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Uzņēmējiem - 2021 02 01
e-komercija | uzņēmējdarbība

E-commerce breakthrough – will we be buying bricks online in the future?

E-commerce breakthrough – will we be buying bricks online in the future? Foto: Rosie Kerr, Unsplash

Covid-19 background has driven business e-commerce growth in 2020, given a chance to thoroughly recover and reach unprecedented indicators both in Latvia and across the Baltic region. Those who previously used digital solutions are now enjoying the growth. In addition, more and more companies are seizing the opportunity to transform. Nevertheless, some significant business challenges will slow down the upward curve. Without identifying them in time, the growth of e-commerce could be just a short-term leap.

E-commerce experiences significant growth in the Baltics

In 2020, e-commerce experienced strong growth due to Covid-19, but this is unlikely to continue in the medium term, but will rather mark a direction towards further, more focused development. According to SEB’s latest e-commerce study the share of e-commerce in retail in the Baltics will exceed 10% in 2020. By 2024, the share of e-commerce in the Baltics will increase to 12% and account for almost 30% of retail sales growth, or in absolute terms, the volume will increase by EUR 1.2 billion to EUR 3 billion.

According to SEB data, the fastest growing e-commerce sector in Latvia in the second and third quarters of last year was the household goods category, which grew four times faster than previously forecast. The fashion and electronics category of goods in Latvia also recorded a growth rate twice as high as the industry’s pre-Covid-19 forecasts.

In terms of volume growth, the clear frontrunner in Latvia in 2020 was grocery retail and ready-to-eat food e-commerce, where volumes tripled in Latvia compared to the corresponding period in 2019, far exceeding pre-Covid-19 forecasts. During the first wave of Covid-19, e-commerce payments for groceries tripled; during the second wave, the records set in April have already been surpassed.

We are seeing more and more companies that have not used e-commerce solutions before or have shied away from them. Within a short time, they are now operating their online shops and offering products and services in the digital environment. Large market players such as household and building supplies retailer Depo, home furnishings retailer IKEA, retailer RIMI, food manufacturer Orkla Latvija and Latvian green pharmaceuticals company Silvanols have become increasingly active in e-commerce solutions in 2020.

According to SEB's e-payment statistics, e-commerce volumes for individuals doubled in 2020 compared to the previous year. In the corporate sector, 300% more customers used card payment services online last year than the year before. At the end of 2020, twice as many companies used the payment initiation solution as at the beginning of the year.

Five challenges for entrepreneurs targeting e-commerce development in the coming years

Currently, the obstacles to the further development of e-commerce are the e-commerce capabilities and capacity of retailers, which will not reach a level that will tip the balance between traditional brick-and-mortar shops and online shopping in favour of the latter for some time to come. Geographical accessibility and digital skills of the population also pose challenges for sustainable further development. In Latvia, e-commerce standards are not yet as mature as in other, more developed markets, where, for example, free delivery, next-day delivery or free returns of goods are common practices offered by market leaders that everyone can rely on. What are the biggest obstacles to the further growth of business e-commerce?

Lack of time. While technology is evolving rapidly, businesses need time to digitise. Consumers also need to get used to the new solutions. Large companies cannot build a successful and competitive e-commerce sales channel overnight. Small companies can be fast and flexible but will not be able to serve all consumers. At the end of the year, we saw large queues and insufficient capacity to meet demand even at large retailers.

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Population density and purchasing power are still holding some retailers back from investing in e-commerce. For now, of course, e-commerce is better than a closed store. In the long run, however, the question remains whether these retailers will continue to invest in order to grow. E-commerce in the Baltics and Latvia is and most likely will remain geographically limited and mainly concentrated in the big cities. Moreover, shopping carts need to be more expensive to justify assembly and delivery costs in order for shipping to be free or cost less. Not all consumers currently have high enough purchasing power, which means that consumption will become more expensive for smaller purchases.

Process excellence, speed, and diversity of supply chains. If a retailer has great shops and excellent customer service, it does not mean the same level can be achieved in the digital environment. It is a huge challenge at the micro level: product assortment, availability, digital placement, all of which has to go hand in hand with the knowledge and professionalism of the staff. The complexity of supply chains for different goods does not make the process any easier either. For example, the delivery time for frozen peas or a mobile phone varies widely. There is also a gap between first need goods and other goods. Businesses are actively addressing this problem by offering "click and collect" and "drive-in" options, i.e., collecting goods from the shop. This is clearly cheaper than home delivery, but even in this case, companies that are closer to the consumer will be better off than their competitors.

Focus on the user experience – online and on-site purchases. Many companies today are developing new solutions in the digital environment at a rapid pace, but often do not pay enough attention to the needs of the user – how convenient, easy, and intuitive is it to buy a particular product or service. Some of the online stores make the process complicated, confusing, and inflexible for the buyer, which reduces the desire to shop.

User experience is one of the most important factors that determine whether customers will use the solutions and whether e-commerce will continue to grow in the near future. The same goes for the physical environment and receiving goods on the site- whether the customer's experience of receiving goods has been considered, as well as the handling of customer queues and overall flow.

Consumer inertia and the power of habit. For one thing, it is a matter of trust, which manifests itself, for example, in making more expensive purchases without being able to see them in person. For another, customers often find the return policy and logistics quite complicated and time-consuming. There are also differences in the way customers choose and use different products: Many household and beauty products are less flexible to adapt to e-commerce, as consumers still prefer a strong physical experience with the product and the retailer.

We expect e-commerce to continue to grow in the Baltic region, driven primarily by changes in demographics and customer needs. You could say that during Covid-19 we quickly approached the peak of e-commerce growth, where it no longer appears to be a trend or where a peak is expected. Reality is setting in – for businesses, the previous outlook becomes a new daily agenda with complex practical challenges. The future development of e-commerce will largely depend on how companies can deal with the challenges.

Ints Krasts
member of the board at SEB

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