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Report: Blue Skies Forecast for European Online Retail

Online retail sales in Europe will soar from 2.9 billion euros in 1999 to 175 billion euros in 2005, according to a new industry report.

This growth, combined with the onset of the euro in 2002, will dramatically reshape Europe's retail landscape, says the report from Forrester Research's European Research Center in the Netherlands.

The report also predicts that the Internet's arrival as a viable sales channel will accelerate the evolution of pan-European retailers that aggressively sell across borders both online and off.

"Over the next five years, both Internet pure plays and traditional retailers must develop cross-border strategies that culminate in pan-European sales, or their businesses will be eroded by competitors who do," said Matthew M. Nordan, senior analyst at Forrester.

"The resulting industry consolidation will shrink the number of pure plays to a few pan-European leaders, while traditional retailers, leveraging their considerable strengths, will claim more than 75 percent of online sales in Europe by 2003."

Successful firms will operate with a portfolio of storefronts designed for each target market, shared sourcing and infrastructure to support the network of stores, and local marketing and business development teams to take advantage of local opportunities, the report says. Meanwhile, service providers will emerge to solve the cross-border logistics, payments, and customer service needs of these pan-European retailers.

"Traditional retailers have a huge advantage in a pan- European world," said Nordan. "With existing logistics infrastructure, supplier relationships and merchandising know-how, they have the potential to dominate a pan- European retail future. But they must act now or risk the onslaught of fast-moving Internet pure plays."

By 2005, e-commerce will account for 7 percent of Europe's retail sales, narrowing the gap with the United States, the report predicts. In Northern Europe, Sweden, Germany, and the UK will close the gap entirely, leading the U/S. in some categories, like travel in Germany and groceries in the UK. While Sweden will lead Europe with 9.3 percent of its retail sales occurring online, Germany's huge economy will account for 26 percent of Europe's overall online sales. Although Southern Europe will continue to lag behind the rest of Europe, France will claim 14 percent of Europe's online sales.