Ebiz and Retail 2003 II

8/8/2019 Ebiz and Retail 2003 II

http://slidepdf.com/reader/full/ebiz-and-retail-2003-ii 1/52

ICT & e-Business in the

Retail Sector

European CommissionEnterprise Directorate General

e-Business, ICT Industriesand Services

The Europeane-Business

Market WatchSector ReportNo. 12 II/ July 2003

12 II



Disclaimer

Neither the European Commission nor any person acting on behalf of the Commission is responsible for the use

which might be made of the following information. The views expressed in this report are those of the authors and

do not necessarily reflect those of the European Commission. Nothing in this report implies or expresses a

warranty of any kind. Results from this report should only be used as guidelines as part of an overall strategy. For

detailed advice on corporate planning, business processes and management, technology integration and legal or

tax issues, the services of a professional should be obtained.

Acknowledgements

This report was prepared by Databank Consulting (Milan, Italy) on behalf of the European Commission,

Enterprise Directorate General. It is part of a deliverable in the context of the European e-Business Market

W@tch (short name: e-Business W@tch ), which is implemented by empirica GmbH in co-operation with DIW

Berlin and Databank Consulting and with support of Berlecon Research (Berlin) on behalf of the European

Commission based on a service contract running from January 2002 until June 2003. The consortium gratefully

acknowledges the comments and contributions of Prof Enrico Colla from Negocia (Business School of Paris

Chamber of Commerce) in preparing this report.

Contact

empirica GmbH

Oxfordstr. 2

D-53111 Bonn

[email protected]

DIW Berlin

Königin-Luise-Str. 5

D-14195 Berlin

[email protected]

Databank Consulting spa

Corso Italia 8

I-20122 Milan

[email protected]

Rights Restrictions

Any reproduction or republication of this report as a whole or in parts without prior authorisation is strictly

prohibited.

Bonn / Brussels, July 2003



Retail

3 July 2003

Table of Content

In t ro du c t ion ................................................................................................................5

The Ret ail : Sec t or Profi le & e-Busin ess .....................................................................7

1 Ec ono m ic pr of il e ..................................................................................................7

1.1 Definition and focus................................................................................................................7

1.2 Industry statistics....................................................................................................................7

1.3 General economic trends and challenges............................................................................10

2 Us ag e of ICT & e-bus ine ss .................................................................................1 4

2.1 The role of ICT and e-business............................................................................................14

2.2 ICT infrastructure and skills development in the sector .......................................................16 2.2.1

ICT infrastructure ................................................ .................................................... ................ 16

2.2.2 IT skills development .................................................. ....................................................... ..... 19 2.3 E-business activities and impacts ........................................................................................22

2.3.1 Internal processes.................................... ........................................................ ....................... 22 2.3.2 Processes of the extended enterprises......... ........................................................... ............... 22 2.3.3 Purchasing............................................... ....................................................... ........................ 24 2.3.4 Marketing and sales........... .................................................... ................................................. 30

2.4 E-business development 2002 – 2003: main trends............................................................38

3 Summary of main findings..................................................................................43

3.1 Economic implications..........................................................................................................44 3.1.1 Implication for the individual enterprise........ ........................................................... ................ 44

3.1.2 Implication for the industry structure ................................................... .................................... 46 3.2 Policy issues.........................................................................................................................47

Refe re nc es ................................................................................................................4 9

Ann ex : Met hodo log y of t he e-Busi ness Survey 2003 ...............................................50



Retail

July 2003 4

Index of tables and figures

Tables

Table 1-1: Structure of the retail trade sector (G52) in the EU 2001.....................................................................................7 Table 1-2: Turnover and employment of total retail trade (G52) in EU countries 2001 ........................................................8 Table 1-3: Structure of grocery distribution* in Europe, 2001 ...............................................................................................9 Table 1-4: Evolution of retail trade volumes, 1995/2002 (1995=100) ...................................................................................9 Table 1-5: Supermarkets and hypermarkets: increases in sales over the previous year ...................................................12 Table 1-6: Market share by volume of private labels, by sector and country......................................................................13 Table 2-1: Retail: Availability of ICT infrastructure across countries (2003) .......................................................................17 Table 2-2: Retail: Availability of ICT infrastructure (2003)...................................................................................................17 Table 2-3: Retail: IT training offered to employees across countries (2003).......................................................................21 Table 2-4: Retail: IT training offered to employees (2003) ..................................................................................................21 Table 2-5: Retail: Usage of online technologies (2003) ......................................................................................................22 Table 2-6: Retail: Usage of online technologies within the value chain across countries (2003) .......................................23 Table 2-7: Retail: Usage of online technologies within the value chain (2003)...................................................................23 Table 2-8: Retail: Usage of special e-business software (2003).........................................................................................24 Table 2-9: Retail: Experience in online procurement across countries (2003)....................................................................25 Table 2-10: Retail: Online procurement channels across countries (2003) ........................................................................25 Table 2-11: Retail: Online procurement channels (2003)....................................................................................................26 Table 2-12: Retail: EDI usage across countries (2003).......................................................................................................30 Table 2-13: Retail: EDI standard usage across countries (2003)........................................................................................30 Table 2-14: Retail: Enterprise with a website across countries (2003) ...............................................................................30 Table 2-15: Retail: E-commerce experience across countries (2003) ................................................................................34 Table 2-16: Retail: E-commerce channels used for online sales (2003).............................................................................36 Table 2-17: Retail: Degree of integration of e-commerce system (2003) ...........................................................................36 Table 2-18: Retail: Technical features of e-commerce systems (2003) ..............................................................................36 Table 2-19: Retail: Industry and SMEs Connectivity Index (2003)......................................................................................38 Table 2-20: Retail: IT skills gap recruitment efforts and difficulties experienced, 2002-2003.............................................39 Table 2-21: Retail: Degree of satisfaction with e-business experience (2003) ...................................................................40 Table 2-22: Retail: Expected expenditure in e-business (2003/04).....................................................................................41

Figures

Figure 1-1: Productivity per employee in retail stores in Europe, 2001.................................................................................8 Figure 1-2: Mapping the competitive scenario in the retail sector.......................................................................................11 Figure 1-3: Internationalisation index* of a number of European retailers ..........................................................................12 Figure 2-1: Impact of e-business solutions on determinants of ROI ...................................................................................15 Figure 2-2: Retail: Importance of e-business in 2003 as perceived by companies.............................................................16 Figure 2-3: Retail: Internet connection speed: companies having Internet access with <2 Mbit/s and >2Mbit/s (2003)....19 Figure 2-4: Retail: Recruitment of IT specialists, intensity and difficulties (2003) ...............................................................20 Figure 2-5: Retail: Companies supporting IT and networking skills development (2003) ...................................................21 Figure 2-6: Retail: Enterprises procuring online (2003).......................................................................................................24 Figure 2-7: Retail: Share of online procurement on total procurement (2003)....................................................................25 Figure 2-8: Retail: Impact of procuring online (2003) ..........................................................................................................26 Figure 2-9: Retail: Participation in B2B e-marketplaces (2003) ..........................................................................................27 Figure 2-10: Flow of information exchanged through the EDI network ...............................................................................29 Figure 2-11: Retail companies with a website (2003)..........................................................................................................31 Figure 2-12: Retail companies selling online (2003) ...........................................................................................................32 Figure 2-13: Selling online Unique audience – E Commerce Sites, December 2002.........................................................32 Figure 2-14: Retail: Share of online sales as % of total sales (2003) .................................................................................34 Figure 2-15: Retail: Impact of selling online (2003).............................................................................................................37 Figure 2-16: Retail: Adoption process of online procurement .............................................................................................39 Figure 2-17: Retail: Adoption process of selling online .......................................................................................................40 Figure 3-1: Retail: Impact of e-business on companies ......................................................................................................44



Retail

5 July 2003

Introduction

European policy is in a number of areas, including economic, innovation and SME policies,increasingly focused on promoting the business techniques and new ways of working which will

provide the economic and social foundation of the information society in Europe. To help policy-

makers define their programmes, and to monitor the effectiveness of these policies, some indication of

progress and of areas requiring active support is essential. At the same time, many areas of European

business lack information about the speed of technological update in European markets, which they

expect to have a strong impact on their global competitiveness.

Despite the increasing number of studies and market research on electronic business, and especially

on electronic commerce, there used to be a lack of reliable empirical information about the extent,

scope, nature of and factors affecting the speed of e-business development in Europe at the sectoral

level in an internationally comparative framework. This report aims to provide such information for the

Retail Sector.

The e-Business W@tch

This report has been published in the framework of the European e-Business Market Watch. This is a

market observatory established by the European Commission, DG Enterprise. Laying the groundwork

for a continuous facility, the e-Business W@tch monitors and assesses the maturity of electronic

business in 15 industry sectors across all EU Member States, including seven manufacturing and

eight service sectors. At least two reports are to be published on each sector during the 18-month life-

time of the e-Business W@tch (cf. publication schedule on the following page).

The research presented in these Sector Impact Studies is intended to help to benchmark progress and

to assess how electronic business development can be further enhanced at the European level or at

Member State level with the objective to strengthen the competitiveness of European businesses.Special attention is paid to the SME dimension of e-business. All reports, as well as an extensive

collection of statistics on electronic business, can be downloaded from the website of the market

observatory at www.ebusiness-watch.org.

The e-business decision-maker surveys 2002 and 2003

Most of the data presented in this report are based on the recent European e-Business Survey 2003.

The fieldwork of this enterprise survey was carried out by INRA Germany GmbH in co-operation with

its international partner organisations in March 2003 using computer-aided telephone interview (CATI)

technology. In total, 3,515 interviews with decision-makers in European enterprises were conducted.

The survey included enterprises from five Member States (Germany, Spain, France, Italy and the UK)

and from seven sectors of the economy. On average, about 100 interviews were conducted withenterprises from a sector in each of the five countries (i.e., 500 interviews per sector in total). More

detailed information about the survey methodology is provided in the Annex to this report.

This was the second e-business decision-maker survey of the e-Business W@tch after the (larger)

first survey in June/July 2002 which had a scope of 9,264 interviews and covered businesses from 15

sectors. In 2002, interviews were carried out in all 15 EU Member States, but only in the four largest

states (Germany, France, Italy and UK) were all sectors covered. The first survey for the media and

printing industries was carried out in the following countries: Germany, Spain, France, Italy and the

UK.



Retail

July 2003 6

Sector Impact Studies of the e-Business W@tch: Publication schedule

No. Sector Date

1 Food, beverages and tobacco industry

• Report I: Economic background / e-business issues

•

Report II: The statistical picture (Survey 2002)• Report III: Recent trends (Survey 2003)

July 2002

Feb. 2003July 2003

2 Chemical industries


• Report II: The statistical picture (Survey 2002)

• Report III: Recent trends (Survey 2003)

July 2002

Feb. 2003

July 2003

3 Transport equipment manufacturing




July 2002

Feb. 2003

July 2003

4 Financial sector



July 2002

Feb. 2003

5 Insurance and pension funding services• Report I: Economic background / e-business issues


July 2002

Feb. 2003

6 ICT services




July 2002

Feb. 2003

July 2003

7 Health and social services



July 2002

Feb. 2003

8 Media and printing

• Report I: Background, issues and key figures


Oct. 2002

May 2003

9 Metal products manufacturing



Oct. 2002

May 2003

10 Machinery and equipment manufacturing



Oct. 2002

May 2003

11 Electrical machinery and electronics


• Report II: Recent trends (Survey 2003)

Oct. 2002

July 2003

12 Retail



Oct. 2002

July 2003

13 Tourism• Report I: Background, issues and key figures


Oct. 2002

July 2003

14 Real estate sector



Oct. 2002

May 2003

15 Business services



Oct. 2002

May 2003



Retail

7 July 2003

The Retail:Sector Profile & e-Business

1 Economic profile

1.1 Definition and focus

The e-Business W@tch analysis focuses on the retail trade, particularly retail sales in non-specialised

stores with a prevalence of food and beverages (52.11) or non-food items (55.12), or in stores

specialising in the sale of new goods other than food and beverages or cosmetics and

pharmaceuticals (52.4).

NACE Rev. 1 Activity

52.11 Retail sale in non-specialised stores with food, beverages or tobacco predominating

52.12 Other retail sale in non-specialised stores

52.4 Other retail sale of new goods in specialised stores (a)

a) This type of specialised point of sale is defined by the difference with respect to the assortment of other stores specialisingin:

• food, beverages and tobacco (NACE Code 52.2)

• drugs, medical products, cosmetics and perfumery products (NACE Code 52.3)

• and includes 8 product categories: textiles (NACE Code 52.41), clothing (52.42), shoes and leather goods (52.43),furniture and lighting (52.44), household appliances, radios and televisions (52.45), hardware, stains and paints, glass(52.46), book, newspapers, magazines and paper goods (52.47), other products (52.47): office machines andequipment, eyewear, jewellery, toys, sporting goods, fuel, boats, plants and flowers (list not exhaustive)

1.2 Industry statistics

Production value and Employment

Retail trade is one of the most important sectors in the EU economy, with a turnover which reached

2,000 billion Euro (2001). The most significant share (over 40% of the sector) is represented by the

category of non-specialised points of sale offering an assortment, including both food and non-food

products. In terms of employment, retail trade in specialised retail outlets is the most important

category, accounting for 43%. Together the two categories account for over three quarters of total

turnover and employment in the sector.

Table 1-1: Structure of the retail trade sector (G52) in the EU 2001

TurnoverNo personsemployed

EUR (m)* persons*

52.1 Retail sale in non-specialized stores 816,153.7 4,199,272

52.2 Retail sale of food, beverages, tobacco in specialized stores 117,667.8 1,136,900

52.4 Other retail sale of new goods in specialized stores 720,231.9 5,449,571

52 Retail trade, repair of personal and household goods 1,960,951.2 12,542,424

* EU-13 = EU-15 excluding Greece and Ireland.

Source: Eurostat New Cronos, estimates by DIW Berlin.

Overall consumption in the markets of France, Italy, the United Kingdom and Germany represents a

similar proportion (77% in the 15 EU nations excluding Greece and Ireland). This sample is less

representative if we take into account total employment, which has a rather heterogeneous distribution

in different countries in the Union.



Retail

July 2003 8

Table 1-2: Turnover and employment of total retail trade (G52) in EU countries 2001

Turnover No. persons employed

EUR (m)* % persons* %

B 53,457.8 2.7 281,347 2.2

DK 29,810.5 1.5 205,010 1.6

D 637,922.0 32.5 2,529,455 20.2

E 157,998.5 8.1 1,595,132 12.7

F 293,709.2 15.0 1,402,178 11.2

I 215,650.6 11.0 1,750,053 14.0

L 3,274.0 0.2 18,157 0.1

NL 73,299.8 3.7 719,663 5.7

A 36,695.7 1.9 273,815 2.2

P 29,096.9 1.5 391,729 3.1

FIN 24,195.1 1.2 108,603 0.9

S 42.,1.4 2.2 249,825 2.0

UK 363,529.8 18.5 3,017,447 24.1

EU-13 1,960,951.3 100.0 12,542,414 100.0

* EU-13 = EU-15 excluding Greece and Ireland.

Source: e-Business W@tch (2003)

The figure on productivity per employee reveals rather marked differences among individual countries:

an employee in Germany generates three times more turnover than an employee in Portugal.

Generally speaking, countries in Mediterranean Europe (with the exception of France) have lower

levels of productivity than those in continental and northern Europe (with the exception of the UK).

Figure 1-1: Productivity per employee in retail stores in Europe, 2001

Source: developed by Databank from Eurostat New Cronos

Taking a closer look at the distribution structure and shares in grocery distribution – the most

important category in non-specialised distribution (NACE 52.1) – it is apparent that the productive

structure is rather fragmented in countries like Spain, Italy, Portugal and Greece, where so-called

traditional retail outlets account for a particularly large percentage (between 75% and 90%) in terms of

numbers but only a very small share of the market.

With the exception of Ireland and Italy, where the level is slightly lower, modern distribution has a

market share of at least 90%, demonstrating that the European distribution system – with slight



Retail

9 July 2003

differences in the incidence of the different forms it may take in the various countries – is dominated

by modern distribution. The structure of the formula is association and/or integration, in some cases

preserving independent company operation but striving to achieve efficiency, organisation of

processes, and economies of scale.

Table 1-3: Structure of grocery distribution* in Europe, 2001

Hypermarkets Supermarkets Superettes Total modern dist. Traditional Total

Stores Share Stores Share Stores Share Stores Share Stores Share Stores

A 74 12.2 2,207 61.2 2,610 23.8 4891 97.1 1,765 2.9 6,656

B 78 14.3 1,919 74.7 2,642 7.9 4,639 96.9 5,252 3.1 9,891

DK 91 17.1 1,448 57.1 1,296 14.8 2,835 89.1 224 10.9 3,059

FIN 128 26.8 1,127 48.7 1,728 21.8 2,983 97.4 1,300 2.6 4,283

F 1,133 52.9 8,560* 31.65* 27,826** 15.4 34,699 92.0 n.a n.a 37,519

D 1,566 26.2 17,725 54.4 16,672 14.7 35,963 95.3 28,147 4.7 64,110

UK 1,088 56.5 3,857 32.1 28,876** 11.4 33,821 100.0 n.a 0.0 33,821

EL 57 17.0 1,186 52.5 2,757 20.7 4,000 90.3 13,359 9.7 17,359

IRL*** 44 10.4 348 34.1 6,,100 38.8 6,492 83.3 2,626 16.7 9,118

I 428 17.8 9,932 45.9 13,186 17.6 23,546 81.2 120,679 18.8 144,225

NL 50 n.a 3,065 n.a 2,114** n.a 5,229 n.a n.a n.a 5,229

P 46 35.8 820 47.2 1,621 6.5 2,487 89.5 23,567 10.5 26,054

E 318 33.3 4,711 35.8 8,169 18.4 13,198 87.5 48,849 12.5 62,047

S 117 17.8 1,809 67.3 2,078 12.8 4,004 98.0 1,136 2.0 5,140

* including discount stores; ** including traditional stores; **** 2000 figures

Source: Databank Consulting processing of AC Nielsen figures

Figures on the evolution of retail trade over the past year reveal an overall growth rate by volume of

zero in the Euro area, within which the bigger economies (France, Germany, Italy) are in greater

difficulty than other countries such as Greece, Sweden and Denmark or the United Kingdom.

Table 1-4: Evolution of retail trade volumes, 1995/2002 (1995=100)

2002 volumes as compared to 1995 2002/2001

Belgium 117 -1.6%

Denmark 112 3.7%

Finland 133 3.9%

France 106 -0.2%

Germany 99 -2.0%

Greece 135 19.5%

Ireland 153 1.3%

Italy 103 0.0%

Netherlands 115 -0.9%

Portugal 162 1.6%

Spain 117 2.5%

Sweden 128 4.9%

UK 135 5.3%

Euro Zone 109 0.0%

Source: OECD 2002

Long-term comparison obtained by comparing 1995 volumes with 2002 volumes confirms that growthhas been slower in the bigger markets. Here too the United Kingdom is the exception, belonging to the

group of countries that has grown at a higher rate, along with Ireland, Greece and Portugal. This trend

provides important information to be taken into account in understanding the context of the competitive



Retail

July 2003 10

scenario in the trade, characterised in recent years by rather intense geographical diversification on

the part of German and, above all, French retailers, in search of markets where competition is less

intense and where there are better prospects for overall growth.

1.3 General economic trends and challenges

In recent years the retail trade sector has undergone a deep-seated reorganisation of supply (refer to

e-Business Watch, Report 1- Retail: “Background, issues and key figures” , October 2002, for an in-

depth analysis). Here we shall look at more recent evolutionary trends, and those which may have an

impact on the dissemination of e-business in this sector.

In western Europe the sector is undergoing a process of consolidation and rationalization, both as a

result of the general slowdown in consumption and due to the dynamic of rapid growth in the action of

a number of chains. This is directly affecting network technologies, called upon to play an important

role in the process of commercial and administrative integration of previously separate entities.

The general slowdown in growth of consumption in the EU nations and the difficulties some dealersare having making sufficient income, reveal the need for rationalization of activities, through attempts

to improve network efficiency, cut structural costs and improve financial structure (less capital tied up

in relation to turnover).

Prospects for widening the European Union to include central and eastern European nations are

already driving this thrust for expansion in that direction in the short term. Adhesion to a common

legislative framework eliminates the barriers posed by a number of candidate nations to commercial

penetration by big European retailers. At the same time, the issue of the balance between small local

businesses and large organized enterprises in the trade is revealed as somewhat problematic, as the

two forms will soon find themselves facing off.

In an even broader geographical (and probably temporal) perspective, opportunities for penetration of

new markets may be interpreted through a matrix which takes into account the positioning of variouscountries/areas with respect to legislative variables and the degree of concentration of supply. The

matrix provides the ideal reference framework for identification of the countries of origin and

destination of the retailers’ action: those which concentrate the centre of their activities in the countries

in the upper right hand corner of the map are potentially motivated to expand their business,

preferably into countries located at the opposite corner of the map.



Retail

11 July 2003

Figure 1-2: Mapping the competitive scenario in the retail sector

Low High

COMPETITIVE SCENARIO (degree of concentration of the market)

Africa

AV AI LABI LI

TY O F AR E AS AN D R E

Av ail abi lity of ar ea

s

W ea k re gul ati

Sh or

ag e of ar ea

Str o

n

g re gu l ati on

China

East

Europa

Poland

USA

Germany

UK

Japan

France

South

America

Source: Databank Consulting

This process of internationalisation will be greatly affected by the strategies of individual dealers who,

as noted in the last report, are characterised by different levels of geographical diversification. IGD

(Institute Grocery Distribution) has prepared a synthetic index which, in addition to the number of

countries in which the retailer is active, also takes into account other variables expressing the retailer’s

propensity to operate on an international scale. The results reveal that Carrefour is the retailer mostinternational in scope, but also reveal that, in comparison with retailers in other parts of the world,

European chains are generally more active internationally and therefore better prepared to take

advantage of opportunities for penetration of areas offering greater potential for growth. In penetration

toward central and eastern European nations, however, there are localisation and logistics factors

which may give a competitive edge to retailers based in Germany.



Retail

July 2003 12

Figure 1-3: Internationalisation index* of a number of European retailers

49

50

51

54

59

6080

83

Aldi (D)

Auchan (F)

Casino (F)

Delhaize de Lion (B)

Tesco (UK)

Metro (D)Ahold (NL)

Carrefour (F)

*The index is calculated taking into account turnover abroad, number of countries involved in the retailer’s business, market

shares and investment abroad and cross-border movement of management

Source: Institute Grocery Distribution, 2002

Demand, on the other hand, is feeling the impact of the rediscovery of the neighbourhood formula and

a drop in appreciation of stores which are growing larger and larger. Despite the fact that inflationary

thrusts and slowdown are increasing consumers’ awareness of the price factor, hypermarkets are

performing poorly, or at least worse than the other formats, on the main European markets. The

reasons lie in the fact that points of sale such as supermarkets, which allow customers to achieve the

savings typical of modern stores with all the convenience of a store located close to home, are

attracting increasing attention in comparison with formulas such as the hypermarket which emphasise

economic savings but cannot, for structural reasons, satisfy the criterion of convenient location.Recent trends and prospects for intermediate (from the size point of view) formulas, favoured by

dynamics in demography (ageing of the population) and legislation (legislation regarding selling below

cost and opening of large stores) may be interpreted as a positive signal for promotion of e-commerce.

It is true that these formulas overlap with an important basic need which is satisfied by online sales

(the need to save time), but on the other hand, it is also true that they confirm the presence of

potentially significant demand even for relatively common products, and that the e-commerce could be

based on more than just competitive prices and availability of an assortment which cannot be found in

physical stores.

Table 1-5: Supermarkets and hypermarkets: increases in sales over the previous year

1999 2000 2001 2002(six months)

Hypermarkets +2.8 +3.4 +1.9 +1.2

Supermarkets +3.5 +5.5 +4.5 +2.8

Source: Agra processing of FCD – Féderation des enteprises du commerce et de la distribution - data

Another evolutionary aspect which may affect the success of e-business in the sector is represented

by the growing popularity of demand in relation to products with private labels.

According to a survey conducted by Plma (the private label manufacturers’ association) in 2002 (Retail

Trend 2002), 90% of retailers intended to expand on the private label component of the supplies they

offer. The survey also revealed that private labels compete horizontally (other stores’ private labels).

Expert observers have deduced that competition in the future will be based not only on price but alsoon products’ and brands’ added value. For the purposes of this study we may deduce that, while

growth in private labels in general offers fertile ground for the exchange of relationships and

information between retailers and suppliers, the potential qualitative evolution in supplies could shift



Retail

13 July 2003

this relation framework from the exclusive field of logistics to a broader scope of definition of the

characteristics of the supply (just think, for example, of the potentiality of ICTs not only for interaction

between buyers and suppliers, but also for testing, refinement of product features, etc.).

The table below illustrates the current penetration of private labels in various countries in Europe and

in various categories of goods, with the aim of identifying the potential for interaction/integrationamong various partners in the value chain in the most important countries and markets in the

European Union.

Table 1-6: Market share by volume of private labels, by sector and country.

Belgium Germany Italy Netherlands SpainUnited

Kingdom

Total 36.4 24.3 12.8 20.7 23.6 41.0

Dairy 48.7 - - 30.5 21.2 67.0

Frozen foods 59.8 40.9 21.0 25.7 46.3 46.3

Speciality foods - 32.0 12.4 24.1 17.9 79.6

Dry foods 44.9 29.5 12.8 19.9 32.4 43.4

Confectionery 25.7 14.0 - 14.2 16.3 18.8

Hot beverages 42.7 - 6.2 25.5 23.8 27.2

Non-alcoholic beverages 39.8 19.8 11.5 11.9 18.1 47.1

Alcoholic beverages 23.4 18.3 3.7 14.8 19.6 59.6

Home care products 33.7 22.7 17.8 19.2 29.1 30.4

Paper products 50.4 40.7 19.2 6.3 47.3 49.4

Health and beauty 20.8 9.9 2.8 24.5 14.8 24.4

Pet 49.8 - 24.6 41.5 16.3

Source: PLMA – Annuario Internazionale del Marchio del Distributore, 2002

Partly related to this, in that it has the same impact on the evolution of the supplier pool and on how it

relates to distribution chains, is polarisation of demand between the global brands which are

increasingly strong and representative in terms of market shares and the emergence of new niche

markets (for example, organic, vegetarian, fair trade). The niche markets are generating a need to set

up supply relationships with new counterparts; suppliers will most likely be able to expand their

geographic range due to their greater added value with respect to conventional products, but also due

to the fact that niche products tend to reach an optimal production scale more easily on a broader

scale than the regional or national. This development may also have a positive impact on the use of e-

business tools (such as marketplaces or web-EDI) for identification of new sources and in continuing

relations with them.

Food distribution will also increasingly be affected by the issues of traceability and food safety in

general, which are also affecting intermediate suppliers (logistics companies above all). In the future

we may see the emergence of an element which identifies not only the characteristics of a product but

the history of its movements, and which will allow identification of the party responsible at any point in

the value chain at any time. This element combined with the evolution of the bar code system into the

electronic label, multiplying its functions but also the number of parties involved in sharing operating

costs (suppliers of various kinds and inspection authorities).



Retail

July 2003 14

2 Usage of ICT & e-business

2.1 The role of ICT and e-business

The structural and evolutionary characteristics of the retail sector give e-business a very important

role. In addition to the necessity of upstream integration in the supply chain and of downstream

communication with the customers, what is peculiar to retail, particularly in the case of larger

companies, is the connection and the exchange of information within the same company, as a

consequence of network organization of the points of sale and distribution networks. In this regard, an

important variable involves the size of the company, considering the substantial differences between

small enterprises and large retailers in terms of organisation, competitive strategy, cost structure and

the creation of value.

In addition to this element is a high degree of complexity dependent on the large number of products

and on decision-making timeframes that are under enormous pressure due to the need to optimise the

balance between service (constant availability of goods in stock) and efficiency (minimum inventory).

The information technology of trade enterprises is thus structured as a full-fledged production

technology that affects the productivity and flexibility of physical processes.

The evolution of the competitive scenario of this sector represents a driving element toward the spread

of ICT in the retail sector and the changeover to procedures for performing company functions and

activities with the support of new technologies (e-Business). In fact, the sector is concerned by an

increased competitiveness, that entails the need to streamline and lower the costs of large retail

companies and at the same time, the need to differentiate one’s offer in order to partially divert the

competition from the price factor.

The concentration process and increase in average business size has made the organisations

increasingly complex, thereby increasing the need to exchange and optimise information on a

domestic and international level.In taking a detailed look at the role that the adoption of e-Business is destined to play in the retail

sector, we must start with the consideration that the sector is characterised by rather low sales

margins. Competition is therefore based on the reduction of purchase prices and on the optimisation

of stock of products (and capital) required to generate a certain turnover.

These dynamics underscore the fact that the critical processes of companies in this sector involve

procurement and the management of logistical flows: these are precisely the processes that are most

involved in the diffusion of e-Business.

Personnel represent another important cost item for a distribution company. From this standpoint,

computerising orders and automating warehouses will help reduce the cost of personnel involved in

handling merchandise and payment transactions.The diagram below highlights the elements that can directly be influenced by the e-Business solutions

adopted by firms, as part of the mechanism for generating value for these companies.



Retail

15 July 2003

Figure 2-1: Impact of e-business solutions on determinants of ROI

Labourproductivity

Overheadcosts

Purchaseprices

Salesvolume

Salesprofitability

Average rotation oftrade payables

Stockrotation

Averageinventory in stock

Rotation ofcapital

ROI(Return on investment)

Cost ofthird-party means

Finalinventory

Tradepayables

Rate ofindebtedness

Extraordinaryoperations

ROE(Return on equity)

Source: Databank Consulting

As we have mentioned, e-Business applications carry out the dual goal of improving the profit margins

and overall efficiency of the system. In fact, the main areas in which retailers are investing in

applications are (i) supply chain configurations, (ii) management of store operations and (iii) interaction

with customers. The latter can sometimes lead to the creation of a true sales channel as an alternative

to the physical one.

The main e-business applications lead to a redefinition of the value chain of this sector, which entails a

reduction of the phases upstream from the sales process (from procurement to logistics, and storemanagement), in order to benefit the activities involving interface and building customer loyalty. This

area includes online sales.

The information that sums up the importance of e-business for the sector indicates rather different

evaluations between the three size classes considered in the survey (up to 50 employees, up to 250

and over 250).

Generally, the importance of e-business for Retail is found on a level that is slightly lower than the

average of the sector aggregates considered in Market Watch’s overall survey, but it must also be

considered that the overall assessment of the importance of e-business in the sector suffers an even

more limited penetration of e-business initiatives: as emphasised during the analysis, procuring online

involves a total of 26% of the sector’s companies while selling 10%. Also relatively elementary

functions, such as document exchange in electronic format, present an insignificant penetration, all

things considered.

The assessment on the importance of e-business, that counts more than 40% of the companies

convinced that the new technologies present some (32%) or significant (10%) importance for the

sector can paradoxically be interpreted as a positive element, for a sector that, while not having

expressed a significant adherence to new technologies, approves of the impact on business and is a

potentially good receiver.

Opinion on the importance of e-business varies according to the size of the company: fully or partially

positive opinions represent less than half of the opinions expressed by small businesses (42%) while

they exceed this limit for both medium (59%) and large sized companies (55%). Therefore a direct

ratio does not exist between size and the assessment of importance, at least in the case of the opinionof those that assign significant importance to e-business (the opinion of those who attribute some

importance, on the other hand, increases in parallel with company size).



Retail

July 2003 16

The conflicting trend can be interpreted by the fact that in some way, the e-business component is

taken for granted with the increase in the complexity of the dimensions, judged more appropriately as

a pre-requisite, or as an indispensable business component that does not represent, however, a

substantial and differentiating requisite.

Another significant difference, only partially traceable to the structural characteristics of the supply,involves the different assessments of the importance of e-business among the various countries: the

most positive assessment is expressed by the German companies, followed by the Italian ones. Of

particular note is the data regarding Italian companies where e-business holds significant importance

compared to the group of other activities (about one fifth of all companies).

Figure 2-2: Retail: Importance of e-

business in 2003 as perceived by companies

Base: EU-5 (D, E, F, I, UK), all enterprises (N=3,515 forall sectors, N=502 for the retail sector). In % of

enterprises.Reporting period: March 2003.


10

15

4

10

14

13

8

0

19

0

32

44

51

32

35

42

23

31

34

25

0 10 20 30 40 50 60 70 80 90 100

<50 empl.

50-249 empl.

250+ empl.

Total

All sectors

D

S

F

I

UK

Signif icant importance Some importance

2.2 ICT infrastructure and skil ls development in the sector

2.2.1 ICT infrastructu re

Retail sector IT infrastructures are rather heterogeneous. This characteristic can be essentially traced

to the structural differences within the sector: on one hand are the large chains that concentrate sales,

financial resource availability for IT and require a high level of integration on the vertical level with

suppliers and on the horizontal level among the various points in the sales network; on the other are

the small operators, whose availability and needs for horizontal relations do not justify significant

investments.

Apart from basic computer equipment (computer usage), in fact, the data regarding network

technology penetration point out significant differences between the two realities.

Internet access represents a somewhat widespread reality that concerns about 70% of the companies

and over 90% of medium and large ones. It seems to have almost reached a diffusion peak

considering that only an additional 6% of potential penetration exists, based on company statements:

a percentage over 20% states that network connection is not included in their plans.

The polarisation between the two realities is more evident in the passage from pure access

technologies to those that assume an active role in communications.

Starting from the diffusion of e-mail usage, this remains substantially aligned with the Internet diffusion

between the large companies while the small companies have a higher rejection: about 40% of them

probably do not have communication tools other than the “traditional” ones.



Retail

17 July 2003

In other network infrastructures the difference is even more significant, reflecting the importance for

the major retailers of the internal exchanges between the points of sale and the head office. This helps

to explain a higher diffusion in percentage amongst larger enterprises (81% of them have a LAN and

58% an Intranet).

The diffusion of the Extranet is definitely more limited. Extranet, on the other hand, measures theattitude of a company to the exchange of information with the other operators and, generally, their

level of integration in the Retailer’s organization: on average only 4% of the EU4 use it (but

meaningfully about one fifth of the enterprises with more than 250 employees).

Table 2-1: Retail: Availability of ICT infrastructure across countries (2003)

Available ICT infrastructure D E F I UK EU-5

Computer usage 82 90 74 94 54 83

Internet access 77 70 43 83 52 69

E-mail usage 65 58 33 73 42 59

WWW usage 67 37 33 56 40 48

Intranet usage 12 27 15 38 7 23

Extranet usage 2 5 3 6 0 4LAN usage 17 43 12 44 10 30

WAN usage 5 10 5 6 2 6

Remote Access* 29 17 9 15 13 17

Wireless Access* 8 11 0 5 9 7

Base: EU-5 (D, E, F, I, UK), all enterprises except* N= 502 . In % of enterprises. Reporting period: March 2003.


Table 2-2: Retail: Availability of ICT infrastructure (2003)

RetailAvailable ICT infrastructure All (7) sectors

All enterpr. 0-49 empl. 50-249 empl. 250+ empl.

Computer usage 87 83 83 100 98

Internet access 76 69 69 93 95

E-mail usage 68 59 59 92 95

WWW usage 58 48 48 84 87

Intranet usage 24 23 23 56 58

Extranet usage 6 4 4 22 21

LAN usage 34 30 30 75 81

WAN usage 7 6 6 27 47

Remote Access* 22 17 17 37 37

Wireless Access* 7 7 7 10 15

Base: EU-5 (D, E, F, I, UK), all enterprises except * (N= 3,515 for all sectors, N=502 for the retail sector). In % of enterprises.Reporting period: March 2003.


Wi-Fi technology deserves a separate discussion, in the introduction phase both in small and medium

sized companies. This type of technology, in fact, is able to revolutionise the overall retailer’s

organisation since it connects to levels that have been substantially distinct from the infrastructure

standpoint to now: the first is represented by the point of sales technology, the second by its

integration in the supply chain management. The main potentials of the new technology are identified

in the improvement of the overall service efficiency level (with the reduction of stock-outs and the

general improvement of the ability to timely forecast demand trends) and the integration with supplier

computer systems.

In this case application potential is also perceived, in particular for large Retailers. According to asurvey conducted by IBM during 2002, with a sample of American and European companies mainly

composed of organisations with annual sales over 500 million dollars, about half of those interviewed



Retail

July 2003 18

expect the wireless network infrastructure and the use of PDA by personnel or other mobile

communications tools to be widely used in their points of sale over the next 24 months. About one

third believe that pallet-level radio frequency identification (RFID) tags will be widely enabled in that

same time. Only 18% of retailers affirm that electronic labels will never be widely diffused in their

points of sale.

Therefore, a rather strong relationship exists between wi-fi technologies and the diffusion of an

electronic labelling system that would elevate potential, generating a technological revolution for the

sector that is comparable to the outdated one which, using the technology acquired from bar codes,

introduced the first large automation core in the sector. The electronic labelling system also seems

more technologically suitable to contain information regarding product passage through the

production/distribution chain, whose certification could become a central element in the coming years.

The use of wireless technology potentially involves consumers: aside from kiosks (already widely

diffused in the same examined sample), the use of PDA or other mobile devices in their points of sale

is foreseen in 31% of cases within the next two years but in 60% within 5. Those interviewed also

foresee a wide diffusion of systems for payment automation.

Metro case study

Metro group, working with a series of technological partners, including SAP and Intel,opened a point of sale during the first months of 2003 (Future Store) thatconcentrates the most recent technological applications for the Retail sector.

“In this worldwide unique convenience store of the future, the latest application forretail are for the first time linked with one another in complex interaction. Theinnovations encompass wireless data transfer, an intelligent scale which auto-matically recognizes and weighs fresh produce, electronic shelf labelling, automaticself checkout systems and Radio Frequency Identification (RFID)”. Store personnelcan also access information with palmtops.

The technological core of the Future Store is the Radio Frequency Identification. Thistechnology can read specific labels attached to products and packages by means ofradio signals. In combination with the merchandize management system of theFuture Store, RFID allows to store considerably more information concerningproducts and logistics than would be possible with the conventional barcode. This willentail substantial advantages for warehousing, quality assurance and categorymanagement.

Although the experience is still too recent to draw an exact cost-benefit conclusion,the first impressions made by the same company are that "Customers and retailersbenefit alike from the new technologies: the customers are more satisfied becausethe goods are available more reliably, the service is more individualized and theshopping comfort increases. This will boost retail sales. At the same time, retailerscan curb costs because processes are becoming more efficient."

Quantity, product losses, stock depletion, re-ordering, purchasing and customersatisfaction are, in fact, constantly monitored by the system that is also able to signalany theft. Materially, the system scans articles on the pallets leaving the distributioncentre and follow them to the point of sale warehouse, onto the shelves and then intothe consumer’s shopping trolley.

Source: Company data

The analysis of the typology of connection is more meaningful if carried out paired with the one

regarding the bandwidth, that measures the effective potential of the web to be used as a working tool,

i.e. as a technology in a position to assure an adequate capability of data loading and speeding both

downstream and upstream.



Retail

19 July 2003

Only 13% of small companies have a bandwidth over 2 Mbit/s, a percentage that increases

significantly as a function of company size classes. This diffusion must, however, be integrated with

two considerations:

• Internet does not represent the only way to transmit data in the sector: it conserves a certain

importance, also for a reason connected to the consistency of dedicated investments, EDInetwork usage as a connection infrastructure for data transmission.

• A more massive diffusion of broadband connections should be expected in coming years, due

to the supply evolution by TLC carriers and institutional type incentives.

Band availability is mainly associated with the type of connection adopted by companies, for which

only the most significant details are listed: about 60% of companies have a standard analogue or

ISDN connection. Connection methods have similar proportions between small and medium sized

companies (where ISDN is more popular) changing drastically for large companies where only 6% still

conserves connections using a traditional modem.

Figure 2-3: Retail: Internet connection speed: companies having Internet access with <2 Mbit/s and >2Mbit/s

(2003)

Base: EU-5 (D, E, F, I, UK), enterprises withinternet access (N=3055 for all sectors, N=385 forthe retail sector).

Figures for sector total, all sectors and countriesare weighted by employment ("enterprisescomprising …% of employment"), figures for size-classes are to be read as "% of enterprises".

Figures do not add up to 100% because of "don'tknow" / "no answer".

Reporting period: March 2003.


13

22

39

25

31

22

20

19

18

37

69

70

43

59

56

65

49

58

73

48

0 10 20 30 40 50 60 70 80 90 100

<50 empl.

50-249 empl.

250+ empl.

Total

All (7) sectors

D

E

F

I

UK

>2 MBit/s <2 MBit/s

2.2.2 IT skills developmen t

18% of companies have recruited personnel with specific IT skills. This figure is rather standard

among the various countries and below the all-sector average, with the exception of UK where this

percentage reaches 30%.

Among retail business that have recruited IT specialists, the percentage of those who met difficulties in

finding resources is slightly lower than the average of other sectors. However, the intensity of this

difficulty changes radically, with an incidence almost double the companies that have great difficulties

finding these resources on the market.

The combined reading of the two aspects can be traced to the fact that IT is not conceived as a group

of strictly defined skills structured in specific figures but as an enabling technology whose knowledge

is often integrated with other skills within companies. Companies, compared with other sectors,

therefore present a lesser propensity to recruit IT specialists. Finding resources that meet the desiredrequirements is however significantly more difficult than in other sectors, due also to a lesser

disposition of the resources to horizontal exchanges with other sectors.



Retail

July 2003 20

The differences between the company size classes also cause rather marked differences. Only 7% of

small companies have demonstrated the need to identify IT specialists on the labour market, a

percentage that rises to about 40% if large companies are considered.

Relatively speaking, small companies are also those that experience greater difficulties in IT resource

recruitment. But on the basis of all enterprises, only 4% said they had difficulties in hiring, while 12%of the medium-sized and large enterprises in the retail sector suffered from the IT skills gap.

Figure 2-4: Retail: Recruitment of IT specialists, intensity and difficulties (2003)

Base: EU-5 (D, E, F, I, UK), all enterprises (N=3,515 forall sectors, N=504 for the retail sector). In % ofenterprises.


* = % of companies (base: all companies) havingexperienced great or some difficulties in recruiting staffwith special IT skills.


7

29

40

7

9

4

12

12

4

4

0 10 20 30 40 50 60 70

<50 empl.

50-249 empl.

250+ empl.

Total

All (7) sectors

Have searched for IT specialists in 2002/03

Had diff iculties in f inding qualified staf f *

However, sector companies demonstrate a certain sensitivity (62%) in support of their resources in IT

and networking skill development.

The size element highly affects this data, being a calculated indicator with reference to overall

employment: almost all large companies (but also the medium sized ones) started initiatives to

increase the IT skills of their employees, while only 45% of those who work in small companies enjoy

this benefit.

A combined reading of this information with that regarding the recruitment of personnel equipped with

certain computer skill infers that a significant share of small companies do not consider the availability

of specific IT skills as strategic and that they prefer to train and develop them internally. The need for a

less qualified work force compared to IT skills can be generally traced to the lesser complexity

regarding IT departments and the low penetration of networking technologies, whose usage is taken

less for granted on the basic computer culture level.



Retail

21 July 2003

Figure 2-5: Retail: Companies

supporting IT and networking skills development (2003)

Base: EU-5 (D, E, F, I, UK), all enterprises(excl. DK/NA) (N= 3,515 for all sectors, N=504 for the retail sector).

Note: figures weighted by employment("enterprises comprising…% of employees").



45

84

90

62

74

62

50

61

57

72

0 20 40 60 80 100

<50 empl.

50-249 empl.

250+ empl.

Total

All sectors

D

S

F

I

UK

Training organisation by methods managed by third parties (normally specialising in the supply of

these services) is slightly more dominant than those created in-house. However, there is a certain

overlap between the two teaching methods which implies a distinction between the core of skills that

must be acquired externally and others that can be developed in-house.

The external dependency is more marked for smaller companies, while the incidence of the two

training methods is noticeably equal for larger companies. In most cases sector companies recognise

the use of work time to train their employees.

In this context, British employee training is distinguished by showing the highest training initiativevalues in the IT field, as well as a higher propensity to use the time normally dedicated to work.

Sensitivity to training matters is at highly diffused among the various aggregate countries (EU-5),

where particularly hostile situations are not noted.

Table 2-3: Retail: IT training offered to employees across countries (2003)

IT training offered to employees D E F I UK EU-5

In-house computer / IT training 35 12 37 29 28 29

Computer / IT training by third parties 36 35 37 37 33 35

Usage of working time for learning activities 34 41 49 47 63 47

Base: EU-5 (D, E, F, I, UK), all enterprises (excl. DK/NA) N=502. Note: figures weighted by employment ("enterprises comprising…% ofemployees"). Reporting period: March 2003.


Table 2-4: Retail: IT training offered to employees (2003)

RetailIT training offered to employees

All (7)sectors All enterpr. 0-49 empl. 50-249 empl. 250+ empl.

In-house computer / IT training 42 29 16 51 51

Computer / IT training by third parties 50 35 25 52 52

Usage of working time for learning activities 59 47 35 62 67

Base: EU-5 (D, E, F, I, UK),all enterprises (excl. DK/NA) (N= 3,514 for all sectors, N=502 for the retail sector). Note: figures weighted byemployment ("enterprises comprising…% of employees"). Reporting period: March 2003.




Retail

July 2003 22

2.3 E-business activities and impacts

2.3.1 Internal processes

The use of online technologies presents a limited impact for small companies. The only category with

a certain significance is represented by “share documents/to perform collaborative work”. This processacquires a certain consistency in companies with over 250 employees, even if the values are quite

distant from a diffusion that can be considered standard from the internal process organisation point of

view. The growing integration between administrative and general business organisation aspects

(purchasing, supplier relations) and the consolidation prospective of the distribution structure in some

countries imply a development of the processes that can be traced to this area in coming years, and

for the entire sector.

Table 2-5: Retail: Usage of online technologies (2003)

RetailUsage of online technologies


to share documents / to perform collaborative work 19 14 14 33 49to automate travel reimbursement of employees 3 3 3 9 13

to track working hours and production time 6 4 4 18 13

to support the human resources management 6 5 5 12 18

for e-learning 7 5 5 12 13

Base: EU-5 (D, E, F, I, UK), all enterprises (N=3,515 for all sectors, N=502 for the retail sector). In % of enterprises. Reporting period: March 2003.


2.3.2 Processes of the extended enterprises

Vertical type exchanges that involve suppliers and customers now assume a higher significance andrepresent, in aggregate terms, 60% of overall network technology usage motivations in an extended

fashion. It is therefore evident that the exchange of relations, if considering the companies as a whole,

concern relatively common processes: it can be affirmed that the new technologies are now

essentially perceived as an accelerator of conventional communication processes.

The processes that present a more strategic character now appear even more rare, even if the

distribution of these usage methods of online technologies present a difference between small and

large companies more marked than that regarding more common processes.

The growing space that sales brands are occupying in the sector will soon constitute a positive

impulse for the adoption of technologies that permit the optimisation of partnerships between retailers

and manufacturers. Technologies that can benefit are those concerning collaboration processes for

product development, demand forecasting and warehouse management.

A confirmation of the poorly structured usage of online technologies comes from the analysis of the

diffusion of specific e-business solutions, for which the retail sector is substantially aligned with the

general average, and no particular sector specifics emerge, not even regarding the usual

discrimination of size classes.



Retail

23 July 2003

Table 2-6: Retail: Usage of online technologies within the value chain across countries (2003)

Usage of online technologies withinthe value chain

D E F I UK EU-5

Online collaboration with business

partners for designing products11 7 0 13 6 9

Online collaborating with businesspartners to forecast product demands

4 12 12 9 6 9

Online management of capacity / inventory

7 12 12 9 7 9

Electronic exchange of documents withsuppliers

31 43 46 36 42 38

Electronic exchange of documents withcustomers

15 33 19 19 19 22

Online negotiation of contracts 2 14 12 8 7 8

Base: EU-5 (D, E, F, I, UK), enterprises with internet access N=347. In % of enterprises. Reporting period: March 2003.


In absolute terms, only ERP systems are rather diffused and, in perspective, present lower growthpotential. CRM, SCM and ASP solutions seem to present higher dynamism that, however, suffers from

significant current inconsistencies.

In general, looking at the prospective phase, larger companies express less propensity for the

introduction of new e-business solutions: for example, none of the companies interviewed with more

than 250 employees is planning to use SCM solutions or ERP systems. It is true that in relative terms

these companies are those that present a higher diffusion of e-business solutions, but this diffusion

has not yet reached levels that justify explanations traceable to the saturation of the same.

Probably the reasons for the companies’ attitude are related to the scheduling and conduction

methods of some past experiences, but in part can find justification in an IT supplier offer that still

cannot express the so-called killer application. In general, it can be confirmed that the possibility of ahigher penetration of the relevant supply, that still has considerable room, may only affect applications

that are considered to be effectively strategic for business conduction.

Table 2-7: Retail: Usage of online technologies within the value chain (2003)

RetailUsage of online technologies within thevalue chain

All (7) sectorsAll enterpr. 0-49 empl. 50-249 empl. 250+ empl.

Online collaboration with business partnersfor designing products

12 9 9 9 16

Online collaborating with business partners toforecast product demands

10 9 9 14 11

Online management of capacity / inventory 10 9 9 16 18

Electronic exchange of documents withsuppliers

37 38 38 46 43

Electronic exchange of documents withcustomers

28 22 22 28 20

Online negotiation of contracts 12 8 8 15 8

Base: EU-5 (D, E, F, I, UK), enterprises with internet access (N=3,055 for all sectors, N=347 for the retail sector). In % of enterprises. Reportingperiod: March 2003.




Retail

July 2003 24

Table 2-8: Retail: Usage of special e-business software (2003)

RetailUsage of special software solutions forintegrating e-business


SCM usage 4 5 5 9 6

Plans to use a SCM-System 2 3 3 1 0

CRM usage 6 5 5 17 9

Plan to implement a CRM-System 4 4 4 6 2

Use a Knowledge Management Solution 5 5 5 4 12

Plan to use a KM Solution 2 2 2 5 1

Use an ERP system 9 10 10 25 22

Plan to use an ERP-System 2 2 2 1 0

Base: EU-5 (D, E, F, I, UK), all enterprises (N= 3,515 for all sectors, N= 502 for the retail sector). In % of enterprises. Reporting period: March2003.


2.3.3 Purchasing

Companies in the retail sector resort to procuring on-line less than the average of all sectors. In this

sector too, the data is very sensitive to the size variable: 70% of companies with more than 250

employees resort or consider resorting to procuring online shortly; this percentage drops to 52% for

the medium sized class and to 29% for those with less than 50 employees. This represents one of the

few spheres where the larger companies’ propensity to adopt practices tied to online is higher than

that of other categories, demonstrating the centrality that procuring holds for sector companies and its

substantially positive assessment.

Figure 2-6: Retail: Enterprises procuring online (2003)

Base: EU-5 (D, E, F, I, UK), all enterprises(excl. DK/NA) (N= 3,515 for all sectors, N=504 for the retail sector).

Figures for sector total, all sectors andcountries are weighted by employment("enterprises comprising …% ofemployment"), figures for size-classes areto be read as "% of enterprises".



26

46

54

37

47

53

16

24

27

45

3

6

14

6

6

7

4

6

6

7

0 10 20 30 40 50 60 70 80 90 100

<50 empl.

50-249 empl.

250+ empl.

Total

All (7) sectors

D

E

F

I

UK

Make online purchases Plan to sell purchase by March 2004

The potential of procuring online can also be derived from the analysis of procurement online share

incidence distribution compared to total purchases. About one third of companies depend on procuring

online for over 25% of overall purchases. The figure, deviating from that for procuring practice

penetration, is in this case higher than the all-sector average.



Retail

25 July 2003

Figure 2-7: Retail: Share of online procurement on total procurement (2003)

All (7) sectors RetailShare of online purchasesas % of total purchases in % of enterprises

enterprises compr.…% of employment

in % of enterprisesenterprises compr.…% of employment

0 – 5% 40 50 39 575% - 10% 23 24 23 20

11% - 25% 10 11 6 4

26% - 50% 12 8 13 10

> 50% 14 8 19 9

Base: EU-5 (D, E, F, I, UK), enterprises procuring online (excl. DK/NA) (N=1,522 for all sectors, N=158 for the retail sector). In % of enterprises.Reporting period: March 2003. In % of enterprises purchasing online. Reporting period: March 2003.


Evaluating the e-procuring experiences in a time prospective reveals a polarization between the more

significant share of initiatives, conceived over two years ago and a fairly consistent core of new

initiatives concentrated in recent months. The data indicates how, regardless of a discreet rooting of

the procuring online experiences (in some cases previous to the diffusion of Internet), e-procurementis still in a development phase (while still finding room in the current difficult circumstances.

Table 2-9: Retail: Experience in online procurement across countries (2003)

Experience in online procurement D E F I UK EU-5

Procuring online for more than 2 years 60 50 27 53 33 50

Procuring online for 1-2 years 32 10 37 18 33 25

Procuring online for < 1 year 4 20 36 29 11 19

Procuring online for ... months (average) 41 29 17 29 33 32

Base: EU-5 (D, E, F, I, UK), enterprises procuring online (N=158). In % of enterprises. Reporting period: March 2003.


The analysis of the channels used for procuring online indicates how companies that resort to it are

highly flexible in their usage. This characteristic is particularly marked for small companies that are the

most open to a variety of solutions. The procurement diffusion data via EDI network is particularly

surprising for these organisations, as EDI is traditionally associated with larger companies due to the

need to sustain investments associated with dedicated network infrastructures. In this regard – as

indicated by the dedicated section – a considerable contribution comes from EDI diffused on standard

WEB, confirming the importance of open solutions and technologies that do not present particular

barriers to diffusion.

Table 2-10: Retail: Online procurement channels across countries (2003)

Online procurement channels D E F I UK EU-5

E-procurement through company website 76 80 82 82 100 82

E-procurement through electronic market places 44 30 45 24 17 33

E-procurement via extranet 32 30 27 53 11 35

E-procurement via EDI 33 67 1 66 0 50

IT system integration with suppliers for placing orders 28 20 27 59 17 35

Base: EU-5 (D, E, F, I, UK), enterprises procuring online (N=158 for EU-5). In % of enterprises. Reporting period: March 2003.




Retail

July 2003 26

Table 2-11: Retail: Online procurement channels (2003)

RetailOnline procurement channels


E-procurement through company website 83 82 82 82 79

E-procurement through electronic market places 28 33 33 36 20

E-procurement via extranet 27 35 35 41 29

E-procurement via EDI* 42 50 50 27 28

IT system integration with suppliers for placingorders

24 35 35 33 18

Base: EU-5 (D, E, F, I, UK), enterprises procuring online except* (N=1,443 for all sectors, N=158 for the retail sector). In % of enterprises.Reporting period: March 2003.


Impact of e-purchasing on the company

The impact of procuring online is generally positive: 60% (aligned with the average of other sectors)

express a positive opinion on procurement costs. The figure deviates positively from the average,however, for the evaluation about relations to suppliers. The area of internal processes is instead

perceived as having a lower impact, therefore confirming the need for improvement in internal

relations of the entire supply chain.

Less sensitive, in absolute terms, is the influence of procuring online on logistics and inventory costs

that is found over average but does not concern most companies: the motivations are, in fact identified

in the types of tools used that privilege purchasing over those capable of integrating supply chain

management up to now.

Figure 2-8: Retail: Impact of procuring

online (2003)

Base: EU-5 (D, E, F, I,UK), companiesprocuring online (excl.DK/NA) (N= 1,438 for allsectors, N=145 for theretail sector).

In % of enterprises.

Reporting period: March2003.

Source: e-Business

W@tch (2003)

With negative assessments practically non-existent, the situation is divided rather equally between

companies that positively judge the impact of e-procurement and those that are neutral towards it.

This allows a conclusion that the various solutions adopted are significant and can bring competitive

advantages to companies implementing them. Even if future company emphasis is on reinforcing the

tools that promote improved relations with customer and sales increases, the need to improve supply

45

43

40

38

34

41

27

28

14

16

14

12

19

16

15

12

-20 -10 0 10 20 30 40 50 60 70 80

Retail

All (7) sectors

Retail

All (7) sectors

Retail

All (7) sectors

Retail

All (7) sectors

(+) f airly positive (+) very positive

(-) f airly negative (-) very negative

Internal

business

processes

Costs of

logistics and

inventory

Relations to

suppliers

Procurement

costs



Retail

27 July 2003

policies seems common to the sector: next to service elements, the heart of retailer activities is still the

supply of intermediary services between the goods introduced on the market by manufacturers and

their use by consumers.

B2B electronic marketplaces

The participation in marketplaces is still not highly diffused and still involves a rather meagre minority

of companies (note that – even referring to the share of companies that procure online – companies

that resort to the marketplace represent about one third of the total). In aggregate terms, rather

interesting elements emerge: in national contexts where company adherence to marketplaces has a

higher relevant incidence (Italy and Germany) the prospective of new adhesions is very positive

compared to the historical situation. And it can be confirmed that within one year the virtual

marketplace participant base will double in the UK. In the sector as a whole the situation is slightly less

optimistic because France and Spain may not generate new adhesions based on declarations of

intent.

An interesting element is the interest of small and medium sized companies in the tool: the most

consistent declarations of future adherence come from these two categories.

Large retailers indicate a rather detached attitude to the prospective of new adhesions: the impression

received is that there is a group of operators who have strongly embraced the tool’s potential, while

others, who did not immediately adhere, have much less interest in a solution that is seen as

cooperative or unable to generate long-lasting competitive advantage. Smaller companies, for which

the behaviour assessments of the other operators are less significant, express higher interest, which

within a year could determine a marketplace participation level higher than that of larger companies.

The latter are also less sensitive to the tool’s potential to generate savings on purchases, being able to

place confidence on higher buying power than suppliers. Higher adhesion prospective for these

organisations probably depends on the extension of the service contents offered by marketplaces.

Figure 2-9: Retail: Participation in B2B e-

marketplaces (2003)

Base: EU-5 (D, E, F, I, UK), all enterprises (excl. DK/NA)(N= 3,515 for all sectors, N= 504 for the retail sector).

Figures for sector total, all sectors and countries areweighted by employment ("enterprises comprising …% ofemployment"), figures for size-classes are to be read as"% of enterprises".



4

8

5

4

6

7

2

3

6

3

0 2 4 6 8 10 12 14

<50 empl.

50-249 empl.

250+ empl.

Total

All (7) sectors

D

E

F

I

UK

Trade on B2B e-marketplaces

Plan to trade on marketplaces by March 2004



Retail

July 2003 28

The main purpose of marketplaces is improving buying efficiency and thereby reducing procurement

costs. This can only occur through a series of tools:

• expansion of the supplier base through an auction mechanism, with the possibility of accessing

the most convenient quotations;

• economies in buying times, due to the simultaneous comparison of prices, conditions and product

delivery terms;

• rationalisation of the supply chain through a reduction of stocks in inventory.

GNX case study

GlobalNetXchange (GNX) is one of the main marketplaces developed in the retailsector. Open to retailers and suppliers of all sizes, it includes many of the world'slargest retailers: Carrefour, SA; Kroger Co.; Metro AG; J. Sainsbury Plc; Coles Myer;Pinault-Printemps-Redoute SA; Sears, Roebuck and Co.; Karstadt Quelle. During2002 GNX added more than 20 new customers, including Federated Merchandising

Group.Developed in technological partnership with Oracle and IBM Business ConsultingServices, GNX connects companies with new and existing markets and tradingpartners around the world using a simple web browser.

GNX provides products and services to streamline the buying process, improveefficiency, lower costs, and deliver better products to retail customers.

In January 2003 GlobalNetXchange (GNX) announced that total transaction volumefor 2002 exceeded 6,600 transactions valued at approximately $US 5.1 billion.Marketplace business is characterised by rapid growth: in the fourth quarter 2002,members of the exchange conducted over 2,200 auctions worth over $US 2 billion.Since its inception in 2000, members of GNX have conducted over 9,500 auctionsvalued at approximately $US 7.5 billion. More than 17,000 suppliers have

participated in GNX auctions.GNX’s success, which according to company sources represents the largestnegotiations service provider in the retail industry, is based on the support providedto the integration of online auctions with the standard procurement process ofparticipants and provides a forum for leveraging the best practices of other, non-competing retailers.

Goods for resale procurement account for 75% of business volume but GNX has alsodeveloped not-for-resale goods and services as another core competency facilitatingthe sharing of best practices and sources of supply among the retailer community,and aggregating demand to drive more competitive negotiations for the commodityitems that many of our retailers purchase.

In addition to negotiations and auctions, typical of marketplaces, GNX applications

also extend to tools for an integrated supply chain: GNX currently hosts 23 live CPFR(Collaborative Planning, Forecasting and replenishment) installations on its platform,with six retailers collaborating with 17 of their strategic trading partners at nearly 200locations on four continents.

GNX has also launched its collaborative product development solution, GNX CPD, aworkflow and specifications management solution for private label grocery productdevelopment. The solution is currently being used by a leading grocery retailer(Sainsbury) to manage its entire range of own-label grocery products, withapproximately 200 users at the retailer organization and over 450 suppliers using thesystem to jointly manage over 900 items in development.

Lastly GNX has developed a catalogue solution to provide an interface for retailers tothe global data synchronization network.



Retail

29 July 2003

The first e-Business application that used digital technologies to exchange information was EDI

(Electronic Data Interchange), i.e. the electronic transfer of structured data by agreed message

standards from one computer application, with a minimum of human intervention. EDI was the first

widespread worldwide standard used by retail companies for connecting with their supply chain but

until now, many small enterprises have lacked the means to implement EDI because of its high costs.In the future, EDI is likely to be maintained by those companies that have already implemented it,

whereas those that have not are more likely to adopt web-based solutions.

Figure 2-10: Flow of information exchanged through the EDI network

Source: EAN International, 2001

EDI facilitates interaction among all the figures in the production chain, not only those involved in the

physical flows for handling the goods, but also the ones involved in managing administrative and

accounting aspects. In this sense, the EDI network also represents an instrument for managing the

phases following placement of the order, i.e. those involved with handling the merchandise.

Traditionally in EDI the exchange of documents takes place through dedicated networks managed by

providers. EDI systems currently in operation are likely to develop, at least partly, towards Internet-

enabled EDI solutions. In this case, we refer to WEB-EDI or LITE-EDI. The spread of open

infrastructures presents greater opportunities for small firms to access technology, as they do not have

the resources required to create network infrastructures or dedicated interfaces.

The exchange of information through an EDI network assumes shared language coding, in order to

avoid losing the advantages arising from a reduction in data-transcription errors from one system to

another and from the automation of manual operations. This standard has been developed as part of

the provisions of UN/EDIFACT (United Nations Electronic Data Interchange for Administration,

Commerce and Trade).

The prospect of using EDI and the EDIFACT may be accompanied by the use of XML, a language that

makes it possible to characterise the information contained in a document, so that it can be viewed on

the Internet and processed by application programmes. In the long term, the possibility of exchanging

data without any need to develop a specific application represents yet another opportunity for small

firms to access the online exchange of information. The critical variable in this regard will be

represented by the level of uniformity characterising the diffusion of the XML language, which could

invalidate some of the advantages offered by its flexibility of use.



Retail

July 2003 30

In general, the diffusion of EDI in the European countries comes to approximately 9% of the total

number of firms. From the survey conducted by Market Watch it appears that Internet- based EDI

usage is already more popular than EDI Standard, due to the distribution regarding small firms. For

medium sized firms but particularly for large companies the power relationships between the two

different transmission types are inverted.

Table 2-12: Retail: EDI usage across countries (2003)

EDI usage D E F I UK EU-5

EDI usage 5 15 12 9 0 9

Plans to use EDI 3 2 0 6 5 3

Base: EU-5 (D, E, F, I, UK), all enterprises N=504. In % of enterprises. Reporting period: March 2003.


Table 2-13: Retail: EDI standard usage across countries (2003)

RetailEDI standard usageacross countries

All (7) sectorsAll enterpr. 0-49 empl. 50-249 empl. 250+ empl.

Standard EDI usage 48 46 46 67 59

Internet-based EDI usage 54 49 49 49 31

Base: EU-5 (D, E, F, I, UK), EDI users (N=667 for all sectors, N=91 for the retail sector). In % of enterprises. Reporting period: March 2003.


2.3.4 Marketing and sales

Marketing

Website availability is relatively limited among the Retail sector companies. This data seems rather

structural if service features are compared to those in the manufacturing sector. Small retailcompanies have, in fact, a limited geographic scope and, unless they are interested in developing an

e-commerce or mail order project, are less motivated to implement tools, the main characteristic of

which is to extend the range of action of their contacts.

Website diffusion with small sector companies is therefore less than one third of the total, while it

approaching saturation level when larger companies are considered (also taking into consideration

companies that intend to launch a site within 12 months).

The diffusion of e-commerce is characterised by an analogue trend, with different absolute values: on

average only 10% of retailers have set up a site for online sales but this percentage essentially

depends on the diffusion in small companies. Almost 30% of medium and large companies -

approximately one third of those with sites - use them to directly sell their product.Even in this case, however, small companies constitute the most dynamic category of new initiatives:

based on their statements, e-commerce experiences should almost double within one year. The figure

is surprising especially if read in combination with new website plans: this combination reveals that

about two thirds of small companies that will launch a site in the next two years will do so with the

intention of using it as a sales tool.

Table 2-14: Retail: Enterprise with a website across countries (2003)

Enterprise with a website D E F I UK EU-5

Have a website 40 32 21 33 22 31

Plan to have a website by March 2004 15 23 7 8 20 14

Use a Content Management System * 13 37 15 57 16 33

Base: EU-5 (D, E, F, I, UK), all enterprises (N=504), except *: companies with a website. In % of enterprises. Reporting period: March 2003.




Retail

31 July 2003

Considering the geographic variable, countries with a higher penetration of e-commerce experiences

are Germany (15%) and Italy (14%), with values almost triple those of France and UK.

This last figure is surprising especially if compared to the information available on demand: according

to Nielsen/Netrating for December 2002, the European country with the highest number of contacts

regarding e-commerce site attendance is the UK. The combined explanation of the two phenomena isrepresented by the fact that online sales in this country have a high concentration level with a limited

number of companies able to mainstream and also promote and develop consistent traffic around their

offer.

Figure 2-11: Retail companies with a website (2003)

Base: EU-5 (D, E, F, I, UK), all enterprises (N=3,515 for all sectors, N= 504 for the retail sector).

Figures for sector total, all sectors and countriesare weighted by employment ("enterprisescomprising …% of employment"), figures for size-

classes are to be read as "% of enterprises".



31

72

81

48

67

65

37

36

36

49

14

12

5

12

9

9

20

8

9

13

0 10 20 30 40 50 60 70 80 90 100

<50 empl.

50-249 empl.

250+ empl.

Total

All (7) sectors

D

E

F

I

UK

Have a website Plan to have a website by March 2004

Online sales

About three-quarters of European companies achieve less than 10% of their turnover through online

sales: this figure must not however be negatively interpreted with regards to the online channel. A

rather consistent share of initiatives still reaches satisfactory demand levels, but even in a long-term

prospective the data probably does not significantly deviate from these levels. It is in fact related to the

structural characteristics of e-commerce supply in Europe where traditional retailer integrate the online

channel with the conventional one (so-called click and mortar operators).

In fact, as also indicated by the reported case study, there are operators who are more capable of

taking advantage of the opportunities derived from the online channel. However it can be generally

foreseen, at least for the most common references, that online retail will be conceived by sector

operators as an alternative to the traditional channel. Pure players will focus on niche initiatives or

service organisations that reap a structural type competitive advantage from their presence online

(experiences include, for example, auctions, end of season stock sales and items such as books that

benefit more than physical channels from the catalogue expansion on the international level). If a

common matrix that can explain the success of these initiatives is to be found, it is positioning in a

niche that becomes profitable if taken to the international level.



Retail

July 2003 32

Figure 2-12: Retail companies selling

online (2003)

Base: EU-5 (D, E, F, I, UK), all enterprises (N=3,515 for all sectors, N= 504 for the retail sector).

Figures for sector total, all sectors and countriesare weighted by employment ("enterprisescomprising …% of employment"), figures for size-classes are to be read as "% of enterprises".



10

27

28

16

19

22

11

12

15

13

9

7

3

7

7

5

12

3

9

9

0 10 20 30 40 50

<50 empl.

50-249 empl.

250+ empl.

Total

All (7) sectors

D

E

F

I

UK

Sell online Plan to sell online by March 2004

Figure 2-13: Selling online Unique audience – E Commerce Sites, December 2002

Source: Nielsen/NetRatings December 2002 at home panel



Retail

33 July 2003

Tesco case study

In building its online grocery business, Tesco has successfully demonstrated how anincumbent can exploit its advantages over pure-play start-ups. The company uses itsexisting grocery-store infrastructure to handle fulfilment to its online customer base,

thus delaying the need for a large fixed-cost investment in dedicated distributioncentres. It uses its scale advantages in procurement to secure cost-competitivesupply. And it leverages its offline customer base and strong brand in the UnitedKingdom to minimize brand development and customer acquisition costs.

With a million registered online customers and the ability to reach 96%of the UKpopulation from more than 200 stores equipped to handle home delivery, Tesco.comhas captured around 70%of the country’s online grocery market. It is already fulfillingmore than 110,000 online orders per week and, by fiscal year end 2003, revenueshad reached 450 million pounds. (…). Also in the last fiscal year, it posted profits of12 million pounds, reaching the profitability ceiling (0.4 million pounds) the previousyear.

In addition to the UK, tesco.com now operates in the Republic of Ireland, SouthKorea and, in a joint venture with Safeway Inc. in the USA. The penetration strategy

of the online channel is based on the home-shopping model of using trained pickersto select orders from stores for home delivery. Therefore the company aims atpenetrating markets where traditional and/or highly potential points of sale areavailable: in the Republic of Ireland, where tesco.com now covers 70% of thepopulation, dot com sales doubled last year. On the other hand, South Korea has thethird-largest internet penetration in the world (over 70% of the population haveinternet access).

Tesco.com customers place their orders online, specifying a date and a two-hourwindow for delivery. Next-day service is available. Products and prices are the sameas those at the local Tesco grocery store. (..) If dissatisfied with a purchase, acustomer can return the item to the delivery driver for a full refund. (…)

Online orders are filled through Tesco’s existing stores. Each incoming order is fedthrough an optimisation software programme that minimises the time it takes a pickerto collect the grocery items from the store’s aisles. The items are then packed anddelivered in a customised van to the shopper’s home. By using existing stores asdistribution centres, Tesco has been able to limit its initial investment in fulfilmentinfrastructure. The company acknowledges that this arrangement may eventually

interfere with its offline operations. If and when the growing volume of online orderstaxes the bricks-and-mortar infrastructure, Tesco calculates that the online businesswill be large enough to justify a dedicated distribution centre that would operate at anattractive rate of capacity utilisation. (…)

Intelligent use of the new channel has allowed Tesco to please its existingcustomers, attract new ones, increase sales, and expand the scope of its business.In an industry where pure plays are finding it hard to make the economics work,Tesco appears to have created an engine for profitable growth.

Source: The Next Chapter in business-to-consumer E-Commerce. Advantage

Incumbent. The Boston Consulting Group; Company sources.



Retail

July 2003 34

In the panorama of the countries, all characterised by “mixed” retailers, Italy is noteworthy: about one

fifth of all companies that sell online earn more than 25% of sales from this channel. The presence of

pure players in this country is sometimes quite consolidated, as for CHL, the IT product retailer (see

the case study in e-Business Watch, Report 1- Retail: “Background, issues and key figures” , October

2002); in others relatively recent (i.e. Yoox).

Figure 2-14: Retail: Share of

online sales as % of total sales (2003)

Base: EU-5 (D, E, F, I, UK), enterprisesselling online (N=68 for the retail sector).In % of enterprises. Reporting period:March 2003.


> 50% of sales

26-50% of

sales

5-10% of sales

< 5% of sales

11-25% of

sales

Similar to the e-procuring experiences, the distribution of the time dimension indicates a polarisation

between the experiences that are over two years old and more recent ones, which implies a certain

dynamism and fluency on the new initiative level. Even if up to date data is not available on the

subject, it is possible to estimate a mortality rate greater than the one for tradition channel

experiences.

Table 2-15: Retail: E-commerce experience across countries (2003)

E-commerce experience D E F I UK EU-5Selling online for more than 2 years 78 25 98 44 33 55

Selling online for 1-2 years 0 25 1 11 0 9

Selling online for < 1 year 22 25 1 44 66 33

Selling Online for ... months (average) 31 21 34 22 17 25

Base: EU-5 (D, E, F, I, UK), enterprises selling online N=68. In % of enterprises. Reporting period: March 2003.




Retail

35 July 2003

Yoox case study

The online presence of Yoox is based on the supply of a selection of clothing andaccessory items from previous fashion collections. Suppliers are stores andmanufacturers (for a total of more than 200 listed brands) that can resolve the end of

season stock problems, keeping distribution and brand under control while avoidingchannel conflicts, due to the presence of ranges obviously separated from newcollections by a time interval.

Success factors for customers are above all represented by the extremelycompetitive prices (with average savings over 50% off the original purchase price)and by the distinctive service characteristics (range, sample selection, flexibility,service level).

Among these components range is probably fundamental: it would be difficult torealise (for market attraction and range logistics organisation) in a physical point ofsale. Compared to the closest sales experience (factory outlets) Yoox has, in fact,the advantage of a much wider potential attraction pool.

The selection and organisation of samples according to fashion article

representation/significance criteria within the catalogue also gives consumers acontinual choice within the reference season.

Flexibility and attention to payment system security (that can be made C.O.D: or bycredit card using Visa’s Verified system) and overall transaction management (freereturns for size and colour problems is foreseen) overcomes the psychologicalbarriers often found in online clothing purchases.

The site was launched in 2000, and by 2001 posted 5 million Euro sales, rising to 12million in 2002 (forecasted to double again in 2003). There are about 7 million visitorsand the site is distinguished for its high loyalty level: about 70% of orders are placedby returning users.

The service, in fact, covers 15 European Union countries and debuted on the USmarket at the end of 2002. Sales are still fairly concentrated (Italy and UK represent

about 70% of turnover) but the dependency is decreasing (10% of sales were madein the USA in the first month of business).

The business seems to have quickly surpassed the start-up phase and reachedoperating balance (EBITDA) in the last quarter of 2002.

Source: Company sources and press review, 2003

The most used e-commerce tool (88%) is the company website, bearing in mind the prevalent B2C

nature of sales relations. The lesser significance of exchanges in a B2B context is indicated by the

diffusion of extranets (9%) and EDI (5%), especially when compared to the corresponding procuring

percentages. Regarding this category, a considerable difference is identified according to the

company size, with half the penetration once again supporting the size variable.

The second channel in order of importance in online sales – marketplaces – is following a completely

opposite trend: around one out of two small companies promotes its products through a marketplace,

that joins direct sales on the company site. The higher propensity to the aggregate dimension by minor

operators is therefore also confirmed in this sphere, associating more or less structured marketplace

supply to increase their online visibility.

Most e-commerce experiences have a much more unbalanced national dimension compared to the

aggregate of all the other Market Watch sectors. In a sector that is strongly influenced by single point

of sale localisation factors, e-commerce thus contributes considerably to the expansion of natural

business borders (that from local can become national) while also indicating the difficulties that this

sector faces more than others in overcoming national business borders.



Retail

July 2003 36

This distinction is destined to reduce, due to the activities of larger retailers (normally those who have

a higher geographic diversification level). In fact, their current attitude is rather prudent, and the

surprising focus of their online business in a local sphere could be interpreted by the conduct of pilot

initiatives in restricted areas.

Table 2-16: Retail: E-commerce channels used for online sales (2003)

RetailE-commerce channels used for online sales

All (7)

sectors All enterpr. 0-49 empl. 50-249 empl. 250+ empl.

E-commerce through company website 83 88 88 75 87

E-commerce through electronic market places 40 50 50 31 29

E-commerce via extranet 5 9 9 24 39

E-commerce via EDI 3 5 5 17 19

Mobile e-commerce 4 8 8 0 0

Base: EU-5 (D, E, F, I, UK), enterprises selling online (N= 542 for all sectors, N=68 for the retail sector). In % of enterprises.Reporting period: March 2003.


Business integration of online selling

The level of business integration of online selling also reflects the sector’s relationship aspect (mainly

B2C) that tends to express itself in rather de-structured forms. In most cases (almost 80% of sales),

the purchasing process is managed via e-mail. Only 8% have back-end systems.

As for the technical aspects of e-commerce system management, improvement margins emerge in

terms of security requisites: only 42% of sites have SSL, even less those that permit transactions to be

completed (payment) online. Considering the resistance that still characterises e-commerce use by

consumers, these aspects are very important for the success of the various initiatives. Transaction

security and payment system flexibility are probably destined to become not just pre-requisites butindispensable for business.

Table 2-17: Retail: Degree of integration of e-commerce system (2003)

Degree of integrationof e-commerce system

D E F I UK EU-5

Online orders are integrated with the back-end system 11 0 1 11 1 8

Information about online orders by e-mail 78 75 34 89 66 78

Information about online orders by fax 11 25 0 0 33 9

Information about online orders in other forms 0 0 33 0 1 3



Table 2-18: Retail: Technical features of e-commerce systems (2003)

Technical faculties of e-commerce systems D E F I UK EU-5

Online orders trigger business processes 23 50 34 44 0 36

Usage of secure server (based on SSL) 44 50 34 44 1 42

Enable online payment 33 25 34 22 0 26

After-sales-services provided online 55 50 66 56 34 54





Retail

37 July 2003

Impact of selling online on companies

Similar to e-procurement, the evaluation of the impact of online sales is not homogeneous. It’s likely

that a relevant share of online sales comes from a process of substitution of the physical channel

sales.

There is a fairly wide area of neutral evaluations by sector operators who do not even express precise

evaluations on non-quality aspects (sales volume, number of consumers). The reasons are probably

found in the integration between the two sales channels, that create overlapping and exchanges that

are often difficult to quantify. Despite the impression that a zero sum game may result, the operator’s

opinions are mainly traceable to the positive area for both sales volume and number of customers.

The same, with higher intensity, occurs for opinions on customer service and generically on sales. In a

competitive context characterised by a growing attention to customer loyalty policies and service, e-

commerce is thus distinguishing itself as a strongly synergetic element in the retailer’s overall

business.

As a consequence of this, e-commerce is likely to develop not so much as an independent channel,

with its own characteristics and features, but more probably as an important opportunity forcommunication and improved interaction, and therefore for knowledge of customers and their

expectations.

Figure 2-15: Retail: Impact of selling online (2003)

14

15

18

17

14

19

13

18

13

13

8

10

27

44

37

47

36

39

41

47

33

35

21

17

-20 -10 0 10 20 30 40 50 60 70 80

Retail

All sectors

Retail

All sectors

Retail

All sectors

Retail

All sectors

Retail

All sectors

Retail

All sectors

(+) very positive (+) fairly positive

(-) f airly negative (-) very negative

Volume of

sales

Sales area

Quality of

customer service

Number of

customers

Costs of

logistics

and inventory

Efficiency of

business

processses

Base: EU-5 (D, E, F, I, UK), enterprises selling online (excl. DK/NA) (N=486 for all sectors, N=67 for the retail sector) .

In % of enterprises. Reporting period: March 2003.




Retail

July 2003 38

2.4 E-business development 2002 – 2003: main trends

The e-Business W@tch carried out two enterprise surveys based on similar questionnaires in June

2002 and in March 2003. The data presented in the previous sections of this report are based on the

e-Business W@tch survey conducted in March 2003. The aim of the following section is to identifywhether significant changes from the first survey have occurred, which allow an assessment of some

major trends in e-business developments in the Retail Sector.

However, the comparison of survey results meets some challenges: the time frame between the two

surveys, which is too short to provide statistically significant changes in percentage figures for most

indicators and the weight of the micro enterprises in the sample which is slightly higher in the 2003

survey (micro enterprises are likely to have lower e-business usage compared to the other size

classes). This means that while most of the indicators do not show any relevant change and we

cannot reject the hypothesis that differences are merely due to the fact that different companies were

interviewed in both survey rounds, although selection was based on the same sampling procedure

Notwithstanding these restrictions in comparability, some trends of e-business use in the can be

identified and are presented in the following paragraphs.

Infrastructure usage and netw orking access remain stable

Looking at the data about the availability of ICT infrastructure in the Retail sector in 2003, it appears

that some figures are lower than in 2002: as the differences are within the confidence interval of the

survey, they should not be interpreted as a decline in ICT usage and connectivity. The main reason

explaining these findings is, as stated above, the slightly different composition of the sample.

Deviations are particularly pronounced within the category of smaller enterprises and in France.

Analysis of the data combined with the qualitative assessment of the main trends suggest, that the

overall stability in the usage of ICT and networking access is due to the peculiar composition of the

sector itself: medium to large companies are already equipped while many of the small (and especially

micro) enterprises who are not connected in 2003 are likely to remain offline. The share of "off liners"

is highest in retail compared to the All Sector average.

This is expressed by the Industry Connectivity Index and the SME Connectivity Index1

developed in e-

Business W@tch .

Table 2-19: Retail: Industry and SMEs Connectivity Index (2003)

Industry Connectivity Index SME Connectivity Index

6/2002 (EU-4) 3/2003 (EU-5) 6/2002 (EU-4) 2003 (EU-5)

Retail 38 38 29 29

The index considers (a) the diffusion of internet access in a sector and (b) the quality of their access in terms of bandwidth. It can take amaximum value of 100. For a more detailed definition, see chapter on "Benchmarking e-Business in 15 Sectors".


e-Business exchange are also showing a slow development. “Traditional” exchanges still prevail: e-

exchange with suppliers occurs in 38% and exchange with customers in 22% of enterprises having

Internet access. Sharing of documents and collaborative work within enterprises occurs in about one

third of the companies surveyed with no increase in 2003 with respect to 2002.

1Both indices are pilots. They are presented for the first time in this report to stimulate discussion about

innovative, adequate and useful indicators for measuring progress in ICT and e-business adoption.



Retail

39 July 2003

IT specialists: external recruitment increasingly difficult

Data from the survey confirm that Retail’s companies attitude towards the recruitment of external IT

staff is lower than the all sectors’ average and is also decreasing compared with the 2002 survey

results. Companies are facing increasing difficulty in finding resources that meet the necessary

requirements and the exchanges with other sectors are not very common.

Table 2-20: Retail: IT skills gap recruitment efforts and difficulties experienced, 2002-2003

EU-5 by sector (2003)

Have recruited /tried to recruit IT

specialists in2002/03

* … of those haveexperienced

great difficulties

* … of those haveexperienced

some difficulties

% of total withdifficulties in

finding ITspecialists

Retail 2003 (EU-5) 7 35 23 4

Retail 2002 (EU4) 10 12 26 4


On line retailing: not fast as expected

E-business presents considerable application potential in the retail sector for the sector’s structural

characteristics that are based on relations within the supply chain and on the horizontal level for those

operators who have a chain organisation.

This potential is only partially expressed and, in fact, the sector presents a certain delay compared to

other sectors on rather substantial elements: the diffusion of procuring and selling online and

infrastructural elements such as Internet access, electronic communications usage, websites. These

delays decisively affect the differences between the larger retailers and small firms, who present a

higher dynamism and receptiveness to the opportunities provided by new technologies. The adoption

path shows a quite slow pace. Only about 10% of companies sell on line and the share of those who

are not on line but plan to do so is even decreasing with respect to the previous survey (presently,

about 9% of off liners) .companies procuring on line account for 26% of the sample but thispercentage is likely to remain stable, according to the sample’s statement as only 3% of those not

procuring on line presently intend to do so in the next 12 months.

Figure 2-16: Retail: Adoption process of online procurement

E-Procurement Diffusion

0%

5%

10%

15%

20%

25%

30%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Year

% o

f f i r m s p u r c h a s

i n g o n l i n e




Retail

July 2003 40

Figure 2-17: Retail: Adoption process of selling online

Online

Selling Diffusion

0%

2%

4%

6%

8%

10%

12%

1996 1997 1998 1999 2000 2001 2002 2003

Year

% o

f f i r m s s e l l i n g o n l i n


Satisfaction with e-business and plans for investments

Returning the discussion to a general level, it is noted how the perceived importance of e-business

suffers from this relevant delay and – while the operators’ opinions are still substantially positive – only

one third of these explicitly acknowledge a certain importance to e-business in the overall economy of

the managed activities.

Certainly, even in light of a more disenchanted attitude regarding the potential of the new economy

and a rather difficult economic situation, the new initiatives will be challenged on an increasingly more

concrete level, as far as they can be measured with the ROI ruler.

Among the companies where e-business does not already constitute a significant part of their

business, in fact, the dominant attitude is scepticism, particularly for the larger ones. A rather broad

position of adopter is clearly identified for this category (highly satisfied with the experiences launched)

and a share, also in this case rather consistent, of refusers on rather rooted positions.

Table 2-21: Retail: Degree of satisfaction with e-business experience (2003)

RetailDegree of satisfaction with e-business experience


Very satisfied 19 19 19 3 18

Fairly satisfied 70 71 71 86 76

Fairly disappointed 9 9 9 11 6Very disappointed 1 1 1 0 0

Base: EU-5 (D, E, F, I, UK), enterprises expressing that they do e-business, excl. "don't know" answers (N=1576 for all sectors, N=206 for theretail sector). In % of enterprises. Reporting period: March 2003.


These positions are efficiently summarised by expenditure intentions. Overall, the organisations that

are ready to confirm expenditure levels or increase them represent a very high percentage, but the

optimistic evaluations are partially reduced by the consideration that, for a consistent share of

companies, confirming the actual spending level in e-business means continuing not to invest!



Retail

41 July 2003

Table 2-22: Retail: Expected expenditure in e-business (2003/04)

RetailExpected expenditures on e-business technologies for periodMarch 2003 – March 2004


Increase expenditure compared toprevious 12 months period 29 25 25 31 31

Decrease expenditure compared toprevious 12 months period

2 1 1 7 9

Maintain current level of spending 64 68 68 58 58

Base: EU-5 (D, E, F, I, UK), all enterprises (N= 3,515 for all sectors, N= 504 for the retail sector).In % of enterprises. Reporting period: March 2003.


Technology trends

Surely the future development of e-business will present a trend not fully foreseeable by the operators,

with sudden accelerations partially favoured by technology supply policies.

An important game will be played regarding the combined diffusion of RFID/Electronic labelling. The

crucial node is represented by the standardisation and economic accessibility of the electronic

labelling system which, favouring radio-control, could permit integration between flows of goods out of

and in-store that would represent a true technological revolution for the sector.

The problems, in this regard, are essentially identified in the sustainability of initiatives on the cost

level and in the implications regarding privacy: the Benetton Group (Italy) experience on RFID

technology application and the electronic labelling of a significant share of articles sold by the

company is of note. Announced for March 2003 by technological partners that quantified radio labels

foreseen by the technology implementation phase as 15 million, the initiative was then denied by the

company, that confirmed interest in RFID but denied its introduction.

The episode caused discussion by players involved – but also by other parties (companies) involved inthe introduction of the new system – on the possibility of controls outside the point of sale, that create

inevitable problems for consumer privacy.

As for initiative sustainability, the crucial aspect will probably be represented by the critical mass that

the electronic label technology can create, as price variations will be magnified by high single

multipliers. Cost sharing with the sector’s goods and service suppliers and other concerned parties

may also affect the success of the technology.

In a study conducted by IBM on a sample of large American and European retailers, about 50% of

those interviewed stated that they had plans to employ RFID-enabled checkout in the next five years.

This form of checkout assumes that they have adopted RFID item-level tagging.

The sector’s technological evolution towards a growing point of sale and supply chain automation levelshould cause a significant reduction in the labour force required for overall business management

(from administrative to warehouse and cashier positions). In the short-term, especially in a weak

consumption context, this element could paradoxically represent a deterrent to new investments. In

the long-term the situation could evolve either to a gradual reduction of the sector’s labour force

intensity or in a re-conversion of a part of the same from operative or handling positions to

assistance/promotion roles in sales.

In this case the new technologies could also play a substantial role because the strengthening of

marketing and front-office activities will extend through workers’ access to computer systems,

applications and tools for their job and to available customer data.



Retail

July 2003 42

Online channel wins custom er’s loyalty

This customer relation element seems to be the other large innovation trend that could steer IT and e-

business investments in the retail sector: the prospect of growing competitive pressure tied to growing

market saturation and the widening of the international business dimension will in fact extend

competitive advantage from the traditional tools of price and localisation to the best purchasingexperience and overall customer satisfaction. The result is the achieved goal of winning the

consumer’s loyalty.

Similarly online will emphasise its complementary channel character. On the one hand, there will be

pure players, able to position their supply on those products for which the network dimension

represents a real competitive advantage (catalogue breadth, geographical demand served, purchasing

occasions and methods); on the other – the more common references – the online channel will

represent integration (the up to now positive experience in click and mortar or simple support of the

physical channel). The online channel has become a true new media: it will continually lend itself to

the function of information/comparison but can also be used as a promotional/information tool

supporting the physical channel.

Already, according to Forrester Research, 22% of Europeans search online but buy offline, almost halfof cross-channel shoppers defect to competitors’ shops; and net-influenced offline sales yield 83

billion Euro today - almost three times the value of online sales.

Mobile commerce: a long way to go

A third innovation trend - mobile commerce - is more uncertain and in some way has the previously

identified two as assumptions. A series of applications exists in this sense -from pure purchasing on

mobile terminals to receiving location based messages, passing through intermediate solutions that

the sector’s peculiarities allow development of. Ahold in Norway recently conducted the world’s first

trial with Bluetooth wireless technology in retail stores (Bluetooth is a technology that allows devices to

synchronise data and exchange files within a 10-meter radius). Using mobile phones with WAP and

Bluetooth technologies, customers of the pilot store were able to pay for goods, check their accountsand find about current offers.



Retail

43 July 2003

3 Summary of main findings

E-business in retail holds a decisive role even compared to other sectors, as the intermediary with end

users. As indicated below, in the detailed analysis of the economic implications of e-business for the

sector, however, the diffusion of e-business in the sector is far from a pervasive reality or even aligned

with the diffusion standards of other sectors.

This is even more surprising if we consider that the sector should structurally lend itself to the adoption

of e-business instruments because of the distribution of its units and the support that e-business can

provide in improving the factors that contribute mainly to the companies’ performances: the cost of

purchased goods and the optimisation of product stock.

This trend is, however, affected by a peculiar feature of this sector. Many SMEs, in fact, are clustered

and organised in such a way that, although not impacting on their ownership, involves them in

organisation forms (such as buying groups, franchising) which allow unique concentration on the

relations with the upstream and downstream players in the value chains.

Supply is the main e-business application area within the sector: the most significant share of relations

within the value chain is generated by the exchange of electronic documents with suppliers, while

procuring online is the most consistent activity of those managed through new technologies.

However, these exchanges assume poorly advanced forms that do not permit the full exploitation of e-

business potential along the supply chain (product development, demand forecasting, stock

management). In this application area, however, there are significant differences between small

businesses and medium and large ones.

The latter, due to the history of EDI networks, present a very satisfactory penetration of online

procurement, reaching 70% (for the sector as a whole, the penetration is less than 30%, less than the

average of other sectors due to the negative impact of the diffusion of procuring online within small

businesses).

Other positive data, this time regarding the overall sector, and favoured by the attitude of small

business, is represented by the strong propensity of those which procure online to make a significant

share of their purchases (almost 20% procure more than 50% of their purchases online).

The situation of a sector where small businesses still demonstrate a considerable delay compared to

the larger ones, and to the corresponding class in other sectors, emerges from the analysis of the

diffusions, impacts and of the receptivity to new initiatives with a certain regularity for all the analysed

variables. However, these businesses represent the category that is most susceptible to e-business

potential.

A hindering factor, to this regard, may be represented by the attitude towards human resource

competence for computer skills: the sector indicates a low propensity and claims greater difficulties inrecruiting IT specialists when compared to other sectors.

The diffusion of selling online is limited by the sector’s mainly B2C nature, and only involves 10% of

businesses, even if good receptivity to launch new initiatives is noted.

E-commerce mainly registers the so-called click & mortar users, i.e. traditional retailers who integrate

the physical channel with the online one, holding the competitive advantage of a lower initial

investment level to confirm the brand and create a dedicated logistics network over pure players. At

any rate, successful experiences associated with the so-called pure players are noted, able to

efficiently take advantage of the added value the network gives transactions (exponential expansion of

contacts).



Retail

July 2003 44

3.1 Economic implications

3.1.1 Implication for the individual enterprise

A brief assessment of the impact of e-business in the retail sector paints a rather disappointing picturein both absolute terms and in comparison with the other sectors monitored by the e-Business W@tch .

Unlike other diffusion and impact indicators, in this case the size variable – reflecting the sector’s

structural characteristics – does not influence the evaluations.

Figure 3-1: Retail: Impact of e-business on companies

8

3

8

8

9

9

8

7

9

10

8

5

15

8

9

10

5

11

10

9

8

5

3

8

9

14

25

22

14

16

14

31

37

14

17

11

16

17

11

15

13

21

18

13

17

10

7

19

10

13

0 10 20 30 40 50 60

0-49 empl.

50-249 empl.

250+ empl.

Total°

All (7) sectors°

0-49 empl.

50-249 empl.

250+ empl.

Total°

All (7) sectors°

0-49 empl.

50-249 empl.

250+ empl.

Total°

All (7) sectors°

0-49 empl.

50-249 empl.

250+ empl.

Total°

All (7) sectors°

0-49 empl.

50-249 empl.

250+ empl.

Total°

All (7) sectors°

has s ignificantly changed has somewhat changed

... organisational

structure

... relationship

to suppliers

... customer

relationship

... internal work

processes

... offer of products& services


As for the comparison with other sectors, the negative assessment is mainly due to the gap betweenthe actual and potential deployment of e-business in a sector which, with its network organisation,

should constitute the ideal application area for e-business and the development of its potential.



Retail

45 July 2003

The reason for this are:

• Downstream, the clients’ mainly B2C nature which, in some way, is penalising this sector

compared to other B2B oriented sectors where e-business presents a longer tradition and has

currently taken more root

•

Upstream, the variety of sectors and suppliers that determine a levelling out of the mostwidespread communications and reporting methods between the organisations (an effect we could

define as “shared minimum”). This is demonstrated by the fact that, as soon as a privileged supply

situation from the quantity/frequency standpoint occurs, this tends to be structured through e-

business tools

A closer examination of the survey contents regarding the impact of e-business on companies reveals

considerations specifically regarding the sector’s main value chain areas. 30% of companies believe

that e-business has significantly or partially changed their ways of conducting business, but the

organisational structure or internal work processes do not always adapt (about 22-23% do). The other

areas most likely experience this effect are relations with suppliers (changed in 23% by e-business)

and customers (where the percentage lowers to 19%). The impact on product and service offer

reflects the latter area (18%).To understand the impact of e-business, it is important to look at opportunities and risks associated

with its adoption.

E-business opportunities

• E-business as a marketing tools catalyst: The flexibility of using new technologies permits

basic business strategies to be strengthened and emphasised. Web marketing, mobile marketing

and in-store promotions develop more selective and targeted relationships between businesses

and customers, exponentially increasing the impact of differentiation strategies. At the same time,

the web, favouring research and comparison operations, can give those companies that intend to

present themselves via price leadership a particularly efficient tool.

• Product/service cost management optimisation: The contribution provided by e-business to

marketing mix management has a positive impact on the resources intended for these activities.

Thus the availability of communications forms with greater orientation to the right target leads to a

reduction of promo/advertising investments in the traditional areas, generally the more costly

ones. Interactions between the point of sale, purchase centres and, upstream, manufacturers,

permit a more efficient and timely management of product policies (starting from the testing

phase). Distribution costs may be better distributed on products and do not generate

diseconomies such as stock-outs; even promotions and, generally, price policies can be more

efficiently managed, identifying and more quickly redefining the initiatives and price positions that

best suit the company’s sales targets.

• Supply cost reduction: using e-business tools lets companies reduce supply costs, both direct

and indirect. In the first case the new technologies favour the recruitment of and relations with a

higher number of suppliers, thus broadening the company’s scope to act on the supply market in

more transparent conditions and with higher margins. Using e-business tools also implies

accessory advantages, associated with purchasing and administration procedure standardisation

and automation that reduce error and manual intervention of management once implemented.

Considering the high number of transactions that characterise this sector, this component –

apparently marginal – may be significant in overall business management.

• Expansion in new markets: the web offers companies an important opportunity to diversify

their business, facilitating the expansion of the point of sale’s normal attraction base but also

reaching new market segments. For small businesses, or for those businesses that work in niche

segments, the web can represent the chance to reach a optimal dimension of the market they

serve, permitting them to cover areas that recognise a higher added value for supply. In some

cases the web can implement business models that could not be proposed (or only partially) in

the traditional channels, representing an expansion of the sector’s overall borders.



Retail

July 2003 46

E-business risks

• Instability of investment amortisation period: the perception of the continuous system and

technology upgrades connected to e-business may make the reliable assessment of the time

validity of the adopted solutions difficult for companies and in several cases, may favour a waiting

attitude. This conviction, that the need for quick technological upgrade impedes the emergence ofexperience curves associated with e-business management, could prevent the passage of e-

business from adoption by innovators to that realised by the majority.

• Higher competitive crowding: the fact that the opening of an online point of sale conventionally

meets lower entry barriers compared to a conventional sales point and, in general, that it includes

new organisations in the sector, determines higher competitive crowding. In a context where final

consumption does not significantly grow over time, this could result in increased resources being

necessary to achieve the same result. These dynamics (profit decrease) could occur on the

sector level, but as has been said before, e-business still provide great benefits

• Need to develop new skills: companies that begin to be involved in e-business face unusual

business activities that imply sometimes considerable efforts to reorganise business attitude and

culture. They must also face re-conversion costs, personnel training costs to adapt to the newroles or to the evolution of previous ones. Companies also face new problems connected not only

to the management of burgeoning data and information, e.g. security, but also to their efficient

use.

3.1.2 Implication for the industry structure

Integration of the supply chain

E-business favours the integration of the operators involved in the retail sector supply chain. The

latter’s aim to reduce the quantity of goods to be stocked under the same sales conditions, and to

accelerate supply flows to offer better customer service, finds a useful tool in e-business. In fact, e-business tools permit information sharing between chain partners (retailers, logistics providers,

manufacturers), which brings up the topic of e-extended supply chain, where ideally demand drives

and automatically determines supply flows. The real application of this principle, however, faces the

normal expectations of the parties for a contract-like attitude which in some cases ends with a

reduction of e-business potentials. These expectations have not prevented the creation of important

integration forms, e.g. in the case of relationships between retailers and manufacturers for their sales

brands or in the so-called Factory Gate pricing, i.e. in supply negotiations that only considers the

manufacturer’s industrial costs, as the other functions are directly managed or coordinated by the

retailer.

Redefinition of the role of hum an resources

The use of e-business tools and the innovations connected to the diffusion of IT determine a reduction

in the demand for labour required for operative or staff functions. Examples are the simplification of

the administrative procedures or the gradual automation of technologies regarding the point of sale,

cashiers or stockmen. This allows companies, especially those that rely on high service level, to

assign more resources to customer service: pre and post sales assistance but also in overall

purchasing experience. Human resources, together with the new technologies, will thus play an

increasingly important role and will be strategic in a sector where the loyalty goal is growing in

significance.



Retail

47 July 2003

3.2 Policy issues

Encourage and promote the standardisation of the computer languages used in the moreadvanced forms of supply chain management.

Using a shared language is a must in developing and improving relationships between all chainpartners. It is therefore important, for both the computer language used in logistics and more

advanced SCM integration and (if confirmed in the future) in the transmissions regarding electronic

labels, that there are confirmed universal and open standards. Solutions that are not coordinated in

this direction and particularly the economically legitimate interest of some suppliers in promoting

proprietary standards, could make the mass diffusion of new technologies more difficult, and access

by the less economically endowed more restricted. Language standardisation regarding supply chain

management could involve other organisations, for example, the quality control boards or food

traceability systems. In this regard, it seems opportune to ensure the involvement of new technologies

in the provisions on traceability since the same can usefully integrate the information on food origins

with their handling and supply chain information.

Design a regulatory base on privacy between European countries, aimed at integratingthe emerging aspects tied to technological development

Customer privacy assumes fundamental significance in e-business management since the new

technologies often imply the collection and processing of a large quantity of information provided by

either the same consumers (essentially personal/sociological) or by the retailers (behavioural). The

potential of these two typologies of information is enhanced by the possibility to cross them. The

definition of a group of shared norms by the concerned parties – consumer protection associations,

industry and distribution representatives, national authorities on the relevant legislations – will promote

a more balanced development of the new technologies. This is in order to protect consumer rights and

the subsequent restraints on e-business tools but also to avoid risks that lead to the excessive

congestion of information for the operators concerned. Although it is difficult to define the operative

details of solutions yet to be defined from the technological point of view, the application/extension of

general principles to the same appears important, e.g. reconciling company stress to taking advantage

of the innate potential of the new technologies with the consumer’s right of choice and information.

Dismantling barriers presented by e-business for SMEs

SMEs certainly represent the most motivated business category for the adoption of e-business

solutions. In addition to promoting open standards based on Internet connections and the diffusion of

faster and cheaper access, small business access to new technologies could be favoured by initiatives

aimed at optimising hardware investments and infrastructures generally. For example, the promotion

and coordination of technology buying groups could be useful tools, including consultancy activity

specifically dedicated to the implementation of e-business, especially if distributed through the

association forms mainly connected to the territory (i.e. Chamber of Commerce).

Coordination with initiatives specifically dedicated to supplier sectors (i.e. food) could be strategic in

allowing standard and interchange conditions between suppliers. This may also prevent an altering of

the competitive scenario. At the same time, the sector’s overall technological upgrade may act as a

driving force, transmitting standards and experiences from the more evolved sectors to the less

developed ones, becoming a true enabler and launching a virtuous path for Retail.

Promote I T and e-business training and m otivation opportunities also involving operatorsin EU candidate countries.

The sector is still characterised by a cultural attitude that does not fully support e-business, often

considering it a cost rather than an investment. In this regard, more knowledge of the effects and

sustainability of e-business initiatives would be of benefit, even with respect to those markets (US)where these have a higher maturity level. The success of the e-business initiatives would also benefit



Retail

July 2003 48

from a more widespread ICT culture in the sector; the lack of this represents a hindering factor

especially for SMEs and negatively impacts the implementation of the solutions.

The need for a more widespread ICT culture also involves the retailers of the new EU accessing

countries. In this case, alignment with the Western world’s technological standards would permit them

to compete on the same level as Western retailers who are advantaged by the relation methods withinternational suppliers interested in penetrating those markets.

Awareness raising of a regulatory structure on e-commerce

The legal and security aspects are certainly supported by the initiatives already underway (Euro-label)

However, given the sensitiveness of these issues, it may be helpful to push companies to fulfil

regulations that guarantee consumer rights. E-commerce will also positively benefit from the careful

monitoring of competition rules observance on the channel, especially if online markets confirm a

higher concentration trend than the corresponding traditional channels in the future.



Retail

49 July 2003

References

Accenture (2002) - Accenture Scientific Retailing: Bringing Science To The Art of Retail

Accenture 2001: The Unexpected eEurope

Accenture (2002) – mCommerce Exploring the Opportunities

Accenture (2002) - Accenture Scientific Retailing: Bringing Science To The Art of Retail

Accenture (2002) – mCommerce Exploring the Opportunities

AILOG (2001) – Logistic Forum: Strumenti per governare l’evoluzione della supply chain

Bertero, P. (2000) – Il controllo di gestione nelle imprese di grande distribuzione

Castaldo, S.- Cillo, P. (2000) Il loyalty management nelle imprese commerciali. L’attivazione dei driver di fiducia

CHL (2002): Relazione sulla gestione al bilancio d’esercizio

Colla, Enrico (2002 ) – La Grande distribution européenne. Nouvelles stratègies de differenciation et decroissance internazionale

Deloitte Touche Tohmatsu- 2002 – Global Powers of Retailing.EAN International (2002): Electronic commerce in the EAN Community 2001

ERRT (European Retail Round Table) – 1999: Retailing n Europe: A dynamic force driving employmentopportunities

Ernst & Young Special Report (2000): Global Online Retaling

Eurocommerce (2001): Priorities of the commerce sector for the Belgian presidency of the European Union 2nd

semester 2001

Eurostat (2002): E-Commerce in Europe

Food Marketing Institute and Grocery Manufacturer of America (2003) Global Technology Iniziative E-Commerceand Global Standards

IBM (2003) Enhancing the customer shopping experience: 2002 IBM/NRF “Store of the Future” survey.

ICE (2001) : eMarket Services Italia. eMarketplace in Italia e ruolo degli eMarketplace nel commerciointernazionale

IEIAC-Università Bocconi (2000) Le nuove aree di generazione di valore nei rapporti tra industria e distribuzione

Mark Up/KPMG (2002) – Scenari e Classifiche della Distribuzione europea

Metro Group The Future Store in Rheinberg – An Asset for both Retailers and Customers

Lugli, Gianpiero (1998) Economia e gestione delle imprese commerciali

OECD: Business-to-consumer E-commerce statistics

PicewaterhouseCoopers (2000): Consumer nation: Retailing 2010. Global Retailing in a Consumer-CentricUniverse.

The Boston Consulting Group (2000): The race for Online Riches: E-Retailing in Europe

The Boston Consulting Group (2001): The next charter in business-to-consumer e-commerce. AdvantageIncumbent

The Boston Consulting Group – Forrester Research (2002) The State of Retailng Online

Varian, E.-Litan, R., Elder, A, Shutter, J (2002) The Net Impact study



Retail

July 2003 50

Annex: Methodology of the e-Business Survey 2003

BackgroundMost of the data presented in this report are derived from the recent European e-Business Survey 2003, which constitutes – together with the previous survey carried out in June/July 2002 – a cornerstone of the monitoring activities of the e-Business

W@tch. In total, 3,515 telephone interviews with decision-makers in European enterprises in all EU Member States wereconducted between 24th February and 20th March 2003. The questionnaire was largely based on the questionnaire used in the2002 e-Business Survey.

Fieldwork

The fieldwork of the survey was carried out by INRA Germany in co-operation with its partner organisations on behalf of the e-

Business W@tch :

Country Organisation

Germany INRA Deutschland GmbH, Papenkamp 2-6, 23879 Mölln

Spain INRA España, Grupo IPSOS ECO Consulting, Avda. de Burgos, 12.-8°, 28036 MadridFrance CSA TMO, 22 rue du 4 Septembre, 75065 Paris Cedex 02

Italy INRA Demoskopea S.p.A.,Via Rubicone 41, 00199 Roma

UK Continental Research, 132-140 Goswell Road, EC1V 7DY London

Interview method

The fieldwork was carried out in June and July 2002 using computer-aided telephone interview (CATI) technology. Thedecision-maker in the enterprise targeted by the survey was normally the person responsible for ICT within the company,typically the IT manager. Alternatively, particularly in small enterprises without a separate IT unit, the managing director orowner was interviewed.

Population coverage and sampling

The highest level of the population for the e-Business Survey was the set of all enterprises which are active at the nationalterritory of one of the EU Member States and which have their primary business activity in one of the 7 sectors specified by

NACE Rev. 1 codes. The most important used viewpoints used for breakdown of the population in the survey were (i) theeconomic activity, (ii) the national territory of the enterprise and (iii) the size in terms of employees. The survey was carried outas an enterprise survey, i.e. data collection and reporting focuses on the enterprise (rather than on the establishment), definedas a business organisation of one or more establishments comprised as one legal unit.

The sample included enterprises from 15 sectors of the economy, defined by NACE Rev. 1 business activities (see table nextpage). The composition of sectors took into account their economic importance, homogeneity with respect to the analysis of e-business, and the relevance of e-business activities.

The sample drawn was a random sample of companies from the respective sector population in each Member State where therespective sector was to be surveyed with the aim of fulfilling quota with respect to company size class. Target quota were toinclude a share of at least 10% of large companies (250+ employees) per country-sector cell and at least 30% of medium sizedenterprises (50-249 employees).

Samples were drawn locally by the INRA partner organisations based on the acknowledged business directories and databases(cf. table next page). In total, 3,515 interviews were carried out.

Population coverage of the e-Business Survey (2003)

No. NACE Rev. 1 Codes(Section – Division/Group)

Sector Name

01 D 15, 16 Manufacture of food products, beverages and tobacco

02 D 24, 25 Manufacture of chemicals and chemical products

03 D 30, 31 (except 31.3 - 31.6), 32 Manufacture of electrical machinery and electronics

04 D 34, 35 Manufacture of transport equipment

05 G 52.11, 52.12, 52.4 Retail

06 H / I / O 55.1, 55.2, 62.1, 63.3, 92.33, 92.52, 92.53 Tourism

07 I / K 64.2, 72 Telecommunications and computer-related services



Retail

51 July 2003

Country Directory / Database No. of interviews Average length

Germany Heins und Partner Business Pool 701 12.1 min.

Spain Schober 700 11.1 min.

France IDATA, based on "INSEE Siren file“ (the NationalInstitute of Statistics) and other directories

701 12.4 min.

Italy Dun & Bradstreet 709 15.3 min.

UK Dun & Bradstreet 704 13.0 min.

TOTAL 3,515 12.8 min.

Problems encountered

No major problems were reported by the fieldwork organisations with respect to interviewing (e.g. comprehensibility of thequestionnaire, logical structure). A statement from the institute that carried out the survey in Germany summarises this generalassessment very well: "In total fieldwork ran smoothly and the questionnaire was easy to understand for most of respondents."

• Most problems stemmed from the difficulties of conducting research projects among ICT decision-makers in general ratherthan from any specific flaws in design of this project itself. Dedicated ICT professionals are heavily researched andtherefore securing their participation can be difficult. This is a particular problem in larger companies.

• In some countries, it was not possible to accomplish the objective of including a share of 10% of large companies in aspecific sector. These were then replaced by interviews with SMEs.

• The Italian institute remarked that it was difficult to carry out the interviews within businesses/retailers not using or with abasic use of computers, because of the number of questions on related issues. Furthermore, it was reported that fewrespondents seemed to be aware of the existence of e-marketplaces and/or the meaning of this term.

• An issue – which was known in advance but is unavoidable in telephone interviews – is that it is not always easy to find theright target person. Fieldwork organisations reported that sometimes a data processing manager is not very aware of theconsequences of e-business on the whole of the company, on the personnel level and on the financial level. On the otherhand, the general manager may not always be aware of the implementation status and technical consequences.

Tabulations

Within the coverage specified above, and in line with the special task of the e-Business W@tch , results were compiled formainly two sets of data:

1. An activity breakdown of the population of enterprises into 7 sectors. This breakdown is based on the aggregate of fivecountries (D, E, F, I, UK). In order to facilitate comparisons to the 2002 survey, an additional breakdown by activity basedon the EU-4 aggregate of D, F, I and the UK was computed. The reason is that in 2002 Spain was not covered in all of the7 sectors.

2. A size-class breakdown of the population of enterprises into three categories: small enterprises (including micro-enterprises, i.e. enterprises with 0-49 employees), medium sized enterprises (50-249 employees) and large enterprises(250+ employees).

3. A breakdown of the population by EU Member States (D, E, F, I, UK).

In addition, the activity breakdown was cross-tabulated with the country as well as with the size-class breakdown. These cross-tabulations are offered in special sector databases. However, depending on the indicator and the filter questions, the number ofobservations can become very small in many cells of this cross-tabulation. It is therefore recommended to limit the breakdown ofdata to one dimension (in the case of pre-filtered questions) or two dimensions (if all enterprises were asked).

Weighting principles

Two weighting schemes have been applied: weighting by employment and by the number of enterprises. Data are presented ineither way depending on the kind of the analysis to be made.

• Values that are reported as weighted by employment figures should be read as "enterprises comprising x% of employees".To give an example: The indicator "percentage of companies selling online " – if weighted by employment – is defined as"companies comprising x% of employees sell online ". The reason for using employment weighting is that there are verymany more micro enterprises than non-micro enterprises. The unweighted figure would effectively represent mainly thesmallest sizes of firm.

• Values that are reported as enterprise-weighted figures are to be read as "x% of enterprises", reflecting the number ofenterprises as legal entities but not their relative economic importance in terms of employment.

Weighting was based on the latest available universe figures by Eurostat. Missing or undisclosed universe data had to beimputed. The imputation procedures depended on auxiliary or proxy data availability, taking into account (where available)information about higher industry aggregations, nearest neighbour data, turnover-employment correlation and secondarysources other than Eurostat and allowing for the constraint of predetermined ranges such that imputed data had to becontingent with published sectoral, national and European universe totals as well as for final plausibility checks for every single

imputed data item. The weighting cells correspond to the data reporting pattern used as regards industries and employmentsize-classes. Uniform expansion factors are applied to enterprises within one of the three size-classes per industry per country.As for data that refer to a base other than the universe of all enterprises (e.g. indicators appropriately reported for online sellingenterprises only), expansion factors are adjusted to the different shares of observations per cell that build the computation base.



Retail

Variables - indicators

The set of ICT and e-business indicators for which data were collected in this survey can be structured into four main modules:

• Module A: ICT infrastructure and e-skills development in the company

• Module B: E-commerce and e-business usage

• Module C: Impact of selling and procuring online

• Module D: Impact of and satisfaction with electronic business

The choice of indicators is largely based on those used in the previous survey in 2002. It includes a basic set of widely acceptedmeasures for e-commerce and e-business (as used in related surveys on e-commerce and e-business, e.g. by Eurostat), butalso introduces a few innovative indicators which have a pilot character and are not yet widely tested. The full list of variableswhich was the basis for preparing the questionnaire can be downloaded (as a spreadsheet) from the e-Business W@tch website at its "database" section (http://www.ebusiness-watch.org/marketwatch/database/survey_info.htm.

Ebiz and Retail 2003 II

Documents

Transcript of Ebiz and Retail 2003 II