E-Commerce: The show must go on

Relentless growth

Online retail sales have experienced a CAGR of 11% in Europe and 17% in the US since 2011, far outpacing total retail sales growth of 2-4% and becoming a EUR 430bn market in the US and a EUR 170bn one in Europe. The online share of retail sales (excluding services) has doubled to ~10% in the US and the Nordics, and to ~6% in Europe.

Investors' verdict: Retailing migration online will continue

Since 2011, online retailers are up 250% in the equity market, while for the bricks and mortar retailers, share prices are down 50% during the same period – a staggering contrast. Nordic retailers are down 17% in the past 18 months, since we released our previous e-commerce NOYM entitled 'The retail apocalypse'. Investor views on retailer prospects are highlighted by the three digital players among the global top-ten retailers by market cap – Amazon, Booking and eBay – together accounting for 45% of global retail sector market cap. The remaining seven offline players in the top ten only add another 25%. In addition, the mix of S&P credit ratings for US and European retailers has continued to deteriorate. Share price performances and ratings point to investors demanding that retailers have a viable role in an increasingly digitalised future.

Food retail: Due for a major online breakthrough

Food retail lags almost every other retail category, with only 1.4% online sales penetration in the Nordics. Logistical challenges related to costly picking, delivery and perishable goods are being addressed by the establishment of dark store hubs, and incumbent food retailers are now throwing major resources into their online platforms to tap into the growth (from low starting points) seen for new digital players. Online penetration of 5-7% in countries such as China, Japan, the UK, and France suggests good potential for a major structural upward shift. We take a closer look at the Swedish online food retail market as a case in point, and note that the market has shifted its bias from pre-filled grocery bags to free selection, and from new pure online players leading the way to incumbent food retailers entering the market in force. 

Powerful drivers could push Nordic online retail penetration to 30% in ten years

The rapid proliferation of smartphones has meant that consumers have become used to having online access at all times, thereby allowing a shift of our consumption patterns online. Technological innovation, which gives better user experiences, and more efficient digital business models, help reinforce behavioural change. Demographics will fuel this further, as younger and more tech-savvy generations replace today's elderly and see their incomes grow over time. As an illustration, we show a scenario based on the similarity between Nordic and UK online retail penetration, where the Nordics catch up from their four-year lag to the UK and then stay on trend, which would take the online share of Nordic retails sales from today's 10% up to 30% in 2028. The contrast in implied ten-year CAGR is striking: 13% for online, and -2% for offline.

Insights from experts

To help our understanding of how e-commerce could continue to grow, and how business models will continue to be digitalised and how retailers need to respond, we have interviewed online fashion retailer Boozt's CEO Hermann Haraldsson, e-commerce and digital business analyst Daniel Ovin from Nordea Equity Research, and Damon Amoui, Head of Business & Merchant Offering at Nordea Transaction Banking. To highlight that digitalisation and online migration are not confined to the retail industry, we have interviewed Mikkel Weider, Managing Director of Danish media group Egmont's Nordisk Film Games unit, which invests in Nordic game development studios.