How far will e-commerce go?
The non-stop advance of digital sales
E-commerce is the use of the internet for a transaction, concluded by a payment and a delivery. It has some fairly close cousins, such as distance sales by catalogue and B2B sales, which have now disappeared after shape-shifting into e-merchants. The first real e-commerce site, BookStacks, also the first online bookshop, was created in 1992 in California on an experimental basis. The Amazon online bookshop took up the baton three years later, going public in 1997. Twenty years on, the share price of the world champion e-merchant has increased one hundred-fold. Also making their debut in 1995 were eBay and Dell's online site. In 1997, Nokia introduced an m-commerce prototype in the shape of an SMS payment system developed with a local distributor of Coca-Cola.
The beginnings of web commerce were modest, with text-only services and endless purchase sessions. But the system made headway through spectacular advances based on increasingly rapid technological improvements. Among these last, enhanced payment security technology has proved decisive in the exponential growth of e-commerce and m-commerce. Progress has also been made in marketing terms, with the use of massive amounts of data, a field in which Amazon was quick to assume a leadership position.
PayPal celebrated its first birthday in December 1999 and e-commerce in general enjoyed a successful holiday season with a three-fold increase in sales. E-commerce had clearly taken a major step forward, as was the case with mobile telephony.
The “online” Christmas of 1999 will be remembered for another reason. Unable to deliver its web customers and overwhelmed by the situation, Toys “R” Us (today in bankruptcy proceedings in the USA) called on Amazon to manage its online presence in the market place.
Non-stop rise in market share for e- and m- commerce
As part of a worldwide phenomenon, online commerce today stands as a mirror of global trade growth. It possesses irresistible advantages, including a vast range of products, lower prices, product information, ease of use (24/7, with no need to leave home), secure online payments and the use of mobile phones.
Today nearly all purchases are initiated on line, including those finalised in stores, a process referred to as “web to store”. In a symmetrical manner, numerous purchases are “store to web”, starting in a physical store and supported by flexible logistics that follow the customer journey. Drive-in food purchases are a combined journey in which consumers themselves complete the final step of the delivery logistics (one of the obstacles, owing to its cost, to the development of pure-player e-commerce).
What remains for physical stores?
According to eMarketer, global B2C commerce revenue totalled €2,300 billion in 2017. Having grown roughly 25% year on year, it accounted for 10.2% of retail sales (up from 8.6% in 2016).
In France, online commerce was worth €81.7 billion in 2017, having increased by around 14% a year since 2014 (*) while the total value of commerce has remained more or less stable. The share of physical stores, estimated by the French e-commerce and distance-selling federation Fevad at 91.5% of the total, remains difficult to assess.
Market shares in online commerce in France also vary considerably from one sector to the next (*):
- 45% for cultural products (physical and electronic). A trend that has gathered speed since the creation of Apple’s iTunes music store in 2003 and since then by the rise of streaming.
- 23% for high-tech household products
- 18% for electrical appliances
- 13% for clothing and furniture
- 6.9% for fast-moving consumer goods (FMCG), mainly food (5% of which drive-in).
Practically all retailers today are on the web, at the very least via a corporate website or a showcase or catalogue of their products and prices. But a few notable exceptions exist, including Lidl in food retail and Primark in clothing. The success of these two retailers shows that physical retail continues to play a role, one that remains largely dominant.
In addition, pure web players themselves are developing brick-and-mortar presence.
How long will food retail resist?
Food retail is the most “resistant” segment to online purchases owing to the perishable nature of the products and the frequency of purchases. But online food retail sales are growing fast, having increased 25% worldwide in 2016 Asia stands out in this respect. In South Korea, online food sales rose 40% in 2016 and 20% of all food purchases were made on the web, while in China online sales increased 50% in 2016 for a 25% share of the market. And in France, it is certain that the market share of online food purchases will top the 10% mark in the very near future.
The development of this segment will be driven by partnerships and acquisitions among global players – digital (Amazon, Alibaba, Google) and non-digital (Walmart) – and local players, as well as start-ups, which have a close eye on new consumer behaviour (new products and concepts, multimodal deliveries). Examples here include Amazon's takeover of Whole Foods (for $13.7 billion in July 2017), Walmart’s acquisition of Flipkart (for $16 billion, under way) and the logistics partnerships between Amazon and Dia in Spain, Morrisons in the UK and Monoprix in France.
Towards the convergence of all retail segments
Consumers see retail as a seamless whole. Retailers have to adapt to this.
And so today they are combining all retail channels as part of a dynamic balance. The web channel is playing a structural role for stores, who are gradually entering the digital era. The number of points of sale is increasing, but outlets are smaller and provide services, which are more difficult to offer via the internet.
The web will continue to make headway, driven by m-commerce since the start of the 2010s and now expanding through v-commerce, based on voice recognition and artificial intelligence.
The limits of this progress may be found in consumers themselves, who are reluctant to use their personal data, though the protection of these last are now better supervised by more restrictive regulation, such as the General Data Protection Regulation and e-Privacy.
(*) Source: Fevad (Federation of e-commerce and mail-order selling)
Laurent Collet et Noël Isorni, Group Economic Research
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