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Web stores eye quality, services to lure online shoppers
[April 18, 2006]

Web stores eye quality, services to lure online shoppers


(Comtex Business Via Thomson Dialog NewsEdge)Invalid DateTime. (New World Publishing via COMTEX) --Although a genuine online boom has still not occurred, web-based retail remains the most dynamically developing segment of the domestic retail trade. In 2004, the revenues of online shops increased by an average of 40%-50%. And although the online market lags behind Western levels, in the case of most of its dynamic segments new entrants already face an increasingly saturated market.



Foreign analysts often find the Hungarian online market, and the internet usage habits of Hungarians, reminiscent of those in the United States five to eight years ago. And although the big internet boom is yet to come, the comments of a Siemens analyst at a recent conference held mostly for Western investors are worth considering: In the forthcoming years, internet-based business is expected to boom in Eastern Europe, and since, due to fierce competition, investors can hardly expect outstanding profits in Western Europe and the U.S., "for global investors, the markets of Poland, the Czech Republic and Hungary offer attractive opportunities."

Szabolcs T'mr, research leader of GKIeNET Internet Research and Consulting Kft, told the BBJ that according to his firm's surveys, the total income of online retail stores was about Ft 12 billion (U45.1 million) in 2004, rising to around Ft 18 billion in 2005. The 40%-50% growth in online retail of recent years almost equals the corresponding growth rate on Western markets; nevertheless, to illustrate the still relatively tiny size of online retail, last year the revenue of the entire Hungarian retail sector was Ft 3,840 billion.


In order to show that online shopping still cannot be regarded as widespread, T'mr noted that in 2005 only 3.3% of the population over 15 years of age (280,000 persons) tried shopping over the internet at least once. While this constitutes a certain growth compared to the 0.8% recorded in 2001, it is not very substantial.

According to T'mr, the main problem remains the low level of internet penetration, as the proportion of those with home internet access is still only about 15%-16%, and within that, there is a low proportion of broadband connections required to view more advanced sites. In addition, he added, Hungarian consumers still distrust internet shopping, due to the uncertain quality of products, security of payment, delivery deadlines, etc.

Besides entertainment electronics and books, which can be regarded as the drivers of the domestic e-retail sector, there are hundreds of online shops specializing in specific groups of products, ranging from artificial fertilizers, to perfumes, to food products. According to the surveys conducted by GKIeNET, the number of online shops is increasing; thus in 2005 there were about 20% more online stores on the net than a year earlier. In T'mr's opinion, however, it is still a moot point whether the several hundred web-based shops with low capitalization will be able to increase their efficiency.

T'mr predicted that new entrants to the market may follow the model of new web surfaces that - similarly to traditional plazas - encompass dozens of shops (for example, vasarlas.origo.hu, www.addel.hu, www.webaruhaz.hu, and www.pontplaza.hu). In the case of online plazas, the operator takes care of the marketing of the web surface, which advertises the variety of online shopping opportunities on offer.

This model may provide a favorable opportunity for newly entering web-based stores that lack both capital and experience, and whose most difficult task is to win consumer confidence.

T'mr also commented that for the operators of online department stores, struggling amid increasingly fierce competition, quality and value-added services that they can provide online shoppers may prove more important factors than mere prices.

The virtual mall

One online plaza operator appears to have taken on board the lesson that added services can make a difference.

Judit Nagy, marketing manager of Internet Mall Hungary Kft, said she believes her company's success is partly down to its unique customer service system, whereby customers are constantly kept informed about the status of their orders.

Internet Mall, which already operates

19 online stores in the Czech Republic and boasts annual revenue of approximately

Ft 10 billion, entered the Hungarian market in December 2005, reflecting the increasing significance of the domestic internet market.

According to Nagy, besides its already existing household appliances shop, the company plans to open two new online shops specializing in entertainment electronics and audiovisual devices in May 2006, followed by two further shops in the second half of the year. One of the latter will sell gifts ranging from cheap to designer items, while the other will specialize in car retail.

"For the moment, our customers can only pay by COD or bank transfer, since distrustful Hungarian consumers seldom opt to pay by bankcard," Nagy noted. However, as Lszl- Csuks, the company's country manager, revealed to the BBJ earlier, this is not just a Hungarian trait; in the Czech Republic, which boasts a far more developed online retail market, only 2% of Internet Mall's clients choose to pay by bankcard,

Besides the domestic appearance of this international operator, existing local internet stores have been reporting continuous growth. The turnover of one of the oldest on the local market, eBolt Kft, increased by about 30% in 2005, a trend that has continued in the first months of 2006, according to Ildik- Mecsri, the company's trade and quality control manager. Indeed, she added, the growth has been so pronounced that eBolt has "outgrown" its former site, and is in the process of moving to a new, much bigger one.

The company's profile includes computer technology and consumer entertainment products, as well as household appliances. According to Mecsri, the appearance of Internet Mall has not yet had an impact on eBolt's sales figures. She stressed that in the e-trade business the most highly sought-after products typically belong to the middle and upper price categories, and that for years, the customers of eBolt have been overwhelmingly young (between 20 and 30 years of age) and mostly wealthy, the type of consumers who move with ease on the internet.

(S)mall is beautiful?

Even despite recent growth, the share of e-sales still amounts to just a tiny fraction of the revenues of most Hungarian companies, as neither big domestic firms nor international companies with a local presence have made significant advances in e-commerce. As regards big domestic companies, it is worth mentioning that according to a survey carried out in 2004, only 16% of Hungarian companies refresh their websites daily, while one-quarter do not even have a website at all.

Big players in the traditional offline retail industry visibly stay away from internet trading in Hungary. Nevertheless, although the value of online transactions is insignificant, the impact of the internet on the offline world is becoming increasingly important. In the "click and brick" model, for example, buyers check the desired product on the net before buying it in a physical store.

An analysis published by Forrester Research last year predicted that a boom in online trading in the region can be expected in the next two to three years. Until then, however, it noted that a permanent investment of up to hundreds of millions of forints is required in any new web business.

Given the limited domestic internet penetration, big companies are not yet feeling obliged to appear with shops in cyberspace; apparently, the big players are still choosing to wait and see.

In response to our inquiry, hypermarket chain operator Auchan, which runs a widespread online business in its home market of France, said that due to the relatively low internet penetration it sees no point in launching its online business in Hungary. U.K.-based rival Tesco, which also sells large quantities of food products online abroad, shared this point of view.

Some say that the reluctance of the big players is also a matter of pride; they argue that given the relative underdevelopment of the domestic internet market, the big players are unwilling to risk their positions in traditional commerce by coming second in cyberspace to a smaller, specialist e-trade company. This opinion apparently concurs with GKIeNET's analysis from 2004, which concluded that the most successful companies in online retail are typically those that deal with e-trade as their main profile.

According to eBolt's Mecsri, it is a characteristic feature of e-commerce that the retail web surfaces of renowned companies are not necessarily as successful as the offline company itself - especially since it is difficult to integrate online trading into an already existing sales structure.

According to T'mr at GKIeNET, it is becoming increasingly difficult to differentiate between clearly internet-based shops and those with traditional retail units. Online commerce is gradually changing Hungarian consumer habits; domestic consumers are similar to Spanish or Italian internet shoppers in that they tend to browse for the best prices online, compare them with prices in their corner shop, and check international prices - before finally buying the product offline.

With only six traditional offline shops, the G'Roby network launched its online division in spring 2000, selling food and household chemical products. In order to serve increasing demands, the company increased its fleet of delivery vans and enlarged its warehouse to 700 square meters. At the moment, the company has about 16,000 registered customers, which corresponds to a 28% increase compared to last year.

Sndor Nagy, managing director of G'Roby Netshop Kft, said that the firm's traditional network of shops plays a major part in increasing customer confidence. One of the basic advantages of online selling compared to major traditional chains, he asserted, is that it is possible to react more flexibly to consumer demands, which often vary from settlement to settlement. Furthermore, he added, since the "shelves" of e-shops can carry unlimited amounts of goods, a far bigger selection can be put on display without demanding shelf money from suppliers, making the pricing of these enterprises more competitive.

Behind the Counter is a regular BBJ column that strives to shed light on the latest issues in retail and trade in Hungary. The author can be contacted via editor@bbj.hu.

Budapest Business Journal

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