31.9% 26.2% 25.9% 21.8% 46.9% 21.9% 13.4% 8.9% 19.2% 29.7%

7 Trends Europe s ecommerce Forecast: 2006 To SUPPLEMENTAL MATERIAL Online Resource The underlying spreadsheets detailing the forecasts in Figures 1, 2, 3, and 4 are available online. ENDNOTES 1 As both consumers and Net retailers get smarter about using the Web, online retail growth will continue unimpeded, taking 8% of total retail sales by See the March 1, 2004, Market Overview Europe s ecommerce: The Next Five Years. 2 Source: Forrester s European Consumer Technology Adoption Study Q and Q Surveys. We surveyed consumers in the five markets of the UK, France, Germany, Italy, and Spain. 3 Source: ComScore Media Metrix, April The partnerships deals in both cases tipped in favor of Amazon. 5 Our online retail forecast from March 2004 did not include online auctions. 6 Online retail sales will grow from $172 billion in 2005 to $329 billion in Both consumers and sellers continue to stoke the ecommerce fires. As consumers increase shopping-related activities and sellers compete to innovate and keep them engaged, online sales will enjoy a solid 14% compound annual growth rate (CAGR) over the next five years. See the September 14, 2005, Trends US ecommerce: 2005 To Forrester Research (Nasdaq: FORR) is an independent technology and market research company that provides pragmatic and forward-thinking advice about technology s impact on business and consumers. For 22 years, Forrester has been a thought leader and trusted advisor, helping global clients lead in their markets through its research, consulting, events, and peer-to-peer executive programs. For more information, visit , Forrester Research, Inc. All rights reserved. Forrester, Forrester Wave, Forrester s Ultimate Consumer Panel, WholeView 2, Technographics, and Total Economic Impact are trademarks of Forrester Research, Inc. All other trademarks are the property of their respective companies. Forrester clients may make one attributed copy or slide of each figure contained herein. Additional reproduction is strictly prohibited. For additional reproduction rights and usage information, go to Information is based on best available resources. Opinions reflect judgment at the time and are subject to change. To purchase reprints of this document, please resourcecenter@forrester.com.