Xerfi Global has recently published a study on e-commerce, a booming sector. Worldwide online retail sales shot up by almost 22% per year from 2008 to 2014 and are expected to increase by 12 to 13% per year from 2014 to 2018. This rise is brought about by several factors on the demand side and the supply side. On the demand side, growing internet penetration and usage and rising mobile phone connectivity is boosting internet access and therefore the possibility to purchase online. Furthermore, rising incomes in emerging countries and price-competitiveness of online retailing is making online shopping more affordable. In addition to this, the fact that online shopping provides a high level of convenience and access to products that are not locally available also drives demand. Meanwhile, on the supply side, as more and more manufacturers, retailers and merchants go online, the range of online products and services grows. At the same time, online shopping platforms, delivery services and other associated services are becoming increasingly sophisticated, making e-commerce more attractive to consumers.
Despite favourable growth outlooks, the global market is characterised by fierce competitive rivalry and multiple threats: weak entry barriers attract new entrants, traditional retailers are enhancing their multichannel distribution strategies to gain a competitive edge over online retailers, and low switching costs reduce e-retailers’ bargaining power over their customers and suppliers. The sector is also expecting stricter regulation in crucial areas such as taxation, user data collection and exploitation, pricing, and working conditions.
In this context, online retailers are focusing on building strong ecosystems. To do so, they are attacking on a number of fronts. So as to ensure product and technology development they are making investments in user interfaces, additional platforms and IT capabilities. Big data is also being used to refine marketing techniques. Multichannel strategies are being put into place via the development of mobile shopping platforms and physical stores to allow click-to-brick buying. International expansion is being achieved not only by implementation in new countries but also creation of global marketplaces that connect manufacturers, retailers and online shoppers. Improvements in payment methods as well as fulfilment and deliveries are also being made, typically achieved via strategic acquisitions and partnerships. Such an ecosystem generates greater scale on both the supply and demand side with online merchant and online shopper numbers growing, together with a greater product, content and service selection, generating a virtuous cycle. The larger scale allows better performance thanks to increased service and fee revenues and thus higher income as well as economies of scale and increased added value allowing increased profitability. These additional financial resources are then typically used to promote further growth, via acquisitions, international expansion, diversification and marketing.
In terms of individual operators, Amazon is well ahead of the pack in terms of sales and is also the most visited e-commerce website in major Western e-commerce markets, and the most diversified and multinational operator. However, when it comes to operating margins, the picture is very different, reflecting major differences in operators’ business models. It is operators of online marketplaces such as Alibaba Group, who focus on operating software that connects buyers and sellers, who prove more profitable than companies like Amazon, who also handle logistics, warehouses and distribution operations.
Kathryn McFarland, E-commerce Companies, a Xerfi Canal TV video