E-commerce is risky business

The market for online retailing in the US currently dwarfs that of Europe. According to a recent survey by Jupiter Communications, online sales in the combined market of France, Germany and the UK will be worth about $200m (125m) by the end of the year. This compares with a figure of $2bn (1.3bn) for the US.

While this disparity may come as no surprise, the report makes some interesting comparisons between the two markets. It should encourage major European retailers who have yet to establish online operations.

One of the key insights that has emerged from the development of the US online retailing industry is the importance of strong brand values in cementing a relationship of trust between consumers and retailers. Once achieved, this bond can lead to levels of consumer loyalty that are hard to find in the high street.

As a pioneer of online-only retailing in the US, Amazon.com was, by definition, unknown to consumers. It took the book trade by surprise, and so had time to establish itself as the trusted online brand before its traditional rivals could respond.

Because the European online market has developed more slowly, high street retailers still have the opportunity to carry their brands over to the Web. Amazon had to build a brand name from scratch; but Europe’s retailers will be able to leverage their already powerful brand strengths.

Retailers who are adopting a wait-and-see position over the Web’s potential may be interested in the results being achieved by high street retailers who have already risked a major commitment to it. The clothes retailer Gap, for example, says it is enjoying encouraging sales through its Website, which it claims is attracting four times as much traffic as either of its two largest stores. Sadly, Gap will not disclose the degree to which this volume traffic translates into actual sales.

There remain a number of significant obstacles to the development of Europe’s online retail industry. The Jupiter report reminds us that among the biggest is the difficulty that e-commerce operations experience in attracting venture capital.

In addition, many companies with readily available funds are put off by the scale of the investment necessary to stand any chance of success. Tempting though the numbers appear to be, there can be no guarantee that their investment will pay off.

It would be foolish for any business to rush into online retailing without fully weighing the risks and potential rewards involved. But the evidence suggests that the strongest and most visible high street brands have a key advantage when building a loyal consumer base online.

The longer they delay, the more chance there is that this advantage will slip away, opening the door for more innovative newcomers seeking to become Europe’s online retail brands of the future.

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