The Digital Dream
a candid look at opportunity in Central Europe
When I first came out to Poland, not too long ago, you had to say which airport you were flying to and get a visa to enter the country. Get either of those two wrong and you would be politely sent back to your country of origin. When I said I was going to live and work in CEE, two thirds of my friends thought I was mad and the others thought it might be quite a good idea. Today I can tell you they were all wrong and what is more they totally underestimated that opportunity. So did most of UK business, but the good news is, the region’s still got a really great shelf life and there’s lots of potential for growth - what makes me say that?
At around 60% of Europe’s size of wallet, an established near shore manufacturing centre and a global BPO (business process outsourcing) hub, Poland and the broader region sit right at the centre of continental EU global trade. Add in latent skills in digital, mobile and very data analytical IT, and we are about to see a trade and investment revolution of omnichannel proportion.
That means you can get your product manufactured efficiently out here, sell it and ship it from your mobile to markets in Europe, reaping the incremental margin of doing so, at the same time as using the same cost efficient manufacturing as a route to market out here. Interested? Please read on:
In 2014 the UK exported £15bln of goods and services to Central Europe. In the last 10 years bilateral trade with Poland alone has grown 5 times to £15bln and you know what, that’s just scratching the surface. Conservative numbers suggest a £25-30bln export opportunity across the region by 2020 if the UK can match only half the export performance of its main competitors, Germany, France and Italy. If we really go for it there is a potential of £50-60bln by 2025. Economic growth rates for the EU V4 will be significantly higher than those in developed Europe, supported by a combination of gradual economic convergence with richer EU states as well as major EU funding – an estimated Euro 300bln in the current EU financial framework – imagine what that number is once it has been leveraged. You may say these numbers are outlandish, but they were projected without taking into consideration the impact of going digital.
WE’RE GOING SHOPPING
20 years’ ago the region didn’t have too many shops. Since then there’s been a big boom. Between 1990 and 2005 the average expenditure per adult has increased by over 50% and in Bulgaria and Romania it has more than doubled. The share of food expenditure against total household expenditure across the region is higher than the European Union’s average of 14% and varies from nearly 15% in the Czech Republic to almost 30% in Romania. In the earlier part of this decade, retail grew by some 20% across the region. Romania, Poland, Bulgaria and the Czech Republic have achieved levels of growth between 20 and 50%. Unlike the UK, all the big retailers were quick to come in and we are looking at upwards of 15mln m2 in space and over 1500 shopping centres. Saturation is rapidly approaching EU averages, if not exceeding in some markets.
We actually quite like shopping – an average Pole visits a shopping centre two to three times a week. According to Millward Brown SMG/KRC, every third person stays in a shopping centre for about three hours and every eighth person spends longer. Roughly 10% of Poles spend about £80-100 each time they visit a shopping mall, mainly on clothes, jewellery and electronics. About 22% confess they do spontaneous shopping.
Looking at Luxury Prague and Budapest dominate the scene with Warsaw a market waiting to happen. The top end market is expanding. According to KPMG, the value of the Polish luxury goods market is estimated at £6-8 billion with double digit growth. Luxury and fashion are the markets to watch where success will be predicated by a commitment to service and a focus on digital. There will be over 100 000 dollar millionaires by 2020 and they’re all pretty mobile.
The digital dream is going to be big. Why do I say that? Central Europe leapfrogged over the landline – so the mobile dominates. We didn’t have cheque books so the gates were open for new ideas on payments. You couldn’t travel, so online suddenly becomes a great idea. The very ethos of peoples’ thinking is digital whether they realize it or not. Central Europe is setting the pace for many innovations in the way we go shopping and the way we do business. We just need to pull it all together.
Across the region, growth in electronic payments is going through the roof. We are talking late teens’ growth percentages. Poland is a clear world leader in contactless payments and is set to lead Europe in ePOS. Keep in mind there was no retail, banking or telephone past; this makes it easier to have great ideas and implement them quickly. There are two very distinct opportunities which hold the key to an international omnichannel revolution. The first is CEE as a market in itself, the second is CEE as an outsourcing, hosting destination for omnichannel. The question is which comes first?
E commerce markets in CEE have huge potential for growth. In 2014 online retail sales were a mere 3% in Poland and Romania, 4.5% in the Czech Republic, compared to 9% in Germany and 17% in UK. The scale of the opportunity is enormous – a market worth £15bln in 2012 predicted to grow to £35bln in 2017 and onwards £50bln in 2020. How robust are such projections? Maybe a good pointer is the fact that e commerce is now taking a 10% stake in logistics space, from a standing start a few years ago with Amazon taking 300 000 M2 of space in Poland in 2014 alone.
Poland is a leader in CEE and e-Commerce in Poland is one of the most dynamic market sectors, developing at a double-digit rate. Poles’ propensity to go e-shopping has put the country ahead of the region in terms of the penetration of online. The Polish e-commerce market is the largest in CEE not only because of the number of internet shoppers but also because of the highest share of internet users interested in shopping online (80%), ahead of the other CEE countries.
We’re going to continue see double digit e commerce growth for the foreseeable future. Internet retailers will invest into projects increasing their revenues through further optimisation of online sales and delivery processes, as well as in a gradual broadening of the range of products available. It’s also worth to note that since 2013, Poland is one of the 25 countries worldwide where Google offers its price engine, Google Shopping. Google’s interest in investing in Polish e-commerce illustrates well that the Polish market is perceived to be an interesting and promising one for international companies.
The really big opportunity going forward is in mobile markets, a total disruption of conventional international trading models driven by mobile devices. There are a number of pre-determinants of success, the ingredients of which are well within our international reach. I touched on this briefly in my introduction. Whether business likes it or not, the mobile device is fully empowering today’s customer and mobile is firmly taking root as the driver of corporate success.
We see this in the UK, where multichannel and mobile are leading the growth of successful consumer retailers. In the meantime Poland and other countries in the region, continue to burgeon as a global outsourcing destination. Link these two concepts together, add some spice to this experience with innovative fulfillment and you have the solution to a new wave of economic growth. Let’s put that in practical terms.
If a British retailer takes store locations in Poland’s top 5 business cities and hooks up to a digitally powered promotion machine with multichannel fulfillment, linked in an innovative way to a persona profiled mobile empowered customer group, we are creating a new horizon in international, local retailing. This brings a whole new meaning to retail – London, Warsaw, Berlin. Not necessarily in that order – international omnichannel – anywhere, anyplace, anytime.