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Online retail business is booming

Updated Thursday, 17th April 2014

Trace the growth of online shopping and e-commerce in Europe and the Brazil, Russia, India and China (BRIC) nations.

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A laptop user holds a credit card because they might be buying something online. Copyrighted  image Icon Copyright: Pjmorley | Dreamstime.com

The internet is a disruptive technological innovation but consumers everywhere are waking up to the idea of shopping online. The impact on retailing has been profound and as a result many businesses are changing the channels they use to sell their goods and services. In some parts of the world, retailers have been quick off the mark in developing their own individually branded e-commerce stores, whereas in other parts the e-market place dominates.

The USA remains ahead of the rest of the globe, with the highest proportion of online shoppers per head of population but in Western European the United Kingdom, Germany and the Netherlands are catching up fast. Retailers in these nations seized the internet opportunity early and have been engaging in online trade since the mid 1990s and now have well-developed branded retail operations across many different retail categories, including food, fashion, health and beauty products.

In Russia, China, India and Brazil the internet has not been seen as a viable channel to market until more recently but now these nations are hot on the heels of the early adopters. Indeed China has overtaken many of the western nations and is currently the second largest e-retail market on the planet, with India, Russia and Brazil experiencing increasing demand from online shoppers. As online retailing develops it is fascinating to see how communities of businesses and their shoppers are shaping the online shopping experience to suit their own needs.

Branded online shopping in Europe is led by the UK

While there is diversity in the levels of adoption of online retailing, the UK has the most developed with about 13 percent of retail sales. Individual UK shoppers spend an average of over £1,000 a year online. In Germany the average is just under £1,000 a year and accounts for around 10% of total retail sales. The French spend just over £700, in the Netherlands the figure is over £600 and in Sweden, around £500. In all of these nations the prediction is for continued rapid growth.

UK retailers have been meeting the needs of the ever-demanding online consumers and are leading the way in e-shopping development. Many prominent high-street brands operate highly sophisticated multi-channel operations, which enable them to offer shoppers a seamless way to shop at any time of the day; through a computer, a mobile phone or by visiting a store. As there are more shoppers and more retailers offering more products online, consumers are changing their shopping habits and making less visits to high street stores. The impact of this shift in preferences of where to shop is having far reaching effects. The Retail Research Centre suggests that by 2018 a fifth of all retail sales in the UK will take place online. This trend is likely to have a significant effect on the shape of the physical High Street and more stores can be expected to disappear. 

Russia: Collection is the key to success

In Russia, there has been a transition from the economy being a centrally planned Soviet system to a more free market-orientated trading system, which has resulted in major changes. This shift has given a boost to the development of online retailing. In fact, Russia is experiencing rapid growth in the number of internet users, with more unique users online than Germany, France and the UK but as yet not as many retailers or shoppers. But this is set to change.

Russian retailers are now beginning to develop a vibrant emerging online economy and this has stimulated private consumption as a result of higher incomes, greater employment and better access to consumer credit. Furthermore, Russians are increasingly becoming homeowners and this is also driving demand for household products and other consumer goods online. Indeed, retail industry leaders, have reported significant increases in trade, for example Magnit (grocery market leader has seen the company grow by 35% per year). However, online retailers still have significant barriers to overcome, for example creating access to reliable logistics, trustworthy financial and payment services. At the moment, online retailing is mainly concentrated in major cities like Moscow and St Petersburg, leaving large areas of the country without access to any substantive retail provision. Given the geographical spread of the population the retail provision is either highly concentrated or highly fragmented. However, this is not deterring online shoppers. The Russians are developing their own unique approach to online retailing to overcome these barriers. Retail showrooms and stores where shoppers can go to collect and pay for pre-ordered goods are becoming increasingly popular.

China: Digital market places are the most popular online shopping destinations

China is rapidly becoming the world's most vibrant market for online shopping, with over $200 billion in sales and an annual growth rate of 120%. The key destination for online shoppers in China is digital market places like Taobao and 360buy.com rather than individual retail brand websites. Online shopping is changing the economic landscape with a shift away from an investment-orientated society towards one driven by consumerism. Internet retailing is affecting consumption patterns in small and mid-sized cities as well as the largest conurbations and it is suggested that a key driver of the uptake of online shopping in more remote parts of China is easy access to branded goods. Apparel, household and educational products are the most popular online. Furthermore, online retailing is set to lead the way due to the geographic complexities of setting up a country-wide store-based operation. Thanks to the internet, businesses now have access to a flexible, responsive and rapidly growing market place.

India: Social media is the driving the adoption of online retailing

The retail sector in India is booming both on and offline. India is a relative latecomer to the online shopping revolution but it is predicted that online sales will grow by 50 per cent annually in the next few years. The country is already the third largest nation of internet users with over 120 million and the rapid uptake of mobile commerce is predicted to increase the number of users to over 330 million by 2015. Social media is helping to drive the development of online retailing. Increasingly wealthy populations of young internet savvy customers are spending more time and money online and in doing so are influencing shopping trends. Among the popular products online are books, consumer electronics, travel, financial services, apparel and beauty care. Online shopping activity is concentrated in major urban conurbations with Mumbai being the main centre followed by Delhi and Kolkata. A large proportion of the purchases are conducted in online market places such as Snadpdeal, launched in 2010. Currently, the internet accounts for only a small proportion of India's GDP but the predictions are that an internet boom is just around the corner for Retailers.

Brazil: Online retailing is in its infancy

Brazil is in the early stages of developing online retailing as more and more consumers gain access to the internet. However, retailers face difficulties with providing good quality services, reducing delays in deliveries and returns policies. Online retailing is mainly in the key urban centres. 

Further reading

  • Centre for Retail Research (2014) Online Retailing: Britain, Europe and the US 2014.
  • Dobbs’ R., Chen, Y., Orr, g., Manyika, J., Chui, M., & Chang, E. (2013) China’s Etail revolution, McKinsey & Co (Last accessed 30/03/2014).
  • Gnanasambandam, C., Madgavkar, A., Kaka, N., Manyika, J., Chui, M., Bughin, J., & Gomes, M. (2012) Online and Up and coming: the Internets impact on India, McKinsey & Co.
  • India Online Retail Market Forecast & Opportunities 2016 (Last accessed 12/04/2014).
 

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