C&W report examines retail market size and infrastructure factors to compile weighted country index
• UK ahead of US as most developed nation for online retail but US is largest online market overall and accounts for almost a third of global online sales
• Mature markets from Europe, Asia and North America dominate top rankings
• Online retail will change the geography of retail with m-commerce in particular likely to boost emerging markets
• China is the largest emerging online market and the fastest growing of any market but Russia and Malaysia have potential to become leading online players
• Growth of global online retailing over last three years: 18% per year
The UK is the world’s most developed online retail market, according to a global research report published today by the world’s largest privately-owned real estate services firm, Cushman & Wakefield.
Cushman & Wakefield is at the centre of global retail and monitors and analyses the evolution of the industry and global retail trends to ensure its clients are best positioned to capitalise on future developments in the sector.
In one of the most comprehensive analyses of global online retailing carried out to date, the inaugural Global Perspective on Retail report examines online retailing and looks at the technological infrastructure, regulatory environment and size of the retail and online market in more than 100 countries to compile a weighted index developed from 13 separate indicators (see Ranking indicators for definition).
The UK places just ahead of the US in the list primarily due to its high volume of online sales per capita, significant online market share (as a percentage of total retail sales), total retail sales and openness to new online business and social media. Its large overall retail market size also contributed notably to its ranking, along with the fact the country’s retail market share between 2007 and 2012 increased more than any other nation analysed during this period.
However, the US is the largest online retail market by some margin, with approximately $187 billion-worth of retail goods sold online in 2012 (according to data provider Euromonitor) – this represents almost one third of all global sales.
Although other highly-ranked positions in the index are dominated by mature markets from Europe, Asia and North America, the rise of mobile commerce (m-commerce) could significantly shift the balance of future retail power in favour of emerging markets, particularly those in Asian markets where mobile penetration is higher, the report concludes.
Cushman & Wakefield’s global head of retail, John Strachan, said: “The internet has changed the global retail landscape beyond recognition and is now transforming and impacting significantly upon the way we work, play and shop. Retailers and owners who can adapt quickly to this new world will not only grow sales across all channels but will continue to enhance the role of their ‘bricks and mortar’ alongside successful digital platforms.”
Countries with scope to become leading online markets in the future have also been identified by the report. China is by far the largest potential market but the publication also predicts that Malaysia (currently ranked 34th) could become a “future online star” thanks to the quality of its infrastructure as well as consumer potential. In Europe, Russia (26th) is recognised by the report as having the potential to establish itself as a key player in the future online market. But a preference for cash over credit – as well as long product delivery times due to rail reliance – will limit early growth to its major cities. Elsewhere, Brazil’s (21st) consumer lead over Mexico (35th) is reinforced by greater internet penetration and credit card usage.
The report also states hub markets – for example UAE (39th) as a gateway to the Gulf – may soon emerge in areas with high quality infrastructure, new technology and access to a wide catchment area.
Differences within countries will become more apparent as the infrastructure for online will concentrate activity on more developed urban areas and lead to an even more pronounced tiered market in such nations as China (18th) and Turkey (27th), among others.
James Hawkey, Cushman & Wakefield’s managing director for retail in Asia Pacific, said: “Online trading has the potential to change the way global retail works. Brands who want to enter Asia now have the option of exploring the market with an online presence before opening stores. Asian countries with very young populations are often early adopters of new technology and potential for online retail is significant across the board. The sheer scale of China means it is a market that cannot be ignored. Despite some areas requiring infrastructure investment, it has been the fastest growing online market over recent years. While viewed as a whole, Chinese infrastructure scores poorly but in major cities infrastructure is strong and improving. Urban China with 680 million people is already an enormous market, while rural areas provide a huge potential market of 660 million underserved inhabitants, adding to China’s long-term appeal.”
Online retailing globally has been growing at an average of 18% per year over the last three years – significantly higher than the 1.3% growth per annum seen through other retail channels. A rising number of retailers are capturing a share of this expanding online market by seeking global growth, says the report. As this occurs, multi – not single – channel retailing will increasingly be implemented in both established and developing markets.
Matt Winn, Cushman & Wakefield’s retail services leader in the Americas, said: “Although a global phenomenon, e-tail is markedly different around the world – the economic, cultural, regulatory and infrastructure issues affecting physical retailing also impact upon the virtual world. Taking these factors into consideration, online retailing must at least in part be viewed through a local lens – the physical store footprint and e-commerce strategy are therefore linked for omni-channel retailers. Some retailers are going for fewer but larger stores, others for smaller but more stores; there is as yet no right or wrong answer on issues like store and network size. However, we know stores will change and evolve as retailers experiment with omni-channel retail – and landlords and developers must be ready to adapt.”
The Marketplace Fairness Act of 2013, currently pending approval by the US Congress, will enable state governments to collect sales taxes from online retailers. Commenting on this proposed new piece of US legislation, Matt Winn said: “The Marketplace Fairness Act is a progressive and positive move by the US government – once enshrined in law, it should go some way to addressing the disparity in taxes retailers with physical stores and online-only outlets are liable for. As online retail grows and steals an ever-increasing share of the overall retail market, it is only fair to stabilise the tax system; physical retailers should not be at a disadvantage due to online competitors paying less tax.”
Cushman & Wakefield’s head of EMEA Research, David Hutchings, said: “The successful combination of online and offline will be a powerful source of competitive advantage to the best retailers and shopping centres in the future. Technology and the online world will provide increased customer intelligence and data to support personalisation and customer service, while physical retail outlets will provide accessibility as usual but also brand profile and the ability to deliver a memorable customer experience; a factor which cannot be easily replicated online.”
The report also highlights the ongoing importance of physical stores, especially in the context of the growth in ‘click and collect’ retail services. The ever-increasing emphasis placed on logistics by retailers underlines how the value chain is evolving – and this will be ultimately reflected in property demand and pricing. The publication warns that main thoroughfares in many shopping centres and high streets may contract in the future but the importance of flagship stores will grow and the value of the best streets and units will continue to rise.
David Hutchings added: “While online retailing is having an uncertain impact on store needs, the impact on costs is clearly negative and this will feed down to property. In-demand locations will see rents rise but weaker locations will become more of a collection point and see rents fall.”
Inevitably, there will be negative implications for parts of the property market but large regional shopping centres and core in-town markets are mentioned in the report as having considerable potential for growth. These high-traffic areas, with a confluence of transport links and parking, are ideally positioned for customers to meet, enjoy experiences and access new services or entertainment facilities. There is also scope for malls to offer additional services, such as delivery, and hence become a vital part of the e-tail infrastructure platform.
Poland is ranked 28th in the overall list of the Top 50 Most Developed Online Retail Markets, ahead of countries such as Spain and the Czech Republic. Internet retail sales in Poland in 2012 reached $4.864 billion (15th place). Poland is listed 17th as regards the market size and 25th in the ranking of internet retail sales per capita. Online sales accounted for 4.6% of total retail sales, which gave Poland 14th place in the world. Its internet sales growth over the last five years, i.e. 2007-2012, reached 15.2%. Poland is placed 37th in the infrastructure ranking and is outside the top 20 as regards key factors for the e-commerce market growth such as cyber security, percentage of internet users or the number of financial cards per capita.
Marek Noetzel, Cushman & Wakefield’s Partner at Polish Retail Department, said: “Online retailing is growing as another major retail channel for most retailers on the Polish market, largely for electronic and multimedia retailers and to a lesser degree the fashion and footwear industry. Interestingly, brands which are absent from Polish shopping malls are seeking growth in Poland through online sales by sending shipments from their stores in the UK or Germany. Falling transportation costs and courier service fees are likely to attract new customers to Internet shopping. There is no doubt this retail channel is monitored by brand owners who might, therefore, decide to open physical stores in Poland. Poland is still ranked quite low as a consequence of Polish customs, habits and Internet availability. I’m confident, however, that with the younger generation entering the market Poland will soon be able to catch up.”
Source: Euromonitor International, Cushman & Wakefield
Source: Euromonitor International, Cushman & Wakefield
Source: Euromonitor International, Cushman & Wakefield
The online retail market size comprises six indicators: total retail sales, internet retail sales, internet sales per capita, annual internet sales growth over five years, internet sales market share and internet market share increase.
The infrastructure ranking consists of seven indicators: logistics performance, networked readiness, internet subscriptions per capita, mobile and subscriptions per capita, energy infrastructure, cyber security perception and financial cards per capita.
Source: International Telecommunication Union 2011, Cushman & Wakefield