Why the tech savvy Nordics are failing in international e-commerce

In the borderless online world, Nordic online retailers must expand beyond their home markets to keep up with growing competition

Wide broadband coverage, mature cloud service adoption and world-leading digital credentials sound like the perfect setting for e-commerce. But in the borderless online world, Nordic online retailers must expand beyond their home markets to keep up with growing competition.

“E-commerce with physical goods is quite mature in the Nordics, country by country,” said Niklas Adalberth, deputy CEO of Swedish payment solution provider Klarna Group. “But there is still a lot to be achieved on globalisation and selling outside of the region.”

He said Nordic businesses need to challenge existing digital business models more, such as Netflix or AirBnB have done.

In its local context Nordic e-commerce is alive and well. The latest annual report by logistics company PostNord revealed the value of e-commerce in the Nordics was €15.4bn in 2014. 

Swedes spent the most (nearly €6bn) online, as the population of 9.7 million is almost double that of other Nordic countries. The Norwegians came second (€3.9bn), followed by the Danes (just over €3.2bn) and the Finns (€2.4bn). Clothes and footwear are the most popular items bought online, while home electronics take second spot on a pan-Nordic level.

The majority of Nordic internet users shop online – 81% in Denmark, 80% in Sweden, 79% in Norway and 73% in Finland. The EU average is 63%. A third of Nordic residents shop online each month, according to PostNord, which found Danes are the most frequent online shoppers, with nearly two in five shopping online at least once a month, but only one in five Finns shop online at the same rate.

Read more about enterprise IT in the Nordics

“Annual growth in e-commerce is between 10% and 15% in the Nordics. Sweden is the most e-developed country with annual growth of 15-20%,” said Arne Andersson, e-commerce specialist at PostNord. 

Andersson said online accounts for “around 7% of the total retail market”, but he expects in three to five years the percentage will be closer to the UK's, which is around 10%.

He also said the higher e-commerce percentage in the UK is mainly thanks to the popularity of online grocery shopping. Groceries currently account for only 1% of e-commerce in the Nordics, although the sector is growing, particularly in Sweden.

International challengers

In the PostNord study, more than half (57%) of Norwegian consumers purchased items from abroad online at least once in 2014. Finland was second with half (49%) shopping on foreign sites, leaving Denmark (38%) and Sweden (33%) further behind.

As a result, competition from international giants such as Asos, Zalando and Amazon is challenging Nordic online stores. This seems to be of particular concern in Finland.

“If we look at consumer exports, we see that Sweden is the true nexus of online commerce in the Nordics, and Denmark isn’t far behind either. Here is where Finland falls short, however,” says Juri Mattila, research scientist at the Research Institute of the Finnish Economy. “Partially this can be explained by the differences in the structure of these economies, as Finland doesn’t have a history of strong consumer brands like Sweden does.”

The Digibarometer report is an annual study on how well different countries utilise digitisation. In the 2015 report, Mattila, a contributing author, goes as far as to call the situation in Finland “alarming”, with Finnish customers purchasing from foreign online suppliers, but Finnish counterparts failing to sell to foreign markets in equal capacity.

“This means the balance of online trade is negative, and the more prominent e-commerce becomes, the greater this effect will be, unless the problem is remedied,” said Matilla.

Mattila adds that although the study doesn’t look closely at other Nordic countries in this regard, it doesn’t appear to be as serious in Sweden or Denmark. Nevertheless around 27%, or €4bn, of e-commerce in the Nordics goes to foreign online shops, especially those based in the UK, US and Germany.

“The main challenge for most companies coming from smaller countries is that they are exposed to a whole new level of competition from very large international players. Price competition is extremely difficult online and successful differentiation is key,”said Mattila.

The Nordic e-commerce community is great at branding and consumer loyalty

Niklas Adalberth, Klarna Group

Sweden seems to gather the highest proportion of international e-commerce, including intra-Nordic shopping. While only 1% of Nordic residents buy from Finnish online shops, their Swedish counterparts receive 18% of all Nordic customers. The number goes down to 7% in Denmark and 2% in Norway.

Research by OC&C Strategy Consultants (in collaboration with Google) shows only 33% of Nordic online stores currently deliver to European countries, with just one in eight serving markets outside Europe. As many as 38% only offer delivery to their local market and 15% to other Nordic countries.

“The Nordic e-commerce community is great at branding and consumer loyalty, they have a strong technical foundation and a strong cost focus,” said Klarna Group's Adalberth. “What is lacking compared to the true international players is scalability and creating margins by increasing volume.”

Omnichannel future

What could be good news for Nordics, where prominent online-only retailers are rare, is the current omnichannel retail trend. This takes the multichannel sales approach one step further by integrating all different channels – digital and physical – on the back end. This means building a frictionless shopping experience whether the customer is shopping online, by phone or in a bricks-and-mortar store.

“For small to medium-sized enterprises the challenge [of international competition] is in resources and not having enough money to spend on marketing,” said Andersson. “For big retailers the challenge is in integration of systems. They have an old point-of-sale system, another enterprise resource planning system, an order management system and so on. Now they need to develop a seamless shopping experience for the customer in all channels.”

One example is the growing demand for click and collect delivery where a product is ordered online but collected in-store. The trend has already been seen with online giant Amazon opening its own physical stores.

Another growth trend in global e-commerce is mobile. The Nordics are known for their mobile savviness and fast networks, meaning this is one area where they could lead the pack.

“In the industry we see many trends, for example a constant move from web to apps, and decreasing e-commerce traffic coming from tablets as mobile [phone use] just continues to grow,” said Adalberth. “Nordic consumers are at the absolute forefront in m-commerce, which makes it a great place to develop mobile-first e-commerce solutions.”

In the last quarter of 2014, more than one in two Nordic residents said they had shopped for goods online using their mobile phone. Sweden led the pack with nearly one in five (18%) mobile shoppers, which PostNord put down to its slightly more evolved omnichannel approach, as well as more responsive sites and retailers embracing the mobile trend. In Norway, Finland and Denmark the corresponding numbers were 13%, 10% and 8%. 

Overall, Nordic retailers must to be ready to face an international future across all mediums. 

Mattila said the competitive edge of countries is shifting from technical superiority towards the ability to build new business models and services out of the opportunities emerging from digitisation.

Read more on IT for retail and logistics