Part 3 of this week’s Analyst Q&A takes a look at the various developments in the online retail market we can expect to see over the coming decade, plus the technologies responsible for driving growth in this market. Click here for Part 1, and here for Part 2.
Q4. How do you expect the online retail market to develop over the next 10 years? What are the key technological developments you believe will drive growth in this market?
The current state of affairs
One way to look at the advancements in the online retail market is to closely observe changes in the North American online retail market – in view of the fact that the developments in e-commerce proliferated first in the US and later became ubiquitous in every part of the world; the way that consumers are making purchasing decisions has dramatically altered over the past decade. The incumbent online retailers are changing the way consumers think and act about their buying behavior: the way that consumers are using their smartphones/smart devices to compare product prices and reviews prior to their purchases, the way that consumers research a product using a variety of channels (omni-channel retailing) such as retail stores, online stores, mobile stores, mobile app stores, and telephone sales before making a purchase, the way that consumers are influenced by social media, and the way that both private firms and the government are working to enhance the technology, especially internet infrastructure, is changing the way consumers think and act.
An outlook into the future
Although the dynamically-changing online retail market has evolved faster in the last 10 years, the outlook for the future is very subtle and subdued. Firstly, e-commerce players will be subtle, i.e. retailers will be focusing more on being innovative and different to their competitors than marketing aggressively, and secondly, e-commerce will be subdued despite the boom, as brick-and-mortar stores will still account for approximately 90% of retail sales in the future and e-commerce growth will be less powerful compared to the last decade.
Moreover, developed economies such as the Asia-Pacific will see the highest growth in e-commerce; countries such as India, Thailand, and the Philippines in particular will see the highest growth.
Key technological developments that will drive growth in the e-commerce market
E-commerce will be the market where innovation will become its only survival element. The market will see various innovations in customization, payment methods, delivery, and in almost every part of the value chain. For example, robots and drones will be future delivery options on websites, and facial recognition and identification systems will be at the forefront of future payment methods. Many other nascent technologies such as NFC, beacons, understanding customer trends with the help of social media, predictive and prescriptive analytics, and big data analytics will drive the online consumer market.
However, this path could be a major challenge for new players and those with less capital for innovation, which means that there will be an exodus by some smaller businesses, either leaving the e-commerce race or being acquired by bigger players in this space.
Q5. Outside of those you already cover, what other industries do you find interesting? Have you ever considered covering this industry?
Travel retail is a burgeoning industry in the ever-changing retail market and is primarily driven by the increasing expenditure from international travelers. In addition, visa relaxations, instant tax refunds, increasing traffic from events, low cost airlines, and new air routes across the world are supporting growth of international travelers. We have completed a few consulting projects on this and cover the duty free retail market under a travel retail business.
Travel retail is growing at a faster rate and the duty free channel takes a large share. The global duty free market is expected to witness a higher growth rate over the next five years, mainly driven by an increasing number of international travelers, expansion of duty free stores in airports and downtown, and digital initiatives by retailers and airports.
Globally, the number of outbound travelers is expected to grow considerably from 856 million in 2015 to 1,058 million in 2020, representing an increase of 202 million. Of these, nearly 100 million tourists will travel out of Asia-Pacific. A growing number of middle-income travelers, expansion of low cost carriers (LCCs), and currency weakness in EU markets, Japan, and the UK will continue to support passenger traffic growth from China and other emerging markets. Several countries have relaxed visa eligibility, regulations, and fees to attract higher tourism. However, safety and security concerns amid terrorist attacks, such as those in France, Belgium, and Egypt, the refugee crisis, and political and economic instability, will affect the tourism flow in the short-term. Conversely, it will help neighboring tourist destinations such as Spain, Portugal, Greece, and Italy to gain tourist visits.
Besides airports, retailers are also exploring other high growth potential travel retail areas such as cruises and flights to gain a competitive edge. In-flight duty free operators are aiming to widen their networks in partnership with airlines. In addition, growing cruise tourism is shaping onboard and cruise terminal duty free as a potential growth market. Investment in multi-channel expansion will offer an additional source for revenue generation as well as enticing tech-savvy and time-scarce travelers.
Although the past decade has seen a dramatic shift from traditional in-store purchasing to online shopping, we should expect traditional retailers to continue to dominate the overall market. E-commerce companies will need to develop innovative technologies in order to survive the market, which could prove challenging for smaller businesses with less capital to spend.
It is likely that the online retail market could develop similar to the Internet industry, in that the larger companies like Google and Facebook regularly acquire smaller businesses and their new technologies.
Many thanks to Heena for offering her expertise in this area and providing us with such a detailed snapshot of the online retail market.
About the Interviewee:
Heena Sharma has over five years of professional experience in retail research and consulting and leads the Verdict global retail industry team in India. With experience in market intelligence, forecasting and client support, she handles syndicated research and consulting projects across all retail sectors and channels. She holds a Bachelor in cosmetic technology and apart from work, she likes listening to music and travelling.
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