U.K. E-Commerce Report: Thoughts from Catalyst U.K.

Fish and Chips and Lobster-flavored Crisps...

I'm fresh off the plane from Catalyst UK and wanted to put together some observations from my trip over to London. What's great about Catalyst UK is in a short time span, you can get a very detailed view of e-commerce in the UK and even Europe. There were some interesting trends that I wanted to share that I think our US readers will find of interest.

In this post, I'll start with some Macro observations about e-commerce in the UK and then detail some more micro / e-commerce channel specific observations. I realize some of this is outside of the 'eBay Strategies' purview, but for now this is the best place to put these thought. On the eBay (EBAY) front, eBay UK previewed/discussed something called Multi-Sku that I think is going to have a major impact on sellers, so I'll be doing some more in-depth blogging on that in the near future. Also, everyone at eBay is obsessed about Net Promoter Score (NPS) all of the sudden, so I want to cover that soon as I'm sure we're going to be hearing a lot more about it and it at some point will impact sellers.

Macro view

The economic situation in the UK is very similar to the US. Consumer confidence is way down, the credit problem is massive and unemployment is significantly on the rise. However, on the e-commerce front, it's very different than the US. Before heading over the pond, I did some research and found three sources of 09 UK forecasts:

• IMRG Cappuccino - A shop.org like group of retailers in the UK.
  • They forecast an 08/09 growth rate of 15% - at £50b
• eMarketer - US based online research firm
  • They forecast an 08/09 growth rate of 14% - at £68b
• Forrester - US based research firm (includes Jupiter now)
  • They forecast an 08/09 growth rate of 4-5%

So looking at those numbers, you see a big diversity of forecasts out there. Before landing, I was thinking the Forrester numbers or lower would probably be the best bet. After arriving in the UK and talking to hundreds of retailers, I'm starting to believe the IMRG/eMarketer growth rates could be what we see.

Why is UK e-commerce growing at 15%?

So what's difference in the UK that's going to allow it to grow at 15% vs. the flat to up 5% most forecasts point to in the US?

Well, they say a picture is worth 1k words, so here's one:

This is a picture I took at Piccadilly Circus which is the London equivalent of Times Square. There are 5 intersections here with prime retail space. Guess what, 2 of the most prime spots were vacant with signs like this, not to mention literally 10's and 100's of smaller "High St" shops that were closed. In addition, retail closes at like 8pm and opens at noon, and isn't open on Sunday. Add it up and you have an offline retail environment that is terrible.

Therefore in the UK, the % of retail that is moving from offline to online is really accelerating.

While we've had our share of offline retail failures in the US, it's not nearly at the scale of what they are seeing in the UK. Plus we have retailers that are actually open with some degree of convenience.

Now let's dig into the micro on a per-channel basis.

Marketplaces - eBay

I published the official view of eBay.co.uk's MD, Mark Lewis in the last posts. On top of that, I talked to most of the UK's top sellers and have to say they are much more optimistic about '09 than their US counterparts. A couple of nuances with eBay.co.uk that you may not be aware of:

• eBay.co.uk got rid of the store listing type completely - all you have there now is auction or FP30 - period.
• eBay.co.uk has it's own BM algorithm - they pull different levers than the US and have different fp/auction mixes
• Near-free listing - You can buy an anchor store for approx $500/m and then you get all-you-can-eat listings for $.01 Every seller I talked to does this.

So you have a different market there in many ways than the US. I have no idea if that's helping eBay.co.uk grow faster than the US or if it's largely the macro environment helping them. I raise these items because frequently we see eBay move things from the UK playbook to the US if they are deemed successful.

While they are more optimistic about growth in '09 than the US, they do share many of the same concerns:

• DSRs - DSRs are disliked in the UK as well. Most UK sellers are pan-European and they can suffer as their non-domestic business grows. Also S+H is more expensive there so they have a hard time getting the S+H (P+P in uk-speak) up to the 4.7+ levels.
• Free ship - eBay admitted that UK sellers aren't adopting at the levels they want. Talking to sellers, it would just be too much of a margin hit on fees and what not to do this. As I said, eBay hinted/said they are going to force free ship in some categories (I'd guess media is an easy one as Amazon (AMZN) is eating them alive here)
• Advertising - Our UK friends have been hit with eBay advertising much harder than we have. At one point in Q4, there were 3 banners on the front page for competing retailers and the sponsored links were ON TOP of the eBay listings in search.
• Search - No, they don't like BestMatch in the UK either. Folks in the UK are (rightly so) very obsessed with recent-sales scores and really get angry when eBay tweaks stuff around and are frustrated with the 'black box' nature of BM/RS.
• Auctions - As previously noted the UK is going FP even faster than the US - with the removal of stores listings (SIF in eBay-speak) and near free listing with anchor stores, the site is swimming with fixed-price listings. Auctions have suffered as they get less exposure via BM and are just outnumbered by FP listings.

I do want to make sure everyone understands that while these are 'top eBay UK seller concerns', eBay seems to be growing and not shrinking, so generally the sellers are happier.

Marketplaces - Amazon

The seller business for Amazon UK is a good 3-4 yrs behind the US, but growing at a pace to catch up in 2yrs or less. We had a consumer panel and one interesting aspect of that was everyone on the panel still thinks of Amazon as book/music/video, so Amazon has some work to do there. I suspect, just like the US, once they get the virtual shelves stocked with great third-party product, they will turn that on in an increasingly bigger way.

Search

Search is an easy one. Google (GOOG) has 80% market share over there and has torqued the large agencies by getting rid of their kick-back program. Thus more and more retailers from large to small are going direct. Booyah!

Comparison Shopping Engines

CSE is interesting in the UK. Based on Comscore data, 40% of the online UK audience visited at LEAST 1 CSE in Feb. That trend gets into the mid 50's for the Holiday selling season. Compare this with 34% for the US and 27% for EU - the UK has the highest CSE adoption of those three e-commerce regions. We see many of our sellers that started on eBay, get aggressive next on CSE and then do Amazon, where in the US the path is interestingly eBay, Amazon, CSE.

Those are the top observations that I had to offer from the trip. It's great to see a geography out there that seems to be bucking the global recession and is keeping the e-commerce dream alive and kicking.

If any Catalyst UK attendees have more to add or if you have questions about UK e-commerce, feel free to comment!

Disclosure: I am long Google and Amazon.

Comments

[Philip Cohen:]

Scott, while you were in the UK did you figure out why eBay UK, unlike eBay elsewhere, has not found it necessary to also "mask" the auction "winning" bidder? You could also try to figure out an explanation for eBay US and elsewhere periodically changing the "a***b" style alias. Of course, the only possible purpose served by this periodic changing of these aliases is to make it effectively impossible for genuine bidders to, over time, keep track of the shill bidders that eBay can't be bothered doing anything about.
See: www.auctionbytes.com/f...

Apr 05 03:00 PM

[Wake-Up!:]

I'm really glad to hear that Amazon still hasn't turned up the heat on eBay yet. According to your consumer panel, everyone still thinks of Amazon as books, music and videos. With so much dissatisfaction from both buyers and sellers alike concerning eBay these days, once Amazon finally turns on the burners, eBay may be looking more and more like a crispy burned out cinder.

We all know who the champ is and we all know who it was that tried to take them on and failed miserably. It's nice to hear that Amazon hasn't even begun to eat their competition's lunch yet!

Apr 06 10:21 AM

[leapingcat:]

Hi Scott, thanks for such a good overview of the UK retail market from a short visit. A lot of High Street shops have closed down recently, some due to the collapse of large groups such as Woolworths and Zavvi (music, dvds), but a lot due to the competition fron large out-of-town (and our distances are much less than yours) shopping centres and supermarket chains such as Asda (part of Walmart) and Tesco, who are the UK's largest retailer. These larger stores do tend to open till midnight, sometimes 24 hours, and 10am to 4pm on Sundays (due to our peculiar licensing laws for alcohol)
Online shopping is growing steadily, perhaps due to us becoming more confident in giving our credit card details online, but the changes to Ebay, including free auction listings for items with a starting price of 99p for private sellers do not seem to have translated into higher sales, just more listings especially at the bottom end of the market. For some auctions, eg autos bidder identity is hidden, they become Bidder 1, Bidder 2, etc, which of course encourages shill bidding inthose categories where it is most likely to occur.
On the other hand Amazon is going from strength, although as you say it is still essentially in books and media, but the (largely) irrelevant sponsored links indicate that it is widening its horizons.

Apr 06 11:08 AM