The FINANCIAL -- The retail industry is rapidly evolving. The rise of internet retailing is forcing store-based retailers to quickly adapt by adopting multi-channel strategies, such as click and collect. Considering the nature of technical consumer goods (TCG), often big ticket items necessitating advice or delivery and installation, as well as after sales service, the changing retail environment will have a particular impact on consumer electronics and appliance specialist retailers.
The total European market for consumer electronics and appliance (EAS) retailing was worth €173 billion in 2014. Since 2009, store-based sales have stagnated, with retail growth emanating almost entirely from the online channel, where sales doubled over 2009-2014. However, despite the apparent dynamism in online sales, the store-based channel still dominated in 2014, accounting for 81% of value sales.
Euromonitor International believes that the way forward for EAS retailers is not to see store-based and internet retailing channels as competitors, but for retailers to focus on multi-channel strategies. Today’s consumers value choice, not just in terms of the variety of products on offer, but also in the channels where they can buy them. Whereas the internet allows the increasingly-savvy consumer to research products from home at his/her leisure in terms of functionality, more importantly, it also allows him/her to find the best deal in terms of price. Store-based retailing, on the other hand, offers consumers expert advice; the latter is particularly important in TCG, where products are becoming increasingly complex, and the prospect of the interconnected home is resulting in increased need for installation and consumer demand for after sales care. One solution bringing the two channels together is click and collect. For the consumer collecting in store, this offers the benefit of not having to waste time at home waiting for a delivery, along with the aforementioned advice on product set up, whilst for stores, it offers opportunities to upsell to consumers collecting their online orders. Click and collect is also a fast-growing category, with retailers such as MediaMarkt/Saturn reporting that up to 50% of orders placed online were click and collect in 2014.
The disruptive consumer
A buzz word currently amongst retailers is the “disruptive consumer”, these well informed consumers, who are well informed about the products on offer and have decided in principle what to buy before they visit a store. Crucially for retailers disruptive consumers are also highly savvy in terms of where to find the best price and service. The disruptive consumers are increasingly using mobile internet retailing as a tool to check out a product in a traditional store and then make a price comparison online. If the consumer finds a better deal, he/she can even make the purchase via his/her handset there and then. From a European perspective, there remains much untapped potential in the mobile internet channel. Euromonitor International forecasts that less than 30% of internet retailing by value will be made via mobile phones in Western Europe in 2019; this is below North America and Asia Pacific’s forecasts and even further behind Australasia’s forecast of 60%.
Retailers respond to changing landscape
The move towards multi-channel retailing has prompted EAS retailers to review their strategies; most notably, two of the UK’s leading retailers Dixons and The Carphone Warehouse merged in 2014, with the sole reason behind the merger to better position the companies for the new multi-channel world. However, the newly merged company also stressed preparing its consumer offering for the interconnected home, known in the industry as the “internet of things”, as an important reason behind the move. Furthermore, at the Second TCG Retail Summit, Mark Slayter, Dixons Carphone’s Strategy & Transformation Director, also stated that Dixons Carphone saw great potential in interconnected health products, monitoring sleep, exercise and nutritional intake.
Which of the leading European EAS retailers are best positioned to take advantage of the multi-channel environment? At a Europe wide level, 22% of consumer electronics and 11% distribution of consumer appliances by value were online in 2014. Few of the 10 leading retailers and buying groups exceed these levels, with most major players registering negligible or low-single figures for their internet sales share. Dixons Carphone stands out, with a 25% of its sales done online. Europe’s leading EAS retailer, MediaMarkt/Saturn, has, since 2011, when it acquired the pure online player Redcoon, seen almost half of its sales growth take place through the online channel, which accounted for an 8% share of its sales in 2014. For most other major players, this share is often close to zero, including, for example, that of leading buying group Euronics, which only has a negligible online presence in most markets.
Retailers see multi-channel both a challenge and a promise
A key topic discussed at the Second TCG Retail Summit, held in Madrid in May 2015, where Europmonitor International presented, was the changing retail landscape, with “disruptive consumers” a re-occurring topic. The consensus was that it is necessary for retailers to adopt a multi-channel strategy in order to survive. From a manufacturer’s perspective, the multi-channel is seen as beneficial, as it facilitates the anticipated increased interconnectivity between devices. Euronics highlighted this in a panel discussion. A key challenge for the retail industry is how to provide a seamless customer experience across channels. Vodafone spoke about how this was key to its strategy. The importance of social media was also discussed, with Electrolux stating that even a negative post can be better than no review at all: an aspect that one reviewer finds important may be irrelevant to another. It was also the industry consensus that the purchasing process overwhelmingly starts online, with Russia’s M Video estimating 70% and France’s Darty putting the figure at 80%.
Internet to continue driving growth – also in emerging markets
Looking forward, Euromonitor International forecasts a steady increase in EAS retailing. Store-based retailing will maintain its position, showing only a minor decline at overall European level. Instead, growth in EAS retailing will be driven entirely by internet retailing, which is forecast to rise at a 6% CAGR to reach €44 billion in 2019, with the overall market totalling €180 billion in the same year. In mature markets, including the largest Germany, growth will be take place entirely through the internet retailing channel. Meanwhile, in emerging markets, store-based retailing will continue to grow strongly, but even in Russia, the majority of sales growth will come from online sales. For retailers, Euromonitor International expects to see an increased blurring between the online and store-based channels, through services such as click and collect. Store-based retail will remain the dominant force, but amongst store-based retailers a lot of restructuring and even casualties are expected as retailers try to remain competitive in the increasingly multi-channel retail landscape.