When it comes to market opportunity for e-commerce, China occupies the number-one position, followed by Japan, the U.S., the U.K. and South Korea, according to a new global e-commerce study by A.T. Kearney, a global management consulting firm.
This story first appeared in the November 18, 2013 issue of WWD. Subscribe Today.
The Global Retail E-Commerce Index ranks the top countries in online retail, based on a 0 to 100 point scale. A.T. Kearney looked at 186 countries to determine the ranking of the top 30 countries. The index evaluates countries according to online market size, technology adoption and consumer behavior, infrastructure and growth potential.
“The top 30 countries are ready to explode in e-commerce,” said Hana Ben-Shabat, a partner in the retail practice of A.T. Kearney and coauthor of the study. “We are at a tipping point,” she said. What she found most interesting in the study “is that there are almost no barriers anymore for anything.” For example, in countries such as Russia where there are few credit cards, e-commerce sites are offering “cash and delivery,” where the company collects cash upon delivery. She said some of the emerging markets don’t have to go through the same learning curve as developed markets, nor do they have to wait for their brick-and-mortar stores to develop to be active online.
The study uncovered three very distinct kinds of e-commerce markets: Next Generation; Established and Growing, and Digital DNA. China, Brazil and Russia lead the Next Generation Markets; Australia, Canada, the U.S. and Nordic and Western European countries are Established and Growing markets, and Japan, South Korea, Singapore, Hong Kong and New Zealand are Digital DNA markets, where there are high technology adoption rates, advanced infrastructures and innovative new ways of shopping online.
“Consumers in developing markets are fast adopting behaviors similar to those in more developed countries,” added Mike Moriarty, an A.T. Kearney partner and coauthor of the study. Over the past five years, online retail has grown at a 17 percent compound annual growth rate, with growth particularly strong in Latin America (27 percent) and Asia-Pacific (25 percent), according to the study. Interestingly, India didn’t make the top 30 because of its low Internet penetration and significant infrastructure constraints.
In areas where there are obvious differences between developing and developed markets, the study illustrates key similarities such as consumer sophistication, the creativity and ingenuity of online sellers, intense competition and the kinds of products consumers will buy online. “Understanding these similarities will enable retailers to devise online strategies that are effective and scalable,” said Ben-Shabat.
It appears that retailers in developing markets worry less about multichannel integration and more about addressing the barriers to online purchasing, such as financial and logistical infrastructure and cultural norms, the study found. Overall, the report showed that retailers are offering unusual delivery options to enhance online shopping convenience. For example, U.K. grocer Asda is testing the use of collection lockers outside its stores so that online consumers don’t have to race to the supermarket to pick up their “click-and-collect” orders before the store closes.
Among the study’s highlights:
• China’s $64 billion online retail market will explode over the next five years to $271 billion, due to infrastructure improvements, increased Internet access for rural regions, rising wealth and customers’ growing predisposition to spend. China has the world’s largest population (1.36 billion), the most Internet users (517 million) and the most online shoppers (220 million), according to the study. Since profits are hard to achieve for online retailers, a “race to the bottom” pricing mentality dominates in a competitive market, according to the study. Online retailers such as Taobao and Tmall own about half of e-commerce traffic in China.
• Brazil is a budding online retail giant at $11 billion in size. The market is expected to grow at a compound annual growth rate of 20 percent over the next five years, the study found. The country has 90 million Internet users, 57 percent of whom buy online, and has the largest social networking base in Latin America. With only 45 percent of Brazilians having Internet access, as rural customers get online, sales are projected to rise. The upcoming 2014 World Cup and 2016 Olympic Games are expected to propel online retail sales, driving the online retail market to $28 billion by 2017.
• Russia’s online market is $10 billion and is projected to have 18 percent compound annual growth through 2018. Moscow and St. Petersburg generate three-quarters of Russia’s online retail transactions, but as smaller cities gain Internet access, sales will increase. Russia’s financial infrastructure has hampered online growth, the study said. Cash is the dominant payment method in the country, as only one in three households has a credit card and many don’t trust the security of online transactions, according to the study. Most online retailers offer a cash-on-delivery option.
• Japan generates $52 billion in online sales. It has 100 million Internet users and 75 million online buyers. Over the next five years, Japan’s online retail market is projected to reach $80 billion. Rakuten and Amazon together account for 40 percent market share.
• The U.S. has the world’s largest online retail market at $177 billion. It is expected to double by 2017, according to A.T. Kearney. About 250 million Americans use the Web, and 177 million frequently purchase goods online. More than 450 retailers account for 70 percent of sales, led by Amazon (17 percent market share) and eBay (6 percent). Five of the top 10 online retailers in the U.S. — Apple, Wal-Mart, Sears, Best Buy and Macy’s — are multichannel players, the study found.
• France’s $26 billion retail market has 50 million Internet users. The market is expected to grow to $36 billion by 2017. Many French shoppers consider the Web the best source for “value deals.”
• The U.K.’s retail market, worth $48 billion today, is expected to grow to $73 billion by 2017. It offers both multichannel retailers and pure-play online sellers. Amazon leads the U.K.’s online retail market (16 percent market share), followed by Tesco (9 percent) and eBay (8 percent).
• Germany’s $27 billion online retail market is expected to grow 12 percent yearly through 2017, faster than any other country in Western Europe. Amazon and Otto own nearly half of the online market, according to the study.