Online retail sales in Europe will grow 98% annually over the next five years, soaring from 2.9 billion euros in 1999 to 175 billion euros in 2005. This growth, combined with the onset of the euro in 2002, will dramatically reshape Europe’s retail landscape. In a new Report to be released later this week, Forrester Research B.V. (Nasdaq: FORR) predicts that the Internet’s arrival as a viable sales channel will accelerate the evolution of pan-European retailers that aggressively sell across borders both on- and offline.
“Over the next five years, both Internet pure plays and traditional retailers must develop cross-border strategies that culminate in pan-European sales, or their businesses will be eroded by competitors who do,” said Matthew M. Nordan, senior analyst. “The resulting industry consolidation will shrink the number of pure plays to a few pan-European leaders, while traditional retailers, leveraging their considerable strengths, will claim more than 75% of online sales in Europe by 2003.”
Retailers with aggressive cross-border strategies must balance local requirements with pan-European scale. Successful firms will operate with a portfolio of storefronts designed for each target market, shared sourcing and infrastructure to support the network of stores, and local marketing and business development teams to take advantage of local opportunities. Meanwhile, service providers will emerge to solve the cross-border logistics, payments, and customer service needs of these pan-European retailers.
“Traditional retailers have a huge advantage in a pan-European world,” added Nordan. “With existing logistics infrastructure, supplier relationships, and merchandising know-how, they have the potential to dominate a pan-European retail future. But they must act now or risk the onslaught of fast-moving Internet pure plays.”
Europe’s online retail growth will be driven by the rush of consumers, retailers, and products onto the Net. Forrester expects European home Internet access via PC to increase threefold by 2005, while interactive digital TV (iDTV) and wireless application protocol (WAP) phones will provide two new channels for retail transactions. At the same time, traditional retailers will be coming online with full-featured eCommerce sites to recapture sales lost to Internet competitors. With the launch of these retail sites, the biggest retail categories in Europe — groceries, apparel, leisure travel, and autos — will begin to hit stride. In 1999, media, electronics, and leisure travel accounted for more than 80% of Europe’s online sales. Their share will drop to less than 40% in 2005 as new categories gain volume.
By 2005, eCommerce will account for 7% of Europe’s retail sales, narrowing the gap with the United States. In Northern Europe, Sweden, Germany, and the UK will close the gap entirely, leading the US in some categories, like travel in Germany and groceries in the UK. While Sweden will lead Europe with 9.3% of its retail sales occurring online, Germany’s huge economy will account for 26% of Europe’s overall online sales. Although Southern Europe will continue to lag behind the rest of Europe, France will claim 14% of Europe’s online sales.
For the Report “Retail’s Pan-European Future,” Forrester created a forecasting model based on four sources: 1) retail sales data from organizations like Eurostat and the International Video Federation; 2) interviews with 50 European online retailers; 3) Forrester’s Technographics® survey of 17,000 European households; and 4) historical analysis from Forrester’s global research.