When it comes to e-commerce there is a general understanding that Europe by far is not as advanced as the US. Sometimes you even hear that Europe is several months or even years behind. This might not actually be entirely true. Maybe a better question to ask should be: are these two big markets even comparable?
How big are the markets?
The European e-commerce market was estimated to be worth about 106 billion Euros in 2006. According to the US Census Bureau E-commerce counts for about 4.1% of all retail sales (78,426 Mio. USD in Q1 & Q2 of 2010) in the United States. In 2006 e-commerce retail sales were 113,936 Mio. USD.
The European e-commerce can’t be seen as a one big market itself since there are major differences from country to country. Basically it could be categorised ias the following markets:
- A very mature market in northern Europe, including the United Kingdom, Germany and the Nordic countries, where between 60% and 80% of all internet users are e-shoppers
- A growing market in France, Italy and Spain, where the total number of e-shoppers is lower compared to the numbers of internet users, but the number of new e-shoppers is growing very fast.
- An emerging market is found in Eastern Europe, for which statistical data is lacking or unreliable.
This categorization does make sense, especially when specific data is compared on a country-level: In the UK 66% of individuals ordered goods over the internet for private use in 2009, almost the same number is shared by countries like Germany, Denmark and the Netherlands. The most impressive numbers come from the Scandinavian countries like Denmark, Sweden, Norway, Finland and Iceland, where about 91% of internet users had traded over the internet in the last 6 months. In contrary to these high percentages are figures from countries like Bulgaria or Romania, where only 2% to 5% of Internet users are e-shoppers.
The border problem
The main difference between these fragmented markets in Europe and the one very big market in the US are the borders within Europe.
In 2009 51% of all EU27 retailers sold via the internet, but only 21% of all European retailers were selling and advertising across all borders. Going into detail the numbers get even more scary: The main percentage of retailers only sold to one or two countries and only 4% of all retailers who conduct cross-border trade usually only trade with 10 or more EU member states. Advertising is closely connected: Only 21% of cross-border retailers advertise in more than one country.
These facts have a big impact on consumer awareness: 55% of all Europeans have never come across advertisements from sellers in other EU countries, but over half of those who have come across advertisements from other EU countries have also made a cross-border purchase. That sounds like a big business opportunity, but this opportunity comes with a couple of challenges.
While e-commerce is generally growing in Europe, it is still very uncommon for consumers to purchase goods or services in other countries. It can be generally said that this gap is widening: from 2006 to 2008 the percentage of e-shoppers in the EU rose from 27% to 33%, but cross-border e-commerce remained stable at about 6%. Still the numbers vary from country to country: 38% of all e-shoppers in Luxembourg have bought goods or services from an e-tailer in another EU country. In Portugal only 2% have done so.
What are the biggest barriers for not conducting cross-border sales?
The most common barriers for European e-tailors are, as always in Europe, the big differences in language and culture.
Especially when it comes to advertising differences in culture and language often require completely different marketing campaigns or approaches. This is not only valid for print or TV advertising, but also for PPC and online display advertising. One might think that a good performing PPC campaign in Germany would perform equally well in Austria (same language) but in fact it is not. Country specific factors for advertising always have to be strongly considered for creating and undertaking successful marketing undertakings, especially since the complexity of understanding customer demographics outside of the home market is very high.
The challenges for SEO are also very big: Google has country-specific domains for every European country, so good rankings for one TLD doesn’t necessarily imply good rankings for other domains. Also price comparison websites do not generally operate on a cross-border basis.
So for conducting cross-border sales an e-tailor has to maintain website(s) in multiple languages, invest in country and/or language specific SEO and run multiple marketing campaigns which are also different for every country or language.
Other country specific factors cannot be influenced by e-tailers themselves, like internet broadband penetration. According to a study from McKinsey broadband access can drive sales significantly:
The broadband penetration rates are very different from one country to another. According to data from the OECD the percentage of broadband subscribers (DSL, Cable and Fibre/LAN) per 100 inhabitants in the Netherlands and Denmark is 37%. In UK, Germany, Switzerland, Norway and France about 30%. The lowest rates are Czech Republic, Slovak Republic or Poland with roughly 10%. The rate for the US about 26%.
Although here also cultural differences come in to play: France for example, while matching Germany’s broadband penetration rate, the rate of online retail sales are no more than half as high. This is just another example which shows very clearly that the different markets in Europe are not really or hardly comparable with each other.
Other challenges for e-tailers are providing after-sales support and possible problems concerning logistics like increased costs of delivery (the “border effect”) or the difficulty to set up reverse logistics for returns. Not to forget different legal requirements in every country and different efficiency levels of postal or payment services.
Costs for European e-tailers for reaching a number of potential customers which is nearly comparable to the the US market are significantly higher. These costs and associated risks are often too high for smaller e-tailers and SMBs.
So I think it is fair to say that these two markets are not comparable, that it is not possible to say that Europe is behind: Europe is different!