July 3, 2013, 12:43 PM

Why U.K. e-commerce punches above its weight

The U.K. outpaces larger economies in e-commerce. Here’s why.

Ian Harris,
CEO and Founder,
Search Laboratory

By Ian Harris
CEO, Search Laboratory

Tea drinking, having a stiff upper lip, indulging a royal family and driving on the left side of the road are just a few things that us Brits are renowned for—but buying online, not so much. Yet us Brits love—and indeed are very good at—buying and selling on the internet.

Despite having a modest population of just 63 million, of which 80% are online, the U.K. ranks as the world's fourth largest e-commerce market, behind only the global technology heavyweights Japan, China and the U.S.

With online sales expected to reach just shy of $100 billion in 2013, U.K. retailers are outselling larger countries by almost 100%. Fifth-ranked Germany, for example, has both a larger population (82 million) and a higher internet penetration (83%) than Britain but boasts expected e-commerce sales of just $53 billion. Italy, a country with a similar-sized population, trails Blighty by $80 billion, while Russia is even further behind in the e-retail sales stakes.

This is no flash in the pan success either. E-commerce in the U.K. has shown no signs of stalling and continues to grow at a rate of 13.7%—a figure that again dwarves some of its closest rivals.

So what's the secret behind the booming British e-commerce market?

Logistics play a starring role. Geographically small and with a comprehensive, modern infrastructure Britain is nigh on perfectly designed to cope with retailers delivering products. The U.K. measures just over 151,000 square miles, meaning next-day delivery is not just possible but commonplace, so consumers can almost replicate the immediacy of shopping offline, in-store. To put it into context, Russia measures more than 10.5 million square miles and the U.S. 3.8 million, therefore shipping and delivery are much more of a headache in those nations than in more confined countries.

As true as that is, logistics are by no means the sole reason the U.K. excels at e-commerce. Italy is only marginally larger than the British Isles but has no way near the same sales, likewise Germany. The U.K.'s success can also be attributed to the fact that it's an ultra-competitive market: with just 57 million internet users to aim for British retailers have to be good, and what's more they have to be visible. It's certainly no coincidence that the U.K. search engine marketing industry is a global leader, and is growing at a pace of around 16% year on year (incidentally the same rate British online retail grew from May 2012 to May 2013).

Visibility is one thing, but the finite number of customers buying online requires the retailer to provide a seamless experience onsite. Unlike other larger markets where there is a much deeper pool of consumers to sell to it can't just be about making a quick buck (or pound in this case). This customer-first approach is working and conversion rates for products excluding travel rose 4.9% from just April to May this year, representing a huge 20% increase since 2011. This provides an insight into the massive sales the U.K. boasts; not only are retailers more visible than ever to customers online but they are also converting more visits than ever into transactions. Interestingly the average basket value in the country is continuously decreasing – it currently stands at 77 pounds, down from 83 pounds in 2012—as total sales are persistently rising. This shows U.K. customers are spending less, more frequently, which is partly due to competitive pricing. Therefore, it pays to establish customer loyalty, which brands such as Asos, Next and House of Fraser do extremely well.

You only need to look at the success British retailers have enjoyed when expanding their e-commerce programmes internationally to understand that the sales generated online in the U.K. are no flU.K.e. London-based fashion retailer Asos now receives 60% of its total sales from abroad while Debenhams has international sales of nearly 300 million pounds.

Again geography can claim some of the credit for these triumphs. The close proximity of Britain to mainland Europe means that businesses see international expansion as less of a hurdle—when an English e-commerce vendor wants to sell to France they'll think nothing of launching a French web site, for example. This is not the case in the U.S where big retailers like Macy's, Pottery Barn and Bloomingdales rely on merely offering shipping services to foreign countries. Although perfectly capable, this model severely limits retailers' ability to attract new customers from foreign regions—instead they must rely on their customers actively finding them.

While all of the above are critical to online sales in England, Scotland, Wales and Northern Ireland they would be redundant were it not for the inherent trust in the actual practice of buying products from the internet that customers from these countries possess. Typing one's credit card details to such a detail that your finances would be freely open to deviance into a web page no longer feels a strange phenomenon in the top e-commerce nations. Yet this is not the case in other regions.

Germans are by nature more private than the British—see their stance on Google Streetview—and their level of trust of e-commerce is much lower. This mistrust extends to paying with credit cards, with just 20% of German consumers using this form of payment method. Bank invoices are by far the most popular method of payment for e-commerce purchases (45%) and basket abandonment rates drop by 80% when this is a payment option. E-commerce in Russia is a similar story. Again plastic payment is mistrusted and cash on delivery accounts for 80% of online transactions.

Ultimately the secret to the U.K. punching far above its weight when it comes to e-commerce can be attributed to numerous factors; even the inclement British rain plays its part keeping customers inside on their desktops and tablets rather than pounding the high street. But, like during the industrial revolution in the 18th century, Britain has once again established itself as a global player early on and is showing no signs of relinquishing its lofty status.

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