Germany is the EU’s second largest e-commerce market behind the UK, worth €39 billion in sales, and expected to grow 24.8% in 2014 as reported by the Bundesverbands des Deutschen Versandhandels. Last year was also the first time e-commerce sales surpassed 10% of total retail sales, with 11.2% reported. Clearly, Germany’s e-commerce market is flourishing, with sales amongst our partners showing a similar level of growth.
One factor explaining e-commerce maturity is the long tradition of distance selling. Catalogue sales brands like Otto, Neckermann or Quelle started in the mid-20th century to target at home shoppers. E-commerce now accounts for approximately 80% of distance selling sales in Germany, with some of the established catalogue brands struggling to change their business models – while others like Otto have become one of the largest e-commerce retailers in the world.
Up until June 2014 German consumers were protected under distance selling rules, with all return costs for orders higher than 40€ were free for the customer. This often encouraged German consumers to order multiple items and return them, as a result making Germany one of the markets with the highest volume of returns, especially in apparel, which can often be more than 40%. Despite the recent legal change, the customer expectation was so ingrained that most retailers have continued to offer for fear of a negative impact on sales.
German customers buy all kinds of things online, although the most preferred categories by far are clothing and footwear, followed by electronics. When it comes to groceries there’s still a lot of space for improvement, as Germany lags far behind other EU countries when buying food online. However, German retailers are ramping up quickly when it comes to omnichannel capabilities as demonstrated by new shopping experiences like the “Inspiration Store” from Metro Group and eBay:
As a result of the historic growth with catalogue shopping, the German consumer has a very particular profile in terms of online payments preferences:
- Open invoice (where the payment is wired by the customers only once they received the package with the invoice) account for 30-35% of market share.
- PayPal is very popular, with another 30% market share.
- SofortÜberweisung, a real-time banking provider, is also fairly popular, with a share of 15%
- Lastly, only about 20% of online transactions use credit cards. Germans prefer using debit cards (EC-Karte) which have limitations when buying online.
Generally, German customers are rational and don’t get easily convinced if they don’t see a real value – we see little interest in new wearables technology, and concerns regarding holiday spending despite the sound economic strength. They also follow the rules, having little tolerance towards piracy, and giving value to content, which explains the success of online music streaming services.
So if you are planning to get into the German market, get ready, because the demanding German customer isn’t going to make things easy for you!