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IS THERE A SINGLE EU MARKET FOR ONLINE RETAILING?

JUNE 2009

On 5 March, the European Commission published its report on barriers to online shopping (the “Report”). This provides an interesting snapshot of the current state of business-to-consumer e-commerce and the barriers that remain to overcoming the still fragmented European online market.

What is the background to this Report?

The Report is part of the Commission’s general monitoring of retail markets within the EU, which was launched following its Single Market Review of 2006. The Commission has seen increasing evidence in numerous retail sectors of practices which could distort consumer choice and behaviour, and act as barriers to entry. A key dimension of the Single Market is achieving integration in the retail internal market. In particular, the Commission has a commercial policy objective to make consumers and retailers as confident shopping cross-border as in their home countries by 2013.

Why online retailing in particular?

Online shopping is considered important because it has the potential to make the retail internal market a reality for consumers. However, initial evidence highlighted a number of structural barriers to a fully functioning online internal market. Many markets remained fragmented along national borders and, although an increasing number of Europeans shopped online (27% in 2006), few did so cross-border (only 6%).

What are the Report’s key findings?

Growth of on-line shopping

Between 2004 and 2008, the percentage of individuals who ordered goods/services over the Internet rose significantly (22% to 32%). The European e-commerce market is now estimated to be worth €106 billion, comparable in size to the US e-commerce market, with 70% of turnover concentrated in the UK, Germany and France.
The level of e-commerce across EU Member States varies greatly. For example, in 2008, 57% of UK citizens had made online purchases, whereas in Bulgaria the figure was 3%.
The three product categories purchased over the Internet most are: ‘travel and holiday accommodation’ (42%); ‘clothes, sports goods’ (41%) and ‘books/magazines/e-learning material’ (39%). The top three online product categories in 2007 by value were ‘media products’ (€13.2 bn), ‘clothing and footwear’ (€7.3 bn) and ‘consumer electronics’ (€6.8 bn). Most sectors displayed impressive growth.
E-commerce is the second most commonly used retail channel (51% of retailers in 2008) after direct sales (71%), exceeding mail order, home visits, and telesales. Internet retailing was by far the fastest developing channel, growing by 45% between 2002 and 2003 and remaining at 25% growth thereafter. Growth for other channels is generally below 3%. Consumer satisfaction with the Internet is on average higher than for other channels, largely because it enables product and price comparison.
However, many consumers prefer to see the product first or shop in person because of loyalty/habit. Some are concerned about giving credit card or personal details over the Internet or about receiving or returning goods, making complaints or getting redress. Finally, the extent of online shopping is still largely determined by a country’s Internet penetration rate.

Cross-border e-commerce

It is still relatively uncommon for EU consumers to use the Internet to purchase goods or services in another Member State. In spite of the growth of online purchases in the EU (to 32% in 2008), cross-border e-commerce remains stable (6-7%). Yet, 1/3 of EU citizens indicate that they would consider buying from another Member State if it was cheaper or better.
Retailers are not fully exploiting the cross-border potential of e-commerce. Three-quarters of EU retailers only sell domestically, and retailers who do sell cross-border usually only sell into one or two other Member States. Only 21% of retailers actively advertise cross-border.
In addition to general concerns about using the Internet, the Commission identifies a number of barriers to cross-border online trade:
- language/cultural barriers e.g. the impact on complaints handling;
- the difficulty of establishing whether a foreign trader is trustworthy;
- concerns about cross-border enforcement and redress to resolve problems such as price reductions or
- guarantees – EU consumer rules have been interpreted differently in the Member States which is confusing for
- consumers, makes cases harder to settle, and makes pan-European information campaigns on consumer rights difficult (although this should be addressed by the Commission’s proposed Directive on Consumer Rights[1]: ); and
- retailers face additional costs resulting from the higher risk of fraud and non-payments, the need to achieve compliance with national laws and fiscal/technical regulations, and from making cross-border deliveries.

What steps would remedy the problems identified?

The Commission found that retailers would be much more willing to engage in cross-border selling if there were EU-wide rules. The estimated administrative cost to a business of selling in all 27 Member States is €70,526. The proposed Directive on Consumer Rights is designed to tackle the cost of fragmentation in EU consumer regulation. Other regulation (such as technical, labelling, VAT rules etc) will be considered in the forthcoming Communication on retail monitoring. In addition, the Commission is reviewing vertical restraints to assess whether the rules (e.g. on selective distribution) need amendment. The existing vertical agreements block exemption expires in May 2010 and the Commission intends to consult on draft vertical restraints legislation in summer 2009.

The Commission considers that more cross-border comparison websites, greater cross-border advertising, and the introduction of a sustainable EC-wide trust mark would also enhance EU online retailing, as would measures to promote the use of alternative dispute resolution mechanisms and procedures for making cross-border small claims (as envisaged by the 2007 Regulation establishing a European small claims court [2]). On 5 May, the Commission also launched a Guide on rights online (eYouGuide [3] ) as a response to consumer concerns.

The Commission will continue to act against State measures and regulatory proposals that create obstacles to the free movement of goods contrary to the EC Treaty. Furthermore, the implementation and enforcement of the non-discrimination rule in the Services Directive [4] should ease the problem of consumers being discriminated against on a geographical basis when buying goods and services via the Internet.

Finally, the Report also recognises the specific issues associated with online sales of music tracks, videos or featured films, noting that a system of multi-territorial licensing is needed to overcome the additional management costs caused by territorial rights management.

Comment

The Report evidences the new emphasis placed by the Commission on assessing markets from the consumer’s perspective. Other tools used by the Commission (e.g. sector inquiries) have typically focused on the business environment and used information submitted by companies.

The Report highlights that both consumers and retailers still have concerns about Internet selling generally – and cross-border selling in particular – and that these concerns must be addressed if the Internet is to achieve market integration.
The Commission’s findings echo those of an OFT survey published on 11 May. This found that, whilst UK online sales had increased by some 45% since 2008, a third of Internet users were still not shopping online because of a lack of trust, fears over personal security and concerns about companies that sell online. The OFT also recognised the importance of online retailing as the future for many businesses and the economy, and emphasised the need to tackle consumer concerns now if the online market is to reach its full potential.

What’s next?

The Report forms only part of the Commission’s monitoring of the retail sector. A final report on the retail sector is due to be published in Autumn 2009, which will include an analysis of cross-border e-commerce.
Meanwhile, on 26 May 2009, the Commission also published its report on the Online Commerce Roundtable sessions (held in September and December 2008), which set out senior consumer and industry representatives’ views of the opportunities and barriers to online retailing [5].

Susannah Sheppard and Rachel Iley

[1] The proposal for a Directive on Consumer Rights adopted by the European Commission on 8 October 2008: http://ec.europa.eu/consumers/rights/docs/COMM_PDF_COM_2008_0614_F_EN_PROPOSITION_DE_DIRECTIVE.pdf

[2] See Regulation (EC) No 861/2007 of the European Parliament and of the Council of 11 July 2007

[3] See: http://ec.europa.eu/information_society/eyouguide/index_en.htm

[4] Article 20(2) of Directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006 on services in the internal market: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32006L0123:EN:NOT

[5] Online Commerce Roundtable Report on Opportunities and barriers to online retailing: http://ec.europa.eu/competition/consultations/2009_online_commerce/roundtable_report_en.pdf