The trend may look logical now, but it was not entirely predictable. Back in 2022, the year the lockdowns were lifted after the pandemic, everyone was counting on a spectacular rebound in consumption and, consequently, the economy. But what nobody foresaw was the effect of a sustained period of very high inflation.
Prices started rising in spring 2022 and had skyrocketed to 24.5% in Hungary by December, the highest in Europe, and were still high at the end of 2023. In November 2022, online retailer eMag was still able to communicate a record turnover of HUF 10.5 billion following its Black Friday promotion on Nov. 18 of that year.
In a study published in March 2024, market research company NRC noted, “In the second semester of 2022, after COVID, we experienced some effervescence, but inflation ended it.” The nominal value of online purchase basket value grew in 2023 but calculating with the inflation, e-commerce registered a setback in 2023, a historical moment in Hungarian retail, NRC notes.
The plummeting sales hit not only webshops but the entire retail sector in Hungary, so much so that it impacted GDP growth, with the government frantically looking for means to reignite internal consumption. Households, however, had depleted much, if not all, of their savings during the record-high inflation of 2022 and 2023. Those with money left preferred to save it, many in bank accounts and investments abroad.
Apart from stopping all unnecessary spending and saving money, a third factor hit sales in Hungary: the rise of the Chinese webshop. According to NRC, the online purchase penetration was roughly the same ratio in Q1 2023 for EU countries and China. About 53% of Hungarian online purchases were made via Chinese webshops and 55% from European.
By Q3 2023, these rates had changed dramatically, falling to 48% for EU webshops and rising to 62% for Chinese. There is no reason to think the gap hasn’t widened since then.
The change was confirmed by data released in May 2024 by GKid (now PwC). Chinese webshop Temu entered the Hungarian market in September 2023, and by April 2024, it had a Hungarian customer base of 1.28 million, placing 1.5 million orders in Q1 2024. In value, these amounted to 7% of all online spending in Hungary in just one webshop.
“This order volume is just a small part of what goes every day through Budapest to neighboring countries and the EU,” said Norbert Madar, leader of PwC’s digital commerce team.
So, in such a fundamentally changed environment, is there anything local webshops can do to compete? László Szabó, executive partner at Growww Digital, has an answer.
“A Hungarian e-commerce player has two alternatives in global e-commerce: accept being a marginal player on the local market or, based on already successful strategies, become a regional player. Czech and Polish players have been following this path for years, and we can see that it bears fruit in Hungary, too,” Szabó said.
The list of top online retailers operating in Hungary confirms this strategy. Romanian retailer eMag is first, followed by two Czech companies, alza.hu and kifli.hu. The online shop of German store MediaMarkt is ranked 4th, while Hungarian-owned companies appear only 7th and 8th, with Euronics and Aqua, according to GKid/PwC.
The problem with Hungarian expansion is that the market is simply too small. Compared to Hungarian e-commerce, the Romanian e-market is 2.3 times bigger, the Czech three times larger, and it is even more so in Poland. The last time Hungary had a significant market player was Extreme Digital, which was acquired in 2019 by Romanian competitor eMag.
Briefly, this is the complicated context in which retailers had to prepare for Black Friday in 2024. At the time of going to print, Black Friday (rebranded Black Month in many cases) is still ongoing. There is very little sales data, with stores probably waiting for a rebound in December to report better figures.
Market leader eMag now has a policy of not publishing sales data, although the approach was different in past years. The company had previously offered the media access to a page showing real-time sales data on Black Friday and a summary of average spending per customer, basket value and other relevant data. This stopped last year.
The only public figures are revenues, which dropped from HUF 90.6 billion in the business year 2021/22 to HUF 61.2 bln in 2023/24, even in a high inflation environment. Interestingly, the Romanian branch proudly boasted sales of RON 896 million, about HUF 72 bln, on its Black Friday promotion this year (Nov. 8), 22% higher compared to Black Friday of 2023.
At the time of writing, the last figure posted by eMag Hungary about Black Friday was at noon on Nov. 15, which recorded spending in the first five hours at HUF 1.4 bln. Given that most of the sales are made between 7 a.m. and noon, the total expenditure on this day was probably not even close to the HUF 10.5 bln made two years ago by eMag.
Presumably, this is why the retailer continued the sale on promoted prices more than a week after Black Friday, albeit differently branded.
Given the above, we can probably expect the Black Friday promotion to be merged into the Christmas sales and the combined figures to be published before Dec. 31 or shortly after to somewhat sweeten what are expected to be very low figures.
This article was first published in the Budapest Business Journal print issue of November 29, 2024.
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