TURKISH E-DELIGHTS: THE NEXT BIG THING?
PERSPECTIVE JULY 2015TURKISHE-DELIGHTS:THE NEXTBIG THING?HOW TO ESTABLISH ASUCCESSFUL E-COMMERCESTRATEGY IN TURKEYAlberto Calvo, Gülben Solakoglu, Anil Kaya, Semih Kilicgedik
Turkish e-delights: the next big thing?Our insights on how to establish asuccessful e-commerce strategy in TurkeyPublished byValue Partners Management ConsultingVia Vespri Siciliani, 920146 Milano, ItalyJuly 2015Written and edited by:Alberto Calvo, Gülben Solakoglu,Anil Kaya, Semih KilicgedikFor more information on the issues raisedin the report please contact:alberto.calvo@valuepartners.comIf you would like to subscribeor to be removed from our mailing listplease write Copyright Value Partners Management ConsultingAll rights reserved
CONTENTSINTRODUCTION5GROWING UP FAST. WHY AND HOW TURKEY’SE-COMMERCE SECTOR IS ON THE RISE7JUST THE USUAL SUSPECTS?WHICH BUSINESSES ARE DRIVING THE E-COMMERCE BOOM?15THE WAY WE SEE IT.THE KEY PILLARS FOR SUCCESSFUL E-COMMERCE IN TURKEY21OUR EXPERIENCE IN E-COMMERCE STRATEGY28AUTHORS30PERSPECTIVE TURKISH E-DELIGHTS: THE NEXT BIG THING?
In the past years, the main focus of onlineventures has been that of getting the customerto buy today, with online platforms andmarketing strategies being designed to captureonline traffic and convert it to sales beforethe competition had a chance to.However, the days of easy and cheap customeracquisition (even in Turkey) are endingand the focus is consequently shifting towardsgetting customers, especially high-value ones,to buy today, come back tomorrowand advocate the company in the process.4–5
INTRODUCTIONTURKEY IS ONE OF THE SEVEN LARGEST EMERGINGECONOMIES AND IS HOME TO A YOUNG AND VIBRANTPOPULATION OF AROUND 75 MILLION PEOPLE. INTERNET ISWIDELY ACCESSED AND THE NUMBER OF INTERNET USERSIS RAPIDLY GROWING, EVEN THOUGH ONLINE ACTIVITYIS, FOR NOW, MAINLY FOCUSED ON SOCIAL NETWORKSAND INSTANT MESSAGING. HOWEVER, THERE ARE PLENTYOF INTRIGUING SUCCESS STORIES IN THE DOMESTICE-COMMERCE LANDSCAPE, MAKING IT WORTHWHILE TOBETTER UNDERSTAND THE PHENOMENON.THIS PAPER GIVES A BRIEF OVERVIEW OF THE SURGEOF LARGE-SCALE E-COMMERCE PLATFORMS THAT THECOUNTRY IS WITNESSING AND PROVIDES GUIDELINES TOMAKE THE MOST OF THIS OPPORTUNITY.TURKEY’S STRONGLY GROWING ONLINE LANDSCAPEDEFINITELY PROVIDES PLENTY OF ROOM FOR NEWENTRANTS, WHICH WILL HOWEVER HAVE TO SET-UPEFFECTIVE BUSINESS MODELS AND COMPELLING VALUEPROPOSITIONS TO STRIVE IN A COMPETITIVE ARENA THATIS QUICKLY ADAPTING TO CUTTING-EDGE STANDARDS.THE KEY SUCCESS FACTORS TO THRIVE IN ANY ADVANCEDE-COMMERCE ARENA ARE COMPLEX AND CONTINUOUSLYEVOLVING. DRAWING ON LESSONS FROM MORE MATUREONLINE MARKETS, WE HAVE PINPOINTED THE FOURCORNERSTONES THAT ONLINE VENTURES SHOULD TAKEINTO ACCOUNT WHEN CONSIDERING A FORAY INTOTURKEY’S YET UNTAPPED POTENTIAL CUSTOMERS.PERSPECTIVE TURKISH E-DELIGHTS: THE NEXT BIG THING?
EXHIBIT 1Estimated share of online retail goods sales by country, POLAND1%ITALYSource: Ecommerce Europe6%1%MEXICO
GROWING UP FAST.WHY AND HOW TURKEY’SE-COMMERCE SECTOR IS ONTHE RISE1 Other uncommon / emergingecommerce models include:C2B (Consumer to Business),G2G (Government toGovernment), G2C (Governmentto Consumer), C2G (Consumerto Government), G2B(Government to Business), B2G(Business to Government)2 Turkish Interbank Card Center(BKM)3 Is Bank4 TusiadConnecting Europe and Asia throughthe Bosphorus Strait, Turkey is home toa young and vibrant population of 75mln people. Turkey is the 17th largesteconomy in the world and one of the7 largest emerging economies. Enduring political and economic stability inthe last decade, along with favourablemacro fundamentals are expected tofurther nurture the economic growth ofthe country.Turkey is experiencing a bubbling surgeof authentic, large-scale e-commerceplatforms, even if it is still under-penetrated compared to other emergingcountries (Exhibit 1).Internet usage remains focused onsocial networks and instant messaging. However, many success stories inthe domestic e-commerce market havebeen hitting the spotlight over the last10 years (among these, Hepsiburada,Yemeksepeti, Sahibinden, Gittigidiyor,Markafoni).EXHIBIT 2E-commerce marketsize in Turkey, Try Bln34.7%34.529.922.114.1201020112012PERSPECTIVE TURKISH E-DELIGHTS: THE NEXT BIG THING?2013Depending on who is buying andselling, it is possible to identify manydifferent business models in the ecommerce universe1, most of which arealso present in the emerging Turkishe-commerce landscape: B2B (Business to Business):online platforms that bring corporatebuyers and sellers together for theexchange of goods and services.Transaction value per order is muchhigher than in B2C and C2C transactions. Typically, the large businessmarketplaces fall into this category(i.e.: Alibaba) B2C (Business to Consumer):where businesses directly sell theirproducts and services to consumersthrough catalogs and shopping carts.The large retail platforms belong tothis group. Examples include Amazon, Yoox and Hepsiburada in Turkey C2C (Consumer to Consumer):this category includes various typesof peer-to-peer transactions, sometimes based on auctions. Typicalexamples include Ebay and Gittigidiyor in TurkeyThe worth of retail goods transactedon-line exceeded TRY 34.5 billion in2013, up from TRY 14.1 bln in 2010 withan annual CAGR of 34.7%2 (Exhibit 2).The Turkish e-commerce market is estimated to count 12k e-commerce sites3,supporting the online purchases of over10 mln users4 ( 15% of the population).
EXHIBIT 3Prominent deals in Turkish e-commerce sector since GETSTAKEDEAL VALUE(US MLN)Delivery persSouth umbuldumn/a2.5BancroftUKHotels & toursTatilsepetin/an/aHubert Burda Buldumbuldum20%2.5AslanobaTurkeyTaxi servicesBitaksin/a2Ru-Net HoldingsRussiaApparelLidyana25%3.3Perform GroupUKSportsMaçkolik51%22.5Kleiner PC&B, TigerGlobal managementUSAApparelTrendyol5.53%15.7General AtlanticUSAFoodYemeksepeti36.69%44Kleiner PC&B, TigerGlobal 72%182.1Intel CapitalUSAGroup discountGrupanya13.48%n/aNASPERSSouth AfricaApparelMarkafonin/an/aSource: EY, Deloitte Turkish M&A reports, desktop research8–9
5 Turkish Interbank Card Center(BKM)In Turkey, travelling and plane ticketpurchases represent roughly 30% 5 oftotal online spending, followed by insurance products and consumer products.As in any other comparable market, themain consumer product categories soldon-line are clothing and sports equipment, followed by electronic devicesand furniture.The dynamism of the e-commercesector is also proven by the numerousM&A transactions (Exhibit 3), mostlytriggered by institutional investors (PE,VC, ). The disclosed deal size variesfrom USD 1 mln to as much as USD 600mln. Germany’s Rocket Internet onlystayed in Turkey one year, shuttingdown all operations and laying-offhundreds of employees in 2012 Online apparel site Limango exitedTurkey in 2015, after being acquiredby Dogan Online in 2013 Turkey’s first mobile real estatee-commerce app Metrekare wasdisposed in 2014 despite the supportby VC firm Earlybird and local angelinvestor AslanobaEXHIBIT 4The drivers of e-commerce penetration1INTERNETPENETRATIONThe market is still extremely fragmented; many companies and individualentrepreneurs are rushing into thearena, often without clear strategiesand a solid background. In this context,a “Darwinian” natural selection is ongoing:4LOGISTICS / DELIVERYSTRUCTUREAs in any other country with similarcharacteristics, the key drivers of thee-commerce industry in Turkey are(Exhibit 4): Internet penetration The average spending power of thepopulation Access to modern payment systems Mature and competitive logisticsmarketE-COMMERCE2DISPOSABLEINCOME3ACCESS TO MODERNPAYMENT SYSTEMSPERSPECTIVE TURKISH E-DELIGHTS: THE NEXT BIG THING?
EXHIBIT 5Internet access by country, 2013 (% of total RKEY10 – 1163%ITALY45%BRAZILSource: OECD, Internet World Stat, VP analysis72%26%MEXICO
Internet penetration6 EuromonitorTurkey had 32.2 million Internet users in2013, an increase by 45% since 2008,making it the fifth largest online population in Europe (Exhibit 5). The numberof internet users is expected to increaseby 53.9%, reaching 52.2 million by 2030.Total mobile internet subscriptionsstood at 24.2 mln users, correspondingto a 35% penetration in 2013, comparedto merely 1.2% in 2008 6.7 Techcrunch.com8 Euromonitor9 TurkStat10 EuromonitorTurkey has an active, young online userbase, with 70% of online users beingyounger than 34. Moreover, this population is highly engaged in social media,bringing the country to rank No. 7 onFacebook, No. 10 on Twitter and No. 14on Youtube in terms of activity7.Over USD 3.3 bln were invested intelecommunications in 20138 , mainly on3G upgrades, expansion of the fixedbroadband infrastructure and fiberoptic networks. With affordable devicesand ubiquitous access, internet adoption is expected to improve, paving theway for e-commerce growth.Disposable incomeTurkish GDP increased with a CAGR of 10% from 2008 to 2013, reaching 1.56bln TRY by 20139, keeping Turkey in theclub of the top-20 economies, as oneof the largest middle-income countriesin the World. During the same period,Turkish GDP per capita expanded withan annual CAGR of 8.8% and reached20.4k TRY per capita (USD 10.7k)10(Exhibit 6).Even if Turkey is forecasted to experience a slower growth in the comingyears ( 5%), with increasing disposableincomes and individual surpluses, moreand more leisure money is expected tobe spent on-line.EXHIBIT 6GDP per capita by country, 2013 (000s US )58.044.141.935.829.813.5USAFRANCEUKITALYSource: EuromonitorPERSPECTIVE TURKISH E-DELIGHTS: THE NEXT BIG THING?SPAINPOLAND11.910.910.7BRAZILTURKEYMEXICO
EXHIBIT 7Share of debit card and credit card on total consumer spendingby country, 201347%UK34%TURKEY28%FRANCEUSA25%BRAZIL11%SPAIN12 – 1314%POLAND10%MEXICOSource: Euromonitor, World Bank34%9%ITALY
Access to modern payment systems11 Turkish Interbank Card Center(BKM)12 Worldbank13 Invest.gov.trWith its advanced banking industry,Turkey is home to 57.3 million creditcards and 100 million debit cards as ofJune ‘1411, which positions the countryamong the largest in Europe in terms ofcard volumes (Exhibit 7). However, concerns over online payments still remainacross various layers of the population,and alternative payment methods (e.g.Paypal) are considered risky in Turkey.Although the high credit card penetration is an e-commerce facilitator, a moresolid consumer trust has to be built byproperly informing people about onlinesecurity systems and fraud prevention.Logistics / delivery infrastructureConstituting 10-15% of the Turkish GDP,the logistics industry is of paramountimportance for the country. Turkey hasmoved up from 39th place in 2010 to30th in 201412 in the World Bank Logistics Performance Index, above India,Brazil, Russia, Mexico, Poland, Indonesiaand South Africa.EXHIBIT 8Major Warehouses in TurkeyTurkey’s transportation infrastructureshave been undergoing substantialtransformation in the last decade. Manyinvestment projects are still ongoing: The country is building international highway and rail coastal freightcorridors to become an efficient,attractive logistic hub, especially fornearby countries with no coast Furthermore, the State Railways arebuilding logistics villages/centers (integrating railway and highway linksacross Turkey) to lower the costs oftransportation Major projects include the 3rdBosphorus Bridge, North MarmaraHighway, Canakkale Bridge andIstanbul-Izmir Highway13.Many players are vying in the B2Clogistic industry, increasing the level ofinternal competition and bringing theoverall service level to higher standards.The 48-hour delivery to anywhere inTurkey has already become the ruleof the game. Few local on-line giantssuch as Markafoni and Hepsiburada areeven promising same-day deliveries,especially in major Western cities wherelarge warehouses are typically located(Exhibit 8).Specialized logistics / distributionnetworks have also entered the market.Chilled and frozen distribution serviceproviders have been partnering with logistics players, producers and retailersfor delivery of low-temperature, perishable products ( 4 ). Polarxp, Turkey’sleading chilled and frozen distributionservice provider even provides bothwarehousing and delivery services.CUSTOMS BOUNDED WAREHOUSESCOLD STORAGEOPEN AIR WAREHOUSESource: Invest.gov.trPERSPECTIVE TURKISH E-DELIGHTS: THE NEXT BIG THING?
EXHIBIT 9Online buying intentions in the next 6 months, Europe* 2014GROCERIESHIGHCLOTHING, ACCESSORIES AND SHOESSPORTING GOODSCAR, MOTORCYCLE AND ACCESSORIESCOSMETICSBABY SUPPLIESPET-RELATED PRODUCTSMEDIUMPRODUCT / SERVICE COMPLEXITYPERSONAL CARETOYS AND DOLLSELECTRONIC EQUIPMENTFLOWERSCOMPUTER HARDWAREAIRLINE TICKETS AND RESERVATIONSDVD, GAMES & MUSICHARDCOPY BOOKSLOWTOURS AND HOTEL RESERVATIONSCOMPUTER SOFTWAREEVENT TICKETSE-BOOKS01213141516171819202122Source: Nielsen, VP analysis*) European countries include EU members, Turkey, Serbia, Ukraine and Israel14 – 1523242526272829303132333435
JUST THE USUAL SUSPECTS?WHICH BUSINESSES ARE DRIVINGTHE E-COMMERCE BOOM?Typically, the speed of adoption ofe-tailing in a given sector is very muchdependent on the complexity of theproduct/service it provides (Exhibit 9).Naturally, the first businesses to exploitthe e-commerce channel were the oneswith simpler product/service range likeDVDs, books, games & music, airlinetickets and hotel reservations; today inmost developed markets, e-commercesales in these sectors have almostreached “saturation” levels.In Turkey, the integration of physical andonline channels within sectors with lowproducts/services complexity is still anongoing process. In most of these verticals, where e-commerce offers a naturaladvantage, on-line purchases are stillmidway along the growth pattern experienced in more advanced countries.As an example: D&R acquired the major online bookseller Idefix in 2013 and expanded itsproduct range from books to consumer electronics on dr.com.tr. Teknosa differentiated itself bylaunching two different websites tosell electronics: Kliksa and Teknosa.On the other hand, more complex supplies often lack the convenience factorthat appeals to on-line customers (e.g.:insurance policies), making the suitability of the e-commerce channel lessevident. Thus, companies planning tomove online should be fully aware ofthese realities, and adjust their propositions accordingly.PERSPECTIVE TURKISH E-DELIGHTS: THE NEXT BIG THING?One notable exception in this group isrepresented by the apparel industry.Apparel has showed a great on-linesuccess, although many factors mightdiscourage people from buying clotheswith a “click”; for example, most buyerswould like to try on clothes in orderto be sure about size, color and fabricbefore finalizing their purchasing-decisions. On-line sales started to quicklypick-up once the industry introducedwell-designed return policies.There is no “one size fits all” strategy inthe e-commerce world, as testified bytons of different cases. In this respect,let’s give a closer look at a few sectorsin Turkey where e-commerce strategieshave been successfully applied.ApparelApparel is one of the leading on-linesectors in Turkey, reaching sales of overTRY 1 bln in 2014 by growing at 16.2%YoY. The prominent factors behind thissuccess can be identified in easy returnpolicies, affordable pricing and largeravailability of products offered to customers. Moreover, retailers tend to usee-commerce for destocking. Return Policies: As mentioned, oneof the main challenges of clothinge-commerce was to convince peopleto buy clothes without trying them.Industry players solved this problemby providing an easy return policyto reassure customers during theprocess, offering them a “way out” incase of unsatisfactory purchases.
EXHIBIT 10Emerging business models in apparel e-commerceEXCLUSIVE / LUXURY OFFERINGSPremium multi-brandretailersFlash salesFULL PRICEOFFPRICE / DISCOUNTNiche / single brandretailersStandard / multi- brandretailersSTANDARD OFFERINGS16 – 17Standard / singlebrand retailers
14 Markafoni web siteTo deploy such a compelling strategy at operational level, partneringwith large, well-established logisticproviders was a must. One of themajor online apparel companies,Trendyol cooperates with two leadingcourier companies, Yurtiçi and MNGKargo, and allows its customers toreturn a product within 15 days fromdelivery. The return delivery service isfree of charge and most importantlythe pick-up point is chosen by thecustomer. This smooth return processincreases customers’ willingness toshop on-line without any fear of having to pay for or being left with anyunwanted products. Extended product range: Physicalretail stores have clear constraintsin terms of inventory size and mix,sometimes incurring on lost-sales whencustomers cannot find what they arelooking for on the shelf. On flash saleswebsites like Markafoni and Trendyol,multiple categories are offered tocustomers (e.g. from shoes to underwear). This product variety helpsboosting cross-selling and increasesoverall revenues. Markafoni, the firstand leading player, established in2008 with 6% market share in the totaldomestic e-commerce sales, offers 10different categories with an averageof 20 apparel brands and manages 50thousands transactions daily14.PERSPECTIVE TURKISH E-DELIGHTS: THE NEXT BIG THING? Pricing: Affordability has been a keyboost-factor for on-line retail.To some extent, this is also due tothe implicit risk associated withon-line transactions, where products cannot be touched or verified.Many different business models canbe observed here (Exhibit 10), andcompanies need to carefully managepotential channel conflicts, the riskof pricing arbitrage across channels,overall lower margins triggered by anincreased competition. Destocking: On-line business modelsalso help reduce store retail operation costs by using the online channelfor destocking, just as outlets do inthe physical world. Traditional outletstores, typically located outside thecity centers, are being replaced byon-line sales through specific discounts/campaigns, or flash-sales.To accomplish this goal, companiesare both pushing products throughtheir own websites and partneringwith other online platforms to deliverdaily/weekly sell-off campaigns.1V1Y represents a good example ofan innovative strategy. The websitewas founded by 16 investors (mainlywell-known local apparel brands)with the intention of using theplatform to sell their on/off-seasonproducts and timely manage their inventories. At the same time, it turnedout that online apparel websites witha substantial subscriber base like1V1Y could serve as an advertisingplatform, to increase the visibilityof new brands with low recognition.This simple yet powerful intuitiondramatically increased 1V1Y’s appealto brands and users.
Grocery e-tailing15 Deloitte Retail sector update16 Parekende.org17 Eurostat18 CIA World Factbook19 Webrazzi20 Groupe Auchan21 RR Kantar WorldpanelFood retailing in Turkey grew by 4% in2014, reaching TRY 265 mln15, with anonline share estimated at only 1%16.Even though belonging to the “complexto-sell-online” group of goods/services,online grocery is silently taking-off,despite consumer skepticism and reluctance by some main players to embracenew customers’ needs.Solid societal drivers are pushing thisphenomenon towards significant growthin the near future. Firstly, comparedto past years, more females are joining the working population in Turkey.The traditional house-wife role,
Hubert Burda Media Germany Apparel Lidyana 22% 5.9 Aslanoba Turkey Gift Buldumbuldum 20% 2.5 Aslanoba Turkey Taxi services Bitaksi n/a 2 2012 Ru-Net Holdings Russia Apparel Lidyana 25% 3.3 Perform Group UK Sports Maçkolik 51% 22.5 Kleiner PC&B, Tiger Global management USA Apparel Trendyol 5.53% 15.7 General Atlantic USA Food Yemeksepeti 36.69% .
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