6/02/14

Crossing the Continent

European online retailers step out of their home countries to tap into sales across the region.

Katie Evans , Managing Editor, International Research

Marks & Spencer plc has big growth plans. The U.K.-based chain retailer aims to grow its international sales by 25% and profits by 40% over the next three years, and it plans to employ its physical and web stores in concert to hit those targets.

The retailer is particularly focused on Western Europe and Russia, with plans to build 20 new stores in Paris alone and 250 stores internationally over the next three years. Those bricks-and-mortar locations will enable more shoppers to buy online and pick up their selections at a neighborhood shop.

"Our strategy of becoming an international multichannel retailer is more relevant than ever before because of the strong growth potential of international markets," CEO Marc Bolland said in April when he announced the plans.

Even before it launched its aggressive push, Marks & Spencer was already a major retailer. It is the 17th largest online retailer in Europe, according to the newly published Internet Retailer 2014 Europe 500, with an e-commerce operation that booked nearly 1.1 billion euros ($1.52 billion) in online sales last year, a 24.1% gain over 2012. And it operates more than 1,200 stores worldwide.

Marks & Spencer is not alone among top-performing retailers in setting its sights on selling more online throughout Europe. Several of the largest and most successful European online retailers are expanding their sales horizons throughout the Continent to capture more e-commerce revenue. In many cases they're expanding from established e-commerce markets like the United Kingdom, France and Germany into higher-growth regions like Eastern and Southern Europe and Turkey. To tap that growth, they're learning how to deal with local language, regulations, payment methods—and competitors.

The top European online retailers' plans are in line with similar trends around the world, says Zia Daniell Wigder, a Forrester Research Inc. analyst who specializes in global e-commerce. "Today it's rare to encounter a large e-commerce organization with purely domestic aspirations," she says.

These retailers are expanding into new markets to try to drive growth at a time when European retail sales are flat. Retail sales fell 0.9% in 2013 in the 17 nations that used the euro that year and 0.2% in the 28-country European Union, according to Eurostat, the EU's statistics agency. But it was a very different story online. The retailers in the Europe 500 booked 112.45 billion euros ($155.23 billion) in European online sales in 2013, up 17.0% from 96.08 billion euros ($132.62 billion) in 2012. Online retail sales for all of Europe excluding value-added taxes, ticket, travel and other non-retail services increased 15.3% to 201.01 billion euro ($275.45 billion) from 174.41 billion euros ($239.0 billion) a year earlier, according to Ecommerce Europe, an umbrella organization representing online retailers across the continent. That means the 500 largest European online retailers accounted for 55.9% of total European e-commerce. To reach that figure several top retailers have gone pan-European to grow their e-commerce operations.

Despite the strong online growth, there remains plenty of room for European retailers to sell more via the web because only 38.9% of European Internet users shop online, according to Ecommerce Europe.

A prime example of a retailer pinning its hopes on further e-commerce growth across Europe is Italian apparel and accessories retailer Yoox Group S.p.A., which is No. 78 in the Europe 500. The retailer's European web sales, excluding Italy, rose 26.7% in the fourth quarter of 2013 to reach 66.0 million euros ($89.5 million) compared with 52.1 million euros ($70.7 million) for the same period in 2012. That's a higher percentage than the 18.3% growth rate the retailer experienced for its North American sales. Overall, Yoox grew its total European web sales 18.7% in 2013 to 284.8 million euros ($390.15 million) last year.

However, it takes research and investment to cater to shoppers in new markets, even when they are in nearby countries, says Ilan Benhaim, co-founder of France-based flash-sale retailer Vente-Privee, which is 12th largest European merchant by online sales. The retailer, which launched in 2001, began selling online outside of France in 2006 and now sells to European shoppers in the United Kingdom, Spain, Italy, Germany, the Netherlands, Belgium and Austria. It also sells online in the United States via a partnership with American Express Co., but Benhaim says he remains focused on Europe because of its dense population and close proximity to the retailer's home country.

Among the obstacles Vente-Privee has encountered are laws that vary from one country to another. For example, in the United Kingdom it's illegal to sell knives online, so if a home and housewares brand wants to sell its wares via Vente-Privee's U.K. site, it can't market kitchen knives. In Germany, online retailers by law must offer free returns for all purchases over 40 euros ($55.41), Benhaim says. And there are other product considerations. In the United Kingdom, for example, plug outlets are a different shape than in the rest of Europe, which means that the blender it sells on its U.K. site must be different from the one it sells to other European shoppers.

Vente-Privee, which posted 22.4% growth in 2013 to reach 1.6 billion euros ($2.2 billion) in sales, operates unique sites for each European country it sells in. Recognizing that expanding throughout Europe requires more than translation, the retailer negotiates contracts with brands by country to account for issues such as product differences and regulations.

Another big undertaking for Vente-Privee was hiring customer service associates that speak the same languages as its customers. "If a Dutch consumer calls customer service, we want her to be able to speak in Dutch to a representative," Benhaim says. When shoppers call Vente-Privee's customer service line, they are first directed to a call center where staff can answer immediately in several languages about 15 basic questions such as, "What is your return policy?" If the problem is more complicated, the call center representative contacts the retailer's in-house customer service team of about 250 who handle more complex issues. There an agent looks into the matter and calls the customer back later that day with an answer.

Vente-Privee doesn't break down sales by country but says that its top country outside of France in terms of sales is Germany, followed by Spain. In the United Kingdom, the e-retailer's revenue rose 22% in 2013 over the prior year.

Another French retailer moving into new markets is Carrefour Group, which is No. 19 in the Europe 500. Like Marks & Spencer, Carrefour is digging into its deep pockets to enable consumers throughout Europe to order online and pick up in store at the same time as it expands into online sales in Eastern Europe. The retailer, which operates more than 10,100 stores and generated total revenue (excluding value added tax) of 74.9 billion euros ($102.61 billion) in 2013, launched an online store in Romania last year offering 13,000 everyday food products.

Heading east is a smart move for retailers wanting to grow web sales. In 2013 web sales grew 47.4% to 19.3 billion euros ($26.49 billion) in Russia, Bulgaria, Romania and other Eastern European countries, according to the latest figures from Ecommerce Europe.

Carrefour, which Internet Retailer estimates generated 1.05 billion euros ($1.45 billion) in web sales last year, also sells online in southern Europe. In Spain, Carrefour says its food e-commerce site delivers to around 80% of the country and offers more than 14,000 products. The retailer's Spanish non-food web site sells more than 9,000 products—mainly household appliances, photography, cinema, sound and multimedia items. Carrefour also says it is in the midst of enhancing its e-commerce sites and broadening the range of products it sells.

The retailer adapts its product assortments to reflect local needs, it says. In Spain and Turkey, for example, it promotes high-tech products and household appliances, which are particularly popular with online shoppers, the retailer says. Carrefour's online presence in Spain will help it capitalize on the country's projected 18% compound annual online sales growth rate between 2012 and 2017.

Carrefour is also expanding its click-and-collect service, which allows customers to shop online and then pick up their purchases at the nearest store. In its home country of France, the company opened 143 new pick-up locations in 2013, bringing the total to 348, most of them located in stores. Customers can also pick up online orders in less than five minutes at four Belgian hypermarkets and at a Milan supermarket, the retailer says.

Online grocery shopping, already common in the United Kingdom via the likes of Tesco, which is the third-largest European online retailer, and Asda, the 11th-largest, is poised for growth throughout Western Europe, according to Forrester. By 2018, shoppers across Western Europe will spend nearly 35 billion euros ($47.95 billion) online on food and drink, compared with 20 billion euros ($27.40 billion) in 2014, Forrester says. Carrefour has sold online for 15 years. Vente-Privee has sold beyond its home country for eight years. That's the kind of patience online retailers need when expanding into new markets, Forrester's Wigder says.

"One of the biggest mistakes brands make is relying on financial models that require one- or two-year payback on new global initiatives," she says. "Few companies see a rapid return on their investments, especially when expanding into emerging e-commerce markets where average order values and conversion rates tend to be lower than in mature markets." Meanwhile, in mature Western European markets, global brands must now contend with local players that have deep pockets and can dedicate sizable funds to customer acquisition, she says.

Among those established regional retailers is the Sweden-based CDON Group, which is No. 42 in the Europe 500. The retailer operates multiple e-commerce sites and books most of its sales in its home country, as well as Norway, Denmark and Finland. CDON knows Nordic consumers' preferences, for example, many shoppers tend to pay by invoice rather than by entering a credit or debit card number into a retail web site. On some of its sites, more than 50% of orders are paid for via invoice.

That means that if a U.K. retailer wanted to enter the Nordic market, it would need to consider adding an invoice option, lest it miss out on ample sales. In fact, invoicing is so popular that CDON is piloting offering its own invoicing payments service on some of its e-commerce sites, says Paul Fischbein, president and CEO of CDON Group.

Michelle Beeson, a Forrester analyst, says payment methods should be a big consideration for retailers selling outside their home markets. For example, in Russia it is common for shoppers to pay when an online order is delivered to them, Beeson says.

Even in CDON's home Nordic region, there are differences from country to country. For example, Norway isn't a member of the European Union, so CDON must prepare customs documents and factor in duties when selling to Norwegian shoppers, Fischbein says.

It's not bureaucracy or regulation that limits cross-border sales in Europe. Both Fischbein and Benhaim say laws and regulations for selling online are fairly streamlined across the European Union. "Languages and preferred payment options are the biggest examples where things differ," Fischbein says.

One development that's uniform across much of Europe is the rise of consumers shopping on smartphones and tablets. Leaders in European e-commerce are exploiting mobile commerce to reach more shoppers across the continent. Vente-Privee, for example, says 35% of its 2013 revenue came from mobile devices, with mobile shopping especially strong in the United Kingdom where 37% of sales and 41% of visits came from mobile phones and tablets. CDON, meanwhile, says while its conversion rate is lower for mobile, 30% of visitors to its sites are from mobile devices. Yoox says 40% of its total traffic in the fourth quarter stemmed from mobile devices.

Otto Group, which owns 60 online retail brands and is the second-largest merchant by online sales in Europe, has built mobile-optimized sites to complement each of its e-commerce sites. "Our tip is to focus on a clear mobile strategy driven by the ever-increasing importance of smartphones as part of the customer's journey to access our products and services," says Lars Finger, vice president of Otto Group's E-Commerce Competence Center. "We are convinced that mobile is the future."

Otto, which began as a German cataloger, says about 60% of its total sales are online and about 30% are completed via catalog sales where the shopper calls in and places an order from a catalog she received. The rest are completed in stores. The retailer sells online throughout Europe, including Germany, the United Kingdom, France, Russia, Italy, Austria, Netherlands, Poland and Spain. Otto, which did 6 billion euros ($8.28 billion) in online sales in 2013, aims to reach 8 billion euros ($11 billion) in web sales by 2015.

Like other e-retailers expanding across borders, Otto has encountered difficulties, such as in fulfilling orders to Russian shoppers. "The country has an advantage for online trading because of its size," Finger says. "However, the infrastructure is not yet as developed as Western European markets." Indeed the Russia postal service, Pochta Rossii, is notoriously unreliable, says Sergei Millian, Belarus-born president of the Russian-American Chamber of Commerce, which aims to bring together U.S. and former USSR companies. Parcels are often lost, stolen or delivered to the wrong address, he says. That's led companies like Otto to offer their own fulfillment services in Russia. Otto has experience in delivery, as it operates Hermes, a major fulfillment provider throughout Europe that counts among its clients such big-name retailers as QVC Inc. and H & M Hennes & Mauritz AB. Otto says Hermes has ambitions to overtake Deutsche Post DHL in Europe.

"Global expansion is not for the faint of heart," Wigder says. "Ask any group of global e-commerce executives if they found international expansion to be less challenging than they anticipated and you'll get a resounding 'no.'"

Indeed, some retailers haven't yet made the move to sell beyond their home country. Only 3% or $14 billion worth of online sales by retailers in France, Germany, the Netherlands, Nordic Countries and the United Kingdom went to consumers in countries other than the retailer's home country, according to a report from OC & C Strategy Consultants and Google Inc.

Ulmart, No. 25 in the Europe 500, only sells in Russia because it says it's too busy navigating that country's developing online sales market and doesn't have the time or resources to expand right now. The retailer, which generated 730.0 million euros ($1.0 billion) in online sales in 2013, has an ambitious goal to reach 7.29 billion euros ($10 billion) to 10.94 billion euros ($15 billion) in annual sales in the next five years. It is focusing on growing sales in Russia now with projects including adding 1 million square feet of additional fulfillment space in suburban St. Petersburg and Moscow. "We have plenty to focus on here," says Dmitry Kostygin, Ulmart's chairman and majority shareholder.

Indeed, expanding isn't easy. Beyond getting goods into international shoppers' hands retailers need to manage content and marketing across languages and countries, Beeson adds.

"There is a difference between providing international shipping and optimizing your web site for international shoppers such as changing location, language, currency, content and perhaps product assortment by market," she says. "This is not necessarily as simple as translating content, as content and marketing may need to be tailored to specific markets."

Still many of the fastest-growing online retailers in Europe are finding success branching out. Those who are patient, diligent and set realistic expectations are gaining new customers and sales throughout the region.

"Trial and error is part of our philosophy," says Otto's Finger. "In the past years we launched different business models. Some achieved success, some of them failed. The most important thing is to remain curious." That curiosity, and a desire to grow at a time when physical store sales are stagnant, is leading many European online retailers ever further from home.

katie@verticalwebmedia.com

@KatieIR

How to order the Europe 500
The Internet Retailer 2014 Europe 500 is available in a digital format ($89) and as part of an online database ($239). To obtain a copy, visit InternetRetailer.com/top500. Or e-mail a request to Chaz McCrobie-Quinn at chaz@verticalwebmedia.com.

Topics:

Carrefour, CDON Group, Europe 500, European e-commerce, Internet Retailer 2014 Europe 500, June 2014 Magazine, Marks & Spencer, Otto Group, Ulmart, Yoox

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