The UK has long dominated Western Europe’s ecommerce landscape, accounting for well over half of annual sales in the EU-5. This year, the UK is expected to see $102 billion in B2C ecommerce sales.

But France, Germany, Italy and Spain are increasingly vital markets in their own right. eMarketer estimates that in 2013, combined online sales in these countries will reach $121.5 billion and overtake the UK total for the first time.

“Europe’s ecommerce market is a resounding success by any standard,” said Karin von Abrams, eMarketer senior analyst and author of the new report, “Western Europe B2C Ecommerce.” “The number of online buyers in Europe’s four main continental markets is rising steadily as consumer confidence increases and online sellers provide an ever-wider range of goods and services.”

The complete report is available to eMarketer Total Access clients. Learn more here.

Frank Badillo, vice president and senior retail economist at Kantar Retail specializes in analysis and forecasting of economic, retail and consumer trends. He contributes to Kantar’s retail intelligence platform and regularly writes about the economic outlook for the monthly Retail Economist newsletter. He also directs the retail channel and product category forecasts for the annual US Retail Outlook. I chatted with Badillo about the upcoming holiday season and the state of the retail sector.

eMarketer: What is your outlook for the upcoming online holiday shopping season?

Badillo:

What we see that non-store sales and online shopping in particular have been very strong for the last six months. It’s been the strongest channel among of all of retailing. The channel is benefiting, to some extent, from a very weak year-ago comparison period, but it’s pretty clear that there’s strong demand for goods online. Right now through September is going to be key. There’s the back-to-school spurt, but we don’t really know what it portends for the holiday exactly.

A lot of demand we see tends to be skewed toward electronics. There are a lot of hot gadgets out there between the iPad, e-book readers and smartphones. All those things are driving very strong demand. Particularly with the e book readers, there’s a lot of demand among early adopters. The big question is to what extent a lot of that growth can be sustained in the longer term.

I suspect that we’re going to see very healthy growth into the holiday. It just may moderate somewhat from the very strong growth we’ve seen in recent months.

eMarketer: So consumer electronics in particular will have a strong holiday season.

Badillo:

Exactly, and particularly online.

eMarketer: Do you think online shopping behavior will be different this year?

Badillo:

In our monthly Shopperscape surveys, we ask a question about consumers’ spending intentions. The response has been steadily improving over the past year. There was a bit of a blip in our June number, but generally there’s been improvement in spending intentions over time. We expect that to continue and result in much better spending into the holiday than we saw last year.

But at the same time, there is some renewed uncertainty among shoppers that could curb some of the spending improvement in the coming months. I suspect that by the holiday time frame, some of that uncertainty should be cleared up and we’ll see the recovery continue, albeit at a bit more modest pace than we saw in the initial months of the year.

eMarketer: What key challenges will retailers face this holiday season?

Badillo:

Retailers cut prices pretty dramatically last year to draw shoppers and, in the end, it probably did more to weaken their top line sales as well as their profits. They will want to try to avoid the kind of ruinous price competition that they engaged in last year and try to be more strategic about it for this holiday.

Retailers are struggling with the extent to which they need to boost their inventories amid signs of rebounding demand. We’ve gone through a phase where retailers dramatically cut back their inventories. So now they’re slowly increasing those inventories again. The question is, to what extent they should continue to do that? There’s just a lot of uncertainty about whether they should do that.

I suspect we’ll see inventories expand a bit too much, which is going to put some downward pressure on prices for the second half of the year. We’ve already seen some signs of that in the apparel sector. There’s some growing price pressure in the sector after a good year or so of very slight price increases.

The inventory question is huge for a lot of retailers heading into the holidays, as well as the related pricing question. If there’s inventory overhang through the holiday, that’s going to put downward pressure on prices.

But there’s also the question as to when retailers should roll out promotions. Given how much price competition there was last year, I think retailers are going to look all the more closely about what they price-promote and the timing of those price promotions.

eMarketer: What are your projections for overall retail growth?

Badillo:

For total retail sales, excluding autos and gasoline, we’re looking for overall growth in the second half of the year of about 3.5%. The government numbers out today [July 14] show that we’ve had growth averaging about 3.9% for the last two months.

In terms of the government numbers, non-store sales are growing at a double-digit pace. Online probably represents the lion’s share of non-store sales. It’s also going to include catalog sales but I suspect that it’s the online shopping that’s driving the double-digit growth. We’ll continue to see double-digit growth in online sales through the holiday which can only mean that the average market basket size for any given shopper will grow significantly compared to a year ago.

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Online search is a fairly standard tool for finding anything from directions to a restaurant to conducting price and feature comparisons on a new refrigerator. So it’s no real surprise that Canadian moms head online to conduct research about potential purchases large and small. And in particular, they go online to learn more about consumer packaged goods (CPG) brands—ingredients, recipes and other stuff—prior to buying.

Research conducted by Google Canada and OTX in March and published in June indicates that 81% of Canadian moms are searching for information before they head to the store. Search is their No. 1 online source, followed by email, maps, retailer websites and social networking sites.

The study “Canadian Moms Click for CPG” surveyed 4,896 women ages 18 to 75 in Canada including 3,806 moms to find that 76% indicated that search engines helped them learn more about consumer packaged goods (CPG). Those items include food items (grocery and fast-food), baby and childcare products, household and personal care brands, appliances and more.

The data for Canadian moms vs. US moms reveals similar patterns, according to Chantal Rossi, industry manager for retail, Google Canada. For example, in the US, 50% of moms expect popular CPG brands to be at the top of the search results page vs. 51% in Canada and new moms tend to be online more frequently. Other similarities include moms preference for hopping online early in the morning and late at night: “Moms are digital snackers, they come online whenever they get a few minutes,” Ross says.

The bottom line? Rossi says the overwhelming majority of Canadian moms are researching online to influence an in-store purchase. “Consumers recognize that CPG brands and retail websites have information online and before they go into the store, they can gather important information.” The research, she says, verifies that moms’ purchase decisions are influenced by information they obtain online before they get into the store. “The shelf might be the first moment of truth, but online is the zero moment of truth,” Ross adds.

Japanese businesses have been trailblazers when it comes to the use of internet and mobile technology. Two leaders in particular are eying overseas expansion in the face of domestic economic stagnation. Softbank and Rakuten, two very different yet equally ambitious Japanese firms, have been arranging foreign e-commerce partnerships at an astounding pace. And it could mean serious competition for Amazon.

Softbank, which combines solid financials based on its mobile, broadband and fixed-telecom businesses, has been increasingly investing in their internet service offerings. According to their latest company reports, mobile services remained the core business, with net sales of ¥1,701.4 billion ($18.2 billion) and 1,243,700 subscriber additions in FY2009 (April 2009-March 2010).

Like AT&T in the US, Softbank Mobile is the sole provider of the iPhone and iPad in Japan, providing a huge boost to average revenue per user. Internet services, including advertising, services and e-commerce, accounted for over ¥520 billion ($5.6 billion) in net sales during FY2009, an increase of ¥7.8 billion ($83.5 million) over FY2008.

Rakuten, on the other hand, operates on a significantly smaller scale but is showing tremendous growth. According to their FY2009 results, net sales amounted to ¥298.2 billion ($3.2 billion), a 19.4% increase over the previous year. In Q1 2010, Rakuten is off to a strong start with net sales of ¥79.2 billion ($848.0 million), up 19.3% verse Q1 2009. Sales are focused within Internet services (e-commerce, travel, portals and online media) and online financial services (credit card, banking and securities).

Both of these companies, along with Amazon Japan, are vying for dominance in the same space: Japan’s Internet, mobile and e-commerce markets. eMarketer estimated Japan had 93.4 million Internet users in 2010, ranked third in the world, and the International Telecommunications Union estimated Japan had nearly 115 million mobile subscribers in 2009. According to the Ministry of Economy, Trade and Industry, e-commerce (including travel) in Japan reached totals of ¥2.93 trillion ($31 billion) in 2008, an increase of 14.8% year-over-year, as reported in Rakuten’s Q1 report.

Marsh Research found that 96.3% of Internet users in Japan purchased goods online in March 2010, suggesting a mature and sophisticated consumer market. The same study showed that 68.9% of online buyers in Japan purchased items at Rakuten, followed by Amazon at 38.1% and Yahoo! Shopping (a subsidiary of Softbank) at 34.3%.

The combination of domestic saturation and high rates of mobile and online spending has led these two companies to amass serious amounts of cash. With that cash in hand they are ready to capitalize on opportunities in foreign markets, despite a weakening yen.

Rakuten was the first to make a move in 2010, as TechCrunch reported a joint venture with Baidu to build an online B2B2C shopping mall in China based on Rakuten’s Japanese site. According to Rakuten’s quarterly statement, the site is scheduled to go live sometime in the second half of 2010.

Softbank has been silently investing in Internet companies in China for years, but in May 2010 Marbridge Consulting reported a new partnership between Yahoo Japan and Chinese e-commerce firm Taobao that will allow cross-border linking of sales and inventory data. Taobao is the largest e-commerce site in China and part of the Alibaba Group, which Softbank has been an investor in since 2000.

The two firms are salivating at the potential access to a huge and growing market of online buyers in China, estimated at 108 million in December 2009 by the China Internet Network Information Center (CNNIC).

Not satisfied to dominate Japan and enter the rest of Asia, Rakuten is also looking further afield. Setting their sights across the Pacific, the company purchased Buy.com for $250 million to bolster their US and European reach. Moving fast in the month of May, Rakuten also announced a partnership with Indonesia’s largest media firm, PT Global Mediacom Tbk. This partnership will bring Rakuten’s online marketplace to approximately 20 million Internet users in the country, according to the ITU.

Two weeks ago, Rakuten made another move in Europe, acquiring the French e-commerce website PriceMinister for €200 million ($280 million). In an interview with LeJournalduNet, Hiroshi Mikitani, CEO and founder of Rakuten, said that they intend to use PriceMinister as their European platform and want to expand the site into Germany and Spain as well. He also stated that there are no immediate acquisitions on Rakuten’s radar at the moment, but that could change very quickly.

Last year, TechCrunch speculated that Rakuten could be Amazon’s biggest competition that no one had heard about. While that article may have jumped the gun, it proved prophetic. Recent partnerships and acquisitions suggest that Rakuten has emerged as a real threat to Amazon and other dominant e-commerce players in the US, Europe and Asia-Pacific.

Softbank is a unique company that has successfully integrated a steady and profitable telecommunications industry with online services, a feat that has been elusive for US companies (see AOL). For now, they appear content with a more concrete expansion into the largest consumer population in the world, China. It will be interesting to see how the Yahoo! Japan-Taobao link plays out in the eyes of the government, if it will cross or coalesce the growing nationalistic protectionist sentiment among China’s ‘netizens’ and government.

Either way, competition for worldwide e-commerce supremacy just got much more fierce.

Note: all currency conversions made at annual 2009 average. Rakuten logo via Wikipedia.

Sephora, known as a consumer-friendly haven for sampling cosmetic brands, fragrances and beauty tools, recently tapped its shopper base for product ratings and reviews via a mobile site that the company launched at the end of 2009.

As the beauty retailer evolves its mobile strategy, Julie Bornstein, senior vice president of Sephora Direct, hints that there will be additional elements that will extend beyond ratings and reviews to enable consumers to tap their smartphones for in-store shopping opportunities. Here’s a snippet from the full interview with Ms. Bornstein on eMarketer Total Access: (Read more…)