BCG Retail Study: Bricks Count as Much as Clicks

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The Internet profoundly influences European consumers' offline behavior, as it does in the United States, a new study from the Boston Consulting Group suggests.


According to the report, which was released last month, 37 percent of Internet users who have browsed online before buying offline claim that going online gave them a better idea of the choices available.


Of the surveyed Internet users, 85 percent said they were loyal to the brand and product they identified online. Thirty-five percent were loyal to the retailer.


"In many ways Europe is perhaps a year behind the U.S. in terms of adoption of Internet purchasing actually, but the patterns of multichannel shopping and attributes to the Internet are quite similar, and we expect the progression to take a similar route in Europe as in the U.S.," said Peter Stanger, vice president of business-to-consumer e-commerce at BCG.


The study, titled "The Multichannel Consumer: The Need to Integrate Online and Offline Channels in Europe," was based on data from an online survey of about 12,000 European Internet users and personal interviews with European households and company executives.


The survey was conducted in the first quarter of this year and covered Germany, France, Sweden, the Netherlands and the United Kingdom. Those countries account for 85 percent of Europe's online retail revenue.


A key standout in the BCG study is how the Internet is separating the winners from the losers among retailers and manufacturers.


BCG found that a major reason 65 percent of the surveyed consumers who browse online before buying offline will switch loyalties to a rival retailer is that a store is closer.


This means that a brick-and-mortar presence is essential for market share, which is yet another hurdle for Internet-only retailers. U.S. companies seeking to expand in the European e-commerce market should be mindful of this continued preference for multichannel brands.


"In other words, if you're a store-based brick-and-mortar retailer in the U.S. and you're seeing the growth in Europe, you'll be competing there with people that have ... the store network, an online offering, perhaps an interactive TV offering and perhaps a catalog offering," Stanger said.


"That would be a very tough position," he said.


According to the study, European consumers who were satisfied with their online purchases spent an average of $915 on the Internet over the past 12 months. Dissatisfied customers, by contrast, spent $535.


And just as in the offline world, a small number of buyers account for a disproportionate share of online spending. This is true of online grocery shopping: The highest-spending 20 percent of online buyers of groceries account for 78 percent of all Internet purchases in the category.


"If there's one notable difference, it's the grocery category," Stanger said. "It's one category that's quite a bit more developed in Europe than it is in North America."


He cited British grocer Tesco PLC as a prime example of a retailer that got its online channel right. The food retailer uses its store network to fulfill orders placed online at Tesco.com.


By contrast, in the United States, Internet-only companies such as Peapod, NetGrocer, Streamline, GroceryWorks and Webvan were pioneers of online grocery shopping.


Barring Peapod, these online grocers failed because of fulfillment costs, low brand recognition and lack of repeat orders. Dutch grocer Royal Ahold, which owns supermarket chains in the United States, will soon own all of Peapod.


"It seems to be a very tough proposition to build warehouses and start from scratch [with] another brand," Stanger said. "The traditional food retailers [in the United States] have been a bit on the sidelines. There have been various trials and so forth, but no significant investment."


That is changing. Tesco announced in June that it will work with U.S. grocer Safeway Inc., Pleasanton, CA. Through this deal, the Tesco home shopping model will be introduced in Safeway supermarkets.


Based on the study's findings, BCG said retailers should segment European consumers by their attitudes and motivations. Study data show there are five segments: reluctant shoppers, enthusiastic shoppers, busy online mothers, rational technophiles and impulsive professionals.


The segments are graded by recency, frequency and monetary value of purchases. The most popular categories in Europe are computer hardware and software, travel, music/videos and toys, Stanger said.


"It's critical to focus on the high-value segment," Stanger said. "So those would be consumers who transact more frequently and spend more in the category and generate a disproportionate share of revenues and profits. Those consumers are also disproportionately multichannel shoppers."


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