Study: Southern European E-tail Has Small Present, Big Future

The push to develop a viable online retailing channel in Southern Europe remains "paralyzed" by a host of roadblocks, according to a report released Wednesday by Forrester Research.

However, aggressive efforts by portals, outside marketers and grocers within the next year will help spur the region's e-tail industry to reach its full potential, Forrester said.

The chief factor hindering Internet sales growth in Portugal, Spain, Italy and Greece, compared to their Northern European counterparts, is a "meager online retail supply," the study found.

"Consumers in the region simply have fewer online retailers to choose from, giving them little motivation to shop online rather than off," said Forrester analyst Abigail Leland.

Added Leland: "The unique regional roadblocks that keep retailers from selling online run deep. A highly fragmented retail market, a dearth of publicly quoted firms, and absent venture capital to fuel dot-com competitors mean that few retailers have the scale, funds, and external pressure to move online. Furthermore, inadequate fulfillment makes delivery difficult."

The study also attributed the sluggish penetration rate in Southern Europe to the fact that the region has fewer online consumers with experience conducting Web-based transactions. For instance, Forrester said that only one-fifth of consumers are online in Spain and Italy, while half of Internet users in Spain and Italy have been online for less than one year.

Cracking the Market

These obstacles, however, will do little to dampen budding consumer demand for online services in the region, Forrester said. Rather, three "trailblazers" will move in to capitalize on the nascent market: portals seeking to develop new revenue streams by tacking on e-commerce sales commissions, invading retailers leveraging outside experience, and local grocers reaching across categories.

"These trailblazers' moves will both increase the number of consumers shopping online and threaten other local retailers' market share, ultimately forcing them to move online as well," said the report.

The study forecast that portals will be the first to crack the online market, priming it for other retailers by raising consumer awareness and mitigating existing risk factors. By next year, as portals continue to make inroads, experienced retailers from outside the region will begin making "aggressive plays" for burgeoning online demand.

Finally, Southern European grocers, seeking to defend their home market share, will look to leverage their brand, supplier relationships, and established fulfillment infrastructures to climb into higher margin product categories with their online offerings.

Setting Up Camp

Within the next few months, Forrester said, outside retailers will begin laying the groundwork for online markets in Spain because of its sizable population.

At the same time, Italy will also start seeing a greater push by foreign sellers, although its "tougher fulfillment infrastructure and highly fragmented wholesale network" will make operations more time-consuming to set up.

The study forecast that grocers in Italy and Portugal will be among the few retail categories able to exploit the countries' disconnected retail industries. Bolstered by a wealth of resources, grocers will launch an array of e-commerce projects, making their impact in the two countries "particularly strong," said Forrester.

As part of its report on "Southern Europe's Growth Spiral," Forrester interviewed 50 brick-and-mortar retailers operating in at least one of these countries, half of which are already selling online.