Successful retailersin search ofsales growth are increasingly going global by expanding their online-shopping operations in foreign countries, with China offering the choicest opportunity, says management consultancy A.T. Kearney.
In its annual Global Retail E-Commerce Index report, A.T. Kearney researchers concluded that shopping websites are no longer mere appendages to retailers’ physical stores. Instead theyare seen as a “valid alternative” to costly and time-consuming investments in brick-and-mortar outlets.
“Retailers everywhere are diving into online retail as consumers across the globe in both developed and developing markets go online to buy products,” researchers wrote.
Globally over the past five years, online retail has recorded a compound annual growth rate of 17 percent, withexpansion particularly strong in Latin America (27 percent) and Asia Pacific (25 percent).
Retailers areriding thistrend “using a variety of growth strategies, from grassroots websites to acquisitions of smaller online retailers or expansion of international shipping capabilities,” according to A.T. Kearney. “Many strong global brand names are partnering with e-commerce and third-party logistics management companies to sell goods directly to international customers.
“For example, UK retailers Next, Debenhams, and House of Fraser ship to 61, 67, and 128 countries, respectively. Firms such as Borderfree (whose clients include Macy’s, Crate and Barrel, and David’s Bridal) handle currency conversions and global shipping logistics on behalf of retailers, including customs and returns. As more companies build up their international shipping capabilities, global online retail competition will increase.”
A.T. Kearney last year released its first Global Retail E-Commerce Index, naming the top 10 developing countries for online retail investment, with China finishing on top.
This year the list was expanded to include the top 30 developing and developed markets—and China came out on top again. Japan, the U.S., the U.K. and South Korea rounded out the top five.
China’s $64 billion online retail market, which is second in size only to the U.S., is expected to “explode over the next five years to $271 billion, thanks to infrastruc¬≠ture improvements, increased Internet access for rural regions, rising wealth, and consumers’ growing predisposition to spend,” researchers wrote.
China already has the most Internet users (517 million) and the most online shoppers (220 million), who are boosting the frequency of their online purchases. Fifty-four percent of online shoppers made more than 20 purchases in 2012, up from 41 percent in 2011. Sales will increase further as more rural Chinese gain Internet access and infrastructure gaps are addressed, the report stated.
Researchers noted that profits are proving elusive for online retailers because of a “race to the bottom” pricing mentality as players opt to out-doscount each other to gain market share.
Nine other developing countries including Brazil (No. 8) and Russia (No. 13) made the top-30 list. Researchers noted that developing markets “have been able to shortcut the traditional online retail maturity curve as online retail grows at the same time that physical retail becomes more organized.” With high penetration rates for mobile phones, consumers in developing markets are increasingly using handsets for e-commerce “to research products, compare prices, and seek input from their friends on social media.”
India, however, was conspicuously absent from the list of online-retail opportunities due to the country’s low Internet penetration rate (10 percent compared with China’s 44 percent) and poor financial and logistical infrastructure compared with other countries, A.T. Kearney said.
To read the report, click here.