Despite Economy, European E-Commerce Forecasts Stand

Forrester Research predicts the online retail sector in Europe will grow to €32.8 billion in 2002, an increase from its earlier projection of €32.5 billion.

The upgrade to Forrester’s e-commerce projection stands out as good news for consumer spending in Europe these days. Overall consumer spending will drop by more than 5 percent by 2006, but Forrester now expects Europe’s online retailers to drive €147.5 billion in sales in 2006 against the €151.9 billion forecast in June 2001.

“In April 2001, the European Commission predicted that private consumption would grow 2.7 percent in 2001 and 2.3 percent in 2002. But in November last year, the Commission downgraded its April prediction to 2.3 percent growth in 2001, and 1.7 percent growth this year. The OECD and the IMF have published similar, lower predictions for the European economy,” said Jaap Favier, Forrester Research Director. “Since June last year, European consumers have changed, but it’s mass layoffs and not fear of terrorist attacks that have made their spending cautious.”

Forrester interviewed 45 online retailers across Europe to get an understanding of how the Sept. 11 attack in the United States might influence their sales. The reality, Forrester found, is that sales have hardly changed and terrorism has had little, if any, effect on online shopping.

Europe’s Internet retailers expect visits and purchases to increase in 2002. Beyond last year’s pre-Christmas retail explosion, offline sales will suffer over the next 18 months as consumers tighten their belts. But the Internet stands to gain as a welcome tool for penny pinchers and a channel for cyclical goods like PC upgrades and consumer electronics. Additionally, it will drive offline sales of other, more expensive cyclical goods. Even when the economic climate eases in 2003, European online retailers expect many of online buyers will remain loyal online shoppers.

“Bargain hunters will also flock to online travel agents but they won’t compensate for an overall decline in travel spending of 22 percent in 2002,” Favier said. “To have any hope of survival, travel players must lower their fares today — but none the less, many online-only travel agents will go under this year. The dust will only settle in Christmas 2002 as consumers regain both their confidence in flying and their budget to travel.”

Forrester predicts that European consumers will purchase 57 percent more online in 2003 than they did in 2002. Part of this will be courtesy of the bargain hunters expected to go online in early 2002, who will have become tenured Internet buyers and extend their purchases to more retail categories and bigger-ticket items.

Research from International Data Corp. (IDC) also found strong consumer demand for online shopping in Europe, but it disagrees with Forrester on the aftermath of Sept. 11.

“Despite the dampening effect of the aftermath of Sept. 11 on the Western European economy, the demand for e-commerce is still unbroken,” said Carla Arend, research analyst for IDC’s Internet Commerce Market Model. IDC’s model, which includes both B2C and B2B e-commerce, predicts that total European Internet commerce will explode from $154 billion in 2001 to $1,518 billion in 2005.

Like Forrester, IDC cites an increase in the number of online shoppers and a influx of new online consumers after the holiday season as positives for e-commerce in the regions. But there remain some potential potholes. The level of investment in B2B infrastructure, for example, has been reduced. This leaves open the possibility that in 2002 e-commerce will be restricted, not from the demand side, but from the supply side.

“The investment slowdown in B2B applications and infrastructure in 2001 may erode capabilities put in place in recent years, and could limit online merchants’ ability to handle the expected increase in volume in 2002,” Arend said.

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