E-Commerce Global Developments and Outlook PDF

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June 2016
e-Commerce: Global
Developments & Outlook
e-Commerce: Global Developments &

Outlook 2016
Published by: BMI Research

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International Ltd accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the
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e-Commerce: Global Developments & Outlook 2016
CONTENTS
BMI View .............................................................................................................................. 7
Table: Global e-Commerce Sales By Region (USDmn), 2014-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Regional Overview .............................................................................................................. 9

MENA E-Commerce ................................................................................................................................... 9
Table: Middle East: E-Commerce Sales By Country (USDmn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Table: Middle East: Leading E-Commerce Players By Country . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Western Europe E-Commerce .................................................................................................................... 14

Table: Western Europe: e-Commerce Sales By Country (USDmn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Table: Western Europe: Leading e-Commerce Players By Country . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Latin America E-Commerce ....................................................................................................................... 19

Table: Latin America/Caribbean: e-Commerce Sales By Country (USDmn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Table: Latin America: Leading e-Commerce Players By Country . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
CEE E-Commerce ................................................................................................................................... 24

Table: Eastern Europe: e-Commerce Sales By Country (USDmn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Table: CEE: Leading e-Commerce Players By Country . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Sub-Saharan Africa E-Commerce ............................................................................................................... 29

Table: Africa: e-Commerce Sales By Country (USDmn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Asia Pacific E-Commerce .......................................................................................................................... 33

Table: Asia-Pacific: e-Commerce Sales By Country (USDmn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Table: Asia-Pacific: Leading e-Commerce Players By Country . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
North America E-Commerce ...................................................................................................................... 38

Table: North America E-Commerce Sales By Country (USDmn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Table: North America: Leading E-Commerce Players By Country . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Industry Trend Analysis .................................................................................................... 42

United States - E-Commerce & Convenience To Challenge Mainstream Retailers ................................................
United States - Department Stores Must Adapt To New Era .............................................................................
China - O2O Next Battleground For Chinese E-Commerce ..............................................................................
China - Luxury Retail, Cross-Border Specialists Most Exposed Under New E-Commerce Tax ................................
42
45
54
58
Table: Previous Tax Rates Applicable To Cross-Border E-Commerce Purchases Made Via E-Commerce Free-Trade Zones . . . . . . . . . . . . . . . . . . . . . . . 58
Table: New Tax Rates On Imported Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
UK - Online Grocery Retail Surging, But Profitability Proving Elusive .............................................................. 66

India - New e-Commerce Guidelines Supportive Of Sector Growth ................................................................... 69
Table: New Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
India - Snapdeal O2O Platform Will Boost Rural E-Commerce ........................................................................ 73

MENA - Digital Payments Round-up: The Two-Tier Market Persists ................................................................. 76
UAE - Time-Poor Consumers To Drive Convenience Stores & E-commerce ........................................................ 80
Company Profile ................................................................................................................ 83

Proprietary Payments, Logistics Are MercadoLibre's Key Strengths .................................................................. 83
Table: MercadoLibre Operations By Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Asia - Alibaba Targeting Dominance Of SEA e-Commerce Market .................................................................... 91
Business Monitor International Ltd
Page 4
Table: SEA - Key e-Commerce Indicators (2015) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Global - Amazon Prime Users Want Prime Quality, Not Private Label ............................................................... 96
Africa - Facebook In Africa: Balancing Connectivity And Net Neutrality Needs ................................................. 100
Methodology .................................................................................................................... 103

Defining e-Commerce ............................................................................................................................. 103
Types Of e-Commerce ........................................................................................................................... 103
Sizing The Market ................................................................................................................................ 105
Table: e-Commerce: Products & Services Surveyed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
Page 5
BMI View
BMI View: The spread of e-commerce platforms across the world is transforming business models,
touching every consumer sector including Retail, Food & Drink, Autos, Electronics and Technology Media
Telecommunications. The global e-commerce market will be worth USD1.54trn in 2016, a y-o-y increase of
16%. We forecast annual growth of 11% over the five years to 2020. In emerging and frontier markets, ecommerce is still taking root as logistics infrastructure and internet penetration continues its growth
trajectory. In developed markets, these platforms are becoming increasingly more sophisticated, moving
beyond basic buy and sell transactions to the next stage of development with more innovative online
experiences. There is plenty of opportunity still remaining in the industry, as e-commerce becomes one of
the most important global consumer trends.
Global e-Commerce a USD Trillion Opportunity

Global e-Commerce Sales (USDmn), LHS & Y-o-Y Growth Rate (%), RHS
e/f = BMI estimate/forecast. Source: BMI, national sources
In the first edition of the annual e-Commerce special report we identify the main trends in this segment and
initiate forecasts to the end of this decade on the growth trajectory of the global e-Commerce marketplace.
Page 7
Key Takeaways:
Global e-commerce sales reached USD1.33trn in 2015, and will rise to USD2.36trn in 2020, a six-year
compound annual growth rate (CAGR) of 12.1%.
Asia Pacific is the largest regional market, driven by massive growth in China and, to a lesser extent,
Japan and South Korea. Asia Pacific will overtake the combined sales of North America and Western
Europe in 2017, posting a CAGR of 15.4% between 2016-2020.
Africa and the Middle East offer the fastest growth, albeit from a low base. With low incomes, high
fragmentation of platforms and underdeveloped logistics, Africa will remain a difficult place for ecommerce businesses over our forecast period.
Latin America overtook Eastern Europe for fourth place in regional sales during 2015 and will widen the
gap as its larger consumer market comes online and drives spending.
Key Trends & Drivers:
China and the US will remain the top two markets. Alibaba and Amazon hold dominant shares of the ecommerce space in China and the US respectively. However, we see opportunities for niche startups to
play a role in driving innovation in the sector.
Developing an 'omnichannel' approach or online-to-offline (O2O), will become a key theme for ecommerce companies, as they add convenience for customers and aim to control every aspect of the ecommerce value chain.
Mobile devices are the principal form of access to the internet in emerging markets, requiring the use of
e-commerce platforms developed exclusively for small screens. Last-mile infrastructure for telecoms and
logistics is critical for future growth in Africa, the Middle East and other developing regions.
Table: Global e-Commerce Sales By Region (USDmn), 2014-2020
2014e
2015e
2016f
2017f
2018f
2019f
2020f
445,513
552,397
687,513
810,557
934,155
1,028,034
1,132,630
Latin America
41,304
48,485
56,713
65,220
74,266
84,335
94,846
North America
318,195
353,925
378,663
416,470
449,242
483,141
516,879
Western Europe
271,505
300,813
332,525
365,317
401,341
435,478
470,119
Eastern Europe
44,084
48,144
54,311
61,733
68,848
74,895
82,043
Middle East
14,224
18,017
22,376
26,692
31,607
37,417
43,333
Africa
7,247
9,139
11,351
13,468
15,690
18,292
20,764
Total
1,142,072
1,330,920
1,543,452
1,759,457
1,975,149
2,161,592
2,360,614
Asia-Pacific
Page 8
Regional Overview
MENA E-Commerce
BMI View: In many respects, the Middle East is a market in transition. This includes the e-commerce
sector, which is only beginning to come into its own as the region's economies look to diversify away from
petrochemicals to more sustainable industries. Overall, there is a lot of promise for e-commerce in the
Middle East, with Saudi Arabia and the UAE establishing the template for sustainable business models that
other countries will look to emulate.
As our Retail industry analysis team has noted, the Middle East is geared more towards consumption than
production of consumer goods, meaning there is intense competition amongst traditional retailers for
exclusive distribution rights for premium products. However, the high cost of importing and distributing
foreign-made products adds to high retail prices, limiting appeal to consumers. Online shopping platforms
and more integrated payments and logistics operations will help reduce costs; these benefits to retailers are
now being passed on to consumers and there has been a massive increase in online shopping transactions
and revenues over the last three years.
Notably, expansion of e-commerce in the Middle East is not being driven by the private sector, as is often
the case in other regions of the world. An important factor in building trust in e-commerce over the last few
years has come from e-government initiatives. Increasingly, across the region, governments have been
integrating paper-based information services such as passports/visa issuance, vehicle licensing, logistics
tracking and utilities billing/payments and migrating these onto online platforms, where they are integrated
with standardised or universal online payment platforms. The aim is to provide citizens and residents with
faster and more effective public services, but an additional upside is that these payment platforms tend to
form the basis of online shopping systems, guaranteeing risk-free experiences for consumers.
This implicit trust has largely benefited local or regional e-commerce players; those international players
wanting to enter the market must participate in these payment platforms or risk being overlooked by the
very large youthful and affluent consumer base.
Among a small number of positive inclusion measures, the UAE government has set up a purpose-built
duty-free e-commerce hub: Matajircom. Founding partners include Aramex, Cupola, CWT-SML
Logistics, du, Dubai Trade, ENBD, MasterCard, Mohebi Logistics, Shop Go, UPS, Economic Zones
World (EZW) and Dubai Customs. The government is keen to work closely with regional and international
companies to encourage the growth of e-commerce, aiming to bring local, national and international
Page 9
markets closer together, with Dubai aiming to become a key player over the long term. We believe similar
approaches will work well in other markets across the region.
UAE To Lead E-Commerce Market

Middle East - E-Commerce Sales (USDmn)
60,000
25,000
20,000
40,000
15,000
10,000
20,000
5,000
0
0
2014e
2015e
2016f
Total Middle East (LHS)

UAE (RHS)
2017f
2018f
Israel (RHS)
2019f
2020f
Saudi Arabia (RHS)
The UAE is not the largest e-commerce market in terms of total sales or revenues; at least, not yet. In 2015,
the market leader was Saudi Arabia, with sales totalling USD6.3bn; this will rise to USD7.3bn in 2016. The
larger population of Saudi Arabia and the oil industry's early adoption of online business-to-business sales
systems mean it dominates the Middle East e-commerce landscape. However, the UAE is not far behind,
with e-commerce sales reaching USD5.0bn in 2015, a y-o-y increase of 62.9%. The country has been
making huge strides in diversifying its economy, with the financial services sector driving that
diversification. The country's new international business hubs bring in thousands of visitors and semipermanent new residents and attracts young brand-conscious consumers from other parts of the country. As
in Saudi Arabia, a well-established e-government ecosystem exists, supporting a complex digital payments
culture and, by extension, a more diverse and vibrant e-commerce opportunity.
The UAE's more mobile and outward-looking population sets the country's e-commerce market on a strong
growth trajectory. By 2020, the UAE e-commerce sector will be worth USD17.8bn, or 45.6% of the total
Page 10
value of the Middle East market. There will be an uplift from 2018-2019 as Dubai prepares to host the
World Expo in 2020; besides an influx of foreign businesses and workers, there will be a marked increase in
the number of tourists visiting the country and, by then, there will be less resistance to the concept of paying
for goods and services using electronic means when travelling outside a consumer's home country.
By contrast, Saudi Arabia will progress at a more sedate pace. Its relative inability to diversify will curtail
economic development and the 'Saudisation' programme will see the retail market become more insular;
there will be fewer opportunities for international brands to gain traction and fewer international ecommerce platforms will thrive. The under-developed nature of the indigenous retail market ensures that ecommerce spending will lag far behind that of the UAE by 2020, at USD12.6bn (29.1% of the regional
market value).
The next most significant market in terms of e-commerce is Israel. With sales set to increase in value by
14.2% to USD4.1bn in 2016, the country lags well behind Saudi Arabia and the UAE. Although it also
shares many of the attributes of the market leaders - namely a large, aspirant, youthful population, aboveaverage access to advanced digital communications networks and a commensurate willingness to embrace
new technology, high penetration rates of credit cards and online banking plus a diversified retail market Israel is remarkably conservative and inward-looking.
Table: Middle East: E-Commerce Sales By Country (USDmn)
2014e
2015e
2016f
2017f
2018f
2019f
2020f
424
527
598
651
722
807
894
2,988
3,572
4,081
4,323
4,798
5,131
5,458
Jordan
621
641
650
662
675
689
704
Kuwait
625
646
658
670
686
699
717
Oman
416
513
624
707
781
839
901
Qatar
490
560
678
841
993
1,115
1,255
Saudi Arabia
5,375
6,309
7,327
8,742
10,039
11,375
12,625
United Arab Emirates
3,080
5,016
7,468
9,677
12,319
15,962
19,766
205
233
292
419
594
800
1,013
14,224
18,017
22,376
26,692
31,607
37,417
43,333
Bahrain
Israel
Rest of Middle East

Total Middle East
Page 11
Traditional retailers in Israel have not invested in online shopping platforms to the same extent seen
elsewhere in the region and, more importantly, maintain a gender-exclusive mentality that discourages
women (most often those responsible for purchasing food, drink, clothing and other key staples of the retail
sector) from engaging with their platforms. The gender balance is slowly being addressed, but slow progress
will ensure that expansion of e-commerce in Israel will not fulfil its potential in our current 2016-2020
forecast. By 2020, Israeli e-commerce will be worth an estimated USD5.5bn (12.6% of the regional total).
The small population sizes of Bahrain, Oman and Qatar will ensure that the contributions of these markets
to the regional total will be relatively small. Annual sales through online channels will increase at a steady
pace in all three markets, with the more cosmopolitan Bahrain only just failing to keep pace with the more
technologically-orientated Oman. Regional e-commerce players such as Souq.com have established a
strong presence across these and other markets in the Middle East, but these more open and aspirant
markets increasingly favour international brands such as Amazon.
Bahrain enjoys some of the highest internet and mobile penetration rates in the entire Middle East region,
while its government's efforts to improve computer literacy and expand electronic public services also
favour the development of e-commerce. Sales via online channels in Bahrain have been expanding rapidly
over the past few years, with airline tickets, consumer electronics and jewellery being particularly
successful online retail categories. According to Alexa.com data, major global e-commerce sites/online
marketplaces, such as Amazon, eBay and Aliexpress remain the most popular ones in Bahrain, ranking
ahead of the more regionally oriented e-commerce retailers like Souq.com, Namshi or Alshop.
Some retailers, such as Lulu, Souq.com and IKEA, have established online shopping in Qatar, but
supporting infrastructure is generally underdeveloped with very limited warehouse space and little logistics
capacity. There are also issues relating to the delivery structure and low use of credit cards, which mean
online transactions are reliant upon cash on delivery for payment. E-commerce will likely grow rapidly
once the trend takes off in Qatar, as the country is home to a wealthy and relatively young population.
Credit availability is also developing rapidly, which will support the growth of online sales.
Founded in 2005, Souq.com is both a retail site and a marketplace for third-party sellers. It has full-scale
operations in the UAE, Saudi Arabia, Kuwait and Egypt, but also delivers internationally to Qatar, Bahrain,
Oman, Jordan and Lebanon. The company sells more than 400,000 products across several categories, such
as consumer electronics, household goods, watches and jewellery and beauty and fashion. The company
claims to be the most popular e-commerce platform in the Arab world, attracting around 24mn visits per
Page 12
month. In February 2016, Souq.com successfully secured USD275mn investment to fund further regional
expansion.
Namshi is a Dubai-based e-commerce site offering more than 550 footwear and apparel fashion brands in
six Middle Eastern markets. The company was established in 2011 as one of the online start-ups of
Germany's Rocket Internet. The company has successfully raised capital on several occasions to fund its
regional expansion, which continues into 2016. Namshi claims to target young and fashion-conscious
customers offering exclusive and pre-selected items.
Table: Middle East: Leading E-Commerce Players By Country
Country
Principal E-Commerce Players
Bahrain
JadoPado, Alshop, Souq.com, Namshi
Israel
Amazon, eBay, AliExpress, Buy2, Hameir
Kuwait
Xcite.com (Alghanim Industries), Ubuy.com, Souq.com
Oman
Lulu, AliExpress, Souq.com
Qatar
Amazon, Lulu, Souq.com, IKEA
Saudi Arabia
AliExpress, Amazon, eBay, Souq.com
UAE
Souq.com, Nahel.com, Sukar, JadoPado
Source: BMI, national sources, Alexa.com
Although our outlook for e-commerce is informed, in part, by the availability of online payment platforms,
it is important to note that - as in much of Asia and large parts of Latin America - cash-on-delivery
payments are widely accepted. Although such payments incur additional handling costs and lack security, ecommerce providers will continue offering these options, particularly in frontier markets such as Iraq and
Iran. The latter hosts a large, youthful and affluent consumer market and we envisage considerable demand
for premium clothing and consumer electronic goods to emerge in the latter part of our 2016-2020 forecast;
e-commerce providers entering these markets will see a long-term need for cash-on-delivery systems,
allowing us to forecast strong growth - albeit from a low base - in these countries.
Page 13
Western Europe E-Commerce

BMI View: Large, multinational players such as Amazon and eBay are present in the majority of the
region's markets, but they face strong competition from local general providers as well as some highlyspecialised platforms. Traditional retailers were quick to factor online sales into their long-term omnichannel marketing strategies and players such as Tesco, Carrefour and Otto command a strong presence in
the online shopping space, both through their own B2C platforms as well as O2O (vouchers and coupons).
The Western European market for e-commerce services is very mature and well-populated with a diverse
mix of platforms across all four modalities - business-to-business (B2B), business-to-consumer (B2C),
consumer-to-consumer (C2C) and online-to-offline (O2O). Data from leading retailers, industry
associations and governments' statistical offices indicate that clothing and footwear are the goods most often
bought online by consumers. Electronics and associated media are the next largest component of the ecommerce sales in most countries, although there may be little difference in terms of sales values for both
segments in more developed markets such as the UK, France and Germany. Industry association data for
Italy imply that sales of consumer electronics goods are higher there than for any other category, including
clothing and cosmetics, perhaps reflecting on fashion-conscious Italians' preference to see goods physically
before committing to buy.
Page 14
British Shoppers Outspend Their Peers

Western Europe e-Commerce Sales (USDmn)
500,000
150,000
400,000
125,000
300,000
100,000
200,000
75,000
100,000
50,000
25,000
2014e
2015e
2016f
Total Western Europe (LHS)

UK (RHS)
2017f
2018f
France (RHS)
2019f
2020f
Germany (RHS)
e/f = BMI estimate/forecast. Source: BMI
The strong presence of retailers that have traditionally focused on food and drink means that sales of such
products also figure highly in e-commerce revenue mixes and those retailers that were quick to also invest
in expanding and enhancing their own logistics businesses generally have built sustainable online food
shopping platforms. This has created considerable cost savings, improving operating margins and allowing
players to continue making strategic investments in their traditional 'bricks-and-mortar' operations. For
many retailers, however, online sales still represent only a small proportion of total sales revenues and the
inexorable rise of low-cost competition (eg: the Pound Shop wars in the UK) means that some will continue
to see margins pressurised in their core businesses.
We estimate that e-commerce sales in Western Europe totalled USD300.8bn in 2015, up by 10.8% from
USD272bn in 2014. The region accounted for 22.6% of the total global e-commerce market in 2015 (23.8%
in 2014), and we expect this to fall to 19.9% (USD470bn) by 2020 as other markets such as Asia Pacific
and Latin America begin to mature.
The single largest market is the United Kingdom, where 2015 sales totalled USD82.5bn (27.4% of the
regional total), a 10.5% increase y-o-y. We forecast UK e-commerce sales to rise by 8.8% to USD89.8bn by
Page 15
the end of 2016 and to USD129.0bn by 2020. Slowing growth reflects the maturity of the market. Although
the UK cannot boast the largest addressable market in Western Europe, UK shoppers have traditionally
been quick to embrace new trends and technologies that retailers have been able to leverage in migrating
their businesses online. Very high penetration of affordable digital communications and infrastructures,
very good availability of logistics and transportation infrastructures, the highly urbanised nature of the
market and high disposable incomes all support continued take-up of e-commerce services.
Table: Western Europe: e-Commerce Sales By Country (USDmn)
2014e
2015e
2016f
2017f
2018f
2019f
2020f
Austria
5,443
5,976
6,608
7,279
7,913
8,580
9,306
Belgium
4,468
4,788
5,380
6,023
6,626
7,169
7,741
Denmark
5,586
6,275
6,941
7,571
8,303
9,114
9,855
Finland
4,790
5,488
6,002
6,495
7,044
7,606
8,273
France
42,334
46,987
53,099
58,932
64,416
71,185
77,862
Germany
60,002
66,503
71,901
77,447
84,430
90,775
94,882
Greece
2,828
2,925
2,989
3,057
3,129
3,209
3,299
Ireland
3,640
4,131
4,713
5,359
6,021
6,726
7,454
11,815
12,733
14,110
15,457
17,345
18,944
20,598
Luxembourg
498
577
686
764
867
959
1,092
Netherlands
9,984
10,506
11,870
13,238
14,374
15,535
16,889
Norway
7,211
8,024
9,031
9,934
11,016
11,776
12,693
Portugal
2,989
3,277
3,847
4,422
4,919
5,551
6,086
18,847
21,624
24,781
27,025
29,811
32,373
35,374
Sweden
7,655
8,396
9,577
10,731
11,870
13,135
14,261
Switzerland
8,422
9,708
10,789
11,953
13,131
14,205
14,959
74,670
82,538
89,813
99,228
109,705
118,186
129,027
323
357
388
402
421
450
468
271,505
300,813
332,525
365,317
401,341
435,478
470,119
Italy
Spain
UK
Rest of Region
Total
e/f = BMI estimate/forecast. Source: BMI
These are characteristics that are shared by the two next largest markets, Germany and France. As in the
UK, a number of traditional retailers have successfully transitioned to online sales platforms, leveraging the
strength of their brand and ability to move into B2B and O2O offerings as a means of diversifying revenues.
Their extensive distribution channels and ability to reach a large base of suppliers and partners means they
Page 16
are very competitive in the core markets of clothing and footwear, consumer electronics and food and drink.
Moves into personal financial services - for example, through credit cards and banking services linked to
their long-standing loyalty card businesses - have also helped diversify revenue streams. We forecast
German e-commerce spending to grow by 7.4% per annum, on average, between 2015 and 2020, versus the
10.6% average annual growth we forecast for France. Although France is a large and technology-savvy
market, consumers are still quite traditional in their shopping habits, and are proving more reluctant to
forego weekly shopping trips to local markets or out-of-town hypermarkets. We expect this to change over
time as younger smartphone-wielding consumers gradually come to dominate the retail sales picture.
Some of Germany's higher-profile retailers - such as the Otto Group - have successfully extended their
reach into neighbouring markets, where German companies have traditionally earned strong brand
recognition and loyalty, particularly in Austria, Greece, Italy, Switzerland and the Netherlands. The Dutch
market is particularly interesting because of its relatively small addressable base of consumers and high
disposable incomes. An excellent digital communications infrastructure means that a very high proportion
of consumers are online and, as a major trading and distribution hub for Northern Europe, it benefits from
serving a very diverse audience. We forecast Dutch e-commerce sales to grow by 10.0% on average, per
year, through to 2020, reaching a total of USD16.9bn.
The Dutch case also reflects problems faced by global players such as Amazon in penetrating deeper into
Europe. Local e-commerce providers are not only well-established and capable of supplying premium
products from local suppliers, but they are also well-integrated with locally-developed online or digital
payments platforms that are already relied upon heavily by consumers. Amazon, Apple and other global
players do not willingly extend support to these payment platforms or work with local banks to support
particular credit card operators and therefore are generally ignored by consumers.
Our forecasts for e-commerce leverage our broader data for retail and household spending patterns. These
are closely linked to the economic growth and private consumption trends experienced by each country.
Consequently, it is unsurprising that the region's e-commerce underperformers are those countries that have
been - and are expected to continue to be - facing considerable macroeconomic challenges caused by
fundamental structural weaknesses. Low consumer spending power undermines retailers' confidence in
investing in the digital and physical resources needed to build a secure and attractive online shopping
platform and, in consequence, there are few e-commerce players of note in countries such as Greece and
Portugal.
Page 17
The latter market is expected to see an upswing of interest in e-commerce services over the next five years.
Although consumer spending is forecast to remain depressed and the lack of physical infrastructure and
logistics assets will make e-commerce hard to establish, the country is well served with digital
communications networks and there is a large, youthful base of consumers ready and willing to forego
traditional shopping experiences in pursuit of elusive brands and discounted prices.
The economic forecast for Greece is not at all favourable, even in the long term, with our GDP per capita
forecast barely exceeding USD20,000 by 2020. Advanced communications networks are conspicuously
absent outside the major cities and towns and the lack of reliance distribution systems makes it difficult to
persuade consumers to go online. We forecast a subdued 2.4% annual average rate of growth in ecommerce sales in Greece through to 2020.
Table: Western Europe: Leading e-Commerce Players By Country
Country
Key Online Shopping Platforms
Austria
Amazon, Universal Versand, Zalando, Otto, Eduscho, e-tec electronic, H&M, Conrad Electronic
Belgium
Zalando, Bol.com, Coolblue, ZEB, Schoenen, Torfs, Bel&Bo, Vanden Borre, Azur.be, Brantano
Denmark
Lego.com, IKEA, H&M
Finland
Sanoma Digital (including MSO.fi, Huuto.net, Rakentaja.fi), IKEA, H&M
France
Amazon, Cdiscount, eBay, Fnac, Priceminister, La Redoute, 3 Suisses, Vente-privee.com
Germany
Amazon, Otto, Zalando, Notebooksbilliger.de, Bonprix, Cyberport, Tchibo, Conrad, Alternate, H&M
Italy
Yoox, Amazon, Zalando, Otto, Booking.com, Trenitalia, Groupon, Trivago, Tre, Mediaworld,
Decathlon
Netherlands
Wehkamp.nl, Bol.com, Zalando, Coolblue, H&M, Hema, Thuisbezorgd.nl
Norway
Apotek, Ark, Clasohlson, Blivakker, Footway, HaugenBok, H&M, IKEA, Komplett, Nelly, Zalando
Portugal
Zalando, Amazon, Euronics, IBS, Bonprix, Yoox, Saldiprivati
Spain
Amazon, El Corte Ingles, eBay, Mil Anunacios, Segunda Mano, Lets Bonus, Groupon, Groupalia,
Promofarma, Zara, Privalia, Mango
Sweden
IKEA, Halens.se, Nelly.com, Adlibris.com, Bokia.se, Cdon.com, NetOnNet.se, H&M
Switzerland
Digitec.ch, Ebookers, Nespresso, Ticketcorder, SBB, Ricardo, Amazon.de, Nespress.com/ch,

Zalando, LeShop, Brack, Coop, Microspot, Nettoshop, DeinDeal
UK
Amazon, Tesco, eBay, Argos, Asos, Rakuten.com, Next, John Lewis
Source: BMI
Page 18
Latin America E-Commerce

BMI View: Increased connectivity and wider availability of online payment solutions will be the key drivers
of the Latin American and Caribbean e-commerce market over the next five years. Impediments to growth
will come from the cooling Brazilian economy and a weak infrastructure/logistics environment in less
developed markets. Data sovereignty will be as much a challenge for multinational players such as
MercadoLibre as volatile currency exchange rates. Latin America will be the fourth largest regional ecommerce market globally by 2020.
The Latin American e-commerce market is at very different stages of development, with clear sub-regional
trends both supporting and hindering expansion to varying degrees. In general, the most developed markets
are those where advanced digital communications networks are well represented, alongside large, youthful
and affluent consumer bases. The presence of secure, trusted mobile payment platforms is also a catalyst for
rapid expansion of e-commerce, but players that also embrace more traditional forms of payment particularly cash on delivery - will still fare well.
Countries such as Brazil, Mexico and Argentina score well on all fronts and will appeal to both local and
international e-commerce investors alike. Less commercially-orientated markets such as Venezuela and
Bolivia pose greater challenges to would-be investors, with low oil prices weighing heavily on economic
growth prospects (and, therefore, consumers' disposable incomes). Mid-tier markets such as Colombia, Peru
and Chile currently offer the greatest opportunities for new and existing players.
We believe the Latin American e-commerce market (which includes the Caribbean) achieved e-commerce
sales of approximately USD48.5bn in 2015. This represented a y-o-y increase of 17.4% and was driven
mainly by demand for low-cost clothing and footwear, consumer electronics and travel-related services.
Food and drink sales also contribute to e-commerce sales, but poor road infrastructure impacts on the
logistics aspect of the market and consumers are generally content to buy perishables and basic foodstuffs in
traditional physical outlets. Although our Infrastructure team notes that a number of key road, rail and port
projects will be completed across the region over the next five years, distribution and delivery processes
will not benefit materially until the latter part of our 2016-2020 forecast period.
Page 19
Brazil Leads But Mexico Keeps Pace

Latin America e-Commerce Sales (USDmn)
100,000
40,000
75,000
30,000
50,000
20,000
25,000
10,000
0
2014e
2015e
2016f
Total Latin America (LHS)

Mexico (RHS)
2017f
2018f
2019f
Argentina (RHS)
2020f
Brazil (RHS)
As the accompanying chart and table show, Brazil is the clear outperformer in the Latin American ecommerce market, with sales reaching USD21.4bn in 2015 (a 10.3% y-o-y increase). The country has a
well-developed digital economy with broadband services reaching a high proportion of homes and
businesses via wireline infrastructure (including fibre in certain areas), but mostly through low-cost mobile
broadband connections. Smartphone penetration in Brazil is as high as 72% of the total 262mn subscriber
base and the relatively low cost of data services makes it easy for consumers to buy and sell goods and
services through online channels. The region's largest e-commerce player, MercadoLibre, reports that half
of its revenues come from Brazil and much of its success is attributed to the relative wealth of consumers
and the high degree of trust engendered by its proprietary payments platform, MercadoPago.
There is a strong secondary sales market in Brazil, a trend that is also evident in Argentina and Mexico, the
region's other outperformers. Consumer-to-consumer (C2C) platforms have shown very strong increases in
turnover in 2014/15 as the cooling economy drives consumers to look for bargains in the used and quality
seconds arena. PayPal's decision to allow its customers to link their accounts to Boleto Bancario - perhaps
the most trusted online payments service in the country - has strengthened its position considerably. It has
Page 20
also extended PayPal's reach into the high street, as payments can now be made at terminals installed in post
offices, supermarkets and lottery concessions.
We forecast Brazil's e-commerce sales to hit USD24.4bn in 2016. The rate of growth will be slow this year
due to the cooling economy and increasingly unfavourable exchange rate hikes that will weigh on sales of
imported big-ticket items. This will be partially offset by increased spending on food and drink plus
intangibles such as hotel and travel bookings as a result of Brazil's hosting of the Olympic Games. Over the
longer term, spending growth rates will be subdued as delays to infrastructure upgrade and extension
projects are likely to be delayed by political and judicial scrutiny over concerns of corruption.
The Mexican e-commerce market, by contrast, will expand at a rate of 19.9% per annum, from USD8.1bn
in 2015. Mexican e-consumers - like their Brazilian counterparts - tend to be young, affluent smartphone
owners with an eye on premium, trendy brands. Fashion and consumer electronics sales contribute strongly
to e-commerce transactions, but the emphasis tends to be on digital products such as coupons/vouchers and
travel-related products and services, according chambers of commerce data. Issues with logistics and
delivery also weigh on consumers' willingness to spend on big-ticket items as few e-commerce players have
their own delivery services arms and third-party logistics companies provide a notably poor service.
That said, a large proportion of sales of physical goods tap suppliers/vendors in the neighbouring United
States and Amazon and Walmart are as commonly used as Latin American-focused players such as
MercadoLibre and Dafiti. Walmart, in particular, has established strong connections with many of Mexico's
traditional retail companies and therefore has built up a better track record for reliability and quality of
service than Amazon.
The prospects of a Donald Trump US presidency cast a shadow over the Mexican e-commerce market.
Trade relationships between the two countries could be severely impacted if Trump comes to power; even if
Trump can exert little direct influence on trade agreements, Mexican consumers may feel duty-bound to
stop supporting US companies. This will be a golden opportunity for MercadoLibre and local players, but
their lack of competence in local logistics and payment platforms may mean that they will be unable to take
full advantage. By 2020, we forecast Mexican e-commerce sales of almost USD20bn.
Page 21
Table: Latin America/Caribbean: e-Commerce Sales By Country (USDmn)
2014e
2015e
2016f
2017f
2018f
2019f
2020f
4,526
6,399
7,611
8,629
9,865
11,859
13,874
Brazil
19,440
21,433
24,403
27,495
30,987
34,331
38,240
Chile
3,915
4,072
4,455
5,125
5,621
6,205
6,993
Colombia
3,710
4,494
5,316
5,821
6,802
7,794
8,742
Mexico
6,377
8,114
10,412
13,140
15,391
17,816
19,951
960
1,250
1,505
1,710
1,950
2,240
2,495
Rest of Latin
America/ Caribbean
2,376
2,723
3,011
3,300
3,650
4,090
4,551
Total Latin America
41,304
48,485
56,713
65,220
74,266
84,335
94,846
Argentina
Peru
Chile, Colombia and Peru are the markets that are still several years away from maturity. Although all three
benefit from advanced digital communication infrastructures and host a youthful, tech-savvy population,
these benefits are mostly restructured to the largest cities. Rural communications infrastructure has a limited
reach and the majority of consumers have relatively low disposable incomes. Major roads, rail and air
infrastructures are also concentrated in the largest cities, but local logistics resources are generally quite
poor and online payment platforms generally lack interoperability. Colombia is making good headway with
its digital inclusion initiatives and we believe it will outpace growth in Chile and Peru over the next five
years.
Mirroring the trend seen in Asia and - to a lesser extent, Europe - social media platforms are a big driver of
e-commerce in Latin America, with Facebook holding the largest social media audience by far (circa
140mn regional subscribers at the end of 2015). Blogger (approximately 60mn subscribers) is another
heavily-subscribed platform and users are becoming increasingly adept in reviewing and promoting goods
of all kinds. e-commerce players need to find ways to leverage these platforms and those super-users to help
promote their products and services. Unsurprisingly, levels of user proficiency and engagement are higher
in developed markets than they are in less developed markets, and this could provide the additional traction
e-commerce players are looking for in these developing markets.
Further down the scale, e-commerce prospects in central America (Guatemala, Honduras, Nicaragua, Costa
Rica and Panama) are poor, owing to underdeveloped communications and logistics infrastructures and low
Page 22
disposable incomes. Landlocked Bolivia and Paraguay provide considerable logistical challenges, while the
socialist stance of countries such as Venezuela and Bolivia run counter to the underlying business models of
e-commerce, despite the potential of the underlying technologies and business processes in key
infrastructure initiatives such as e-Governance and e-Business. Along with the Caribbean markets (impeded
by their small size and high costs of shipping goods), the rest of the region is expected to see relatively
subdued growth in e-commerce sales, with the main driver likely to be digital goods and services and other
intangibles.
Table: Latin America: Leading e-Commerce Players By Country
Country
Argentina
MercadoLibre, Avenida.com, Alamaula, Nova Pontocom, Traetelo
Brazil
MercadoLibre, Amazon, Netshoes.com, Pontofrio, Dafiti.com, Groupon, Americanas.com,

Submarino.com, Walmart.com, FNAC
Chile
MercadoLibre, Walmart, Netshoes.com, Falabella, Censosud, Cuponatic
Colombia
MercadoLibre, Walmart, Netshoes.com, Linio Colombia, Cuponatic
Mexico
MercadoLibre, Amazon, Walmart, Netshoes.com, Linio Mexico, Palacio de Hierro, Liverpool
Peru
MercadoLibre (Plaza21), Supermercados Wong, Netshoes, Linio Peru
Source: BMI
Page 23
CEE E-Commerce
BMI View: While its sheer size means that Russia naturally dominates the e-commerce landscape in the
central and Eastern Europe (CEE) region, consumer interest in premium products means that
multinational, multichannel players based in Western Europe provide the real driving force. Their potency
is, however, undermined by shortcomings in the logistics and payments arenas, with the high cost of
deliveries and returns weighing on consumer expectations.
The CEE region is the fifth largest market for e-commerce services in the world, generating sales of
USD48.1bn in 2015, according to BMI forecasts. This was a 9.2% increase y-o-y and marked a significant
slowdown from growth of over 15% in the preceding year. Russia's increasingly belligerent political and
military influence disrupted trade across the region as shoppers curtailed their usage of Russian portals and
access to Russia's supply chains was tightened. This will have proved welcome news for a number of
leading Western European e-commerce players as this gave them an opportunity to deepen their presence in
key markets such as the Czech Republic, Poland and Romania.
In particular, Germany-based Otto Group benefited from increased retail sales to the CEE region in 2015,
with its fashion-centric portal Bonprix seeing a 10.6% y-o-y growth in revenues to EUR1.4bn. This was
mitigated, to a degree, by the 35% decline in revenues recorded by Otto's Russia-based operations, to
EUR260mn. Nevertheless, Otto reported that the Russian business remained profitable.
The Russian e-commerce landscape is dominated by a group of well-funded and well-connected companies
with deep roots in the traditional retail and logistics markets. Some - such as Ozon - are backed by highprofile technology companies, such as internet service provider RU.net, mobile network operator MTS and
IT specialists such as Intel and Cisco Systems. With a population of 144mn at the end of 2015, the
country's 252mn mobile phone accounts demonstrate a very high rate of engagement with mobile
technology and services. Operators such as MegaFon, Vimpelcom and MTS believe that more than 50% of
devices connected to their networks were smartphones at the end of 2015 and both Otto and Ozon claim
very high platform engagement rates deriving from mobile devices.
Approximately USD18.2bn was generated by Russian e-commerce companies in 2015, up by 2.7% y-o-y.
Growth was subdued, mostly for the reasons outlined above, but we forecast increased momentum from
2016 as the country becomes more self-reliant and consumers adjust to the more challenging economic
climate. Average annual growth will be approximately 11.1% through to 2020, when the market will be
worth USD30.7bn.
Page 24
Russia The Largest Market But German Companies Are Powerful

Eastern Europe e-Commerce Sales (USDmn)
100,000
40,000
75,000
30,000
50,000
20,000
25,000
10,000
0
2014e
2015e
2016f
Total Eastern Europe (LHS)

Turkey (RHS)
2017f
2018f
Poland (RHS)
2019f
2020f
Russia (RHS)
The next largest market in 2015 was Poland. At USD8.8bn, sales were up by 9.2% y-o-y and were buoyed
by increased engagement with smart devices, the greater availability of and trust in online payment services
and consolidation within both the telecoms, media and technology market as well as in the logistics arena.
The leading e-commerce platform in Poland is said to be Allegro; the company has approximately 14mn
registered shoppers and a high user retention rate that prevents global brands such as Amazon from making
an impact. Allegro's attractiveness is ascribed to its deeply integrated digital payments platform, PayU, as
well as its proprietary price comparison tool, Ceneo. Allegro has extended its footprint to neighbouring
markets such as the Czech Republic, Hungary, Ukraine and Russia, where it has gained a strong following
amongst Polish expatriates. Through Bonprix, Otto has a growing presence in the Polish market, mainly due
to its appeal to German expatriates in the country as well as its speedy, low-cost delivery service. We
forecast the value of the Polish e-commerce market to grow at an annual rate of 11.1% through to 2020,
reaching USD14.8bn. By then, it will be the second-largest e-commerce market in the region.
Turkey will continue to be the third largest e-commerce market by 2020, even though it will enjoy a
healthier annual growth rate of 13.4% through to 2020. The country benefits from its position as a gateway
Page 25
for reciprocal trade between Europe, Central Asia and the Middle East as well as its highly developed
transportation and shipping infrastructure.
The country is not a member of the European Union, however, so cross-border e-commerce - a major draw
for consumers across the region - is fraught with difficulties and plagued by high shipping costs. EU
accession negotiations could gather momentum over the short- to medium-term; EU membership would
present considerable growth opportunities for the country's e-commerce market - particularly through
strengthening of the regulatory regime and improved quality of service requirements - but we do not expect
accession before the end of our 2016-2020 forecast period.
Table: Eastern Europe: e-Commerce Sales By Country (USDmn)
2014e
2015e
2016f
2017f
2018f
2019f
2020f
Bulgaria
585
642
730
804
887
976
1,064
Croatia
491
523
578
630
688
752
813
2,036
2,265
2,667
2,941
3,287
3,462
3,782
299
329
381
430
483
537
621
1,622
1,940
2,303
2,649
2,919
3,220
3,560
Latvia
311
354
410
446
493
541
603
Lithuania
574
654
745
820
916
994
1,102
Poland
8,032
8,773
9,828
11,179
12,141
13,346
14,821
Romania
1,943
2,385
2,826
3,336
3,820
4,350
4,850
Russia
17,746
18,220
20,070
23,489
26,516
28,432
30,728
Serbia
261
310
361
417
473
538
591
Slovakia
850
991
1,078
1,189
1,357
1,466
1,584
Slovenia
316
350
394
455
508
551
595
Turkey
5,927
7,161
8,537
9,390
10,672
11,900
13,418
Ukraine
2,214
2,300
2,387
2,457
2,501
2,589
2,622
Rest of Eastern Europe
877
947
1,016
1,101
1,187
1,241
1,289
Total Eastern Europe
44,084
48,144
54,311
61,733
68,848
74,895
82,043
Czech Republic
Estonia
Hungary
Turkey's increasingly insular political leadership could also weigh on the market's prospects for
development. While this would benefit indigenous players such as Trendyol, Araba.com, Gitti Gidiyor
Page 26
and Hepsiburada, international companies such as PayPal would encounter considerable difficulties in
growing their presence.
The Czech Republic, Hungary, Romania and Ukraine are second-tier markets in the CEE e-commerce
landscape. Although all four have vibrant indigenous e-commerce players - mostly deriving from traditional
high-street retailers - they are also reliant on the ability to engage in cross-border trade, particularly with
Western European markets. We believe there is ample scope for growth and development in these yet-tomature countries, with Romania likely to be the most attractive market forecast to grow at 15.3% per annum
through to 2020. The latter has historically proved to be a strong international trading partner with
Germany, depending on heavy industry, logistics, infrastructure and durable consumer exports from the
country. This will continue for the foreseeable future as Romania proceeds with its economic recovery and
restructuring of its core industries.
Ukraine is the least attractive of the mid-range four. Its increasingly frigid relationship with Russia
following the annexation of Crimea means that consumer confidence is at a low, weighing on already-weak
consumer spending power. We believe the country is not well-placed to increase consumption of premium
products and, although local e-commerce players such as Prom.ua, Rozetka.ua and Eldorado.ua are
taking advantage of a greatly diminished appetite for shopping on Russian platforms, few are investing to
the degree needed to fill the vacuum. Meanwhile, international players are wary of moving into the market,
partly because of the potential for Russia to make further incursions into Ukrainian territory, but mostly
because of the gloomy political and macroeconomic outlooks.
Ukrainian household consumption will recover only moderately in 2016 and beyond following a sharp drop
during the recent economic contraction, meaning that future growth rates will come from a low base. The
relatively weak recovery is embodied in private consumption's contribution to GDP, which will continue to
decrease through to 2025.
The Baltic and Balkan states account for most of the third tier e-commerce markets in the CEE region, with
Estonia, Latvia and Lithuania being the most attractive due to their stable economic and political outlooks,
the high penetration rate of advanced digital communication networks, the ubiquity of smartphones and
online payment applications plus access to good cross-border road and rail links as well as proximity to
busy shipping lanes. Western European and global e-commerce brands are well known here, and compete
vigorously with established local players and consumers welcome robust shipping and returns processes, all
upheld by EU regulations.
Page 27
Serbia is one of the least attractive of these third tier markets, owing to its less developed infrastructure and
relatively weak consumer/retail outlook. Nevertheless, with sales forecast to reach USD591mn in 2020, it
still outperforms frontier markets such as Armenia, Albania and Kosovo, as well as the central Asian states.
Table: CEE: Leading e-Commerce Players By Country
Country
Bulgaria
eMag.bg, Amazon, eBay
Croatia
Amazon, eBay, ekupi
Czech Republic
Amazon, eBay, Mall.cz, Alza.cz
Hungary
Otto, Zalando, arukereso.hu, eBay Hungary, eMag.hu, Jofogas.hu, Vatera.hu
Poland
Allegro (Naspers), Ceneo (Allegro/Naspers), Zalando (Rocket Internet), Bonprix (Otto)
Romania
eMag.ro, Olx, FashionDays, Okazii, Bonprix, Zalando
Russia
Ozon, Ulmart, Citilink, Otto Russia
Turkey
hepsiburada.com, gitti gidyor.com, n11.com, sahibinden.com, Ciceksepeti
Source: BMI
Page 28
Sub-Saharan Africa E-Commerce

BMI View: Their large, increasingly affluent consumer bases and fast-growing premium retail markets
mark out Nigeria, South Africa and Tanzania as the most promising markets for e-commerce in Africa. They
are also the most mature markets on the continent, accounting for 87% of e-commerce sales in 2015. Their
dominance will be slightly diminished by 2020 as countries such as Kenya and Egypt are targeted by online
players. However, the lack of interoperability of digital payments platforms, shifting stances on taxation
and a highly fragmented and inefficient logistics landscape will continue to amplify the region's biggest and
most persistent shortcoming: foreshortened disposable incomes.
Sub-Saharan Africa was home to 1.027bn people at the end of 2015. North Africa - including Algeria,
Morocco, Tunisia and Egypt - had a total population of more than 200mn at that time. A large proportion of
the continent's inhabitants reside outside the major population centres and therefore live off very low
incomes or operate at the subsistence/barter level. Internet penetration is also very low (ranging from
0-12%), even in more developed markets and, to compound the challenges facing e-commerce players,
access to high-speed services is even lower. Mobile devices are the principal form of access to the internet,
requiring the use of e-commerce platforms developed exclusively for small screens.
Nevertheless, investors are looking very closely at opportunities and developments across the region and a
vibrant e-commerce market has already emerged, leveraging the appeal and infrastructure of basic mobile
transactional platforms such as SIM card top-up and mobile wallet applications. The Middle East's
Souq.com is reaching into the region while Kaymu and Jumia (both backed by Germany-based Rocket
Internet) are following suit.
The largest market by far is Nigeria. With 182.2mn inhabitants and GDP per capita forecast to rise from
USD2,386 in 2015 to USD3,195 in 2020, the country is one of Africa's most vibrant markets. Coupled with
a high mobile penetration rate (85% at the end of 2015) and the increasing availability of low-cost
smartphones and mobile data services, the country is estimated to have seen e-commerce sales of USD3.0bn
in 2015. We forecast this to rise by 16.1% per year, on average, through to 2020, reaching a total value of
USD6.3bn. Nigeria's wealth has, to a large extent, come from the hydrocarbons industry. Falling oil prices
have weakened the economy and this is likely to prevent Nigeria's e-commerce sector from growing as
rapidly as it has done historically. Naspers-owned Konga.com and Jumia have both laid off employees in
the last 12 months, as has DealDey (an O2O player with a business model similar to that of Groupon). We
believe this is merely a matter of short-term correction, stemming from the highly ambitious expansion
programmes these and other platforms embarked on in 2012/13.
Page 29
Nigeria An Attractive But Risky Market

Africa - e-Commerce Sales (USDmn)
8,000
25,000
20,000
6,000
15,000
4,000
10,000
2,000
5,000
0
0
2014e
2015e
2016f
Total Africa (LHS)

Tanzania (RHS)
2017f
2018f
Nigeria (RHS)
2019f
2020f
South Africa (RHS)
The next largest market is South Africa, where e-commerce sales are expected to increase at an average
annual rate of 16.9% through to 2020 and a value of USD5.8bn. Tanzania is close behind but will grow at a
slightly faster rate of 20.0% per annum, reaching USD5.6bn by 2020. South Africa is held back by a lack of
advanced communications infrastructure outside the main urban areas, while most potential e-commerce
users will be based close to physical shopping centres where goods can be taken home in person. However,
a high penetration of traditional financial services (68.8% of adults had a bank account in 2014 by World
Bank estimates) removes many of the payment challenges tied to preference for 'cash on delivery' options
among unbanked consumers. Tanzania, meanwhile, has a vibrant mobile payments/banking market,
meaning consumers have become used to paying for goods and services online. The country is set for steady
economic growth and this will be a boon for e-commerce players entering the market.
In North Africa, Egypt and Morocco are some of the most cosmopolitan markets, thanks to their proximity
to regional shipping and trade hubs. However, they are held back by a lack of advanced communications
and internal transportation infrastructure as well as rising security risks that have dampened enthusiasm for
premium foreign brands; local retailers are yet to see the opportunity in e-commerce. Therefore we have a
Page 30
fairly bearish outlook for both countries, with Morocco having the greater potential due to its greater
openness.
By contrast, the markets of Algeria and Tunisia are almost completely closed to e-commerce investment,
with the governments of both countries reluctant to allow regional players into the market and local players
lacking the financial and technical resources to develop their own platforms. The Tunisian government is
particularly reticent to permit e-commerce and, therefore, we forecast muted growth of just 11.6% through
to 2020, from a low base.
Table: Africa: e-Commerce Sales By Country (USDmn)
2014e
2015e
2016f
2017f
2018f
2019f
2020f
Algeria
34
66
72
84
97
108
118
Egypt
357
400
465
581
665
783
900
Kenya
426
523
629
767
885
976
1,100
47
100
170
296
401
522
641
Nigeria
2,360
3,000
3,675
4,220
4,890
5,735
6,315
South Africa
2,126
2,645
3,188
3,738
4,335
5,072
5,769
Tanzania
1,816
2,274
2,992
3,590
4,205
4,850
5,629
Tunisia
24
43
51
59
63
68
74
Rest of Africa
57
88
109
133
149
178
218
7,247
9,139
11,351
13,468
15,690
18,292
20,764
Morocco
Total Africa
We believe that the development of e-commerce in Africa will be a slow, steady process, fraught with
challenges, not least of which is heavy investment in infrastructure and logistics. In the short term, there are
a few areas where investors can focus in order to ensure adoption and continued engagement with ecommerce services.
Partnerships with telecoms operators - Mobile operators are suffering from cannibalisation of core
voice and messaging revenue streams as a result of IP substitution. Starting with mobile payments, ecommerce services can be developed in partnership with specialised players in mutually beneficial
relationships. This strategy will be slow to play out, but will ensure outperformance and cement players'
strong positions over the long term. MTN and Millicom (Tigo) have been investors in Africa Internet
Group (owner of Jumia) while Airtel Nigeria has partnered with the Payporte online shopping portal.
Use of mobile financial services - One of the biggest challenges facing e-commerce growth in Africa is
a lack of access to formal financial services, meaning established online payment services used in
Page 31

developed markets are not transferable to this region. Many offer a 'cash on delivery' service as a
payment method, but the near-ubiquity of mobile payments means that e-commerce providers should
incorporate these applications into their platforms. Jumia customers can already pay using M-Pesa in
Kenya, for example.
Matching e-commerce roll-out plans with key infrastructure projects/investment - BMI's Logistics
Index - which quantifies the overall level of development of a country's logistics network - shows that
Sub-Saharan Africa scores the lowest on average in the world (33.8 points out of a potential 100). It is
extremely difficult to deliver products to customers as postal services and waiting times are subject to
significant delays and problems such as bribery. As developing countries invest more on new road, rail,
port and airport projects, so logistics availability and development will improve. Players should look to
those markets where infrastructure projects are most extensive or likeliest to be concluded and invest in
their own logistics businesses to support local expansion.
Page 32
Asia Pacific E-Commerce

BMI View: Asia is by far the largest market for e-commerce in the world. Not only is the region home to
some of the largest addressable consumer bases, it also hosts a number of highly-developed and fastdeveloping retail markets and most advanced digital communications networks. Low-cost start-ups are
proving to be much nimbler and better focused on emerging trends than legacy retail players, meaning the
region is also one of the most vibrant and diverse. This also means that there will be numerous e-commerce
casualties in the years ahead as the less adept players are winnowed out.
Asia is also the focus of numerous infrastructure modernisation and expansion initiatives as governments
seek to take advantages of the opportunity to leverage new technology in order to diversify their economies
and plan for sustainable growth. This benefits e-commerce players as they can quickly build their own
logistics businesses to meet their own needs as well as the needs of other industries. The more adept legacy
logistics providers - notables include SingPost - have not been slow to adapt their business models to suit
the new environment, reducing at least one key barrier to adoption.
Three very different countries lead the Asia-Pacific e-commerce market, accounting for 87.9% of total
USD552.4bn in sales generated in 2015. These three countries will still dominate the field by 2020, with
their total share expected to be largely unchanged. Although India is set to become a more prominent player
over time, the fact that the composition of the market will not alter significantly is testament to the maturity
and expansion opportunities still to be mined in the biggest countries.
China is the single largest market in Asia, by a considerable margin, with a total population of 1.376bn and
an internet user base of approximately 644.4mn at the end of 2015. The technology, retail and logistics
sectors have long enjoyed state support, with key infrastructure projects geared towards facilitating their
development. Unsurprisingly, the most well-known Asian e-commerce providers in Asia are based in
China, and have grown out of a number of disparate internet-based search, entertainment social media and
messaging platforms. Taobao, Alibaba, Dangdang.com, JD.com and QQ.com lead a large and fastgrowing group of B2B, B2C and O2O online shopping channels in China and have set their sights on the
rest of the region.
Omitting sales of applications and digital media content, Chinese e-commerce sales totalled USD364.2bn in
2015, a growth of 28.5% y-o-y. We anticipate an increase of 21.9% in 2016 to USD444.1bn, followed by
average annual growth of 15.8% through to 2020 (USD757.5bn). During the next five years, we expect to
see a large number of domestic and international retailers launch their own online shopping platforms and,
Page 33
although many more new Chinese consumers will emerge during this time, the market is likely to become
overcrowded. Some new entrants will wither and die, but others will be acquired by larger players - we
foresee Alibaba being a major cause and facilitator of consolidation.
Biggest Retail Markets Dominate

Asia-Pacific e-Commerce Sales (USDmn)
1,200,000
800,000
900,000
600,000
600,000
400,000
300,000
200,000
0
2014e
2015e
Total Asia (LHS)
2016f
2017f
China (RHS)
2018f
Japan (RHS)
2019f
2020f
South Korea (RHS)
The next largest market is Japan. The Japanese retail market is much more mature than that of China, as
China has only relatively recently embraced mass consumerism. Japan is also a much more mature digital
communications market, with very high penetration rates of wireline and mobile broadband services,
particularly in the largest and most prosperous cities. Japan's ageing population means there is a growing
need for online shopping, while younger consumers are digital natives and are likely to turn to online stores
for their shopping requirements. Culturally, however, Japan is one of the more conservative markets in Asia
and rural inhabitants are far less likely to migrate to digital platforms than their urban counterparts.
We forecast relatively modest economic growth for Japan through to 2020. The Japanese economy
continues to suffer from chronic fiscal deficits and a burgeoning debt burden exceeding 240% of GDP
(domestic and external debt). In our opinion, the persistent use of bonds to finance various stimulus
Page 34
packages pushes the country closer to a fiscal crisis. We remain less optimistic than most observers with
regards to the permanence of any improvement brought about by current fiscal and monetary efforts. Thus,
we maintain an equally downbeat outlook for Japan's near-term growth potential. To an extent, this will
weigh on e-commerce sales growth through to 2020, although consumers' focus will shift away from new
premium products to used or lower-cost products, benefiting C2C providers such as Rakuten, Amazon
Japan and Yahoo! Japan Shopping (part of SoftBank). We forecast Japanese e-commerce sales to
increase by 15.3%, on average, annually through to 2020 (USD182.2bn).
Table: Asia-Pacific: e-Commerce Sales By Country (USDmn)
2014e
2015e
2016f
2017f
2018f
2019f
2020f
12,331
13,737
15,388
17,006
18,811
20,608
22,428
283,469
364,216
444,058
528,442
613,033
680,036
757,464
4,293
5,454
6,236
6,987
7,791
8,636
9,480
14,339
17,573
21,505
26,887
32,238
36,263
40,274
6,025
8,586
12,408
15,951
19,492
22,113
24,734
84,978
92,148
130,199
147,094
163,989
173,077
182,164
Malaysia
1,985
2,869
3,842
4,924
6,186
7,578
9,169
Philippines
1,575
2,222
2,798
3,471
4,186
4,995
5,933
Singapore
4,036
4,774
5,486
6,202
6,976
7,761
8,538
22,898
28,972
31,912
37,414
42,869
46,305
49,741
Taiwan
3,001
3,742
4,232
4,863
5,398
5,814
6,192
Thailand
2,460
3,026
3,702
4,550
5,358
6,263
7,167
Vietnam
2,173
2,987
3,491
4,378
5,237
5,862
6,485
Rest of Asia-Pacific
1,950
2,090
2,255
2,387
2,591
2,723
2,860
445,513
552,397
687,513
810,557
934,155
1,028,034
1,132,630
Australia
China
Hong Kong
India
Indonesia
Japan
South Korea
Total Asia
South Korea is the third largest Asian e-commerce market, with sales of almost USD29.0bn in 2015 set to
grow by 11.5% annually through to 2020 (USD49.7bn). Home to a population of 50.3mn, 41.3mn Internet
users and near-100% penetration of the 58.6mn mobile user base with smartphones, it is unsurprising to find
that mobile-optimised social media and marketing platforms are prominent drivers of the e-commerce
market. Search specialist Naver is a key platform as it consolidates price comparisons and product reviews
and offers links through to retailers. eBay owns marketplaces Auction and Gmarket that are favoured by
Page 35
independent retailers and chains alike. e-mail and messaging provider Daum also facilitates online
shopping.
India will be the market to watch over the next five years. Although it is set to remain the fourth largest
market over this time, it is still at a relatively early stage of development and will see many new players
enter the market, including a number of laggards in the traditional retail space. The country's wireline
internet infrastructure is incapable of supporting advanced services and, in any case, PCs are too expensive
and power-dependent for many consumers to run. Mobile devices are, therefore, the principal means of
accessing the internet and the country's leading e-commerce players have emerged from mobile-optimised
search and financial services platforms.
The biggest players are Flipkart and Snapdeal, although they are being hotly pursued by Amazon.
Privately-owned Flipkart operates a marketplace-orientated platform similar to that employed by the US
company and, like its rival, is now branching out to sell its own-branded products, particularly consumer
electronics. The company has grown rapidly since it was founded in 2007, acquiring smaller players to
bolster its expertise and relevance. Its acquisition of fashion and casual lifestyle products e-commerce
platform Myntra was aimed at insulating itself from the encroachment of Amazon.
Snapdeal is another online marketplace, founded in 2010 as an alternative to Flipkart. Investors in the
company include SoftBank, Intel Capital, Ratan Tata and eBay. Like Flipkart, Snapdeal has grown
quickly through acquisitions. Deals have focused more on technology, including the high-profile purchase
of mobile payments specialist FreeCharge.com in April 2015.
Relatively few Indians own credit cards, so much of the e-commerce market relies on cash on delivery for
payment. This is a major risk for e-commerce players, particularly as much of the delivery and logistics
business is outsourced to third parties. Mobile payments and mobile wallets are in widespread use, but a
lack of standardisation and interoperability means that online shopping sites have yet to embrace the
technology. This could change in the medium term as the Tata Group, Aditya Birla Group and Reliance
Industries are pushing their traditional retail businesses into the digital space and will be able to leverage
their experiences as investors in high-profile mobile network operators to facilitate mass adoption and user
engagement.
We forecast the India e-commerce market to grow from USD17.6bn in 2015 to USD40.3bn by 2020, an
average annual growth rate of 18.2%. The Modi government's 'Make In India' initiative is expected to
transform the country into a leading manufacturing hub and the emergence of a robust e-commerce
Page 36
ecosystem will greatly assist that ambition. The potential of India's e-commerce market will be held back by
the slow development of transportation infrastructure, the highly fragmented logistics industry, low usage
rates of technology outside the main urban centres and a persistently low level of disposable income for the
majority of consumers. The newer players will look to tap into demand for premium products and global
brands, but this will account for a small proportion of the overall market and we believe that by focusing on
cheaper brands and white label copies of high-end products, Flipkart, Snapdeal and Amazon will still be
leading the field by 2020.
Table: Asia-Pacific: Leading e-Commerce Players By Country
Country
Australia
Amazon, JB Hi-Fi, Kogan.com, Temple & Webster, The Iconic, Booktopia, Appliances Online, Klika
China
Amazon, Alibaba (Tmall), Dangdang.com, 360buy.com, JD.com, Baidu, Tencent, QQBuy
Hong Kong
Lazada, Zalora, Amazon, eBay
India
Flipkart, Snapdeal, Amazon, Paytm, Lazada, Zalora, Jabong, Lenscart, Yebhi.com
Indonesia
Lazada, Zalora, blibli.com, Carrefour, Tokopedia, Rumah.com, Shopify, Indotrading, Groupon
Japan
Rakuten Ichiba Japan, Amazon, Yahoo! Japan Shopping, Zozotown, iQon
Malaysia
Amazon, eBay, Taobao, Alibaba, Lelong.my, Rakuten, Qoo10, easy.my, Groupon, Streetdeal, Lazada,
Zalora, Superbuy, Kwerkee
Philippines
Lazada, OLX, Amazon, eBay, Zalora, Metrodeal, Ensogo, Lamudi, Carmudi
Singapore
Qoo10, Carousell, Lazada, Zalora, eBay, Redmart, Rakuten
South Korea
Coupang.com, Gmarket, Auction, Cjmall, Naver.com, Daum
Taiwan
momoshop, pchome, Rakuten Ichiba Taiwan
Thailand
Lazada, weloveshopping, Tarad, Zalora, Ensogo, Cdiscount
Vietnam
Lazada, Tiki, Zalora, Muachung, Rongbay, Chodientu, Amazon, eBay
Source: BMI, national sources
Page 37
North America E-Commerce

BMI View: The North American e-commerce market has reached a relative point of maturity, with virtually
all consumers interacting with online sales platforms. The rapid growth of start-ups is inspiring the next
generation of e-commerce companies, taking the segment both beyond simply buying and selling products
online and meeting basic consumer demands.
The North America region is perhaps the most advanced e-commerce market in the world, fuelled by the
presence of the biggest global players and the most attractive business opportunities. With internet and
smartphone penetration at exceptionally high rates, virtually everyone in North America has had experience
with e-commerce platforms, with logistics and payment methods sophisticated enough to meet consumer
demands.
It has been the birthplace of global e-commerce giants like Amazon and eBay, as well as the payment
platforms that facilitate online transactions such as PayPal. These dedicated e-commerce platforms have
grown to account for the majority of the online sales landscape, with a presence in wide range of retail
categories. Consumer electronics, books, e-tickets and clothing are some of the more popular sub-segments
for e-commerce, with Amazon in particular emerging as the strongest player in some of these areas. With its
dominant presence in North America e-commerce, Amazon is able to offer faster, cheaper delivery than its
competitors through its Prime service and is constantly expanding into new areas.
This has been a significant threat to traditional brick and mortar retailers and department stores, which have
seen same-store sales decline steadily since around 2008. Most retailers now have their own online
platforms too, reporting strong sales growth through these channels, even though they still only account for
around 10-15% of their total sales. Companies are even launching their own online/mobile payments
technology, with Walmart launching Walmart Pay in order to stave off competition from Apple (Apple
Pay), Samsung (Samsung Pay) and Google (Google Pay) cutting further into its profits. The retail industry
as a whole is undergoing seismic shifts in how consumers buy and what they buy, as technology transforms
the needs and desires of modern Americans. These trends will only gain steam as more online purchases
lead to lower store traffic for retailers, as well as more competition given the low costs of e-commerce startups.
Page 38
Mature US E-Commerce But Still Growing Fast

North America - E-Commerce Sales (USDmn)
e/f=BMI estimate/forecast. Source: BMI
The US is clearly the larger of the two contributors to total North America e-commerce spending according
to our data, accounting for 93.1% in 2015. This will fall to around 92% over the next five years, as Canada
grows from a lower base. We forecast e-commerce sales to increase from USD329.4bn in 2015 to
USD476.7bn in 2020 in the US, making it the second largest market in the world. The US is the prime
destination for international e-commerce players looking to expand, with a large population, tech-savvy
consumers and the logistics capabilities to deliver anywhere in the country. We believe that e-commerce
spending in the US grew by 6.8% in 2015 and will expand by 9.8% in 2016, as consumer confidence picks
up. Our 2015 data is in line with that reported by the US Census Bureau, which reported that non-store retail
sales increased by 7.0% in 2015, compared to just 1.6% for Retail and Food sales excluding Autos. ECommerce is rapidly outpacing store sales, and we forecast the region to average growth of 8% over the
next five years, with Canada averaging double digit growth.
The Canadian e-commerce market is not quite as attractive as in the US due to its smaller size and
population, lower smartphone penetration and larger geographic size, making it costly to send products
across the country. There is a heavy reliance on e-commerce platforms created in the US, with only a few
Page 39
home grown Canadian success stories. This typically results in higher costs of e-commerce transactions
taking into consideration currency translation, import taxes and delivery costs. We forecast the Canadian ecommerce market to nearly double in size between 2015 and 2020, with sales reaching USD40.2bn, up from
USD24.5bn in 2015. While only about 10% of the size of the US market, it does put Canada ahead of many
developed markets across the world and easily in the top 10. Should some stronger local players emerge
over the coming years, this would be a massive boost for the industry.
Table: North America E-Commerce Sales By Country (USDmn)
2014e
2015e
2016f
2017f
2018f
2019f
2020f
21,507
24,530
27,004
30,294
32,611
37,017
40,216
United States
296,688
329,395
351,659
386,176
416,631
446,124
476,663
Total North America
318,195
353,925
378,663
416,470
449,242
483,141
516,879
Canada
e/f=BMI estimate/forecast. Source: BMI, National Sources
According the US Census Bureau, online sales accounted for just 11% of total retail sales in 2015, which
implies plenty of scope for expansion over the coming years. E-Commerce in characterised in North
America by both a high level of maturity and continuing strong growth, which we believe implies that the
digital marketplace is entering its next stage of its development. E-Commerce is becoming a lot more than
simply buying products online and having them delivered to your home, but instead innovation through a
growing number of start-ups has become a key growth driver. Categories that were once more resilient to
online sales are now squarely in the sights of these companies.
Fresh food and restaurants are an area that was previously immune to e-commerce, as consumers preferred
to buy groceries in-store or leave the house to eat a nice dinner. Online companies are becoming more
successful in convincing consumers to order food online, as delivery costs become cheaper and food is
delivered faster, mitigating some of the concerns. Walmart, Whole Foods and other food retailers all offer
online grocery shopping, delivered to home addresses or available for pickup in-store. Restaurants and fast
casual dining places are increasingly offering home delivery services but also companies such as GrubHub
are facilitating restaurant takeout online. These were the first steps of e-commerce in the food segment,
fulfilling obvious and basic needs of consumers; however, innovation in this segment is now going further,
and will continue to drive e-commerce in the coming years even in mature markets. For example, Blue
Apron is a meal-kit delivery company, which sends all the ingredients and instructions consumers need to
cook their own dinners. Another new wave company in food tech is Kitchensurfing, which brings local
Page 40
chefs to private households to cook meals for them. New ideas like this will continue the strong ecommerce momentum as 'traditional' e-commerce platforms reach saturation.
This next wave of e-commerce innovation is not limited to the food tech but is apparent across a range of
sub-segments. Our Autos team have pointed out that start-ups such as Vroom, Shift Technologies and
Carvana are incorporating offering viewings, test drives and final factors into the online shopping
experience. After completing the deal online, the companies deliver the car and paperwork to the buyer's
home. In Clothing & Footwear, companies such as Stitch Fix, Five Four Club and Trunk Club have
emerged as personal tailor services that operate only a subscription basis, automatically sending clothes,
shoes and accessories to consumers. In real estate, virtual and augmented reality will play a huge role in
allowing customers to view properties in 3D, while Zillow already allows prospective buyers to reimagine
the space in different colours and designs using its app. Even looking at consumer finance, companies like
Social Finance (SoFi) are looking to change the way people shop for loans and bank accounts. These niche
players won't necessarily provide a competitive threat to the likes of Amazon and eBay but are a growing
part of the e-commerce space in North America and vital to its continued maturation.
Table: North America: Leading E-Commerce Players By Country
Country
Principal E-Commerce Players
United States
Amazon, eBay, Zillow, Etsy, Walmart, Best Buy, Groupon
Canada
Amazon, eBay, Shopify, TripAdvisor, Walmart, AliExpress
Source: BMI, national sources, Alexa.com
Page 41
Industry Trend Analysis

United States - E-Commerce & Convenience To Challenge Mainstream
Retailers
BMI View: Greater consumer demand for convenience will drive the expansion of smaller format stores
and online grocery retail in the US over our forecast period to 2019. Combined with intensifying
competition in the sector, it will create challenges for mainstream retailers such as Walmart and put
pressure on margins.
Despite the ongoing consumer recovery in the US, the operating environment is getting increasingly
challenging for mainstream food retailers amid changing consumer preferences and intensifying
competition in the sector. While the US mass grocery retail (MGR) sector has traditionally been less
competitive than Western European markets, a wave of mergers and acquisitions - Safeway-Albertsons in
March 2014, Ahold-Delhaize in May 2015 - is increasing competitive rivalry in the sector. Aggressive
expansion plans by German discounters Lidl and Aldi will also intensify the level of competition. In
addition, changing consumer preferences are creating challenges for mainstream retailers, which have
traditionally relied on large out-of-town hypermarkets to drive growth. Demand for convenience, especially
among younger consumers, is driving the popularity of smaller stores (illustrated in the chart below) and ecommerce services.
Page 42
Demand For Convenience Bodes Well For Smaller Stores

United States - MGR Sales Growth (%, USD)
5
1
2013
2014
2015f
Supermarkets
2016f
Hypermarkets
2017f
2018f
2019f
Convenience stores
e/f = BMI estimate/forecast. Source: National sources, BMI
While online grocery retail has lagged behind online sales of other products, such as clothing and consumer
electronics, we expect strong growth over our forecast period to 2019 and beyond. In Q215, e-commerce
sales accounted for 7.2% of total retail sales in the US, which compares with 4.2% in early 2010. While this
share is lower for online grocery retail - as consumers are more reluctant to buy fresh food online than
consumer durables, and logistical obstacles are greater - we expect strong growth ahead. Millennial
consumers (the generation after the baby boomers) are driving the demand for delivery services in food
retail. Anecdotal evidence suggests that they are more willing to pay a price premium for same-day grocery
delivery. As a result, investment in online food retail has picked up over the past couple of years, with the
introduction of same-day grocery delivery services by Amazon and Target.
Page 43
E-commerce Expansion To Trickle Through To Online Grocery Retail

United States - E-Commerce Total Sales (USDmn, Column, LHS) & Share Of Total Retail Sales (%,
Line, RHS)
Source: US Census, BMI
While the growing popularity of online grocery retail and of smaller store formats will create growth
opportunities at the sector level, we see challenges ahead for mainstream retailers that will need to adapt to
this changing landscape. The example of Walmart illustrates the potential hardships for mainstream
retailers. While Walmart has traditionally focused on big-box formats, it is now investing in its e-commerce
platform, as well as in-store services and smaller stores, in order to adapt to shifting consumer preferences.
We expect this investment to have a positive effect on sales growth over the coming years, but it will weigh
on the company's margins in the shorter term. Walmart is increasing capital expenditures dedicated to
online grocery retail, and has increased its minimum wage to USD9.00 an hour in order to lower employee
turnover and improve employee satisfaction, hoping that it will translate into a better in-store experience.
Nonetheless, this will continue to impact Walmart's profit margins, which have already dropped from 3.4%
in Q215 (ending in July 2014) to 2.9% in Q216.
Page 44
United States - Department Stores Must Adapt To New Era

BMI View: Technology is transforming the retail industry and department stores have felt the pinch, losing
market share to discounters and fast fashion. Nordstrom has been one of the fastest to adapt to the new era
and we expect it will outperform the likes of Macy's and Kohl's in the coming years due to its more
innovative strategic direction.
Department stores had a difficult year in 2015, as the majority underperformed the S&P 500 with samestore sales continuing to see declining growth rates. The retail industry as a whole is undergoing seismic
shifts in how consumers buy and what they buy, as technology transforms the needs and desires of modern
Americans. This will only gain steam as more online purchases lead to lower store traffic for retailers, as
well as more competition given the low costs of e-commerce start-ups. Traditionally strong department
stores increasingly need to become more flexible in order to adapt to disruptive businesses that are hurting
their bottom lines.
Discounters Outperforming Traditional Department Stores

The trend towards e-commerce has been obvious since the turn of the century, as sales at department stores
and discount department stores have fallen nearly every year since 2002. According to US Census Bureau
data, sales at non-store retailers (online companies) have grown significantly and department stores have
looked to strengthen their own capabilities to offer online sales, which are easily outgrowing same-store
sales. Macy's reported lacklustre sales in the combined November/December 2015 holiday period compared
to the previous year, as same-store sales declined 5.2%, while its online revenue increased 25%. For these
big department stores, online sales represent between 10% and 15%, with Nordstrom believed to be among
the leaders with 19.4% in 2015. Most department stores do not provide solid figures for their online
revenues, so it is difficult to determine just how successful they are in their battle for e-commerce sales.
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Discount & Department Stores Under Threat From E-Commerce

Sales At Stores (USDmn), 1995-2015
Source: US Census Bureau, BMI
Discount department stores have fared slightly better than the more aspirational department stores, but both
are seeing a decline in their sales. Sales at discount department stores have historically been higher than the
aspirational stores, according to the US Census Bureau, and have also fallen at a slower rate than
department stores, posting a decline of 20.5% between 2000 and 2014, compared to 37% at the latter. This
was also true in 2015, as discount stores and off-price retailers outperformed the more traditional
department stores. For example, TJX, Ross Stores and Target saw an improvement in their share prices,
while Macy's, Nordstrom and Dick's Sporting Goods all struggled to grow over the course of the year.
In particular, TJX and Ross Stores have had tremendous success with their off-price model, where they buy
returned products, overstocked goods and out-of-season ranges from department stores and other brands,
allowing them to sell high-quality goods at a lower price. As a result, TJX has managed to consistently
grow its same-store sales every quarter, and maintain higher margins than the likes of Macy's. Lower
expenses for TJX create these healthier margins, even as it opens more stores, at the same time as Macy's is
closing its low-traffic stores in non-urban areas. TJX even has a higher market capitalisation of USD47.7bn,
compared to Macy's USD12.7bn.
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Off-Price & Discount Performed Better In 2015

Retailers Share Prices Rebased To January 1 2013
Source: Bloomberg, BMI
Consumer Trends A Big Factor
The successful business model of TJX has created a healthy company financially, but also of massive
importance are trends at the consumer level that are leading to the strong discount performance. Since the
recession, consumers have remained careful with their discretionary income even as economic conditions
improve. This is perhaps due to stagnant wage growth over this period and general cautiousness regarding
the recovery, even as interest rates stayed flat and employment has risen.
Lower oil prices were expected to have a huge impact on retailers across the board throughout 2015, acting
as a tax break for consumers that would spur stronger spending. This has not played out as some expected,
as is clear from the relatively poor performance of department stores over the course of the year. The impact
of lower energy prices is noticeable at the lower-income consumer level and thus has had the largest effect
on discount retailers. This is because energy cost burdens are most onerous on low-income families (those
earning less than USD30,000) and therefore the lower cost of oil will free up more disposable cash for these
households. Consumers have not rushed out to spend so much on discretionary purchases since the fall of
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oil prices, but instead discounters such as Walmart and Target have been among the beneficiaries,
capturing the extra expenditure from lower-income families.
Consumers will remain a bright spot in the US economy in 2016 as labour market tightness, driven by a
robust services sector, will finally lead to real wage growth. An increase in the labour force participation
rate will also support consumer spending in 2016. As the US labour market continues to tighten, real wage
growth will begin to accelerate. Job creation will continue as businesses look to increase output to serve
domestic demand. A rising labour force participation rate, as Americans return to the workface with a rising
number of job openings, will further bolster incomes (see 'Consumer Sector Will Underpin Stronger
Growth', September 23 2015). Stronger employment will improve the gross spending power of the US
population as employers add jobs to satisfy existing consumer demand. US retail goods producers will
respond by boosting output and investing in new retail storefronts. We forecast private consumption growth
of 2.9% in 2018, a modest acceleration from our estimate of 2.8% in 2015.
Lower Oil Prices Benefit Lowest Income Households

Energy Costs As % Of Nominal After-Tax Household Income (2014)
Source: American Coalition For Clean Coal Electricity
What Are Department Stores Doing About This?
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Department stores have been fighting to catch-up with their discount, off-price and e-commerce rivals;
however, they remain at least one step behind due to their larger size and historical bricks-and-mortar focus.
In order to really assert themselves back into the retail scene, department stores need to become more
nimble and proactive rather than reactive.
Creating Their Own Off-Price & Discount Brands
Nordstrom, Saks Fifth Avenue, Neiman Marcus and Macy's have slowed their rollout of new department
stores over the past five years and in some cases are closing down existing locations marred by low footfall.
Instead, they are focusing on their discount chains. For Nordstrom and Saks, their discount chain store
numbers (for Nordstrom Rack and Saks Off Fifth respectively), now outnumber their traditional formats
total. Looking at the aforementioned success of TJX, Macy's and Kohl's announced the launch of their own
off-price brands, called Backstage and Off Aisle respectively, in January 2016.
This allows them to house their own returned products at a store location or online and offer them at a
discount. Similarly, when the department stores overestimate sales forecasts and end up with excess stock,
selling them through their off-price brands at least keeps these sales internal, rather than benefitting TJX or
Ross Stores. Looking at Nordstrom's results, the biggest growth areas for retail have been e-commerce,
representing 19.4% of sales and in off-price, reaching 27.9% in 2015. Rack is also a more profitable
business than full-price, and has higher sales per square foot. Nordstrom's push into this area has therefore
been a big success story and has led to significant growth. Macy's is behind the curve on this, however,
launching a pilot of Backstage in 2015 ahead of a 50-store rollout in 2016. This number is well-behind TJX
and Ross Stores, which number well over 1,000 each, and points to the difficulties in being reactive to
market trends.
Buying Online Specialty Brands To Remain Flexible
One of the more interesting developments in fashion retail is the rise of specialty brands such as Stitch Fix,
Trunk Club, Thread and Le Tote. These 'personal shopper' services use customer sizes and style
preferences to send out a number of outfit suggestions on a monthly basis for a fee plus the cost of the
clothes charged automatically, which can then be kept or shipped back free of charge. These small start-up
companies are growing in popularity and, while they don't pose a massive threat to department stores, they
represent a new wave of niche, flexible players that cater to consumers without the time to go shopping and
keep up with the latest trends.
Trunk Club was actually acquired by Nordstrom for USD357mn in 2014, when its estimated sales were
around USD100mn. The brand started off targeting just men but has expanded to cater for women also. The
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subscription model and sustainability make these personal shopper services a difficult long-term
proposition, but creating a new customer experience for those that don't physically shop at Nordstrom is a
recognition that it needs to be trying new strategies in response to current trends.
Growing Interest In More Innovative Shopping Services

Interest In Search Terms Over Time
Source: BMI, Google Trends
Expanding E-Commerce Capabilities In Response To Amazon
Omni-channel initiatives are increasingly important as companies need to ensure that stores and websites, as
well as mobile and social media, allow a seamless customer experience, supporting and reinforcing each
other. This includes allowing customers the options of buying goods online and offline, returning goods for
free online and in-store, deliveries to home address and in-store pickup, multiple payment platforms, and
same-day, next day and designated day deliveries.
Convenience is crucial and department stores are investing in order to increase their capabilities to better
serve more demanding consumers. Investment in larger supply chain and fulfilment facilities in more
locations allows them to offer faster delivery options, while smartphone applications for e-commerce caters
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to the massive growth of mobile commerce. Returned goods from these businesses can then be sold in the
off-aisle branded stores passing the savings onto consumers, reinforcing this omni-channel approach.
The need for omni-channel is brought into sharp focus by Amazon, which looms over the retail industry
regardless of the sub-sector due to its ability to offer the widest range of products with extremely quick
delivery times. It is often the case that customers can get the same item from Amazon cheaper than directly
from the department store's own website, with more delivery options, faster times and cheaper costs.
Amazon's strength has not typically been in clothing and apparel but, given its huge product inventory,
deals with brands and its status as an e-commerce portal, it is not difficult to imagine that it can compete
with traditional retailers. Amazon Fashion President Cathy Beaudoin stated in February 2015 that 40mn
customers in the US have made clothing, shoes or accessories purchases in the previous 12 months on
Amazon.com.
Clothing Weathered The E-Commerce Storm

Retail Sales By Category (USDmn), 1995-2015
Source: BMI, US Census Bureau
Death Of Bricks-And-Mortar Fashion Greatly Exaggerated
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The good news for fashion retailers is that the apparel and clothing accessories sector has been more
resilient than other retail segments to the growth of e-commerce. Looking at sales data from retail stores
over the past 20 years (see chart above), shops selling electronics, appliances, sporting goods, books and
home furnishings have all seen growth stagnate to levels roughly the same in 2015 as in 2000. The rise of ecommerce can be seen as contributing to this, as items like books and electronics are better suited to buying
online. Clothing and fashion shopping remains more appealing in physical locations, where consumers can
try on different sizes, styles and colours. Even with free returns policies, it can still take considerably more
effort to buy a clothing item or pair of shoes online than it would in-store.
Therefore, while e-commerce is a driving trend behind the fashion retail industry, it may be the case that it
settles at around 50% of sales, rather than dominating the sub-sector like with bookstores, for example. This
demonstrates the importance of continued physical locations and bricks-and-mortar stores will continue to
play, but they must be supported by e-commerce in an omni-channel approach. More innovative business
models will emerge, such as with Trunk Club, and department stores need to be at the forefront of
partnering with these new types of companies.
Looking more specifically at product lines, it is perhaps no surprise that sales at women's clothing stores
have outperformed men's stores over the past two decades. More surprising is the stagnation in men's sales,
which have barely grown above where they were in 1995. Sales at women's stores have grown from double
the size of men's, to nearly four times as much in 2015. Sales of shoes and jewellery are on a steadier
trajectory, with periods of one outperforming the other. Jewellery performed particularly well in the years
leading up to the recession but has not yet recovered since the crash, as consumers have remained cautious
about their spending. There is scope for improvement here as consumption recovers, but given our modest
expectations, we expect shoes to continue being the stronger of the two categories.
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20 Year Stagnation In Men's Clothing Stores

Clothing & Apparel Stores Sales By Category (USDmn), 1995-2015
Source: BMI, US Census Bureau
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China - O2O Next Battleground For Chinese E-Commerce

BMI View: Alibaba's partnership with Suning is the latest in a series of developments aiming to boost its
position in the online-to-offline (O2O) retail space. Alibaba is expanding its presence in terms of goods and
services, as well as its logistical capabilities to control every aspect of the e-commerce value chain. Its
rivals Tencent and Baidu are already operating in some of these segments and the competition will intensify
over the coming years as each looks to take market share from the other.
E-commerce giant Alibaba Group has acquired a 20% stake in Chinese retailer Suning Commerce Group
for CNY28.3bn (USD4.63bn), becoming the second largest shareholder in the company. The two will form
a strategic partnership with Suning buying CNY14bn of new shares in Alibaba, giving it a 1.1% stake. The
plan is to build synergies between online and offline retail spaces through e-commerce, logistics and omnichannel initiatives. For example, Suning will open its first online store on Alibaba's Tmall.com platform
and work with Alibaba's logistics affiliate Cainiao.
Alibaba claimed to hold an 80% market share of Chinese e-commerce in a 2014 SEC filing, dominating the
online retail space despite competition from rivals such as JD.com (Tencent). Through its Tmall
subsidiary, Alibaba has mostly acted as a platform to facilitate consumer-to-consumer (C2C) and businessto-consumer (B2C) sales - similar to eBay's model - and like Amazon it does not hold product stock. Its
acquisition history since the beginning of 2014 indicates a subtle change in company strategy, focusing on
becoming more central to the distribution process and expanding into new areas of retail.
Online-to-Offline Strategy - Controlling The Value Chain
The strategic partnership will allow Alibaba to expand its logistical reach, as Suning reportedly covers 90%
of China through a network of eight national distribution centres, 57 regional distribution centres, 353 city
forwarding centres and over 1,700 'last-mile' delivery stations. Pairing Suning with Cainiao will allow a
wider range of customers to receive orders faster (to deliver goods in as little as two hours, the companies
said) or even in-store pickups, while offering consumers a simplified returns and repairs process. Reaching
rural and underserved Chinese consumers in areas outside of the major cities remains a challenge for any
domestic retailer, and Alibaba and Suning's partnership expedites the goal to provide universal coverage in
China.
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Margins Under Pressure From Online Retailers

Suning Commerce Group Financial KPIs (CNYmn)
Source: Suning, BMI
This represents a major shift in the strategic direction for Alibaba, which has focused on taking market
share from traditional brick-and-mortar stores with the convenience of e-commerce and mobile shopping.
While Alibaba has grown to become one of the largest companies in China, Suning has struggled in recent
quarters due to many consumers favouring the internet. Suning has posted consistent negative Operating
Income each quarter since Q313, as it invests heavily to expand both its physical and online presence in
order to stave off the threat of companies like Alibaba. The tie-up should help to leverage the strengths of
both companies in the areas of e-commerce and logistics.
As part of the deal, consumers will also be able to use Alibaba's payment service Alipay at Suning's 1,600
physical retail stores. This will allow Alibaba to control every step of the e-commerce value chain from
the availability of online products, to payments for goods and delivery to the customer. We expect other
companies to follow suit, not just in China but in the US as well, where the process is more fragmented.
Universal Goods Coverage In Acquisition Spree
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Since the start of 2015, Alibaba has announced 22 deals for a total value of USD9.1bn, compared with 25
deals in 2014 valued at USD5.9bn. Not only is Alibaba looking to provide universal access and delivery to
its customers but its recent acquisition history shows its aim to offer universal coverage. The Suning
partnership bears similarities to the one with Chinese department store operator Intime Retail, which
Alibaba bought USD692mn for in 2014, also allowing customers to access physical stores.
Its broad array of investments and acquisitions since 2014 includes prominent global start-ups such as
Snapchat, but it is in the online-to-offline market where it is making the more interesting moves. This is in
line with the 'sharing economy' model in which consumers use smartphone apps to buy and sell goods and
services such as ride-sharing, entertainment tickets and groceries. In this vein, Alibaba has stakes in
smartphone apps Lyft (US-based) and Kuaidi Dache (China-based), which rivals Uber in ride-sharing. In
June 2015, Alibaba and its affiliate Ant Financial announced their intention to invest USD1bn in new local
services venture Koubei, focusing on online food ordering and delivery. Beyond food delivery, Alibaba will
use Suning's retail outlets to sell groceries and other items outside of Suning's core consumer electronics
business. Food delivery, groceries and consumer electronics are one area where JD.com has a superior share
of the market and Alibaba will be looking to shore up its position in these segments.
These subsidiaries will mostly benefit Alibaba's Chinese operations but it is also planting similar seeds in
India, where it has acquired stakes in e-commerce startup Snapdeal, smartphone maker Micromax and
online payments company Paytm. O2O is becoming a critical part of retail strategy and Alibaba is wellplaced to capitalise on this trend with global acquisitions.
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Suning To Complement Electronics With Groceries

Suning Revenue By Products (CNYmn)
Source: Suning, BMI
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China - Luxury Retail, Cross-Border Specialists Most Exposed Under New ECommerce Tax
BMI View: In a bid to clamp down on cross-border commerce and encourage domestic consumption, the
Chinese government has introduced a new tariff policy that will threaten a number of consumer sub-sector
imports, with luxury retail being among the more prominent examples. Conversely, cosmetics could be an
area that will benefit from the new structure.
The Ministry of Finance, General Administration of Customs and State Administration of Taxation released
Cai Guan Shui (2016) No.18 on March 2016 pertaining to the adjustment of China's tax policy on crossborder business-to-consumer (B2C) e-commerce. From April 8 2016, purchases from abroad that fall below
CNY2,000 (USD310) will be exempted from customs duties, but will incur a new sales tax of 11.9%. This
rate is still lower than the 17% VAT applied to purchases in physical stores, and is expected to create fairer
competition between cross-border e-commerce and traditional retailers.
E-commerce firms were previously given preferential tax treatment in that they were only required to pay
parcel tax on their imports made through thirteen zones: Hangzhou, Tianjin, Shanghai, Chongqing, Hefei,
Zhengzhou, Guangzhou, Chengdu, Dalian, Ningbo, Qingdao, Shenzhen and Suzhou. However, the new tax
will lead to higher prices for certain product types, which could impact both consumer demand and ecommerce players.
Table: Previous Tax Rates Applicable To Cross-Border E-Commerce Purchases Made Via E-Commerce Free-Trade Zones
Details
Postal Tax
Books, magazines, educational videos, furniture, computers, toys, food, infant items
10%
Textiles and garments, video cameras and other electronic home appliances, bicycles, watches and
clocks
20%
Golf and golf appliances, luxury watches
30%
Tobacco, cosmetics and alcohol
50%
Others
10%
Goods with taxes under CNY50 were exempt from 10% custom duties
Source: BMI
While the new tax rates will erode the competitive edge of cross-border e-commerce, we do not believe the
change will compromise total e-commerce sales or our bullish growth outlook for China's e-commerce
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sector. E-commerce has gained popularity in recent years as 3G/4G proliferation and falling smartphone
prices led to the wider accessibility of internet retail channels. Chinese consumers transacted CNY3.877trn
(USD589.61bn) worth of products in 2015, up 33.3% from the previous year according to the National
Bureau of Statistics.
Boom In E-Commerce Fuelled By Mobile Users

China - E-Commerce Users ('000)
Source: CNNIC
For e-commerce marketplaces, inexpensive imported products will no longer be a strong selling point. The
price competitiveness and perceived quality superiority of foreign goods has created a growing demand for
cross-border e-commerce. Thirty-six per cent of all Chinese online shoppers made cross-border purchases in
the past 12 months according to a 2015 study by PayPal.
The cross-border e-commerce wave has caught up with key e-commerce players. Alibaba, for example, has
invested in global Tmall country pavilions, through which it engages in partnerships with foreign small- and
medium-sized enterprises as a portal for them to market their products directly to Chinese consumers,
viewing cross-border e-commerce as a new growth area. Its closest rival, Tencent-backed JD.com, also
launched its JD Worldwide cross-border e-commerce platform in April 2015, and recently tied-up with
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Japan-based delivery company Yamato to halve the time taken for Japanese products to reach Chinese
consumers.
Table: New Tax Rates On Imported Goods
Details
For transactions exceeding the stipulated

limits
For transactions within the stipulated

limits
Consumption Tax
Import
VAT
Customs Duty
Consumption Tax
Import VAT
Books and newspapers,

publications, audio and
video materials for
educational use; computers,
video cameras, digital
cameras and other IT
products; food and
beverages; gold and silver;
furniture; toys, gaming
products, holiday and other
recreational products
15%
17%
As applicable
10.50%
11.9%
Sporting goods (excluding

golf balls and gold
appliances), fishing tools;
textiles and their
manufactured goods; TV
cameras and other electrical
appliances; bicycles; other
goods not included in
Categories 1 and 3
30%
17%
As applicable
21.00%
11.9%
Alcohol and tobacco;

valuable accessories,
jewellery and gem stones;
golf balls and clubs; luxury
watches; cosmetics
60%
17%
As applicable
42.00%
11.9%
Source: BMI
Small E-Commerce Players Most At Risk
Cross-border e-commerce grew more than 30% in 2015 and gave rise to a boom in e-commerce companies
specialising in importing and retailing luxury consumer items. However, with the new guidelines, purchases
that exceed the limits for a single transaction of CNY2,000, or a yearly transaction total of CNY20,000
(USD3,100) per individual, will be levied with heavier tax rates. We believe that the nation's major ecommerce players have adopted multi-faceted strategies that should cushion the tax's negative impact on
sales, perhaps even to the extent of absorbing some of the increase in prices from the tax. Among bigger
players, we highlight JD.com as being slightly more at risk, as it saw its losses widen in Q415 following the
move to close its consumer-to-consumer (C2C) marketplace due to high volumes of counterfeit products.
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We believe that smaller cross-border e-commerce specialists will be faced with the bigger challenge of
business continuity, especially as they may be forced to absorb hefty tax rates.
JD.com More Vulnerable

JD.com (LHC) & Alibaba (RHC) - Revenue Against Profit/Loss (CNYmn)
Source: JD.com, Alibaba
These revised tax rates tie in with the government's 'Made in China 2025' and 'Internet +' plans, which aim
to nurture local manufacturing and integrate online shopping with other industries to drive consumer-led
economic growth, and will affect consumer industries in various ways.
Luxury Goods Outlook Worsens

The new taxes will have a major impact in the luxury goods sector globally, as the Chinese buy and order a
majority of products from overseas, rather than purchase from domestic vendors. Luxury goods can be
found cheaper abroad, at as much as a 50% discount in Milan compared to mainland China, for example, so
Chinese tourists abroad tend to target these locations in order to stock up luxury purchases at a discount.
There is also the use of 'daigou' agents, who buy goods in Hong Kong on behalf of wealthy Chinese and
bring them across the border to mainland China.
The government policies will crackdown on this behaviour in three different ways:
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1. The new taxes mean that products are subject to higher effective tax rates. For example, watches ordered
from abroad would be increased from 30% to 60% and on jewellery from 10% to 15%.
2. Tighter border checks will make it harder for shoppers to bring in items if the value exceeds the tax-free
limit of CNY5,000.
3. The imposition of limits on the use of UnionPay cards abroad, the government-supported payment card
network. The government implemented an annual withdrawal limit at overseas cash machines of
CNY100,000 (about USD15,000) per card.
The implication for luxury goods sold through e-commerce retailers is particularly bad. Aside from the
cheaper prices, Chinese shoppers buy abroad to ensure products are genuine and not counterfeits, something
that is a big problem for consumers when buying through e-commerce marketplaces. A 2015 report by
the State Administration For Industry And Commerce (SAIC) found that nearly two-thirds of Alibaba's
Taobao C2C marketplace products were counterfeits, while JD.com, which was hit particularly hard by the
counterfeit problem, decided to shut down its Paipai.com C2C marketplace on December 31 2015 as a
result. With costs of these goods now higher online with the increased taxes, coupled with the risk that it
might be a counterfeit good, this will see spending decline on these platforms. If B2C marketplaces like
Alibaba can certify that the listed imports are genuine, this would certainly make the tax more acceptable
from a consumer standpoint. Building that trust may be difficult and a longer-term project, however.
Inevitably, we believe this will also curb the expenditure of Chinese luxury purchases abroad spent by both
tourists and daigou agents. With so many restrictions in place, it will be much more difficult to spend as
heavily as in the past. This is bad news for the global luxury sector as a whole, although those with a
reputable name or boutique presence in China will see a bump in sales if only because there is a better
chance the products are genuine. Despite this bump, luxury spending in the Chinese market will remain
curtailed due to government crackdowns on corruption and the overall economic slowdown. As part of our
Key Themes For Retail 2016 outlook, we highlighted a difficult year ahead for luxury goods companies and
we believe this will largely worsen the prospects for them.
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Watch Imports Further To Fall

Global - Swiss Watch Imports By Country (USDbn)
Source: Federation of the Swiss Watch Industry
Milk Powder Formula Will Remain Resilient
We have long identified the infant formula market as holding strong growth and profitability potential,
representing perhaps the most attractive opportunity in the food and drink sector (see 'Baby Food Leading
Other Categories', July 1 2015). The Asia Pacific region and China in particular are among the market
outperformers (see 'Asia Leading Infant Formula Opportunities', October 23 2015), with rising incomes,
greater participation of females in the labour force and the relaxation of the Chinese one-child policy all
being factors behind our view. Despite the economic slowdown in the country, China will remain the largest
market globally for infant formula and we don't believe that the new regulations will significantly dampen
appetite for online purchase of these products.
This is because infant formula is like no other food category in that brand equity carries significant
importance. Trust, quality and reputation have to be carefully cultivated by the leading manufacturers. This
is why key brands such as Enfamil (Mead Johnson) and Aptamil (Danone) are not easily substitutable and
have a high-margin profile. It is no coincidence that there has been far less private label penetration in the
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paediatric nutrition space. The recent history of paediatric nutrition in China provides a case in point. The
2013 recall of Fonterra dairy products used by third-party manufacturers of infant formula ultimately
proved to be unfounded; however, this and earlier scares involving Chinese manufacturers have created a
tense situation in which the status quo is maintained and consumers have turned towards foreignmanufactured infant formula. The leading global players have responded by pushing a wider array of
foreign-produced brands in much greater volumes.
As a result, the Chinese shun grocery stores in favour of the wider selection of infant formula available
online. Much of the foreign-manufactured infant formula is sold online, and this channel increasingly seems
to be substituting the well-documented trips that were being made to Hong Kong and further afield by
mainlanders to stock up on formula. Even with a slowing economy and higher tariffs on e-commerce
purchases, we expect Chinese consumers to take the hit on higher infant formula prices in order to maintain
brand quality.
Brand Power And Quality Crucial For Infant Formula

Danone - Global Baby Food Sales (EURbn)
Source: Danone, Bloomberg
Korean Cosmetics To Benefit Under New Regime
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While most areas will become more expensive as a result of the new tariffs, one area that is expected to
benefit from the new cross-border regime is the importation of cosmetics, which should become cheaper.
This is mostly applicable to cosmetics valued at CNY100 or more, which will see tariffs lowered from 50%
to 32.9% following the tax revision, according to the South Korean customs office. Anything at the lower
end of the price scale will conversely become more expensive.
Cosmetics imported by Chinese from South Korea have undergone a huge boom over the last few years
and, according to the Korea Customs Service, the country's exports of cosmetics increased by 53.1% in
2015 compared to the previous year. In large part, this is due to demand from China, which is the biggest
importer of Korean cosmetics. The Korean International Trade Association reported that in the first seven
months of 2015, China's imports of foreign cosmetics products increased 36.1% to reach USD1.67bn,
helped by cross-border retail. JD.com partnered with South Korean Lotte Group in September 2015 to
facilitate cross-border retail between the two companies. This deal looks to be a winner for JD.com, as it
will take advantage of the increased demand for Korean cosmetic products in China.
Strong Demand For Korean Cosmetics

South Korea - Cosmetic Exports By Country In 2015 (%)
Source: Korean Customs Service
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UK - Online Grocery Retail Surging, But Profitability Proving Elusive

BMI View: Online grocery retailing will continue to expand at a rapid pace in the UK throughout our
forecast period to 2020, as consumers demand more convenience. Online pure-player Ocado will benefit
from this trend, although uncertainty remains over long-term profitability and strategy.
Online grocery retailing will remain a bright spot in the UK mass grocery retail (MGR) landscape in 2016
and beyond. One of our global key themes for 2016 is that e-commerce and discounters will continue to
disrupt the food retail industry, with online sales benefiting from consumer demand for convenience. We
expect these trends to be particularly salient in the UK, with German discounters Aldi and Lidl continuing
to take market share away from legacy retailers and e-commerce players growing in popularity. Purchasing
groceries online is already well entrenched among UK shoppers, compared with regional peers. As
highlighted in the chart below, 27% of UK consumers bought food and groceries online in 2015, which is
high compared with other major European markets. The popularity of online grocery retailing has surged in
recent years, as the proportion was only 16% in the UK as of 2010.
Online Grocery Retailing Popular In The UK

Selected Countries - Online Purchases Of Food/Groceries (% of Individuals Who Bought Online In
Past 12 Months) - 2015
Source: Eurostat, BMI
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Ocado Surfing On Online Shopping Trend
Ocado - the leading pure-play online food retailer - has experienced rapid revenue growth over the past five
years, with sales expanding at double-digit rates (see chart below). This contrasts sharply with UK legacy
retailers, such as Tesco and Sainsbury's, which have struggled to grow their sales over the past three years.
Ocado also reported its first full-year profit in FY2014 (ending in November 2014). In our view, the online
retailer will continue to benefit from strong long-term demand for online grocery shopping, and will
capitalise on its strong expertise in the segment. Based on company figures, more than 95% of deliveries
arrived on time, and in more than 99% of cases items arrived as ordered. This will continue to support
demand for Ocado services. Nonetheless, we caution that competition will intensify: bricks-and-mortar
retailers have been stepping up efforts to increase their online services, while Amazon Pantry introduced
same-day delivery services in late 2015.
Online Popularity Supporting Rapid Revenue Growth

Ocado - Revenue Growth (% chg y-o-y)
Long-Term Outlook Still Uncertain
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While we expect sales to maintain their healthy expansion, Ocado's future is still uncertain. Ocado's share
price surged until early 2013, but has since lost more than half of its value (see chart below). In our view,
the company needs to scale its operations in order to become more profitable. Its first deal with a bricksand-mortar retailer was signed in 2013 with Morrison's. While there were rumours about deals with French
Carrefour and US-based Safeway, Ocado has failed to secure another major deal since then. The
company's major strength is its computer technology, which it could sell on a wide scale globally to a
bricks-and-mortar retailer. Another possibility is a takeover by Amazon, which was evoked in the media
earlier in January. Such a deal would enable Amazon to further expand its presence in online grocery
retailing, which has been a strategic focus for the company recently.
Investors Worried Of Long-Term Strategy

Ocado - Share Price (GBp)
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India - New e-Commerce Guidelines Supportive Of Sector Growth

BMI View: Greater regulatory clarity in the e-commerce sector would eventually lead to a change in
market structure as more foreign competitors enter the market, and pricing barriers to entry that larger
marketplaces have created will be reduced. Smaller companies are also expected to gain from the new
guidelines, which will level the playing field for vendors.
India's Department of Industrial Policy and Promotion (DIPP) has issued a new set of guidelines for ecommerce, which will have the largest impact on companies that adopt the 'marketplace model'. Dated
March 29 2016, the guidelines took immediate effect. One aim is to attract more foreign investment by
allowing 100% FDI in business-to-consumer (B2C) online marketplaces. Prior to this, 100% FDI was only
allowed in business-to-business (B2B) e-commerce models.
The different models of e-commerce have also been given a clear definition by the government (see table).
Previously, e-commerce was defined as the 'activity of buying and selling by a company through the ecommerce platform' in the Consolidated FDI Policy Circular 2015, and this description led to confusion and
tax disputes in some cases. Also as a result of the lack of clarity, e-commerce companies Amazon, Flipkart
and Snapdeal were examined for violation of this FDI legislation after a complaint was raised by traders'
body, the Confederation of All India Traders (CAIT) in Q415.
Table: New Definitions
Phrase
Definition
e-Commerce
The buying and selling of goods and services including digital products
over digital and electronic networks.
e-Commerce entity
A company incorporated under the Companies Act 1956 of the

Companies Act 2013, of a foreign company covered under section 2
(42) of the Companies Act, 2013 or an office, branch of agency in India
as provided in section 2 (v) (iii) of FEMA 1999, owned or controlled by
a person resident outside India and conducting the e-commerce
business.
Inventory-based e-commerce model
Where the inventory of goods and services is owned by an ecommerce entity and sold to consumers directly.
Marketplace-based e-commerce model
Where an e-commerce entity which provides an information

technology platform on a digital and electronic network to act as a
facilitator between buyer and seller.
Digital and electronic network
Includes computers, television channels and any other internet

application used in automated manner such as web pages, extranets,
mobiles etc.
Source: Department of Industrial Policy & Promotion
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These clarifications will be welcomed by new entrants and companies keen to invest in the burgeoning
sector. As testament to the growing role of e-commerce, the Statistics Ministry announced earlier in March
2016 that it was considering adding e-commerce to its calculation of the consumer price index (CPI), and
will monitor discounts on Amazon, Flipkart and Snapdeal. Flipkart, the largest e-commerce portal in India,
reported that it had amassed 75mn registered users by March 2016, of which a majority are mobile.
One such potential entrant that will benefit from the new guidelines is Chinese e-commerce giant Alibaba,
which announced plans to enter India on its own in 2016 in a move to diversify its heavily domestic-reliant
revenue streams. Having already been a key investor in start-ups like Paytm and Snapdeal, we believe
Alibaba will have the ability to rival leading e-commerce players by replicating its successful marketplace
models in India (see 'Alipay Will Maintain Dominance In China's Mobile Payments Space', January 28
2016).
Mobile Transaction Volumes On A Steep Incline

India - m-Wallet (LHC), Mobile Banking (RHC) Transactions (2013-2015)
Source: RBI
Besides being a boon for the overall retail and e-commerce sectors, the new guidelines will level the playing
field for smaller start-ups and rural vendors by advocating greater transparency and discouraging unfair
pricing practices. As e-commerce marketplaces are now clearly defined as technology platform providers, ecommerce marketplaces will no longer be allowed to engage in predatory pricing, an area in which the firms
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have been engaging through platform-wide discounts and promotions to gain market share: at a cost to their
local vendors.
The new rules also state that 'an e-commerce entity will not permit more than 25% of the sales affected
through its marketplace from one vendor or their group companies'. India's e-commerce sector is dominated
by a few large marketplaces (Flipkart, Amazon, Snapdeal), and consumers' choice has been somewhat
limited by the marketplace's preferential selection of vendors. For example, WS Retail and Cloudtail, the
largest sellers on Flipkart's and Amazon's platforms respectively, reportedly exceed the 25% cap and will be
forced to reduce their presence on the platforms. WS Retail is Flipkart's former subsidiary and its WS Retail
credit can be used over Flipkart's digital wallet, Flipkart Money.
Local e-commerce marketplaces will be forced to source from a more diverse range of vendors; giving
consumers more choice, small sellers better bargaining power, and the Modi government's 'Digital India'
agenda greater traction. Smaller vendors will stand to gain by leveraging marketplaces' established delivery
channels to reach rural consumers. Flipkart, which has an approximated 45% market share, reports that over
50% of the traffic it receives comes from non-metros. In fact, most of the company's growth has come from
tier 2 and tier 3 towns, and this trend is expected to continue as 3G/4G networks expand and smartphone
ownership rises.
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Rising Middle-class To Boost e-Commerce Spending

India - Household Income (2014-2020)
200,000
100,000
0
2014e
2015e
2016f
2017f
2018f
2019f
2020f
Households '000 Net Income less than USD1,000

Households '000 Net Income USD25,000-50,000
e/f = BMI estimate/forecast. Source: National sources, BMI
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India - Snapdeal O2O Platform Will Boost Rural E-Commerce

BMI View: Snapdeal's O2O platform will complement rural expansion as Indian e-commerce platforms are
increasingly tailoring their services towards mobile data. We believe that the cooperation between mobile
operators and e-commerce businesses will both expedite data adoption and increase e-commerce
penetration in rural communities.
Indian online marketplace Snapdeal has launched an online-to-offline (O2O) platform named Janus, which
will integrate online with traditional retail experiences and will initially be available across 70 Indian cities.
Snapdeal has also increased its shareholding in third-party logistics and delivery services company GoJavas
to 42% through an additional USD20mn investment in the company. Although the O2O platform aims to
attract businesses that provide personalised after-sales services in addition to providing a more holistic
consumer experience, BMI believes that the true potential of O2O will lie in Snapdeal's expansion into
hyperlocal and rural regions.
The e-commerce retailer, which reported in June that more than 75% of its sales were transacted over
mobile platforms, has been strengthening its mobile expertise through the acquisitions of Martmobi in May
and LetsGoMo Labs in June. Snapdeal also recently launched its digital wallet service
through FreeCharge, the mobile-payments company that it acquired in April (see 'FreeCharge Introduces
Digital Wallet Service', September 17). We believe that Snapdeal's investments into mobile will not only
target the large proportion of mobile subscribers and growing mobile data users, but also complement its
rural expansion goals.
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Data Adoption Boon To Online Retailers

3/4G Subscribers ('000) And Penetration Rate (%)
20
300,000
15
200,000
10
100,000
5
0
2013
2014
2015f
2016f
2017f
2018f
2019f
3G & 4G phone subscribers, '000 (LHS)

3G & 4G phone subscribers/100 inhabitants (RHS)
f = BMI forecast. Source: BMI, operators, regulator
In 2014, Snapdeal started rolling out 5,000 e-commerce kiosks across 65 cities and 70,000 rural areas. The
kiosks, equipped with smartphones and tablets, will not only introduce rural dwellers to technologies, but
also overcome logistical and infrastructural challenges by acting as designated delivery and pick-up points.
Government initiatives to create a Digital India, which includes improving telecoms infrastructure in rural
regions, will be a catalyst for e-commerce as well as supporting companies which are pushing into the
hyperlocal space. However, with the National Optical Fibre Network (NOFN) - which aims to connect
250,000 rural villages to fibre networks by 2019 - taking longer and costing more than envisaged, access to
fixed broadband in rural areas is still expected to remain limited in the near term. The Telecom Regulatory
Authority of India (TRAI) reports that there were 19.07mn fixed broadband subscribers in Q215,
accounting for just 6.31% of the 302.35mn internet users present in India.
On the other hand, we expect consumption of mobile data to grow at a faster speed as operators seek to
increase traffic on their 4G networks. Aircel reports that 4G subscribers use more than three times the data
than 3G users. In July, market leader Bharti Airtel, in the process of aggressively rolling out 4G,
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announced plans to invest more than USD16bn over the next five years to roll out 4G services across both
rural and urban India. While price competition from Reliance Jio Infocomm's entrance will drive down
data prices, government incentives for foreign electronics manufacturers to set up plants in India will also
result in cheaper smartphones. In July 2015, Snapdeal reported that over 70% of its sales were from small
towns, and the proliferation of LTE in rural regions will accelerate growth in the e-commerce sector.
We believe that partnerships between e-commerce retailers and mobile operators will be mutuallybeneficial for both parties. Online retailers like Snapdeal can leverage operators' vast retail networks for
their e-commerce kiosks, whilst operators will be able to introduce subscribers to value-added data services
through e-commerce. Snapdeal's O2O platform will provide greater opportunities for e-commerce kiosks
and physical retail outlets to be integrated into its e-commerce business. This will enable the company to tap
into growing rural consumption by partnering with rural businesses, and increasing consumer choice.
Mobile Data Will Unveil Rural E-Commerce Potential

Subscriber Market Shares (Q115)
Source: BMI, TRAI
Page 75
MENA - Digital Payments Round-up: The Two-Tier Market Persists

BMI View: New solutions to reduce reliance on cash on delivery (COD) in the Middle East's e-commerce
will enable a much wider pool of vendors to launch online sales, playing a crucial role in sustained growth
in the sector. The UAE will remain ahead of the curve, as higher penetration of credit cards and strong
government support for implementation of smart city solutions will support take-up of the most advanced
digital payment solutions from global players.
Our long held view of the Middle East's e-commerce and payments market developing at two-tier pace is
clearer than ever (see 'MENA's Two-Tiered M-Commerce Market', October 22 2013). A wide discrepancy in
penetration of formal bank accounts and credit cards has given rise to a variety of solutions for supporting
cash on demand (COD) payments for online retailers, parallel to growing interest from global players such
as Visa and PayPal in the Middle East's digital payments market.
Unsurprisingly, in emerging markets such as Egypt and Jordan, where penetration of bank accounts and
credit cards is very low, COD dominates. Initial figures from PayFort's 2016 State of Payments report for
the Middle East show that having a cash on delivery (COD) option influenced the choices of 51% of
shoppers across the UAE, Saudi Arabia, Egypt, Kuwait, Lebanon, Qatar and Jordan. In Egypt, 91% of those
who shopped online chose COD.
Logistics company Aramex estimates that the rate of returns on COD payments was 19% across the Middle
East in 2014, compared with 8% for credit card payments, resulting in higher operating costs for retailers in
cash-based markets. We believe this has deterred many vendors from online sales, as they remain wary of
the challenges of processing payments. The development of a wider range of options to insulate business
from these risks is therefore a crucial element in support growth in the Middle East's e-commerce market.
Given the very low penetration of traditional financial services in Egypt, we believe COD is likely to
remain by far the dominant payment method. Therefore, solutions that enable online retailers to reduce the
cost and risk related to COD will have the greatest impact. While global companies rely on penetration of
traditional financial services to operate and have been slow to adapt to the local market - PayPal does not
currently support any Arab currencies - local companies are successfully filling the gap.
Major local payment providers include:
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CashU - Allows customers to load credit on to a prepaid card/account, which they can use to pay for online
purchases on partner vendors' sites. Souq.com (also the parent company of PayFort) sold CashU in a
management buyout agreement in December 2015, with investment firm Genero Capital. Genero Capital
also owns NFC payments specialist Boloro, suggesting that it sees opportunity to generate synergies
between e-commerce COD payments and in-store digital payment services.
Fawry - Allows users to pay bills for a wide variety of merchants and service providers through a network
of 50,000 physical locations. As well as processing cash payments for purchases on e-commerce websites,
Fawry also supports payments to other COD facilitators such as Cash 'n Pay and CashU.
PayFort - An online payment platform and service provider for merchants. In April 2016, PayFort launched
a new service in Saudi Arabia which enabled consumers to deduct the cost of their purchases directly from
their bank accounts, by integrating with local payment provider Sadad. This marks a major step in
overcoming the reliance on COD: according to the World Bank Financial Inclusion Index, 69.4% of Saudi
adults had a bank account in 2014, but just 11.5% of adults had a credit card. In absolute terms, this means
an additional 13mn people in Saudi Arabia can access digital payment options (using 2014 population
figures).
PayFort's strength is derived from its ability to aggregate many of the existing options under a wider
umbrella, and to combine these with an end-to-end service which includes managing relationships with
issuers, acquiring banks and fraud tools, and making payments available across mobile and desktop
platforms.
Page 77
No One-Size-Fits-All Payment Solution

Banking And Credit Card Penetration, % Of Population Aged 15+ (2014)
100
75
50
25
0
UAE
Oman
Kuwait
Saudi
Arabia
Qatar
Account at a financial institution
Lebanon
Jordan
Egypt
Credit card
Source: World Bank Findex
Global Players Eye Regional Expansion
Opportunities for global payment players Visa and PayPal will be concentrated in countries with high
banking and credit card penetration rates. The more limited audience has not tempered interest, however,
with Visa announcing Dubai as the location for its third global innovation centre, after San Francisco and
Singapore.
Visa's sights extend far beyond the traditional e-commerce market, into supporting digital payment
solutions for smart technologies, including Amazon's Alexa and connected cars. We expect Visa to focus
on creating a seamless payment experience across all internet-connected devices through expanded
functionality of payment options like Visa Checkout (which allows customers to use mobile devices for instore payments instead of their physical credit cards), and which can build on tech savvy populations and
strong government support for the creation of smart cities (see 'E-Payments Interoperability Needed For
Smart Cities', October 20 2015 and 'Key Factors Underpinning Dubai's Smart City Leadership', August 21
2015).
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While Visa and MasterCard can leverage their entrenched relationships with consumers to gain traction in
this market, we believe the extension of platforms such as Apple Pay and Android Pay to the UAE and
other GCC markets, as well as PayPal's expansion into physical payments, will foster enough competition
and innovation to find solutions that gain traction with consumers, and fuel the shift towards a cashless
society.
Telecoms operators have also joined the market, but we believe that in the GCC, where banking penetration
is relatively high, they are less strategically placed than established payment providers to capture
opportunities in the digital payments space (see 'New Partners Needed For Mobile Connect', March 9
2015). By contrast, in markets with far lower banking penetration mobile operators remain in a strong
position to leverage their existing billing relationship with customers to facilitate digital payments (see
'Digital Payments: Developed Versus Emerging Markets', March 11).
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UAE - Time-Poor Consumers To Drive Convenience Stores & E-commerce

BMI View: UAE consumers will become increasingly time poor as women continue to enter the labour
force. Also reflecting higher incomes, leading grocery retailers will shift their focus from hypermarkets
towards convenience stores and online grocery retail, which will experience strong growth over the next
five years.
Over our forecast period to 2019, increasingly time-poor consumers with rising incomes in the UAE will
drive demand for more convenience in food retail. Below, we highlight some of the factors driving this
trend:
Women entering the labour force: Alongside Qatar, the UAE has one of the highest participation rates
of women in the labour force in the MENA region, with a rate of 47% in 2013. This has been a noticeable
trend over the past decade or so, as the participation rate stood at only 34% in 2000. As an increasing
number of households are composed of two working adults, consumers are becoming increasingly timepoor and are becoming less willing to drive outside their neighbourhoods to buy groceries.
High Female Participation In Labour Force To Drive Convenience

Selected MENA Countries - Female Participation In Labour Force (% Female Population Above 15)
Source: World Bank, BMI
Higher purchasing power: We hold a positive outlook for private consumption growth in the UAE,
which will drive premiumisation. As we forecast household spending on food and non-alcoholic drinks to
Page 80

rise from USD3,972 in 2014 to USD5,330 in 2019, UAE consumers will increasingly favour convenience
over price. They will therefore become more reluctant to drive to hypermarkets, where prices are usually
lower compared to convenience stores (higher volumes to absorb fixed costs).
Consumers Less Price-Conscious As Incomes Rise

UAE - Household Spending On Food & Non-Alcoholic Drinks (USD)
6,000
4,000
2,000
0
2013
2014e
2015f
2016f
2017f
2018f
2019f
e/f = BMI estimate/forecast. Source: BMI/UAE National Bureau of Statistics
The convenience store format will clearly benefit from consumers becoming more time-poor and less priceconscious. We previously highlighted that the convenience format would lead growth over the next five
years, outperforming other grocery retail formats (see 'Convenience To Lead Retail Growth', February 23).
We forecast compound annual growth for convenience store sales over 2014-2019 at 17.7%, against 8.6%
for hypermarkets and 12.2% for supermarkets. While hypermarkets will remain the dominant format,
convenience stores will gradually increase their market share. But even within the hypermarket segment,
retailers will concentrate on smaller surfaces, for instance within so-called community shopping centres.
Reflecting this trend, grocery retailers are shifting their focus towards the convenience format, as illustrated
by Majid Al-Futtaim opening its first Carrefour convenience store in Dubai in November 2014.
In our view, online grocery retail will also benefit from growing demand for convenience. While the UAE
has the largest e-commerce market in the MENA region, at an estimated USD2.3bn according to online
Page 81
payment firm Payfort, online grocery retail lags behind. Only 6% of consumers bought groceries online in
2014, as illustrated in the chart below. Among the leading grocery retailers, only Casino offers an online
platform selling food items, exclusively in Dubai. Majid Al Futtaim is also present in the e-commerce
channel, but does not currently offer grocery. However, as demand for convenience increases in the mass
grocery retail sector and consumer trust in online platforms grows, we believe that the sector will develop at
a rapid pace over the coming years. For instance, EMKE Lulu is expected to start selling grocery items
online in August.
Groceries Lagging Behind, But Growth Ahead

UAE - Online Shopping By Category (%)
Source: Payfort, BMI
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Company Profile
Proprietary Payments, Logistics Are MercadoLibre's Key Strengths
BMI View: Digital payments and cross-border sales are key to unlocking the full potential of the Latin
American e-commerce market. MercadoLibre is in a strong position to benefit from the rapid expansion of
the market due to the simplicity and broad availability of its proprietary payments solution as well as
investment in its shipping and logistics partnership program. Increased emphasis on developing search,
display, advertising and payment solutions suited to small screens (smartphones, tablets) has also served it
well, enabling it to reach out to a wider range of consumers than traditional retailers.
MercadoLibre is the largest e-commerce platform in Latin America, operating as an online auction
marketplace based on trade between individuals and businesses using a business model similar to that
employed by eBay. The company has been posting very attractive financial and operational results for
several years, expanding its user base consistently, entering new markets and developing new services. In
addition to the core MercadoLibre Marketplace, it also offers users an ecosystem of related e-commerce
services: the MercadoLibre Classifieds Service, the Mercado Pago payments solution, the MercadoLibre
Advertising programme, the Mercado Shops online stores solution and the Mercado Envios shipping
service. The company has operations in Argentina, Brazil, Bolivia, Chile, Colombia, Costa Rica, Ecuador,
Guatemala, Mexico, Paraguay, Peru, Uruguay, Venezuela, the Dominican Republic, Panama and Portugal.
The proliferation of computers and smartphones across the region continues at a rapid pace. This has helped
grow internet penetration, boosted consumer purchasing power and spurred investment in logistics and
transportation, creating opportunities for the expansion of e-commerce. MercadoLibre is well-placed to take
advantage of this trend, having entered the region in 1999 and established offices in its core markets
(Argentina, Brazil, Chile, Colombia, Mexico and Venezuela) within a year. eBay was an early investor in
MercadoLibre (2001), signing a five-year non-compete agreement. Although that agreement expired 10
years ago, it maintains an 18.4% holding in MercadoLibre and is careful not to compete directly with the
company.
Financial & Operational Performance

The MercadoLibre Marketplace is the company's main revenue driver, through listing fees, optional feature
fees, final value fees and revenue from online advertising. For its Mercado Pago payment solution, it
charges a small percentage of the transaction value to buyers and sellers. The company continues to report
impressive year-on-year (y-o-y) growth in the number of registered users, rising to 151.5mn at the end of
Page 83
March 2016, an annual increase of 19.6%. It averages 20% growth each quarter in the number of registered
users, with items sold increasing by 39.4% y-o-y to 38.3mn and total payment transactions processed
through Mercado Pago increasing by 85.5% y-o-y to 38.3mn in Q116.
The company's revenues are, therefore, growing rapidly, reaching USD157.6mn in the quarter ended March
2016 (a y-o-y increase of 6.4% in USD and a 75.0% increase in local currencies). Net profit and profit
margins are very respectable, with MercadoLibre recording a gross profit margin of 64.8% in Q116 (down
from 69.8% a year earlier). The recent margin compression is attributed to investments in customer service
and the incremental impact of payment processing fees and sales taxes as Mercado Pago and
Mercado Envios processed volume grew markedly during the 12-month period.
Strong e-Commerce Growth Continues

MercadoLibre Users & Items Sold, 2013-2016
200
40
150
35
100
30
50
25
20
0
Q413
Q114
Q214
Q314
Q414
Q115
Total Registered Users (mn) (LHS)
Q215
Q315
Q415
Q116
Items Sold (mn) (RHS)
Source: BMI, MercadoLibre
Brazil remains the company's largest market, due to its superior Internet user footprint and historically
strong economic growth. The recent cooling of the Brazilian economy has tempered e-commerce sales in
the country, but MercadoLibre's focus on consumer-to-consumer sales means that bargain-hunters are even
more inclined to look for used goods on the MercadoLibre platform than buying new on retail companies'
online shopping channels.
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Brazil was the single largest market for MercadoLibre in Q116, accounting for 49.2% of revenues in USD
terms; this was a y-o-y increase of 13.2%, although local currency terms saw a 54.0% increase. Argentina
recorded a 71% y-o-y increase in local currency-denominated sales in Q116, but in USD terms this was a
more tepid 1.6% increase due to increasingly unfavourable exchange rates and rising inflation; similarly, the
introduction of the SIMADI exchange rate in Venezuela means that local currency sales in that country
appeared to grow by 249% y-o-y in Q116, but USD-denominated sales decreased by 13.3% to USD14.0mn.
On a consolidated basis, Marketplace revenues - driven by growth of units sold - improved by 75.4% in
local currencies but contracted by 0.7% in USD terms. Non-Marketplace revenues grew by 74.4% in local
currencies and by 19.1% in USD, mainly due to the growth of the Mercado Pago-financing and offplatform, Classifieds, Shipping and Advertising. Mercado Pago's Merchant services revenue increased by
128% y-o-y in local currencies, driven by enhancements in user experience and functionalities, as well as
execution of key initiatives (such as open platform integrations and cross-border payments) and commercial
efforts.
In total, 17.2mn items were shipped through Mercado Envios in Q116 (a 114% increase y-o-y), with most
of the volume coming from Brazil, where 70% of sold items used the proprietary shipping solutions.
Mercado Envios was launched in Chile at the end of Q116, leveraging local carrier Chilexpress and
completing MercadoLibre's enhanced marketplace offering in the country.
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Mercado Pago Drives Growth

MercadoLibre Payment Metrics
30
1,750
1,500
20
1,250
1,000
10
750
500
Q114
Q214
Q314
Q414
Q115
Payment Transactions (mn) (LHS)
Q215
Q315
Q415
Q116
Total Payments (USDmn) (RHS)
Source: BMI, MercadoLibre
Strategy
MercadoLibre has been able to create an efficient e-commerce ecosystem through its launch of
complementary applications designed to enhance the overall user experience. Among these platforms, one
of the most valuable is Mercado Pago, which handles the monetary payment from the buyer to the seller.
This ensures a more secure and faster method of monetary transfer between users, while providing
increased revenues for MercadoLibre by taking a small percentage of each transaction. MercadoLibre hopes
to increase the penetration of Mercado Pago in each marketplace transaction and has made it so that all paid
listings are required to offer the online payments solution as an option to buyers. The company is also
making Mercado Pago available for users that are not registered with the MercadoLibre Marketplace, to
send and receive payments to each other for offline transactions.
This strategy has clearly paid off. The accompanying chart shows a steady rise in payment transactions over
the last two years, reaching 27.5mn in Q116, set against total payment volumes in USD terms. The latter
Page 86
metric is generally trending upwards despite a now-traditional slump in the first quarter caused by postholiday easing on household spending.
Another strong proprietary application is Mercado Envios. This service is designed to speed up sales while
protecting sellers' data. Combined with the Mercado Pago application, MercadoLibre can control the entire
value chain of its operations.
As with many internet-based companies, MercadoLibre is focusing its efforts on growing engagement via
small screen mobile devices. Particularly in emerging markets, the internet will be accessed more often on
mobile devices, as it is a more convenient and cheaper technology than personal computing. More than
20mn downloads of the MercadoLibre and Mercado Pago applications have been recorded and
MercadoLibre reported in its FY2015 results that mobile was now accounting for a high percentage of gross
merchandise volume (GMV). We forecast 3G/4G services and smartphone penetration to continue growing
at a strong rate across the region, and this will contribute to the rise of e-commerce platforms.
MercadoLibre's scale means it can turn to mergers and acquisitions in order to build scale, increase its
technical and intellectual property portfolio or to neuter would-be competitors. In April 2014, MercadoLibre
acquired for USD40mn VMK, a Chilean holding company which owned two real estate portals;
Portalinmobiliario in Chile and Guiadinmuebles in Mexico. One million registered users were thus
absorbed into the MercadoLibre portfolio. In April 2015, the company acquired 100% of Metros Cbicos,
operator of an online classified advertisement platform dedicated to the sale of real estate in Mexico.
MercadoLibre is also buying local IT specialists to help it keep pace with changing technology. In
December 2014, the company acquired 100% of Business Vision, a software development company based
in Argentina. Then, in April 2015, the company acquired 100% of KPL Solues, a Brazil-based developer
of enterprise resource planning (ERP) software for the e-commerce industry.
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Volatile Venezuela Remains A Risk

MercadoLibre Revenues By Country (USDmn)
200
150
100
50
0
Q413
Q114
Brazil
Q214
Q314
Argentina
Q414
Mexico
Q115
Q215
Venezuela
Q315
Q415
Q116
Other Markets
Source: MercadoLibre, BMI
New Markets
During 2015, MercadoLibre launched services in Bolivia, Guatemala and Paraguay. It had first intimated its
desire to expand regionally in 2013 and we had identified Bolivia and Paraguay as being the last two
untapped markets in South America where conditions were suited to sustainable e-commerce. We also
believed that - along with El Salvador, Nicaragua, Honduras and Puerto Rica - Guatemala was a leading
candidate for expansion into Central America. Suriname, Guyana and French Guiana are relatively
underserved with advanced IT and telecoms infrastructure; as such, we do not believe MercadoLibre will be
looking to enter these countries in the medium term.
Although Bolivia has the largest addressable market in terms of internet users (circa 6mn forecast by 2020),
we believe the high level of political and economic risk associated with doing business in that country will
make MercadoLibre proceed slowly and cautiously. Like Venezuela, Bolivia has a highly volatile economy,
a situation exacerbated by the fall in oil prices on which it has long depended.
Page 88
Competition
MercadoLibre has been able to grow so successfully in large part due to the lack of e-commerce
competition in Latin America over the last decade. Further, there have been few companies that have tried
to replicate MercadoLibre's marketplace model and it has been able to gain a first mover advantage and
expand its brand power as a result. eBay's non-compete agreement with MercadoLibre expired back in 2006
and although it maintains a share in MercadoLibre, it may yet decide to become a more proactive player the
Latin American market. eBay's May 2014 decision to add sites in Latin American local languages and
currencies to boost its presence in the region demonstrates that the global giant appreciates the potential of
the region. Prior to that, in 2012, eBay acquired Alamaula.com, a classifieds site which operates in many of
the countries in which MercadoLibre operates.
With a population of over 500mn, Latin America is too big for the likes of eBay to ignore and we therefore
anticipate further activity in the region. It could even look to acquire MercadoLibre and its established
brand.
e-commerce giant Amazon looks set to confine its Latin American expansion into Brazil and Mexico in the
medium term. In February 2014 it began offering its first physical product offering in Brazil by selling
Kindle devices to consumers, where previously the company's local website had only sold e-books. Progress
has been fairly slow and deliberate thus far and does not directly compete with MercadoLibre at present.
However, it has its own data centre and distribution contracts arranged in Brazil and is expected to become
a key player before long.
Other competitive threats come in the form of the second-largest regional player Buscap, a price
comparison shopping site, owned by South African company Naspers following a USD342mn acquisition
in 2009. This should give Buscap significant funding and experience in order to make an impact in the
Latin American e-commerce market. Other threats come from online retailers Submarino and Americanas
(both owned by Brazilian company B2W Digital) and mainly operates in Brazil. Other marketplace
operators include Mas Oportunidades in Argentina and Rakuten in Brazil. There are also specialist
players such as Netshoes to contend with. MercadoLibre also competes with high street shops with online
stores and other online payment solutions providers such as PayPal and PagSeguro. In addition, device
manufacturers such as Apple and Samsung have begun incorporating their proprietary payment
applications into the smartphones, tablets and wearables they sell in the region.
Page 89
Table: MercadoLibre Operations By Market
Country
MercadoLibre Launch
Date
Office Opening
MercadoPago
Launch Date
MercadoEnvios
Launch Date
August 1999
July 1999
November 2003
February 2013
October 1999
September 1999
January 2004
January 2013
Mexico
November 1999
October 1999
January 2004
October 2014
Uruguay
December 1999
September 2004
NA
NA
Colombia
February 2000
January 2000
December 2007
May 2015
Venezuela
March 2000
March 2000*
April 2005
NA
Chile
March 2000
April 2000
September 2007
NA
Ecuador
December 2000
NA
NA
NA
Peru
December 2004
NA
NA
NA
Costa Rica
November 2006
NA
NA
NA
Dominican Republic
December 2006
NA
NA
NA
Panama
December 2006
NA
NA
NA
Portugal
January 2010
NA
NA
NA
Bolivia
July 2015
NA
NA
NA
Guatemala
July 2015
NA
NA
NA
November 2015
NA
NA
NA
Argentina
Brazil
Paraguay
Note: * Venezuela office was closed in 2009. NA = not applicable. Source: MercadoLibre
Page 90
Asia - Alibaba Targeting Dominance Of SEA e-Commerce Market

BMI View: Alibaba looks set to become the dominant e-commerce player in Southeast Asia (SEA) through
an expansion strategy that most recently resulted in the purchase of a controlling stake in B2C marketplace
Lazada. Lazada will enable the company to maximise synergies in its past investments in SEA, which is also
a strategic sub-region for Alibaba's revenue diversification goals.
Alibaba will invest USD1bn in business-to-consumer (B2C) marketplace Lazada, its largest overseas
investment to date. The Chinese e-commerce giant will acquire shares from Lazada's existing investors,
including Rocket Internet and Tesco, for a controlling stake in the company.
Alibaba's interest in Lazada not only re-affirms BMI's long-held view on the positive growth prospects for
e-commerce in SEA (see 'New SEA Strategy Needed For Rakuten', 16 February), but also the growing need
for Alibaba to diversify its revenue streams to address dwindling growth opportunities in its domestic
market. The company's goal is for overseas revenue to account for 50% of its total revenue by 2025, an
ambitious aim considering that international commerce accounted for just 6% of Alibaba's total revenue in
Q415.
Page 91
Lazada Acquisition To Reduce Reliance On Domestic Market

Alibaba - Revenue (CNYmn) (Q213-Q415)
Source: Alibaba
Alibaba has long displayed interest in the SEA e-commerce space (see 'Alibaba Eyes SEA Online Retail
Market', May 29 2014 and 'Cloud Will Back Alibaba's Expansion into SEA', August 24 2015), and has
partnered with the embassies of Indonesia, Malaysia, Singapore and Thailand and launched Tmall Global
pavilions in Singapore, Thailand and Malaysia. While the initial aim was to expand this global offering to
consumers on its domestic B2C marketplaces, we believe that Alibaba could let its regional vendors
leverage the Lazada platform as well, strengthening Alibaba's value proposition and compensating for risks
to demand of cross-border e-commerce products from China's revised e-commerce tax rules.
Page 92
Alibaba's Investment Could Turn Lazada Profitable

Lazada - Key Performance Indicators (Q114-Q315)
Source: Rocket Internet
On top of leveraging Lazada's investments in local delivery and supply chains, BMI expects the deal to
facilitate greater synergy between Alibaba and Singapore's national postal company Singapore Post
(SingPost) - a regional player offering logistics and delivery services in 15 countries. Alibaba's 14.5% stake
in SingPost will be key to overcoming logistical hurdles and providing end-delivery support across Lazada's
entire footprint, covering Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam. This
relationship will be a major asset to Lazada, which should help propel the company to profitability.
Unlike in its domestic market, where Alibaba is the clear dominant player in e-commerce, SEA's markets
are highly fragmented and this has prevented a clear regional outperformer from being established. We
believe Alibaba will aim to take advantage of market fragmentation to accrue substantial market share,
either through mergers and acquisitions (M&As) of smaller local players or launching a regional version of
its Taobao and Tmall marketplaces. Although research done by SingPost unit SP eCommerce shows that
online retail represents approximately 1% of total retail sales in SEA, there is clear scope for growth, shown
by rising 3G/4G penetration and favourable demographics.
Page 93
SEA m-Commerce Prospects Attractive For Marketplace Vendors

SingPost - Mono-brand Stores' Presence In SEA Footprint (LHC), e-Commerce Revenues (SGDmn)
(RHC)
*note: excludes TradeGlobal. Source: SingPost, SP eCommerce Research
Similarly, the mobile financial services (MFS) space in SEA is equally fragmented, with local operators and
banks providing their own MFS services. Despite this, we are bullish on MFS adoption in SEA in view of
low financial inclusion in Indonesia and Philippines - SEA's two largest markets. In this respect, Alibaba
could also see SEA as the next expansion destination for its affiliated online payments company Alipay,
which would also be positive to deriving revenue growth and profitability in the longer term (see 'Alipay
Will Maintain Dominance In China's Mobile Payments Space', January 28).
Page 94
Table: SEA - Key e-Commerce Indicators (2015)
Geography
3G & 4G phone
subscribers/100
inhabitants
Population,
0-18 yrs, %
total
Total
household
spending, %
GDP
Real GDP per

capita, USD
2010 prices &
exchange rate
Real GDP per

capita, USD
2010 prices &
exchange rate,
% y-o-y
Population,
mn
Indonesia
18.1
34.9
57.24
3,602.7
3.5
257.6
Malaysia
74.6
31.8
57.31
10,507.3
3.5
30.3
Philippines
43.5
40.0
72.61
2,164.2
4.2
100.7
Singapore
142.6
20.6
39.13
51,237.7
0.2
5.6
Thailand
120.1
22.9
55.95
4,545.2
2.5
68.0
Vietnam
38.3
28.9
52.77
1,940.4
5.5
93.4
Source: BMI, national sources
Page 95
Global - Amazon Prime Users Want Prime Quality, Not Private Label
BMI View: Amazon's bold move into private label foodstuffs will send shockwaves through the grocery
retail industry. We are more cautious on its growth potential, however, as it will only be available for its
Prime subscription users. While this approach has obvious lower delivery cost benefits, we expect slow
growth as demand for low-cost private brands won't be particularly strong among higher-income Prime
customers.
Global e-commerce giant Amazon is set to launch its own brand of private label, perishable foodstuffs by
June 2016, according to a report from The Wall Street Journal. The move represents a major development
for the food retail industry as the company looks set to muscle in further on traditional retail players' space.
It already offered foodstuffs through its Pantry and Fresh projects, but the decision to add private labels
signals its desire to take market share from Walmart, Costco, Tesco and others. Amazon has not confirmed
or denied the report from the WSJ, so details may be subject to change in the coming weeks and months.
The new private label brands will include:
Happy Belly - nuts, spices, tea, coffee and oil
Wickedly Prime - snacks and treats
Mama Bear - baby products such as diapers, baby foods, laundry detergents
The company also has experience in the private label business with its Amazon Basics products, which
includes electrical goods, office supplies, furniture and clothing accessories, amongst other
items. Leveraging its hordes of customer data regarding spending habits, product pricing and reviews,
Amazon has been able to launch its own line of goods to undercut the prices of successful products on its
site and predict what items consumers will demand next. The massive size of the company provides the
opportunity for individual products to fail, allowing it to move on quickly from the failed item if reviews
fall too low, and instead introduce newer, more successful goods. The same will likely be true of its private
label foodstuffs, for example pivoting between different ingredients in snack bars, to ensure a product fits
customer tastes without spending big on branding and marketing.
Page 96
Amazon Starting To Address Profitability Concerns

Retail Website Revenues (USDmn), LHS Vs. Profit Margins (%), RHS
Source: Amazon, BMI
This will result in higher margins for food sold online by Amazon, as all profits will go straight to its own
bottom line. While Amazon has traditionally ignored investor calls to increase profitability, the company
has shown more willingness over the past two quarters, and the launch of private labels will feed in to these
margins, albeit marginally.
The first months of 2016 have been a shock to retailers around the world, with traditionally strong players
such as Macy's, Gap and Walmart all reporting Q1 figures that disappointed investors. These companies
are increasingly losing out to e-commerce alternatives and are struggling to generate foot traffic with
changing consumer spending patterns. Amazon is partly responsible for this and is generally seen as the
'homepage' for online shopping - the first website people go to when looking to buy products. Food retail
has previously been insulated from the expansion of e-commerce, but we're now seeing grocery stores
position themselves in this field, as well as the birth of food delivery startups such as Blue Apron and
Hello Fresh, as well as grocery-delivery company Instacart partnering with Whole Foods. Amazon
expanding its presence in food retail has therefore been anticipated for a while, but the private label strategy
marks a more aggressive approach.
Page 97
Online Companies Leaving Traditional Retailers Behind

Selected Retailers Share Prices Rebased To May 17 2011
The WSJ report claims that Amazon will only offer its private label to members of its Prime subscription
service, also providing its customers with free delivery. Even with an estimated 50mn Prime users, in our
view this represents quite a large risk to take as it excludes an overwhelming majority of its users. Private
label goods are typically lower cost and, as Amazon has demonstrated with its Basics range, designed to
undercut the competition while improving profitability. The type of customers who pay USD99 per year for
Prime are not necessarily the type of consumers to buy private label goods, as this kind of disposable
income implies a desire for trusted brand names and assured quality, especially with regards to baby
products.
This might imply that Amazon will pursue a more premium approach with its private label goods, but
it may also take time for the products to 'catch on' and build a reputation for quality. Launching private label
foodstuffs isn't a reason for more customers to take up the Prime service; snacks, laundry detergent and
baby food aren't unique offerings and consumers are increasingly turning to niche, craft brands when it
comes to paying extra for quality. We don't believe consumers will pay extra for Amazon-branded
chocolate, for example, when there are hundreds of other options out there.
Page 98
The goods that the private label business offers seem to be more of the basic variety and, as such, we
believe there is scope to offer them on a subscription service. Sending essentials such as washing up liquid,
oil and pasta every month to consumers automatically would be an alternative strategy to building loyalty
and a more consistent revenue stream. We therefore expect that Amazon's private label foodstuffs business
will be slow to grow as long as it is exclusively available for Prime customers.
Page 99
Africa - Facebook In Africa: Balancing Connectivity And Net Neutrality Needs

BMI View: Facebook's agreement with Eutelsat to bring Sub-Saharan African consumers free internet
access has huge potential to accelerate growth in internet penetration across the region. However
regulators must consider the long term net neutrality and competitive implications of the initiative when
setting Facebook's licence conditions.
Through the Free Basics (the new name for Internet.org) programme, Facebook and its partners have
agreed to buy the entire capacity on Eutelsat's new AMOS-6 satellite. The companies expect the
connectivity to be commercially available by mid-2016. The initiative is initially targeting countries with
the strongest consumer bases, including South Africa, East Africa and West African countries stretching
along the coast from Angola through Nigeria, Ghana, Cote d'Ivoire and Senegal.
On the positive side, increased investment from deep pocketed internet giants like Facebook and
Google (see 'Expansion Highlights Success Of Google Project Link', October 2 2015) is good because
telecoms operators will struggle to bring reliable internet connectivity to all rural areas, even with the
emergence of tower sharing. Based on GSMA data, rural towers specialist Africa Mobile Networks
estimates that by the end of 2015, around 78% of Sub-Saharan Africa's population will be reached with
mobile networks, while a further 13% can be reached economically. This leaves a remaining 9% of the
region's population that cannot be reached economically with traditional mobile networks. Moreover, this
relates to basic 2G coverage rather than 3G, which is necessary for broadband, thus highlighting a large gap
in the market for new solutions such as the one Facebook and its Internet.org partners are implementing.
Several mobile operators in the region, notably Airtel, Tigo and South Africa's Cell C, have already
partnered with Facebook's Internet.org project to bring zero-rated internet access to their customers.
However this initiative will bring Facebook into more direct competition with mobile operators and internet
service providers (ISPs).
The key contention with zero-rated internet access is that it makes consumers believe broadband is cheap to
provide. In reality, building networks, whether mobile or satellite, is very capital intensive and must be paid
for somehow. Few consumers newly accessing the internet through Facebook's free service will understand
that Facebook and its partners will provide the service in exchange for the ability to determine which sites
users can access and to collect user data.
Page 100
Due to the concerns over net neutrality and because Facebook will be entering into direct competition with
existing telecoms operators, BMI believes its services should be closely regulated by national authorities.
While some of the region's regulators are more experienced and likely to implement regulations, due to the
level of maturity of their telecoms sectors and economies, BMI believes less developed markets under
Facebook's catchment area, such as Liberia, Sierra Leone, Guinea and Burundi, will be more eager to
embrace its initiative with limited enforcement of net neutrality, setting a precedent that will be difficult to
reverse at a later date.
Wider Network Connectivity Needed, But At What Price?

Sub-Saharan Africa 3G/4G And Broadband Growth, 2012-2019
300,000
30
200,000
20
100,000
10
0
2012
2013
2014e
2015f
2016f
2017f
2018f
2019f
Sub-Saharan Africa 3G subscribers, '000 (LHS)

Sub-Saharan Africa Broadband subscribers, '000 (LHS)
Sub-Saharan Africa 3G penetration, % of population (RHS)
Sub-Saharan Africa Broadband subscribers, % of population (RHS)
e/f = BMI estimate/forecast. Source: BMI, operators, regulators
For the time being, despite the 'walled garden' access and collection of user data, bringing internet access to
potentially millions of people will have a big positive impact on economic development. However,
Facebook's interests stretch far beyond provision of internet, as the company is also investing in building up
its expertise in developing e-commerce, mobile payments and, most recently, provision of rural mobile
networks by hiring the founders of 'Cellular Network In-a-Box' company Endaga (see 'Facebook ECommerce Moves: Impact For Emerging Markets', February 12 2015). Once users are locked into
Facebook's free internet service, it will be able to restrict access to information, entertainment, e-commerce
Page 101
and mobile financial services that are not provided by its partners. This is the long term outcome BMI
believes regulators must prevent by protecting net neutrality rules from the outset.
Page 102
Methodology
Defining e-Commerce
e-commerce is a generic term that is broadly defined as being the wide range of internet-enabled business
processes that facilitate monetary transactions between multiple individuals or organisations relating to the
exchange of physical or digital products and services.
The e-commerce ecosystem is equally broad, encompassing not just buyers and sellers but also
intermediaries including - but not limited to - payment clearing houses, advertisers, marketing agencies,
transportation and logistics providers, digital security software providers and industry associations.
Consequently, each player in the e-commerce value chain has a very unique view or definition of what ecommerce is, what should be excluded, what should be included and how each element of the ecosystem
should be defined and in what context.
Unsurprisingly, therefore, efforts to determine the size and value of the e-commerce market yield very
different assessments, according to the views of those commissioning such research. Equally unsurprisingly,
the 'value' of the e-commerce market varies considerably from one study to another. Based on BMI's
definitions of e-commerce, we estimate the global market was worth USD1.331trn at the end of 2015.
Types Of e-Commerce
In sizing the global e-commerce market, we have opted to take a very broad view of what should be
included in assessing its worth. We focus on the retail aspect of e-commerce, wherein products or services
are transferred from a seller to a buyer for a (usually) direct monetary transaction. We omit wholesale ecommerce, where players in the ecosystem sell services to one another to facilitate retail transactions. We
also omit digital services, for example remote management of smart home networks such as heating systems
and electricity metering. Sales of digital content (such as apps, music and video) are also omitted.
Furthermore, we measure the market in terms of transactions carried out within four different modalities:
Business-to-Business (B2B);
Business-to-Consumer (B2C);
Consumer-to-Consumer (C2C); and,
Online-to-Offline (O2O).
Page 103
The market can also be examined in terms of the market being addressed (eg: e-health, e-gaming, connected
cars, smart homes, etc) or in terms of the type of platform over which transactions are made (eg: mcommerce for transactions made using mobile phones/tablets or t-commerce for transactions undertaken via
dedicated terminals). As these approaches can be employed in a wide range of potential combinations
within the four principal modalities, we have chosen not to size the market according to these criteria. In
any case, data on such transactions are almost impossible to come by, let alone verify.
Business-to-Business (B2B)
B2B transactions are the most common within the e-commerce ecosystem and, as the label implies, are
concerned with transactions between or within businesses. Most transactions are centred around so-called
'e-frastructures', where the cost of using digital or physical resources to carry out a business process must be
paid for. Typically, this applies to transportation and logistics (shipping of physical goods), web-hosting,
data storage and customer care/security. A good example of an e-frastructure transaction is the revenue
earned by Amazon Web Services (AWS) for its logistics partner's use of its datacentres, cloud solutions
and customer support services in ensuring that a product bought online is shipped from a warehouse to the
customer.
Business-to-Consumer (B2C)
The B2C market is not as large as B2B, given the large values of transactions involved in the latter, but it is
certainly the most visible part of the overall e-commerce market and generates the largest number of unique
billable transactions. B2C involves retailers selling physical or digital goods directly to end-consumers, with
minimal involvement of third parties. The most obvious examples are specialised e-tailers such as Amazon
and Alibaba, as well as traditional 'bricks-and-mortar' retailers that have developed online shopping
platforms to complement their physical shopping businesses (eg: Walmart, Best Buy, Tesco, Argos,
Bonprix).
Consumer-to-Consumer (C2C)
C2C involves very similar business models to those employed in the B2C arena, however this scenario sees
private sellers selling to other private sellers. The C2C sector is largely characterised by the proliferation of
auction platforms, where buyers and sellers may be either individuals or companies. The most well-known
platform is eBay, which is one of the oldest and largest players on the market. It faces a wealth of
competitors, most of which offer a very broad selection of goods and services, but a number of specialised
Page 104
sites have emerged targeting specific types of consumers. Like B2B and B2C players, C2C platforms are
increasingly deriving considerable revenues from ancillary services such as digital advertising and paid-for
promotions. As such players are, furthermore, generally privately-owned, scant revenue/sales data are
available for analysis; what data are available are often not broken down in any usable form. Calculating the
size of the C2C market is, therefore, very challenging.
Online-to-Offline (O2O)
O2O is a relatively new term to consider when sizing the e-commerce market, although the main players
and their business models have existed for many years. In essence, O2O involves the transfer of credit or a
promissory note - usually in the form of a voucher - that can be redeemed physically (either in the form of a
print-out or barcode/QR code that can be scanned from a smartphone/tablet) at a retailer's point of payment.
Well-known players in this space include dedicated voucher aggregators such as Groupon or
Vouchercloud, but traditional and online retailers have themselves been making strides into this market
(eg, in the UK, Tesco customers can exchange loyalty points for vouchers granting discounts to attractions
or experiences operated by Tesco partner companies). Again, with players unwilling or unable to supply
data on the number and value of vouchers redeemed, sizing this aspect of the market is very challenging.
Sizing The Market

As noted above, due to a lack of consensus regarding the definitions of e-commerce and its modalities,
official data relating to 'online sales' are lacking. National statistics offices struggle to determine what
proportion of an online sale conducted by an international provider should be recorded as 'local' or
'offshore', while the large number of parties that may be involved in a single transaction - and therefore earn
a percentage of the value of that transaction - means that it is difficult to calculate the sum value of a sale
within a particular set of borders. Added to which, most online sales providers are reluctant to disclose sales
revenues on a country-by-country basis, owing to a natural desire to attribute such sales to the country with
the most favourable regulatory and tax regimes.
To size the market, we have drawn 'official' data from national statistics offices, national or regional trade
associations and regulators plus leading local e-commerce providers. Where we believe data represent only
B2C/B2B transactions, we have added our own estimates for C2C and O2O market values; sizing these
markets is led by our proprietary estimates and forecasts at a country-by-country basis. We have used our
Retail industry analysis team's forecasts for sales of clothing and footwear and food and drink products, our
Autos team's forecasts for car and motorbike sales, our Pharmaceuticals team's forecasts for sales of low-
Page 105
value, off-the-shelf drugs and medical devices, our Tourism team's forecasts for sales of tickets, etc, as
proxies for growth trends.
Most importantly, we have leveraged our proprietary forecasts for macroeconomic growth in key countries
worldwide, using this as a limit or weight to growth for key parts of the global e-commerce market. This is
further leavened by direct analyst intervention in forecast calculations to allow for changing regulatory
scenarios, particularly in markets where e-commerce currently is allowed to run unchecked or, by contrast,
is so tightly regulated as to discourage rapid expansion.
Table: e-Commerce: Products & Services Surveyed
Product Type
Definition
Clothes & Footwear
Clothing and accessories (hats, scarves, gloves, leather bags, suitcases, briefcases, etc),
footwear and shoe care products.
Consumer electronics &

related media
Physical media (books, DVDs, CDs, Blu-Ray Discs, computer consoles and games),
consumer electronics (TVs, DVD/Blu-Ray players, MP3 players and peripherals),
communications devices (desktop PCs, laptops, tablets, smartphones).
Food and drink
Fresh and packaged foods, delicacies and beverages. Includes fruit, vegetables, pasta,
meat, snacks, sweets, soft drinks and alcoholic drinks.
Cosmetics, personal care &

pharmaceuticals
Medicines, perfumes, make-up, medical devices (eg: dressings and blood pressure
monitors).
Furniture and home

appliances
Furniture, kitchens and kitchenware, bathroom appliances and accessories, textile

furnishings and office supplies/stationery.
Home Appliances
White goods and durables, including washing machines, dishwashers, fridge/freezers,

dryers. Also includes coffee machines, food processors, microwave ovens and vacuum
cleaners.
Other physical goods
Toys, young children's clothing, sports equipment and outdoor/garden products, plus
hobby, luxury and other articles (eg: stamps, jewellery, watches, car parts, etc).
Digital goods
Discount vouchers, codes and promissory notes.
Source: BMI
Page 106

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IMPORTANT NOTICE:

e-Commerce: Global Developments &

Published by: BMI Research

2016 Business Monitor International Ltd

e-Commerce: Global Developments & Outlook 2016

Regional Overview .............................................................................................................. 9

Western Europe E-Commerce .................................................................................................................... 14

Latin America E-Commerce ....................................................................................................................... 19

CEE E-Commerce ................................................................................................................................... 24

Sub-Saharan Africa E-Commerce ............................................................................................................... 29

Asia Pacific E-Commerce .......................................................................................................................... 33

North America E-Commerce ...................................................................................................................... 38

Industry Trend Analysis .................................................................................................... 42

UK - Online Grocery Retail Surging, But Profitability Proving Elusive .............................................................. 66

India - Snapdeal O2O Platform Will Boost Rural E-Commerce ........................................................................ 73

Company Profile ................................................................................................................ 83

Asia - Alibaba Targeting Dominance Of SEA e-Commerce Market .................................................................... 91

Business Monitor International Ltd

e-Commerce: Global Developments & Outlook 2016

Table: SEA - Key e-Commerce Indicators (2015) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

Methodology .................................................................................................................... 103

Business Monitor International Ltd

e-Commerce: Global Developments & Outlook 2016

Global e-Commerce a USD Trillion Opportunity

e/f = BMI estimate/forecast. Source: BMI, national sources

Business Monitor International Ltd

e-Commerce: Global Developments & Outlook 2016

Key Trends & Drivers:

Table: Global e-Commerce Sales By Region (USDmn), 2014-2020

e/f = BMI estimate/forecast. Source: BMI, national sources

Business Monitor International Ltd

e-Commerce: Global Developments & Outlook 2016

Business Monitor International Ltd

e-Commerce: Global Developments & Outlook 2016

UAE To Lead E-Commerce Market

Total Middle East (LHS)

Saudi Arabia (RHS)

e/f = BMI estimate/forecast. Source: BMI, national sources

Business Monitor International Ltd

e-Commerce: Global Developments & Outlook 2016

Table: Middle East: E-Commerce Sales By Country (USDmn)

United Arab Emirates

Rest of Middle East

e/f = BMI estimate/forecast. Source: BMI, national sources

Business Monitor International Ltd

e-Commerce: Global Developments & Outlook 2016

Business Monitor International Ltd

e-Commerce: Global Developments & Outlook 2016

Table: Middle East: Leading E-Commerce Players By Country

Principal E-Commerce Players

JadoPado, Alshop, Souq.com, Namshi

Amazon, eBay, AliExpress, Buy2, Hameir

Xcite.com (Alghanim Industries), Ubuy.com, Souq.com

Lulu, AliExpress, Souq.com

Amazon, Lulu, Souq.com, IKEA

AliExpress, Amazon, eBay, Souq.com

Souq.com, Nahel.com, Sukar, JadoPado

Source: BMI, national sources, Alexa.com

Business Monitor International Ltd

e-Commerce: Global Developments & Outlook 2016

Western Europe E-Commerce

Business Monitor International Ltd

e-Commerce: Global Developments & Outlook 2016