E-commerce has grown 2-5 times faster than in the pre-pandemic period in literally every country and double digit annual E-commerce growth is reported by almost all businesses. It will not be a surprise that this will continue the next coming years. According to CBRE research the E-commerce global sales by 2025 will amount up to a staggering number of $3.9 Trillion USD, as opposed to $2.4 Trillion USD today.
Not every country nor every business grows at the same speed. Drivers that positively influence e-commerce development are multiple, but there are two key drivers. Firstly, all sorts of demographics of a country, for example % of urban population; and secondly, facilitators i.e. readiness of digital skill-set, mobile internet ratio, infrastructure, payment culture (cash or card), and established E-commerce business players.
The US E-commerce market value is around one Trillion USD and there’s still this traditional split amongst non-store/ online sellers business (such as Amazon, Wayfair, Overstock.com) versus multi-store/ retailers business (like Walmart, Target, Staples). Currently, the non-store business accounts for the majority of the channel mix today (55%). However, this is expected to shift to multi-store in the next coming years due to massive online assortment growth of the grocery business. All big online sellers are making investments into a store network too. This growth triggers a need for more capacity and distribution network and due to the fast pace of it, both online sellers and retailers cannot manage it solely by themselves and partners need to be swiftly on-boarded. As a result, all sorts of new business and commercial models surface: fulfilled by merchant (or drop-ship); fulfilled by retailer; click and collect (at store or pick-up point).
China is leading the way globally when it comes to e-commerce. Under the motto “Done is better than perfect” is China not just the biggest E-commerce economy, it is also showing the rest of the world what innovations are to be expected. Chinese online sellers already led the development of online assortment growth (everything online), led the development of online shopping (domestic and cross border E-commerce, Singles Days and other new festive dates, good deal promotions with massive discounts). These online sellers are also best executers in the multi service charging model, where on top of the classic retail-sales margin, other revenue streams are generated, such as platform activities, payment and insurance solutions, etc. It made the Chinese online sellers business profitable in no time, where it took Amazon 20 years.
Latest online developments are shifting the shopping experience into an entertainment one. The trick is to lock-in consumers and their entourage by offering spaces to play games with rewards, tokens, coins, and even virtual confetti celebrations.
Central to this is the incorporation of new technology such as fast-fashion 3D body-measuring, where users can try on clothes and share it with their networks. Or blockbuster games where the lead avatars are wearing the latest collection from global fashion houses. The last innovation trend is the 24/7 real-time customer response. Conversations are ongoing at any given time of the day or night, and brands reply through video calls or get in touch through a live retail assistant on WeChat.
A lot of the developments mentioned are being introduced in other fast growing E-commerce markets, from Japan/Korea to Indonesia/India/Vietnam to Western established markets. And in most cases the Chinese are doing this development by themselves. In Asia these days most E-commerce is already China linked, and also in US and Europe a lot of start-ups are China linked.
The traditional fragmented European landscape of various languages and various country regulations, has resulted in specific country-based e-commerce models in the past. Apart from Amazon, most E-commerce business is led by local giants, like Zalando, BOL, Otto, John Lewis, Shop Direct and LeClerc. Although the growth of the local giants is impressive, the business is still slowed and disrupted with operational challenges such as shortage on the labor market (especially for shop-floor fulfillment work and for last mile transportation) and space scarcity (both brownfield and greenfield).
Everywhere in Europe, creative solutions are initiated to overcome labor and space shortages. The most effective ones are probably linked to digitization and automation. Especially for digitization, artificial intelligence (AI) solutions help to reduce manpower drastically by for example replace manual processes in the E-commerce ordering chain by smart system scripts and big data is now dynamically optimized by powerful smart management systems. In addition, AI helps to better deal with the fragmented landscape of various languages and various country regulations and offers opportunities to centralize processes and even operations. This obviously has a positive effect on labor and space shortage too. As for automation, developments like voice-picking, mobile goods-to-person and in the future even fully integrated networks of mobile goods-to-robot offer opportunities to reduce the operational requirements for manpower even further. Automation these days is less rigid and better adaptable to operational profile changes. Moreover, the return on investments (ROI) can mostly be kept within a 3-year timeframe.
E-commerce growth in Europe opens the door for a lot of new players too. Even the big Chinese (logistics) companies now enter the European markets. Their wealthy overseas experience, their longer-term business view and their competitive propositions make them a viable alternative for brand-owners to partner with. Chinese online sellers such as Alibaba with its logistics arm Cainiao and JD.com with its logistics group JD Worldwide Logistics have started to set up their own fulfillment networks in Europe. Also Chinese logistics company SF Express is investing in fleet and footprint in Europe.
