“E-commerce websites are no longer just off-shoots of Retailers’ physical-stores, but valid alternatives for Global Expansion” — The 2013 Global Retail E-Commerce Index™.
Today’s most successful Retailers see Global expansion as a crucial platform for growth.
Wary of “Real-estate wars” and long ROI horizons, many have seized the online retail opportunity to overcome these challenges. Retailers everywhere are diving into online retail as consumers across the globe in both developed and developing markets go online to buy products. They are using a variety of growth strategies, from grassroots websites to acquisitions of smaller online retailers or expansion of international shipping capabilities.
A.T. Kearney unveiled the first E-Commerce Index in 2012, highlighting the top 10 developing countries for online retail investment. This year we have taken the Index one step further, ranking the top 30 countries in both developing and developed markets. The rankings are based on NINE variables, including select macroeconomic factors as well as those that examine consumer adoption of technology, shopping behaviours, infrastructure, and retail-specific activities. The Index balances current online retail market indicators with those that reveal the potential for future growth.
This study is designed to help retailers devise successful global online-retail strategies and identify market investment opportunities while understanding the trade-offs and barriers to success.
About the 2013 Global Retail E-Commerce Index :
A.T. Kearney’s Global Retail E-Commerce Index ranks the most attractive countries for online-retail on a 0-to-100-point scale. The higher the score, the more potential a country has in online-retail.
Online-retail is defined as the sale of consumer goods to the general public through websites operated by pure-play online retailers or those owned by store-based retailers. This term also includes mobile commerce sales through smart-phones OR tablets. Sales are attributed to the country where the purchase is made, not where retailers are located.
Online retail encompasses the following consumer – goods categories :
- Beauty and personal care
- Consumer appliances
- Consumer electronics and video games hardware
- Do-it-yourself and gardening
- Food and beverages
- Home care products
- Housewares and home furnishings
- Media products
- Toys and games
- Other products
Online market attractiveness is based on the following metrics :
- Online market size (40 percent) – Current online retail sales. The higher the rating the greater current online retail market size.
- Technology adoption and consumer behaviour (20 percent) – Indicators of online consumer behaviour, such as Internet penetration, purchasing trends, and technology adoption. The higher the rating, the more favourable a country’s consumer base is for transacting online.
- Infrastructure (20 percent) – Indicators of financial and logistical infrastructure development, including credit cards per household and the availability and quality of logistics providers. The higher the rating, the more conducive a country’s infrastructure is for purchasing online.
- Growth potential (20 percent) – Projected online retail sales growth. The higher the rating, the greater the projected rate of growth.
( Data and analyses are based on Euro-monitor, International Telecommunications Union, World Bank, and World Economic Forum databases).
The Index Findings :
The Index rankings show a combination of developed and developing markets (see figure 1). China occupies the top-spot, and the G8 countries (Japan, United States, United Kingdom, Germany, France, Canada, Russia, and Italy) all fall within the Top 15. In the middle of the rankings is a compression of scores, with only five points separating the 15th- and 30 th-ranked countries.
Developing countries feature prominently in the Index, holding 10 of the 30 spots, including first-place China. These markets have been able to shortcut the traditional online-retail maturity curve as online-retail grows at the same time that physical-retail becomes more organized.
Consumers in these markets are fast adopting behaviours similar to those in more developed countries. For example, mobile phones per capita in Russia (1.8) and the United Arab Emirates (1.7) are much higher than many developed markets. Consumers in these countries use their phones to research products, compare prices, and seek input from their friends on social media.
The rankings include 10 “small gems”—countries with populations of less than 10 million, including Singapore, Hong Kong, Slovakia, New Zealand, Finland, United Arab Emirates, Norway, Ireland, Denmark, and Switzerland—that have active online consumers and sufficient infrastructure to support online retail.
On the other hand, India, the world’s second most populous country at 1.2 billion, does not make the Top 30, because of low Internet penetration (10 percent) and poor financial and logistical infrastructure compared to other countries.
India’s Unharnessed Online Retail Potential :
India is on many online-retailers’ radars – after all, it is the second most populous country in the world (1.2 billion people), with an online-retail market worth $1.5 billion. Yet it falls short of the Index’s rankings because of its low Internet-penetration and significant infrastructure constraints.
Increasing Internet-penetration remains the “key to unlocking India’s online-retail potential”. Only one in 10 Indians use the Internet, as many lack access to a computer and fixed broad-band.
Mobile phone usage may bolster this rate, as more than 900 million Indians have mobile phone subscriptions, but only 10 percent of mobile subscriptions are for smart-phones. Internet-penetration may dramatically improve in the coming years as smart-phone usage increases, mobile broadband improves, and India’s government rolls out its National Optical Fibre Network plan.
India’s poor logistics and transportation infrastructure, particularly outside of tier-1 cities, makes timely delivery difficult. Planned infrastructure improvements on roads and highways in tier-2 and 3 cities, would improve the base of online consumers.
Low credit card penetration and complex tax laws also impede Indian consumers’ ability to conduct online-retail transactions efficiently. Cash on delivery (COD) is common in India, as only 10 percent of Indian households have a credit card.
However, many online-retailers recently halted COD payment options in Uttar Pradesh, India’s most populous state, because of operational challenges. In addition, India’s complex state and local tax laws hinder online retailers’ ability to apply accurate taxes to online orders. The planned introduction of a Goods and Services Tax (GST) is expected to mitigate tax complexity across states and improve online-retail efficiency in the future.
Despite the hurdles, India’s large population presents online retailers with a tremendous long-term opportunity, especially as investments are made to shore up infrastructure gaps. Today, 58 % of online users make purchases, a figure that will increase as retailers are able to improve consumer conditions.
More Similar than Different ? –
Globally over the past 5 years, online-retail has grown at a 17 % CAGR, with growth particularly strong in Latin America (27 percent) and Asia Pacific (25 percent) (see figure 2).
At first glance, online-retail in developed and developing markets appears vastly different. In developed markets, retailers with an established presence in physical stores are struggling to integrate their in-store and online channels to offer consumers a seamless shopping experience.
Retailers in developing markets, however, worry less about multi-channel integration and more about addressing the barriers to online purchasing, such as financial and logistical infrastructure and cultural norms.
However, both types of markets share many similarities, which retailers should account for as they expand their global presence online.
The “Key” Market Types :
As in any globalization strategy, there are FOUR main questions to contemplate while considering online-retail expansion and investments :
- How big is the market ?
- How fast is the market growing ?
- How do consumers behave within the market ?
- Is there sufficient infrastructure in place to deliver on the online customer promise ?
These answer questions by comparing online growth potential to online consumer behavior in the Global Retail E-Commerce Index’s top 30 countries. This comparison offers an insight into the primary types of online retail markets.
Plant the Seeds for Growth :
Retailers are racing to expand online, and through-out the world they are building capabilities across the Retail e-commerce value chain to meet consumer needs and customers’ desires.
The winners will recognize commonalities across markets and develop scalable online expansion strategies for local markets. As always, regardless of location, successful retailers will manage the customer experience from browsing and community interaction to purchase to delivery and return in order to maintain and gain market share.
In this fast-moving space, one thing is clear : Online-retail is front and center in the quest for growth..