Back when I was covering the larger world of “emerging markets” rather than just Hungary and Central Europe, there was a great, and wonderfully cruel, line which summed up the situation of one of the largest such countries. “Brazil is the country of the future,” the saying went, “and it will always be the country of the future.” That same line might be used today to sum up the situation of e-commerce in Hungary, which similarly has a great future that never seems to actually arrive.
Case in point is a feature that appeared last week in business daily Napi Gazdaság about various trends in local e-commerce, which highlighted the leading position of consumer electronics retailer Extreme Digital.
While the piece did not actually give any hard numbers to back up its claim that ED is Hungary’s leading e-commerce player, it said the company is now on top of the pack in terms of sales volume, while trailing some others – such as top book and music seller Bookline – in terms of overall transaction numbers. It quoted the company’s managing director, Balázs Várkonyi, as estimating the local e-commerce market at Ft 40 billion-Ft 50 billion, or up to Ft 100 billion if airline tickets and other tourist services are factored in.
It also said that the average transaction – or “value per basket” – is much higher online than at traditional retailers, running a healthy Ft 40,000 at ED. Digging a little deeper, I’ve discovered via itpages.hu that 73% of ED’s purchases – or around 1,000 a day – occur online, and their overall sales jumped 30% in 2007, to Ft 7 billion. Because of this success, last year SoftCon Informatik AG, a Swiss investor, acquired 25% of the company.
Unfortunately, ED seems to be an extremely rare example of a Hungarian company that has managed to break through in e-commerce. According to data released in March by researcher GKIeNet, there are 1,900 online shops doing online business legally in Hungary, but the top 20 rake in 80% of the sales. Other sources say that four new online shops spring up a day, two of which go under. Meanwhile, the big multinationals that increasingly rule the local retail sector are remarkably hesitant to offer their products online.
Then again, there is good reason, as consumers in Hungary still seem remarkably shy about taking advantage of the easy and convenience of shopping online. Perhaps the most stunning statistic regarding e-commerce mentioned in the Napi Gazdaság piece is that a full 98% of all sales are paid for on delivery, rather than with debit or credit cards – a figure that is probably the mirror image of that in, for example, the United States.
Added to this is the outright hostility of some retailers who one would think could benefit greatly from a genuine blossoming of e-commerce in Hungary. In a piece last month on fn.hu, bookstore chain Alexandra owner Dezső Matyi was quoted as calling online shopping a necessary evil, and said his company is only venturing into e-commerce because the competition has forced it to. He said he is even pushing for the government to fix prices for books across the board, so as to take away the cost benefits of online sales, and said that overall he hopes e-commerce will “never become a way of life.”
But while the resistance of people like Matyi and other barriers to development may lead one to think that Hungary’s e-commerce future will never arrive, I’m still hopeful, in large part because so many offline retailers in Hungary treat their customers with the same contempt Matyi has for e-commerce.
Meanwhile, a law came into effect on April 1st which freed online shops from having to maintain a “bricks-and-mortar” store. “This might be able to help the [online] stores lower their prices and boost online shopping volumes,” says Márton Fáragó, CEO of Olcsóbbat.hu Kft, which operates the price-comparison engine www.olcsobbat.hu. The site, which pairs users with partnering webshops, has seen its traffic double in the last year.
And there is one more reason not to write off the glorious future of Hungarian e-commerce: from what I hear, over the past few years the glorious Brazilian future that everyone used to joke about being forever put off seems to have finally arrived.
The single biggest barrier to E-tail and the growth of internet business is the postal service. Without that being cleaned up how can an internet business operate. And how can existing internet companies outwith Hungary force local, parochial businesses to sharpen up or pack up and stop pretending they know how to run a modern business.
Lots of online traders simply refuse to send stuff to Hungary because of the level of theft and level of service with the local postal service.
There is absolutely no point forgoing the highstreet, where your customers come to you, for the internet, where you go to meet the customers, if you have to includes Magyar post into the mix. The whole thing is laughable.
Maybe this is also a cultural issue, i am not hungaria but scandinavian, but i only use online if i don’t have a choice (e.g. want to buy books in swedish), if i can get it the either service or goods from local shop, i definitely want to go to shop… you can see the product (lot of times the reality is not the same as what appears in internet) etc. For me online sales sounds like nerds buying porno when they are too shy otherwise. Of course the other reason might be if you live at countryside or i can imagine in US where either commuting is not easy or takes long time. Otherwise i take personal experience at shop any day.
Incidentally i have never have had problems with postal services here, maybe that is more urban legend? or maybe i have been lucky…
Ile,
It is certainly a cultural thing. And, for most people, buying online has little or nothing to do with porno, but maybe that’s a Scandinavian thing?
It simply to do with the ‘long-tail’ meaning niche markets with better choice and better prices. It also adds a level of customer service and product visibility with online reviews and customer feedback.
Look at how this sector has emerged and continues to develop in most countries. Even in markets that even 3 years ago most naive consumers would have believed impermeable to internet sales, such as mother care and baby products (currently experiencing strong growth in the UK).
It’s great to hear you have never experienced problems with the postal service here. Statistics talk loader though and companies such as Threadless (http://www.propono.hu/node/1727 ) decided last year to give up the ghost and stop pretending they could ever making money sending stuff to Hungary.
Myself I have bought pretty much everything over the internet at one time or another (almost everything) including furniture, electronics, books, sports equipment etc…
You just have to have a good internet connection, cause that stuff takes ages to download.
It is very interesting topic, also as i have been indeed involved personally in telecom based services.
Actually i did participate a executive meeting around 2000 with ceo from amazon and some others where the main expectation was that online sales and related services best fits immaterial goods (amazon itself was an exception obviously), which you can either download or don’t need to see/feel the product or where the logistics costs are low compared with the value of the goods.
I still believe that for most applications thisis true. Personally i never buy flight tickets or concert tickets except online and i agree with speciality items where the accessible market is much bigger using internet than via shops.
Actually this is nothing new as there have been major catalogue companies for ages. I also agree with you about price comparisions and reviews – i did the same when buying my new bike, but i still prefer to actually buy it from a shop where i get specialist helping to choose the right size, i can get back if needed etc.
It seems to me that anglo saxon world seems to be going must faster this directon than let say south europe, whatever is the reason.
However, maybe i am just getting older faster than i thought…
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