E-Commerce Trends in 2011

2012. 01. 06.

Hungarian retailers capable of significantly boosting their sales volumes in 2011 were almost exclusively those engaged in selling online. Exact figures will not be available until after the books are closed for the year, but preliminary estimates indicate that the volume of the Hungarian online retail sector was 155 billion forints, and online sales of services were also up significantly. The year featured five exciting trends. By the end of 2011 the number of women making online purchases equaled that of men. Online coupon sales have made it possible to sell services that had previously been unavailable online. Buyers’ clubs have grown explosively, like in other European markets. Participants in the online classified ad market have forced auction marketplaces into heavy competition. Meanwhile virtual hypermarkets have started cropping up – this is the summary of the GKIeNET – T-Mobile “Report on the Internet Economy” published in January.

Gender Balance

In the past year the number of customers making online purchases was 1.4 million as of the end of September. The male/female ratio among internet customers has balanced out, and it is expected that from 2012 onward, more women will make purchases online than men. Internet retailers must increasingly be ready to serve female customers, which often implies a site redesign as well.

Coupon Deals

The focus of media attention in 2011 was clearly on online coupon sales. Although Groupon successfully pioneered this business model worldwide in 2007, the Hungarian market didn’t catch on until the second half of 2010, and the true breakthrough happened in 2011. Coupon sites have undergone a fast and spectacular development: the market, which had only a handful of participants at the beginning of the year, had nearly 60 competitors by the end of the year. Deal hunters can choose from up to 200 active daily offers.

FIGURE 1. LARGEST PARTICIPANTS IN THE HUNGARIAN ONLINE COUPON MARKET FOLLOWING THE GROUPON MODEL (BASED ON THE OCTOBER 2011 STATUS)

Source: GKIeNET survey (offers in Budapest and nationwide between October 1 and 31, 2011). Note: Lealkudtuk.hu, operated by Allegroup, is also a significant participant, but they are not based on the Groupon model.

When Hungarian coupon sites started (in late 2010 – early 2011), they offered only services, typically at a discount of 50% or more. Since impulse buying is primarily typical of female customers, the offers mainly target them. Accordingly, cosmetics offers alone number nearly 300, but travel and wellness offers are also very popular, and many restaurants also feature discounts to entice customers. In the fall discount offers started including products as well.

Contrary to media reports, the business model is excellent, and the large discounts have enticed many customers to make their first online purchases. GKIeNET has reported that the market may have a 2011 sales volume of 3-3.5 billion forints, about three-quarters of which will be divided among the three largest market participants.

Online Buyers’ Clubs

Coupon sites were not the only ones in the Hungarian online retail sector to come up with daily offers. 2011 was also a year in which discounts offered by buyers’ clubs took off. These sites are typically organized around an exclusive selection of premium products. Members can choose from the greatest fashion brands at outlet prices, with discounts up to 80%. Advertising these deals, however, requires a much more serious infrastructure and organizational background (logistical storage facilities, individual contracts with the brands), so the Hungarian market currently features only two large participants (Brands.hu and Fashion Days). However another large participant is expected to enter the market in 2012. Exclusive buyers’ clubs are expected to have a 2011 turnover of 1.5 billion forints, while the speed of growth is reflected by the fact that the 2010 volume was less than 1 billion forints, and in 2012 an expansion of another $1-2 billion is not beyond the realm of the possible.

The secret of the model’s success is in the campaigns and in the artificial restriction of access. Each sale only lasts for a few days, and is restricted to a given inventory, encouraging impulse buying among the members of the club. Information about the sales itself is restricted to club members, who can join by invitation only. New invitees are kept on waiting lists for weeks on end, thereby increasing the excitement of making it into the club. The operation of these exclusive buyers’ clubs helps brand owners as well, who can quickly and spectacularly unload unsold, limited inventory. This business model has been just as successful around Europe as in Hungary.

Buyers are typically fashion-conscious, under 40 buyers seeking name-brand items. The gender gap is smaller in this segment, owing to the fact that the emphasis is on the product, unlike in the case of coupon web sites. The most popular items are clothes, shoes, jewelry and watches, but there is also great interest in household appliances. At the same time, some exclusive services also made it to the portfolio of the clubs in the second half of the year, such as luxury trips and Caribbean cruises.

Online Classifieds Market in Flux

The year 2011 not only heralded the success of new sales models, but it also featured the rediscovery of old ones. The online marketplaces, which have been successful participants in the Hungarian online retail market, were challenged by the general classifieds sites. It has always been clear that these specialized sites had both worldwide and nationwide success in the real estate, job, car and dating markets, but general classifieds sites were less widely accepted in Hungary, mainly because of the popularity of the auction marketplaces.

Worldwide demand for auctions has been waning since 2010, and the marketplaces have increasingly featured fixed-price sales. As a result, the largest participants, eBay among them, have opened up to classified advertising. This trend reached Hungary in early 2011, and general classifieds sites are becoming more and more popular. Their impact is so strong that a significant percentage of the secondary, consumer-to-consumer (C2C) trading volume has migrated to these sites.

FIGURE 2 – CLASSIFIED ADVERTISEMENT MARKET (AS OF DECEMBER 17, 2011)

Source: GKIeNET
Note: the number of advertisements does not, in itself, reflect the popularity of the websites. For example, many sites do not let their advertisements expire in an effort to keep the number of ads high, which in turn results in less relevant hits for customers browsing the classifieds.

The reason for the popularity of the classifieds pages is that they are not transaction-based, meaning they do not ask for a commission based on sales. In fact, many online classifieds sites are offering free services in order to build market share. On the other hand, maintaining the quality of hits is a huge challenge for the operators of these sites, which may even result in the current growth period being followed by a return of customer interest to the auction marketplaces offering immediate transactions.

Of course, nothing is free, and eventually the Hungarian operators will introduce some payment system, but placing an ad itself is expected to remain free. International examples indicate that the most likely scenario is one where buyers pay for more on-target results, or sellers may pay a fee for an enhanced presence. In addition, there are examples where certain premium categories (such as real estate or jobs) require a payment. Hungary is currently in the phase where participants divide up the market. Never have classifieds sites paid this much for brand promotion as in 2011 (hundreds of millions of forints).

Online hypermarkets are on the rise

The year 2012 will likely bring at least as many changes and challenges in online sales as the previous year did. Media and telecommunication companies will put an increasing emphasis on the online sales of the services and products they offer, which is likely to result in major improvements and acquisitions over the next few years. Meanwhile, the largest internet retailers in Hungary continue to expand their product lines, and although they started out with the sales of different products and achieved their success through various sales strategies, all stores are currently working toward the creation of online hypermarkets, also known as ’web plazas.’

Aimed at the ’one-stop-shopping’ model, virtual shopping centers offer an increasingly wide range of products. More often than not, firms sell their own products and services, but there are already sporadic examples of stores serving as brokers that, in traditional terms, provide shop windows for professional retailers. This sales philosophy, just like in the case of their offline counterparts, can potentially transform our image of internet sales in the future. These developments are further boosted by the largest online retailer, Amazon.com, which is currently building its distribution warehouse in Slovakia to serve the Central and Eastern European market.

GKIeNET Internet Research and Consulting Co.