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eCommerce growing at various rates in Europe

July 12, 2005

Internet sales and eCommerce are growing across Europe, but at different rates and in different countries. Online penetration rates and broadband Internet adoption also play important roles, but many cultural differences remain key factors.

France, where the broadband uptake has zoomed, is estimated to have registered e-commerce growth of more than 40% last year, with similar gains expected for this year. The UK, a more mature market—and one that has been more open to online purchasing—has passed through a period of hypergrowth but is still logging gains of some 30% a year. Online shopping and purchasing is on the rise even in countries that are seeing deteriorating offline retail sales.

"E-commerce should continue to grow at a healthy pace this year and next throughout Western Europe, as more people go online more frequently, and at greater bandwidth," said Jeffrey Grau, senior analyst at eMarketer and author of a new report, Western Europe E-Commerce. "Each passing year will create a larger population of more-experienced Web users, and if the US is a model, experience online leads to purchasing online."

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Continued gains in Internet adoption will certainly create a larger pool of potential European Internet shoppers and buyers, but longtime offline purchasing habits in many economies may mean that even mature online markets will not reach the levels projected for the US.

The Western European countries, led by Germany and the UK, have some of the largest Internet user populations in the world. In 2004, the combined Internet populations of Germany, the UK, France, Italy and Spain totaled 131.5 million, compared to 170.1 million in the US. By 2008 the gap will narrow considerably to 174.6 million versus 188.5 million, as Internet users grow at a 7.3% annual rate in Europe as opposed to a 2.6% rate in the US. The fastest growing online countries in Europe are Italy and Spain.

There is a three-tier digital divide in Western Europe. The Scandinavian countries and the Netherlands are the most wired societies. Sweden, with three of four individuals online, leads the continent in Internet penetration. Next are the central European countries. Slightly more than one-half of Germans use the Internet. The UK, France and Belgium follow. The least advanced nations in terms of Internet uptake are the southern European countries of Italy and Spain. In 2004, the Internet penetration rate in the European Union was 48%, compared to a US rate of 61%.

Germany lags behind its Western European peers in broadband household penetration and broadband annual growth, based on eMarketer's analysis. Overall, broadband uptake in Western European households is high and penetration rates are quickly approaching the US level.

Total retail sales growth in Western Europe is weak – fourth quarter consumer spending increased on an annual basis by a modest 1.6% overall among the 25 members of the European Union, according to European Commission data. By comparison, US retail spending for the same period rose by 8.3%. The UK and Spain have had the healthiest retail growth, but even these two economies may be showing signs of weakening. Germany and Italy are experiencing a long, slow slide.

Market size data from the European Information Technology Observatory (EITO) shows the relative growth prospects for the major Western European retail e-commerce markets.

In 2004, according to Forrester Research, the UK and Germany combined accounted for over 61% of online sales in Western Europe. When France, Italy and Spain are added to the mix, the total share increased to 76.9%. By 2009, the UK and Germany will represent 49.5% of sales, while all five countries will account for a 76.2% share.

As the US retail e-commerce market matures, many online retailers are beginning to target customers in faster growing foreign markets. "Western Europe and the UK in particular are drawing a lot of interest because of cultural affinities and fewer language barriers," said Mr. Grau.

Source: eMarketer

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