COVID-19:
Can Southern Europe Overcome Structural Inhibitors and Take E-commerce to the Next Level?
(Or, Why Won’t Spaniards Use E-Bay?)
For more information on this topic, sign up to receive our free report on e-commerce in Southern Europe in 2020.
Despite the best efforts of the Internet giants and their billion-dollar war chests, Southern Europeans have remained stubbornly resistant to buying online.
Covid-19 and the associated lockdowns have opened a huge opportunity for e-commerce vendors in Spain and Italy, but unless they understand why these markets are different, any increase in online demand is likely to be temporary. For analysis of this year’s events, and our advice to e-tailers, see our latest report, Southern European E-Commerce Snapshot, October 2020, which you can download for free here.
This post investigates why the e-commerce base has been so much lower in the south. Is it wealth? Internet access? Weather? Let’s find out!
The Centre for Retail Research estimates that in the UK nearly 20% of all retail sales went through the online channel in 2019. The corresponding figure for Italy was just 3.7%.
Figure 1 below shows the % of total retail which went through the online channel in 2019, revealing a clear difference between the e-commerce heartlands of north western Europe and the reluctant e-shoppers in the south.
Figure 1: Online Sales as a Percentage of Total Retail (2019). Source: Centre for Retail Research
This is not a simple rejection of new technology; Southern Europeans are not the Amish. Spaniards, for instance, fast became Europe’s most enthusiastic users of WhatsApp, pushed onto the platform by the relatively high cost of text messaging, and kept there by their love of sharing pictures of small boys dressed as sailors.
How then can this difference be explained? We took a dive into the data to see what we could come up with.
Is it All About the Money?
One of the obvious candidates to explain the disparity is wealth differences. Is it as simple as the richer a country is, the more likely it is to buy online? If this were the case, and populations became more e-savvy as they became wealthier, e-commerce vendors need only wait for economic growth to raise southern GDP.
Plotting GDP per capita against online retail share, we get the below chart. There appears to be a weak relationship between wealth and propensity to buy online.
Figure 2: GDP Per Capita vs Online Retail Share (data sources: International Monetary Fund and Centre for Retail Research)
However, this relationship disappears, indeed, reverses, when Spain and Italy are dropped from the data set. By this measure, those two countries are outliers. Clearly there must be something else going on.
Figure 3: GDP Per Capita vs Online Retail Share, Excluding Italy and Spain (data sources: International Monetary Fund and Centre for Retail Research)
Is it About Internet Access?
So, if it’s not wealth, which other factors could explain the variability in online behaviour? The next most obvious candidate is Internet access. Are Northern Europeans more connected?
While this may have once been a plausible explanation, the differences in Internet penetration have greatly reduced over the last 5 years. While broadband access has lagged in Southern Europe, the huge popularity of mobile devices means that access is now near-universal.
Figure 4: Internet penetration across Western Europe (data source: World Bank)
Geography and Logistics
Though Spain and Italy are modern developed economies, they are geographically distinct from their northern neighbours. Mountainous, and with a lack of navigable waterways, industrialisation was slower in the European south, and these countries still have less developed rail and networks. Not only is intra-country communication more challenging, both the Iberian and Italian peninsulas are cut off from the European mainland by mountain ranges, slowing cross-border traffic.
The Netherlands, by contrast, lies in the Great European Plain and is tightly integrated with the rest of Europe. While these flatlands provide little protection against invading armies, they really speed up Amazon deliveries.
Looking at the World Bank’s Logistic Performance Index (LPI), it is clear that logistics are considerably worse outside of the European core. Trade is slower, and more expensive, which means that the e-commerce offered to Southern Europeans is of lower quality. For instance, Amazon Spain only offers its Prime next day delivery service in the top 3 Spanish cities, Madrid, Barcelona and Valencia.
Figure 5: LPI Global Rankings 2018 (Data source: World Bank)
Another physical factor at work is climate. It seems likely that online purchases would be more common in areas where bricks and mortar shopping can often require careful planning and specialist clothing. It may simply be nicer to go shopping in Genoa than in Ghent or Gateshead, so the relative appeal of e-commerce is lower to the Genovese than to the Geordie.
The below scatter-chart shows a negative correlation between the average annual hours of sunshine in a country’s capital and the percentage of retail carried out online. The sunnier a country, the more people will go to the shops, and the less they’ll use online platforms.
Figure 6: Annual Hours of Sunshine vs Online Retail Share (data sources: national meteorological societies and the Centre for Retail Research)
Language and Culture
As English-speakers we can sometimes underestimate how dominated the web is by English. According to W3Techs, more than half of all the 10 million most popular web pages are in English.
Figure 7: Content Language of the world’s most popular websites (data source: W3Techs)
This being the case, we might expect for Internet usage to be lower in countries where English is less widely spoken: there are simply fewer websites for non-English speakers to visit.
The below heat map shows how English proficiency varies across the continent. Almost all of the best English speakers are clustered in northern and central Europe, while Southern Europeans’ English skills are considerably lower (with the honourable exceptions of Portugal and Croatia).
EF English Proficiency Index by Country. Source: EF Education First
Comparing this with online retail share, we can see a positive relationship between the two, one which becomes even stronger if we include the UK in the data set.
Badly Served, but a Huge Opportunity
Though it is a complicated picture, there is enough evidence that the differences in the popularity of e-commerce can only be explained by considering both supply and demand factors.
On the supply side, Spanish and Italian people are offered a worse product. Deliveries take longer and are more expensive. Added to this, the lack of dedicated pages in local languages, or else poorly translated versions of English pages, means that the marketing copy in product descriptions is simply not as enticing and persuasive.
At the same time, the ceiling on demand may be lower. With more sunny days, and retail less concentrated in chains and huge megastores, shopping is a more localised and communal experience in Southern Europe. If going to the shops is a pleasant way to spend a couple of hours, it is less vulnerable to being replaced by a more convenient substitute.
However, it should be noted that e-commerce in Southern Europe is only just getting started. Change will require effort on the macro and micro level, from greater investment in logistics to better-written product descriptions, but there is an enormous growth opportunity.
How things have changed in 2020, and how e-commerce retailers can better tailor their offerings to a Southern European audience, is discussed in much more detail in our latest report, “Southern European E-Commerce Snapshot, October 2020”, which you can download for free here.
If you have been affected by any of the issues raised in this blogpost, you can contact us for advice and support.