National retail characteristics reflect the identity, the challenges and the differences between countries and cultures
What we buy inspires us and defines our preferences and aspirations, which sometimes are intimate, but are often quite public. Consumption habits say a lot about who we are. The main vehicles for consumption – companies and the retail market – either know very well how to interpret what drives us or suffer the consequences of not understanding our fast-changing preferences. This is at the core of what has become known in the United States and elsewhere as the “retail apocalypse.’’
The United States pioneered the concept of malls in the 50s and 60s, so American shopping centers are much older than, say, those in Spain or China, where most malls only opened in the nineties. According to CBRE, a real estate consulting company, their age makes US malls less agile when it comes to adapting to the new entertainment and dining needs of clients. Sometimes it makes more financial sense to shut them down than to renovate them.
In the US, the huge number of store shutdowns is deeply connected with an oversupply of brick-and-mortar stores on a per capita basis. CBRE says that in the US there are five times more malls per capita than in Spain or Italy, four times more than in the UK and France, and three times more than in Germany. Americans don’t need as many stores partly because of the quick rise of e-commerce. Over the past six years, internet sales have grown to make up around 5% of total retail sales, or a volume of about US$ 500 billion in 2018. Amazon is responsible for nearly half of online sales in the US.
China is another country where e-commerce has revolutionized retail, creating even more widespread disruption. In 2005 China accounted for less than 1% of global e-commerce; today its share is higher than 40%. More than half of Chinese mobile phone users made an online purchase at least weekly in 2017, according to consulting company PwC. Unlike stores in the US, Chinese brick-and-mortar stores are hurting because internet sales giants – especially Alibaba and JD.com – have completely redefined traditional retail.
Fifteen years ago, in order to sell a food product in China, a retailer risked going insane. There weren’t a handful of companies that were present all over the country, as it’s been the case in the United States for decades. China’s pulverized retail structure forced multinationals that wanted to do business there to deal with dozens of distributors so that their products could be available across the country. Alibaba and JD.com made history by making almost anything accessible to Chinese consumers in a matter of hours or a few days, depending on the delivery location.
Of course, one cannot consider Alibaba’s success without taking into account the support that Beijing has provided through specific regulations and policies, investment in logistics and transportation infrastructure, and spending in new technologies. Coordinating and securing the resources for such policies is much more difficult in regions as diverse as Africa or Latin America. China ranked 26th in the World Bank Logistics Performance Index in 2018, while Mexico was in 51st place, Brazil in 56th and Argentina ranked 61st. The data sheds light on why e-commerce represents less than 3% of total retail sales in these key Latin American nations.
Moreover, most Latin American countries and many African nations, with an infinitely lower purchasing power than the developed world, see the act of purchasing something as a very personal experience that occurs in local community stores, kiosks, drugstores or street vendors. That behavior has nothing to do with big-box stores, supermarkets, warehouse clubs, shopping malls and large specialty stores that dominate sales in the European Union.
Germany, for example, is dominated by department stores and large chains that bet on discounts (as consumer electronics chain Media Markt) and by traditional supermarkets (Lidl). In France, hypermarkets such as Carrefour or Leclerc are the leading players. In the United Kingdom, the market is divided among supermarkets such as Tesco and Sainsbury, department stores as Marks & Spencer and drug stores such as Boots.
And in Italy and Spain, the picture is also different. The Italian market is mostly concentrated on supermarkets as Coop Italia and Conad (which also has hypermarkets). In Spain there is greater diffusion, with supermarkets (Mercadona), department stores (El Corte Inglés), hypermarkets (Carrefour) and specialty chains (many belonging to fashion retailer Inditex, but also others as Germany’s Media Markt or Sweden’s Ikea) sharing the retail sector.
Online shopping is a very different experience in all these countries and the internet’s ability to disrupt the retail sector is equally varied.
Although internet sales accounted for almost 9% of total retail sales in the European Union in 2017, this number encompasses mixed realities: in the UK and Germany, online sales surpass 15%, while in the much less impressive Spanish and Italian markets online sales make up less than 5% of total retail sales.
German and British consumers have already placed Amazon among its top five retailers.
In the United States, the market is also fragmented, though a single chain – Walmart – still exerts considerable dominance. It’s worth noting that the second place goes to supermarket chain Kroger, and the third is Amazon. Large drugstore chains such as CVS and Walgreens also have considerable space in the retail landscape.
The power of online commerce – from Amazon to Alibaba or JD.com – the robust presence of large brick-and-mortar chains or the preference for shopping at local markets or kiosks reflect the prosperity of Europe and the US, the enormous public spending and market growth in China, and the large gap that separates the needs and possibilities of the countries that are battling for development in the South.
The retail sector is a reflection of our times.