How to Buy into the European Ecommerce Boom
If you hadn’t considered Europe as the hottest trend in ecommerce business, you’re not the only one. With a paltry 10% growth rate in consumer online shopping between 2015 and 2019, Europe didn’t seem to be at the forefront of an ecommerce boom.
Then Covid-19 hit.
Pandemic restrictions rapidly accelerated the growth of ecommerce sales, with market research company eMarketer reporting that online sales in Western Europe increased by 26.3% in 2020 alone.
All this growth has led to heavy interest in acquiring strong ecommerce brands.
We’ve seen the signs of increased buying pressure for ecommerce businesses right here on our marketplace for the past few years. In fact, ecommerce businesses represented 38% of all transactions on our marketplace in 2020, up 10% from 2019.
Looking at buying power and interest, in Q2 2020, we had $362M in verified buyer funds. In a little over a year, that has skyrocketed to $5.1B in verified liquidity. Many of these buyers are interested in the ecommerce industry, creating fierce competition for promising businesses.
Huge demand and an array of untapped technological potential available to scale growth make it a great time to invest in a European ecommerce business.
Before you take the leap, let’s take a look at how European ecommerce trends have evolved, what the current opportunities are, and how you can get in on the action.
What You Need to Know About Ecommerce Trends in Europe for a Successful Acquisition
Despite recent upward trends in ecommerce activity across Europe, the market remains underdeveloped as a whole in comparison to the US.
Certain countries, most notably Germany and the UK, have led the charge in creating robust online marketplaces with pan-European fulfillment channels. These countries tend to be the ones with more established marketplaces extending back nearly 20 years.
In many other countries, the ecommerce revolution has only just begun, leaving room for savvy business owners to build strong brands in a (relatively) uncrowded space. This makes buying a business that is already operating in Europe or expanding a US-based brand overseas an attractive investment prospect due to growth potential as the market matures.
Research is key to investing in European ecommerce. The multicultural, multinational continent has highly nuanced markets full of opportunities if you approach them from the right angles.
Understanding the EU Market and Its Opportunities
Ecommerce across Europe is currently a $600BN industry. In comparison to the 10% increase between 2015 and 2019, the current forecast places it at 10% growth per year going forward. Some of the biggest winners in the ecommerce boom have been sellers of appliances, electronics, sports equipment, video games, beauty products, home decor goods, and toys.
Brick-and-mortar stores are moving toward a more significant online presence. Click and Collect programs, which were quickly introduced during the pandemic, are becoming more refined and prominent.
Partnerships with logistics firms are also increasing, offering more consumer-based delivery solutions to accelerate ecommerce growth. The EU’s policy of allowing the free movement of goods across all 27 participating countries, combined with streamlined delivery services has provided both large and small retailers fantastic opportunities for additional sales and growth.
There has also been a noticeable shift in European small- to medium-sized businesses (SMBs) moving part of their operations to Amazon to take advantage of the FBA program. Amazon estimates that more than 80,000 European businesses took part in its FBA services in 2020, resulting in sales growth of 35% for those brands.
According to the Amazon SMB report for 2020, the top product categories for European sellers are:
- Health & Personal Care
It’s not just direct-to-consumer (DTC) businesses that are finding success, though. The business-to-business (B2B) sector has also seen significant growth through online sales. European SMBs registered with Amazon Business recorded over €1.5BN in total sales in 2020, with nearly €300M of that in export sales.
The rapid growth and projected upward trajectory of these ecommerce businesses have grabbed the attention of acquisition firms and private investors alike. Businesses in popular niches with healthy profit margins and streamlined processes are currently in high demand, especially among European aggregators.
The Rise of Acquisition Companies
Inspired by the rise of US-based aggregator unicorns, ecommerce acquisition firms in the European space have increased noticeably in the past few years.
Some of these European aggregators have even become unicorns in their own right, reaching valuations of over $1BN and entering the global top tier of acquisition companies.
With so many players on the field with serious financial backing, competition to acquire ecommerce and Amazon FBA assets in Europe is heating up.
Some of these industry titans focus more on business potential rather than niche. They have dedicated teams ready to invest time and resources into growing multiple brands across unrelated niches.
Other companies in the industry have a different approach. They want synergy in their brands, choosing to focus more on specific industries and niches to provide cohesion. Firms like these tend to acquire local brands with the intent of doing a reverse expansion into the US market in the future.
When brands are acquired, aggregators normally focus on several areas of growth. Taking advantage of economies of scale by using in-house teams, they:
- improve supply chain efficiency to reduce “out of stock” issues
- update content and invest in high-quality product photos
- expand PPC advertising and customer service
- invest in pan-European and US geographic expansion
- launch new products or variations of existing products
- explore omnichannel growth potential
This growth strategy is evident in some of the larger European acquisition companies, which have expanded to omnichannel operations in multiple countries across the globe.
Amazon vs. National EU Marketplaces
A key difference in the ecommerce situation between Europe and the United States is that Amazon is not always the primary driver of online sales in EU countries.
The company only has dedicated platforms in a handful of countries, leaving individual national platforms to fill the void.
A recent report showed that Amazon Germany and Amazon UK were respectively the second and third largest markets in the world for the company, but its market share in the rest of Western Europe is sometimes lower than that of individual national platforms.
Amazon gained significant ground in the French, Italian, and Spanish markets during the pandemic, but it still faces competition from local favorites CDiscount, Essalunga, and El Corte Ingles, respectively.
In other countries, the retail giant hasn’t fared as well.
Despite recently launching in Poland, Amazon falls far behind Polish ecommerce marketplace Allegro, which owns 50% of the market share.
In the Netherlands, Bol.com dominates the market, with Coolblue coming in a close second. During its first year of business in the Netherlands, Amazon actually placed a lackluster 8th in the Dutch market.
And even after launching in Sweden in October 2020, Amazon still falls far behind popular national marketplaces like Elgiganten and Apotea.
Whether national platforms will continue to dominate in these countries remains to be seen. With strong backing from the local populations, they’re likely to have significant footholds for the foreseeable future. But they’ll still face fierce competition from Amazon to maintain their #1 status.
Will Amazon Dominate the Future of Ecommerce in Europe?
Content to let the market grow organically for 20+ years, Amazon has made aggressive moves in recent years in its attempt to capture a larger piece of the European market share pie.
Along with rolling out its multi-channel fulfillment service across its European platforms, Amazon has also been forming strategic partnerships with nationally based retail and grocery giants such as Carrefour, Monoprix, Casino, and Co-op to offer services like Amazon Prime Now and AmazonFresh.
The retail giant is also making moves to align itself with the sustainability crowd. In 2020, it unveiled its Climate Pledge Friendly initiative, offering a range of certifications to small businesses across Europe. The program currently highlights 40,000+ products that practice efficient design, reduced carbon footprint for deliveries, and eco-friendly production, among others.
There are also rumors of a platform launch in Ireland. Amazon confirmed the projected 2022 opening of a fulfillment warehouse in Ireland, but the country still lacks a dedicated platform. Amazon has dominated the Irish online sales market via the UK platform for years, but Brexit has complicated order fulfillment. This is no small matter, considering Irish consumers spend the third-highest amount per person across Europe on ecommerce purchases.
Does this mean Amazon’s European takeover is inevitable? Not necessarily.
Big-name acquisition companies in the space have been snapping up promising European FBA businesses with an eye toward an omnichannel future. In fact, some industry titans view Amazon merely as a springboard for bigger things.
Certain firms have switched tack and started targeting Shopify stores, and some have even hinted at launching their own ecommerce platforms.
Others are taking advantage of strong national preference for local marketplaces by focusing on businesses selling on national platforms. Although these firms do acquire companies selling on Amazon, most of their efforts are focused on big names on country-specific platforms.
These types of moves highlight both the fragmentation in European ecommerce platforms and the potential for considerable growth by branching out to off-Amazon markets.
The monumental growth due to Covid-19 aside, there’s a lot attracting individuals and big firms to the European space.
With a wide range of national platforms, facilitated cross-border transit, EU-wide infrastructure updates bringing high-speed internet connectivity to more people, and increasing levels of disposable income, the future of ecommerce in Europe is looking bright.
How You Can Take Advantage of Europe’s Ecommerce Boom
From an investment perspective, there are a few ways you could take advantage of the boom.
You could buy ecommerce stocks in the businesses themselves, start your own business, or buy an already profitable business.
Looking at stock investments, you would more or less be limited to investing in the businesses themselves. Unless you have a trading account with access to the Frankfurt or Paris stock exchanges, your options would be reduced to US companies like Amazon that trade on the NYSE or NASDAQ exchanges.
Starting your own ecommerce business that serves the European market is another option.
It’s an attractive prospect, but whether it’s the right choice for you depends on your personal goals and available time. Creating a profitable business can be time consuming in the early stages, and there’s no guarantee there will be a market for your products.
Another drawback of creating your own business is, even if it’s successful in the US, that doesn’t necessarily mean your products will translate well to the European market.
The last option is to acquire an established, already-profitable company doing business in Europe that can be scaled. These businesses have already shown there is demand for their products, and the time investment on your part often depends on how much you want to grow the business.
Choosing an Ecommerce Brand to Acquire
What makes a good ecommerce business investment? That’s ultimately a personal decision based on your risk tolerance, personal finance goals, market knowledge, and available capital.
That said, there are some key factors that can help you narrow down potential acquisitions. Some of these are particularly valuable when looking for a European-based business, such as:
- Business Age
- Sales History
- Supply Chain
- Brand Strength
At least two years of solid earnings history in the European space indicates that a business is resilient and in a popular niche. It can also serve as a guide for further expansion across the continent.
But what if the business you’re looking at has only recently launched in Europe?
Instead of walking away, look at its history in other markets. For example, a business that has a solid history of US sales combined with several months of consistent sales in the EU can demonstrate that the products are a good fit for the existing markets.
Consistent sales are important when looking at a European business acquisition. Putting seasonal swings aside, businesses with inconsistent earnings could indicate problems with inventory management.
For example, many businesses were affected by Brexit. If sales were strong before the UK left the EU but have been inconsistent since, that’s a strong indicator that demand is high but there’s a problem with inventory management and fulfillment.
You’ll want to have a plan in place to stabilize sales. This could be as simple as contracting a 3PL in mainland Europe to receive and store inventory.
The current supply chain issues aren’t new in the European space. Instead of issues solely with inventory coming from abroad, many UK and EU sellers were heavily impacted by Brexit, which changed the way ecommerce orders were fulfilled.
Orders can still be shipped from the UK to the rest of Europe, but there are new complications with customs, taxes, and expensive shipping costs.
There are a couple of things to consider to make order fulfillment easier. The first is where the main suppliers are located. If it makes financial sense, it might be worth it to contact European-based suppliers to avoid stock-out issues and expensive freight costs.
The second is where inventory is stored. Although it’s easier for Anglophone owners to use 3PL services in the UK, it might be more logical to contact providers on the mainland. Germany is an attractive option due to the sheer volume of Amazon FBA orders that are fulfilled by the Amazon DE marketplace.
As we’ve seen, the highly fractured European marketplace makes it difficult to know whether a product will be successful across the continent.
In an ideal scenario, the business will already have an established presence in one or more European countries with strong product reviews to indicate its brand strength. That can provide a jumping off point for further expansion with less risk.
If you’re buying a business with the intention of expanding into the EU, then market research is your friend. You’ll need to look into demographics, marketing preferences, and cultural considerations for each country you want to establish a presence in to see if your products are a good fit.
What About Personal Considerations?
An ecommerce store may tick all the boxes, but it might not be the right one for you. Some of the other considerations you’ll want to factor in are:
Budget. Don’t sink all of your available capital into buying the business. If you’ve got, for example, $200K to invest, look at businesses priced below that so you have extra capital ready, especially if the brand is not already positioned in the European space.
Niche. Are you familiar with the niche? You don’t need to be an expert in it, but having familiarity with or an interest in the products will help you identify ideal target markets for European expansion faster.
Language. If you’re planning to sell on marketplaces outside of your native language, you’ll need to have a solid plan in place ahead of time. Some of our marketplace buyers work with trusted translators who can help them navigate the sale and recommend native-language workers to help scale the brand.
Assets. Does the business have assets you know how to leverage? For example, if you’ve got social media advertising experience, looking at brands with large social media followings could be an ideal fit for growth. Considering the gap in B2C social media presence in Europe, leveraging assets like this could be an easy ticket to quick growth in your target markets.
If you’re planning to invest in a European ecommerce business, you’ll need to understand value-added tax (VAT) requirements. Broadly speaking, VAT is a general consumption tax paid by the final customer of any goods sold or services performed in the EU.
Every country has a different VAT rate, but as an ecommerce seller, you’ll be responsible for collecting the amount owed by the customer and remitting it to the appropriate government body every month.
It sounds complicated, but recent regulatory changes have simplified the process. From July 2021, sellers can register for a One Stop Shop (OSS) platform where they can take care of all of their VAT responsibilities in one place.
Previously, vendors were obligated to have a VAT number in all of the countries where they were conducting business. Now, they can register in their country of origin, in their native language, to increase VAT compliance for all eligible transactions in the EU.
Non-EU sellers who want to enter (or continue in) the European market are also eligible to take advantage of the change in rules. Foreign sellers can register with the Import One Stop Shop (IOSS) platform to get a VAT number and take care of financial obligations across the EU.
It’s worth noting that the recent changes apply only to B2C/DTC sales. VAT is already zero-rated on B2B sales. However, if you want to take advantage of the rise in ecommerce B2B sales in Europe, you’ll need to make sure the businesses you’re selling to are VAT- registered in their countries of origin, and you’ll need to indicate their VAT numbers on any invoices you send out.
Capitalizing on Ecommerce Trends to Scale Your Acquisition
Part of looking for the right business is developing a growth strategy. Current ecommerce trends can give you an idea of some outside-the-box strategies you can use to set yourself apart from the competition. You don’t need to incorporate every new trend on the scene, but having an idea of what’s currently shaping the space can help you scale your new business at a faster rate in the future.
Having a mobile-device-friendly customer experience is essential for the future growth of an ecommerce business. Mobile shopping accounts for roughly 73% of the entire ecommerce experience, and that’s unlikely to change anytime soon.
Keep up to date with and aware of emerging technologies like Progressive Web Apps (PWAs) that help mobile websites function like native apps, improving customer experience and conversion rates.
It’s easier than ever for ecommerce owners to use social media platforms to increase conversion rates. Dedicated platforms like Facebook Shop allow ecommerce shops to create customized storefronts directly on the app to drive sales.
There has also been an increase in social commerce partnerships. For example, TikTok has partnered with Shopify to create an in-app shopping URL that allows customers to make online purchases without ever even leaving the app.
The rise in social commerce makes creating a strong brand presence on social media platforms increasingly indispensable. It also makes working with brand influencers easier. With in-app shopping options, influencers can direct their fans to your products without resorting to ineffective linking tricks from the past.
Covid-19 may have accelerated an already rapidly growing ecommerce market, but in order to compete with brick-and-mortar stores, you’ll have to offer upgraded customer experience features. Two of the most promising features being used by ecommerce owners are augmented reality and chatbots.
Augmented reality is less complicated to incorporate than it sounds. Actions as simple as providing 3D views of your products can increase conversion rates and give customers a better experience on your site. With 61% of shoppers saying they prefer online stores that provide some sort of augmented reality to help with shopping decisions, this is one trend you won’t want to bypass.
Along with augmented reality, chatbots are increasingly important in the online shopping space. Upgrades to machine learning and artificial intelligence (AI) have made chatbots an indispensable part of customer service. It’s even possible to integrate your chatbots with voice search services like Alexa and Google Assistant. Optimizing your site with these types of services helps guide the customer journey.
Another strategy to improve customer experience is optimizing your site to provide product recommendations and offers based on metrics like browsing history, personal data, shopping habits, and previous behavior.
Some ecommerce platforms, like Amazon, excel at targeting and re-targeting shoppers. If your business is on Amazon, you’ll want to optimize your listings to ensure it’s your products being shown instead of a competitor’s.
If you’re looking at off-Amazon expansion, especially with lesser-known European platforms, check out how they target online shoppers onsite to see if optimization is possible on your end.
Along with the rise in ecommerce spending, another byproduct of the pandemic has been an increased interest in financial technology (fintech). Decentralized banking platforms like Wise and Revolut, as well as digital wallets like Apple Pay and Samsung Pay are seeing a massive increase in users.
With the days of PayPal and physical credit/debit cards being the only payment methods accepted by ecommerce businesses coming to an end, you’ll want to take a good look at your currently accepted payment options to see where you can improve your user experience.
Buy Now, Pay Later (BNPL)
This short-term financing method has increased in popularity in large part to the appeal of interest-free payments spread out over a manageable period of time. Providing BNPL to your customers can increase conversion rates and reduce abandoned carts.
Most of the major selling platforms in Europe have partnerships with financial institutions so vendors can offer BNPL options to customers without the risk of assuming financing. Depending on the platform you use and the countries you sell in, you can look into Klarna, Affirm, and PayPal, among others.
How powerful is video marketing for new ecommerce owners? According to a research report by Wyzowl in 2020, 84% of respondents interviewed said they had been driven to buy a product after seeing a video about it.
It’s a statistic that’s hard to ignore. Creating video content is an essential part of an omnichannel marketing strategy that every ecommerce entrepreneur should at least consider to drive both sales and traffic.
Where to Find Your Ideal Ecommerce Business
Once you’ve made the decision to invest in an ecommerce site and you know what to look for and how to scale your acquisition, you’ll have to find the perfect business.
Why would you want to use a broker?
As a buyer, you have everything to gain and nothing to lose by working with a broker. Using an established marketplace run by experts helps you avoid the pitfalls of buying privately, such as inaccurate sales and profit reporting.
We’ve created a platform that provides a seamless experience for buyers at every stage of an ecommerce deal. Before a business is even listed on our marketplace, it goes through an extensive vetting process to check its quality and prepare it for sale.
Our vetting process is the most rigorous in the industry, and we actually reject 91% of businesses that are submitted to us. We want to make sure our buyers are getting high-quality, profitable businesses in interesting and popular niches.
Once you register as a buyer on our platform, you’ll work with our dedicated sales team to connect you with business owners. When you’ve found the ideal business, we’ll even help you negotiate a deal.
After you’ve made an offer and the seller accepts, our migrations team will help you transfer over the digital assets.
If you’re ready to take the next step and invest in an ecommerce site, you can register on our platform today. If you’d like more information about finding the ideal business, schedule a call with us, and we’ll walk you through it!