For Immediate Release
Chicago, IL – June 7, 2018 – Today, Zacks Equity Research discusses the Industry: E-commerce, including Alibaba BABA, Amazon AMZN, Walmart WMT and Google GOOGL.
Retail ecommerce remains a fairly small part of total retail right now, but because it is a fast-growing part, it is increasingly accounting for a larger share. Just a year ago, we were looking at a mid-single digit share, but this year, eMarketer thinks that share will be a tenth of global retail sales.
Ecommerce sales in Asia will account for 14.7% of total retail sales, with China contributing more than half, followed by Japan with slowing growth rates and then India, which will be the fastest growing. Volumes will double by 2021.
This year, ecommerce will account for only 8.8% of total retail sales in Western Europe, but grow to 11.4% by 2021. Germany is the top retail market but the UK the leading ecommerce region.
A global discussion is important for the sector because the Internet continues to melt away national barriers, making it ever easier to target overseas customers through established platforms.
So the social buying behavior of the Chinese and their increasing preference for luxury brands is relevant for U.S. players, as is Alibaba’s growing dominance in Asia. The Indian opportunity is also not to be ignored, as witnessed in Alibaba’s recent investments, Amazon’s aggressive growth plans and Walmart’s acquisition of a controlling stake in leading local player Flipkart.
A closer look at these markets shows a bigger, more mature and sophisticated Chinese market and a faster-growing Indian market offering greater scope for innovation.
According to Forrester, China will remain the biggest ecommerce market in the next few years generating 9X the size of the Japanese market and 17X the size of the South Korean market by 2020.
China made up 67.1% of mcommerce sales worldwide in 2017 (83% of Asia/Pacific sales), driven by its mobile-first internet audience. Sales are expected to nearly triple from $909.93 billion to $2.595 trillion between 2017 and 2021.
With the digital revolution in China, many Chinese have multiple devices they use to research a product or shop on. Virtual reality (VR) has started playing a bigger role, taking consumers from the “VR café” experience they enjoyed in 2016 to devices enabling the experience. Moreover, all the big ecommerce companies like Alibaba, Tencent and LeEco will continue to invest heavily in VR this year.
Cross-border trade is another driver, as Chinese youngsters are extremely brand conscious and like to buy foreign goods, especially if they’re from the U.S., South Korea or Japan and especially in categories like food, dairy, personal care and beauty. But local brands are increasingly capturing mind share, especially in electronics and mobile phones. The Chinese Ministry of Commerce says that cross-border transaction value will make up 20% of total Chinese foreign business and continue to grow at over 30% a year.
The Ministry also sees a growing number of Tier 2 and Tier 3 cities coming online with only 10.6 million of the estimated 159.9 million new users between 2015 and 2018 coming from Tier 1 cities.
According to a joint study by The Associated Chambers of Commerce & Industry of India (ASSOCHAM) and Deloitte, the digital commerce market in India will expand to over $50 billion in 2018 from $38.5 billion in 2017.
Last year was a strong one for the market, helped by mobile device adoption and 3G, 4G, Wi-Fi and high speed broadband technologies. In 2017, 82% of shopping queries were made through mobile devices compared to 76% in 2016 with one out of three customers in Tier-1 and Tier-2 cities transacting through mobiles.
The apparel segment grew the strongest at 72%, followed by food items at 65%, electronic items at 63%, beauty and personal care products at 52% and home furnishings at 49%. Moreover, 28% of regular shoppers were in the 18-25 age group with 42% in the 26-35 group, 28% in the 36-45 group and 2% in the age group of 45-60. 65% of Online Shoppers are male as against 35% female.
eMarketer reported that India’s demonetization of the rupee in late 2016 had a greater-than-expected impact on consumer spending, so retail sales grew 11.8% in 2017.
Western Europe, particularly the UK does a lot of shopping online although the rest of Europe is slower to catch up. As such, most of the opportunity is in this region. Amazon is the leading player, eBay also has a relatively strong presence and there are some strong local players as well.
Focus Economics estimates that online sales in the region will grow 19% between 2016 and 2021 (compared to the global average of 11%) with total sales value touching $118 billion at the end of the period. However, the number of online shoppers is expected to increase substantially in the next three years, with the average revenue per user growing from $275 to $330.
Internet penetration in the region remains low, of which the number of people doing online transactions is also low (in the mid-twenties percentage range). That’s because there are significant challenges to doing business in the region, including logistics issues, traffic, inadequate infrastructure and limited banking facilities.
To top it all, there is stiff competition from a large number of local players, the foremost of which is Mercadolibre, which has operations in 18 markets and 50 million+ unique visitors. While it is still the favorite in the region, growth prospects have drawn global players like Amazon, Walmart and Alibaba.
The biggest markets are Argentina, Brazil and Mexico.
Being one of the most mature ecommerce markets, the technological assistance in shopping transactions is at an advanced stage. So online transactions take place not only on desktop and mobile devices, but also through smart speaker systems like Amazon’s Echo and Google’s Home. People are also making the most of a host of omnichannel facilities including order online and pickup at store, shop in-store and accept delivery at home, in-car delivery, lockers, smart and secure entry systems, the Amazon Go concept store and more.
Warehouse robotics are on the rise, and AR-supported mobile shopping apps are entering the market. With plenty of work remaining to be done, innovation continues in areas like payments, selection, delivery, logistics and loyalty. The use of artificial intelligence is gaining prominence, not only inside new-age chatbots for customer care and other sales operations but also as part of the algorithm driving search results.
In this context, the fine line between advertising and buying continues to fade with advertisers looking to close sales quicker and pushing for better measurability of their campaigns. With Amazon entering the advertising business, this process is likely to be precipitated.
Overall, most market watchers agree that the intent to buy on Amazon is higher than on Google Shopping and at least half of product searches now start on Amazon. That doesn’t necessarily mean that Google Shopping is a write-off.
For one thing, Amazon generally pushes sellers to lower prices, so it may not always be the best place to generate premium sales or protect the brand image. Second, Amazon doesn’t drive traffic to the seller’s site, so it may not always be satisfactory for big brands. Third, the need to sell online especially given the competition from Amazon, is increasing demand for Google Shopping and driving up prices.
Today, for instance, advertisers may be willing to pay up to 10x the amount they paid for the same placement 5 years ago. These factors in combination generally make Google Shopping more suitable for big brands and sellers because they’re the ones that can pay what is required for the visibility.
Government data indicates that retail ecommerce has outpaced total retail sales growth in recent times even in bad quarters for the sector. Some of this is on account of the continued shift from offline to online retail, as customers (baby boomers) move to online channels. But it’s also because new consumers (millennials) often start out on online channels.
These consumers spend more time in a connected, social environment and take for granted many of the online tools previous generations struggled to understand, appreciate and adopt. Therefore, ecommerce will likely continue to outpace total retail sales in the foreseeable future.
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