E-Commerce: how online platforms could save or doom businesses
This is what young people think: in a new collaboration between the EIF and the group of gen-z and millenials at EU&U, we look into whether online platforms are the enemy or the unlikely savior of Europe’s SMEs. The article is written by Pietro Valetto and Joshua Michael Devine (EU&U).
2020: a year in review
It should come as no surprise to anyone that in 2020 there was a drastic and unprecedented growth in the e-commerce sector. All over the world brick and mortar shops closed — initially only for some time; though many ended up shutting down for good — due to the pandemic. Customers turned to online retailers to meet more of their shopping needs than ever before.
Some businesses, for example within the restaurants sector, were able to adapt to this new way of doing business, while others did not have the resources, the skills or sufficient demand, to stay in operation over the extended lock down periods that are still persistent across the majority of European countries. Administrative challenges, such as the need for additional permits to operate online, have also put a heavy strain on many.
As a result of the pandemic, online sales in Europe were boosted by 12.7% compared to 2019. This might seem like a positive number if read in the key that more businesses equipped themselves to be able to register and fulfill online orders; however this was not the case. There is a general sentiment among small business owners that the new increase in demand may have been absorbed by a few companies only.
Two years before the covid-19 pandemic Amazon already had a market share of 49% of all online sales in the United States, followed by eBay with its relatively small 6.6% as a distant second. Since then, both companies have continued to grow and expand operations at outstanding rates especially in Europe where we now see Amazon at the top of the e-commerce platforms’ list by turnover in 2020; followed by Otto, John Lewis, Zalando, and Tesco. Although the European Commission reports that 20% of all European businesses sell online, it seems the vast majority of sales goes to top players.
This reveals, in fact, more than we might think: the relative maturity of the US ecosystem when it comes to embracing technology and nurturing the growth of innovative companies that were early to embark on a digitalisation journey (remember the Jeff Bezos who was selling books from his garage); and the need to do more in Europe to facilitate the digital transformation — incl. investments in tech, but also in the digital skills of entrepreneurs, from big to small. Relevant EU initiatives are underway such as the EIF’s dedicated financing initiatives for both digitalisation and related skills/education.
Big tech vs small shops
Amazon’s success over the lockdown period was so prominent that it sparked calls for boycotting the tech giant in many EU Member States by both activists and politicians, in order to save local businesses as they reopened in lieu of the winter holidays. In France, Amazon agreed to move its Black Friday sales to the beginning of December, while inversely Italy created a cashback incentive for citizens that spent money in their neighborhood shops in person.
Eventually though, the change is in people’s own hands:
putting convenience aside, we can get more conscious about the choices we make even if that means searching longer for the small business next door; or if our circumstances allow, paying the somewhat higher price that in its turns, buys a living for our neighbourhood retailer. Non-commercial help also goes a long way: leaving a positive review for your favourite shop brings new business, and motivation to the entrepreneur in the hardest of times.
Seeking synergy
While shopkeepers are growing increasingly critical of the presence of tech giants like Amazon, Asos, and eBay, restaurateurs have found an unusual ally in delivery apps. Platforms like Uber Eats, Deliveroo, and Glovo have become a mainstream portal for connecting customers and businesses for any type of meal, thus allowing restaurants to stay open throughout the pandemic. We can quickly scan through a list of our favorite dining spots in our local area, pick our meal, and wait for it to be delivered without worrying about leaving home, and with the guarantee of a “contact-free delivery”.
McKinsey estimated that “across Europe, approximately 35 to 55 percent of existing consumers intend to continue using delivery in the future.”
In addition to restaurants we’ve seen a similar adoption of online shopping of groceries throughout the pandemic. Many big name retailers have been quick to upgrade and fulfill orders online, and this PwC consumer insights study noted that the overwhelming majority of customers having tried online grocery shopping are going to continue using this method for the future.
As young people, and seeing how some SMEs can synergise with tech companies to make the move towards e-commerce, we asked ourselves what is preventing brick and mortar shops from pivoting to a sturdy and resilient online presence. We mainly found 2 issues to this point: the competition of doing business through online platforms and the cost of going at it alone.
The vast majority of successful restaurants are distinguishable by branding and their menus. This gives customers a perception of a differentiated product, Gino’s Pizza is not the same as Domino’s and rightly so. This differentiation doesn’t really come to play for smaller retailers, where the only thing that differentiates them from the big online ones is their higher prices, slower shipping times and occasionally their physical proximity to customers. If you sell on Deliveroo, the company won’t steal your recipes and start selling them under their own brand (for now).
This is already something that happens with Amazon’s ‘Essentials’ line whose products are added based on the bestseller by third parties (and which the European Commission is trying to crack down on with the Digital Markets Act). In these cases a company launches a product, Amazon sees if it is received well and then proceeds to launch its own line, at a fraction of the cost and with its own reputable branding.
If small businesses don’t want to fight their way to the top of the search results for e-commerce platforms, they can always decide to go at it alone. Setting up a business website is now easier than ever before, with platforms like Shopify or Square that give you all the tools you need to have an online store for less than $30 a month.
What’s not as easy is letting your faithful customers know that you can be found online. Driving traffic to your store can be expensive if outsourced and complicated for small business owners that can’t afford the service of an agency. It seems that SMEs that want to sell online are in a catch 22, they can either set up their own store and risk not reaching anyone, or try and sell their products on established platforms with hundreds of thousands of daily users but be lost in a sea of competitors.
Low tech e-commerce
Digital skills — and easy access to digital transformation training — should therefore continue to make its way to the top of the policy objectives at European level. This would empower also store owners and even customers to benefit more from online marketplaces, or create their own curated shopping experience. Meanwhile though, not every innovation has to be disruptive: one of the most common ways we spotted e-commerce to emerge from the grassroots was by simply putting a sign on the storefront windows reading something like:
“Find anything you like? Whatsapp Video Call us to help you shop”.
Conclusion
Many businesses have been caught unprepared by the transition, and in numerous ways this might be the last call for affirmed SMEs to modernise and adapt, or risk being left out.
Although some sectors have been able to synergise with tech, many of the traditional businesses are lagging behind and are reluctant to adapt to the new realities of doing business. Nonetheless we are seeing an emergence of new SME models strictly intertwined with online presences thanks to the leadership of young, digital born entrepreneurs.
Will this transition be a changing of the guard from the traditional city center boutique to the dropshipping hypebeast clothing brand?
Maybe not. Small boutiques, if they survive, may still experience a big comeback soon: offering a personal connection and the ability to let customers “touch” what they buy. But a certain irrevocable shift towards e-commerce is here to stay and SMEs of all sizes should embrace it as another opportunity to engage, convert and retain a diverse customer base — the key to every business’ success no matter how bad,… or good, the times are.
