E-Commerce

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E-Commerce

With 68 million people (84% of the German population) online on a regular basis, Germany is responsible for around one quarter of all European B2C e-commerce turnover. The A.T. Kearney Global Retail E-Commerce Index 2015 also identified Germany as Europe’s second largest online market behind the UK – but with almost triple the UK’s current growth potential. In fact, the Verband der deutschen Internetwirtschaft (Association of the German Internet Industry) has predicted turnover to surpass EUR 100 billion by 2020. Combined with an extensive, highly developed logistics infrastructure, Germany is the clear continental leader in this area and offers a myriad of opportunities for international online retailers and service providers alike.

Nadine Litchfield, Senior Manager of Consumer Markets and E-commerce, Germany Trade and Invest | © ecommerce berlin expo 2017 E-Commerce Market in Germany. Nadine Litchfield at ecommerce berlin expo 2017.

Nadine Litchfield, Senior Manager of Consumer Markets and E-commerce, Germany Trade and Invest | © http://www.ecommercecapitals.com/blog Germans are ‘Return-Champions’, but it is still the biggest consumer market in Europe

The E-Commerce Market in Germany

The German e-commerce market is expanding rapidly. During the period 2012 to 2015, e-commerce grew by nearly 70% (from EUR 27.6 billion to EUR 52.2 billion), with e-commerce now comprising around 96% of all interactive commerce. Industry experts expect this trend to continue, with expected growth rate of 12% in 2016. With 68 million people (84% of the German population) online on a regular basis, Germany boasts not only the most internet users in Europe, but also the greatest e-commerce customer potential.

According to the Verband der deutschen Internetwirtschaft (Association of the German Internet Industry), more than half (53%) of German GDP will be comprised of e-commerce related activities by 2017; a 16% leap from 2012 e-commerce activity levels.

These developments can also be witnessed in the e-commerce B2B sector. According to a 2015 ibi research study, 83% of interviewed companies reported buying online, at least in part. Moreover, 20% of professionals in this study expected online buying in their company to strongly increase, with another 53% expecting at least some increase. Forrester Consulting also reported in 2014 that 52% of businesses expect at least half of their orders to be online within three years. These forecasts highlight the fact that businesses are rapidly becoming more online-oriented, and signal the significant potential of a rapidly expanding virtual B2B environment.

Media Center

Nadine Litchfield, Senior Manager of Consumer Markets and E-commerce, Germany Trade and Invest | © ecommerce berlin expo 2017 E-Commerce Market in Germany. Nadine Litchfield at ecommerce berlin expo 2017.




Nadine Litchfield, Senior Manager of Consumer Markets and E-commerce, Germany Trade and Invest | © http://www.ecommercecapitals.com/blog Germans are ‘Return-Champions’, but it is still the biggest consumer market in Europe.




Nadine Späth, Manager of Consumer Markets and Ecommerce, Germany Trade and Invest, sat down with Daniel Burstein, Director of Editorial Content, Marketing Sherpa, in the Media Center at IRCE 2015 to discuss how marketers can expand into foreign markets by learning the difference between American and foreign ecommerce markets. | © at IRCE Marketing Sherpa Media Center MarketingSherpa Media Center at IRCE 2015

Our industry expert Nadine Litchfield explains how cultural differences affect the way people buy online.




Preferred Online Payment Methods in Germany | © BEVH / Creditreform Boniversum How German online shoppers differ from American consumers


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Consumer Segmentation

German Internet Use

As the biggest market in terms of population with the highest total purchasing power in Europe, Germany offers a variety of lucrative opportunities for international companies seeking to expand operations. With more than 56 million regular online users (almost 80% of the total German population aged 14+), Germany is home to more internet users than any other country in Europe.

Consumers

Online shopping is widespread in Germany – and not just among younger members of the population. While close to 100% of individuals aged 18-49 use the internet, the share of adults aged 50+ who surf the web is also increasing dramatically. In fact, those people aged 50-59 use the internet at a rate of close to 90%, while nearly half of all adults aged 60+ utilize this ever pervasive technology. These last two groups are of particular importance for retailers as they constitute the age group with the highest purchasing power.

Online Device Shift

German consumers are switching from stationary computers to mobile smartphones and tablets at an ever increasing rate. By May 2016, 69% of interviewed individuals reported having shopped online using their smartphones –equivalent to a 5% increase on the previous year. While individuals between the ages of 18 and 39 clearly shopped online the most with these devices (84%), the majority of those aged 40+ also reported using a mobile device for mobile shopping purposes (59%). The largest jump in online shopping using tablets and smartphones could be seen among women and normal earners, both of whom now use their smartphones for online shopping at rates of 67% and 69% respectively. These numbers represent a 6% increase in usage for both groups.

Market Environment

Job Market

E-commerce continues to be a rapidly growing market, and this growth is reflected in the corresponding job market. According to a 2016 survey by the Bundesverband E-Commerce und Versandhandel Deutschland (German Federal Association of E-Commerce and Mail-Order Trade), two thirds of recruitment consultants expect more and more applicants to be interested in careers in online and multi-channel businesses in the coming years. Because the internet is becoming more common as a sales channel, graduates - including those without a computer-science related degree - have a plethora of opportunities in this industry sector. Graduates with degrees in marketing, management and even graphic design can find themselves with a rewarding career path in this field.

Training Programs

The demands placed upon e-commerce professionals are increasingly less technical and more business and marketing based. Moreover, e-commerce career entry points are incredibly diverse thanks to the young nature and new fields of activity in e-commerce. The requirements placed upon prospective employees can vary significantly. The number and range of market players in e-commerce is constantly growing: from mail order companies and specialty suppliers to auction and price comparison platforms. Accordingly, e-commerce offers numerous career opportunities including online shop manager, content manager, online marketing manager and affiliate manager positions to name but a few. Online retailers and industry associations also promote young talent: the Bundesverband E-Commerce und Versandhandel Deutschland (German Federal Association of E-Commerce and Mail-Order Trade) is planning to introduce a new training program, ‘’E-Commerce Kaufleute’’ (E-Commerce Business People), in 2018.

These training programs merge knowledge in the specialist fields of informatics and economics and provide e-commerce with a versatile and growing pool of well-educated young talent.

E-Payment

Method of payment has become an increasingly important component of e-commerce. According to a 2014 Fittkau and Maaß Consulting poll, lack of preferred payment method was the number one reason for cancelling online orders - meaning future businesses who utilize multiple payment methods will most probably enjoy a competitive advantage.

Online shopping is typically credit card driven, but again, Germany proves to be an exception. In Germany, just 10% prefer to pay by credit card whereas 30% prefer to be invoiced for their items (i.e. invoice which can be settled from bank current account). The proportion of shoppers preferring this method of payment increases significantly according to age and gender. Online Payment Systems (e.g. PayPal, SOFORT Überweisung and giropay) are the most popular means of payment overall.

Current Developments: New Delivery Models

New Ordering Models, Flexible Delivery Models

Logistics: Delivery and Return
With a highly developed logistics infrastructure of 3,500 courier companies and 60 thousand logistics service providers, German remains an ideal location for companies looking to provide online and multi-channel services. This concentrated network also makes services such as same-day delivery more calculable.

Parcel service providers are facing new challenges as a result of the e-commerce boom and accompanying developments. Increased B2C traffic has resulted in higher total shipping costs as deliveries become more decentralized with smaller quantities per stop. Another important factor affecting these rising shipping costs is the rate of returns experienced by many online shops. Germans are returns champions: 53% of online beauty and personal care shoppers expect limitless free postal returns, according to a 2016 A.T. Kearney survey. Because of these increasing customer demands, innovative delivery methods could prove vital for online companies seeking to stay ahead of the competition, especially solutions that take sustainability and the environment into account. Businesses who provide innovative solutions to these emerging issues will find themselves with a distinct advantage in the German marketplace.

New Delivery Models

Same-Day Delivery
Same-day delivery options offer online retailers a distinct competitive advantage, especially those businesses who seek to capture the millennial and Generation Z markets, both of whom grew up in a digital world and expect a real-time online experience. In fact, 29% of respondents in a 2014 ibi research survey stated same-day delivery to be either important or very important to their online shopping experiences. As a result, an increasing number of online stores in Germany are now offering same-day delivery. Since November 2015, Amazon has offered Prime customers same-day delivery at no additional cost.

As a result, other online retailers, including Zalando and Media-Saturn, have reacted in quick fashion. Zalando, in partnership with Tiramizoo, now offers same-day delivery to customers in Berlin as well as ten cities in the Ruhr area. Media-Saturn also offers a same-day delivery service that can deliver within three hours and Cyberport GmbH offers a similar three-hour delivery service with their EILT! (“HURRY!”) service. If the major online retailers are able to mainstream comprehensive same-day delivery of products, the last competitive advantage of the stationary retail sector, instant gratification, may soon be a thing of the past.

Click and Collect
Many stationary retailers offer customers the option to order online and pick up their products in-store. ‘’Click and Collect,” the do-it-yourself version of same-day delivery, is also becoming more popular among consumers. In fact, 16% of Germans report having used this method of pick-up; 31% of those that did not stated the lack of a click-and-collect option with their preferred retailer as the main reason. This signals a clear growth opportunity for online shops seeking a new competitive advantage in the e-commerce industry.

German consumers like to research online and purchase offline (ROPO), with retailers using a multichannel strategy to increase the number of visitors to their stores. Established retailers with their own traditional sales networks used to be at a comparative disadvantage to pure internet players, but today they are gaining a competitive advantage with Click and Collect, underscoring the role of online retail as a significant driver for offline business. Despite an initial one-channel focus, more and more online merchants are becoming active in multi-distribution channels like Click and Collect. In fact, the EHI Retail Institute in Köln reported a growth in Click and Collect services in 2015, with almost one in five online shops offering this multi-channel service.

Managing Returns
Return management represents a significant e-commerce challenge. Despite increasing e-commerce turnover, many online shops record low profits due to the high costs of returns. More than one third of all online retailers report a return rate of 20% or higher.

According to Euromonitor, Germany had a 13% average return rate in 2013. Some specific product groups however - such as fashion, textiles and shoes - do experience higher return rates. As a result, companies that are able to provide accurate product descriptions and visual representations will most likely experience a significant comparative advantage in the online market place due to reduced return costs. The introduction of new augmented reality technologies that use body scanners in order to create ‘’virtual changing rooms’’ also provides further potential for reducing return rates and obtaining a competitive advantage among online retailers.

Current Developments: E(verywhere)- Commerce

E(verywhere)- Commerce

The multichannel approach will remain the dominant issue in e-commerce as the boundaries between stationary retail and online retail become increasingly blurred and consumer demand for multichannel transactions continues to increase. E-commerce is evolving into ‘’everywhere commerce’’ as consumers are able to decide when, where and how they do their shopping.

Mobile Commerce
Mobile devices are a significant growth factor as they act as a mediator between on- and offline experiences. They function as product and price research tools and provide preliminary stage to online shopping. QR code scanning is already a means for connecting on- and offline shopping. The mobile e-commerce industry is a growing environment, with the use of mobile devices for online shopping reaching a 2015 peak of 64% - up from 23% in 2011. However, there is still room to grow for this burgeoning industry, as mobile e-commerce revenues still represent only about 27.5% of total e-commerce revenues – signaling a much larger potential income stream for the mobile channel. A growing number of interactive retailers are also offering apps and mobile-optimized websites. Smartphones provide their users with market transparency and the possibility of anytime, anywhere interaction. This brings along new challenges and opportunities for both the retail industry and advertisers as they redefine the ‘’e’’ in ‘’e-commerce’’ from ‘’electronic’’ to ‘’everywhere.’’

Social Commerce
In 2014, there were around 33.1 million social network users in Germany, with that number estimated to increase to 38.6 million by 2018 (an almost 17% increase). A 2015 study also showed that almost 51% of Facebook users use the site several times a day, with another 23% reporting at least daily usage. Social media is clearly having an undeniable influence on e-commerce as a whole. Business in social networks can function if the relevant tools, together with the right strategy and the necessary intuition, are deployed.

Social commerce will not function as an autonomous shopping channel in the near future, but will instead be an indispensable part of a multichannel strategy as a marketing and communication channel. Social media comments, reviews and feedback also play an important role for the reputation of many businesses - 37% of German online shoppers report being influenced by posts, reviews and feedback they read on social media. Social commerce will face a strategic change as industry associations see the priority shifting from a presence in all social networks to an improved online presence with a sophisticated strategy and continuous monitoring.

Current Developments: Current Trends

Current Trends

Food  
Online food retailing is not well established in Germany due to expensive logistics considerations, low margins, high density of supermarkets, and consumer reticence. However, a number of German start-ups have entered the online grocery market. Around 15 million e-commerce users (28% of all internet users) bought food and beverage products online in 2014. This is more than a three-fold increase from 2011, when the number was just 4.5 million. The potential for growth in this industry is also strong - 38% of interviewed people explained that they had not yet bought food and beverage products online, but could easily see themselves doing so in the future.

Furniture
Buying furniture online has become more popular in Germany in recent years, generating more than EUR 2.1 million in revenue in 2014. This trend is also expected to continue to increase, with projected 2020 revenues climbing to almost EUR 4.8 million (an almost 130% increase). An increasing number of users are also beginning to buy furniture and other home products online. In 2014, there were 11.6 million furniture and homeware e-commerce users in Germany, and this number is expected to increase to 15.1 million (more than 30%) by 2020. The 30- to 49-year-old age group in particular uses the internet like a furniture department store.

Personal Care
Consumers in Germany have also begun to buy personal care and health products online at a greater rate. In an October 2015 study of 13 thousand consumers, Germany ranked fifth in the world and first in Europe in terms of online beauty and personal care shopping rate (41%), trailing only South Korea, India and China. Sixty-two percent of connected Germans also reported buying personal care and health products within the last three months in a 2014 study conducted by A.T. Kearney – a figure above the worldwide average of 57%. Germans spent around EUR 800 million in total on personal care and cosmetic products online in 2014, according to IFH Köln. This represents a 223% leap from 2008 levels; clearly signaling personal care and health products as a high potential income stream for retailers looking to expand their businesses online.

In terms of sales channels, the highly fragmented personal care market is separated into products which sell well online and those which perform better in stationary retail outlets (e.g. essential goods including toothpaste and toilet paper). These products are subject to tough price competition and very low margins. Online retailers make the online purchase of these goods more attractive by offering subscriptions. Goods for everyday use have to be bought on a regular basis with customers often making a purchasing preference for one brand. Luxury products also sell well online. Consumer brand awareness is crucial to the success of luxury products, particularly for perfumes. Here, the internet plays an essential role in raising brand awareness through marketing and advertising.

Niche Markets
Beyond the large market segments occupied by major players, a number of niche markets are growing in importance and providing new opportunities and high growth potential for market entrants.
A number of start-ups have successfully developed innovative concepts that harness the potential of e-commerce to optimize the use and costs of products in a shared economy.

One current online niche market experiencing tremendous growth is the market for pet products. In 2016, the online pet product market generated up to EUR 842 million in Germany - an increase of almost 74% from 2014 revenue levels. This market experienced the largest online growth of all other product segments (despite still constituting a relatively small segment of all e-commerce activity), signaling the potential for even more growth.

Other online shops offer clothes and accessories for hire: customers are able to choose dresses and accessories for any given occasion and have them delivered to their home. After use, the articles are returned to the providing company who clean and refurbish them as needed. Some shops even offer the delivery of several options and additional sizes for free. In total, 20.7 million German internet users bought clothes and accessories in 2014 while 17.8 million bought shoes and leather goods online. These numbers are expected to increase to 32.9 million and 26 million (58% and 46% increase compared to 2014) in 2020 respectively.

Similar business models have also been implemented with businesses specializing in children’s toys. Parents can rent toys for their children through these websites and keep them as long as they like. Returned toys are inspected, cleaned and disinfected by the shop and are available for re-order by another customer. In 2014, 14.9 million users bought toys and baby products online, with the number expected to climb to 19.4 million users (more than 30% increase) by 2020.

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