Tuesday, 7 February 2012
The coming retail boom.
Europe’s dozy retailers are about to be rudely awoken.
Feb 4th 2012. The Economist Print Edition.
A COUPLE of years ago the Obamas visited Paris. One Sunday morning Michelle and her daughters decided to sample the city’s famous shops. There was only one problem: the shops were all closed. Nicolas Sarkozy, France’s ever-helpful president, had to call a few places personally and ask them to open.
Europe’s greatest achievement is supposed to be its single market. But actually taking advantage of that market can be frustrating. Retailing is a mess of restrictive practices and cultural oddities. Continental Europe boasts plenty of charming boulangeries and confiterías. But charm costs time and money. You may have to visit six or seven shops to fill your shopping bag—and one or two will inevitably be closed. Parisian butchers close on Tuesday afternoons and Thursdays—and whenever else the proprietor decides to put a “fermeture exceptionelle” sign in the window.
Europe has some mighty supermarkets, to be sure. But they are often built in the middle of nowhere, due to restrictive planning laws. Many appear to have been built from Soviet-era blueprints, and to have staff who go out of their way to demonstrate that they hate you.
Restrictive practices are everywhere you look. Food and soft drinks cost 28% more in Belgium than in the Netherlands. Over-the-counter drugs can cost five times as much in one European country as in another (if you can buy them at all: Germany and Italy bar the sale of pharmaceuticals by non-pharmacies). Shoes cost 30% more in Montenegro, a relatively poor country, than in Britain, a relatively rich one.
European shoppers are starting to revolt. On January 30th Carrefour, Europe’s biggest retailer, announced that it is replacing its boss, Lars Olofsson, with Georges Plassat, an outsider. This comes after years of stagnant sales. Mr Olofsson had tried to revive Carrefour with beauty zones and organic food, but nothing worked: the company’s share price fell by 37% last year.
E-commerce will do to shops what it did to music and media (minus the piracy). It will make a reality of the single market by giving consumers the power to browse across a club of 500m people. This will be hugely disruptive: those boulangeries and hypermarchés are collectively one of the biggest employers in Europe.
So far Europeans have been slow to grasp the potential of e-commerce. A mere 3.4% of Europe’s products and services are sold via the web, compared with 4.6% in the United States, and only 8.8% of European e-commerce flows across borders.
But things are changing. E-commerce has been growing much faster than the rest of the industry. The European Commission calculates that the proportion of Europeans who bought something online in the past year increased from 20% to 40% between 2004 and 2010. Britain’s Centre for Retail Research predicts that Europe’s online market will grow by 16% this year. Popular attitudes are evolving: hard times are making Europeans more price-conscious. And familiarity with the internet is soothing old fears about how trustworthy e-commerce is.
Europeans are well-equipped to take advantage of new forms of e-commerce, such as shopping by mobile phone. Europe is a smartphone superpower: 48% of Spaniards have the gadgets, as do nearly as many Britons and Italians. Bricks-and-mortar stores are furiously adapting. Marks & Spencer, a traditional British store, now sells knickers and superior cakes by smartphone. John Lewis, another British chain, shifts tonnes of furniture online and is known for good service.
On January 11th the European Commission announced that creating a “digital single market” and reducing barriers to cross-border e-commerce is one of its priorities. The commission says it wants e-commerce to double its share of retail sales to 6.8% by 2015. More importantly, the biggest e-tailers are investing huge sums to grab market share. Amazon’s poor results this week reflect its willingness to sacrifice short-term profits for growth.
There will be losers. Retailers employ 17.4m Europeans, many of them young, unskilled and unlikely to find other work. A fifth of small businesses in Europe are shops, and many Europeans treasure the culture of the little corner store. It cannot be long before the anti-Walmart crowd turn their fire on eBay and Amazon.
But the winners will outnumber the losers. When you shop online, it costs less and someone else delivers it all to your door. This is more agreeable than pushing a trolley round Tesco while your children knock over the soup display. The commission calculates that if obstacles to e-commerce are removed and it grows to 15% of the retail sector, the gains in “consumer welfare” could amount to €204 billion ($267 billion), or 1.7% of GDP. Some of Europe’s small shops will give up the battle with giant supermarkets and reinvent themselves as stylish showcases for e-commerce. Oddly enough, the old continent’s best chance of preserving its cultural traditions lies with embracing new technology, not ignoring it.