* Online shopping booms in Turkey
* Sector has advantages over developed, emerging markets
* Foreign investors seeking opportunities
* But period of big, easy investments may be ending
* Small firms will struggle to gain scale to survive
ISTANBUL, Jan 16 Swiss venture capitalist Klaus
Hommels, an early-stage investor in Skype and Facebook, hadn't
thought much about Turkey or its e-commerce potential when he
met Sina Afra in a Burger King at a Berlin airport in 2008.
But Hommels sensed an opportunity as he listened to Afra, a
Turkish former eBay executive, talk about his plans for an
online shopping club in his fast-growing native country.
Two months later, with financial support from the Swiss
financier, Markafoni.com was born - a pioneer private shopping
club in a country which now spends half a billion dollars a year
buying clothing and accessories online.
"We had 10 minutes and we went to Burger King...That's how
it started. There's a big risk in over-analysing stuff," Hommels
told Reuters on the sidelines of a conference on start-ups in
Istanbul last year.
"Turkey is a very young and viral nation," he said.
The e-commerce sector in this country of 75 million has
boomed over the past five years, catching the eye of leading
international investors and e-commerce giants such as South
Africa's Naspers, eBay and Amazon.
eBay initially invested in its Turkish clone GittiGidiyor in
2007, going on to buy almost the whole firm four years later,
while Naspers bought 68 percent of Markafoni in 2011.
Amazon invested in online flower delivery site Ciceksepeti
in the same year, while tech-focused hedge fund Tiger Global
bought into private shopping club Trendyol.
According to a report on e-commerce in Turkey by consultants
Deloitte, 17 merger and acquisition deals were closed last year.
Nevzat Aydin, chief executive of online food delivery site
Yemeksepeti, estimated foreigners had invested some $500 million
in the sector over the past two years.
But most of the big deals have probably been done for now,
and industry experts expect a period of consolidation as smaller
e-businesses struggle to ensure their survival by scaling up and
attracting heavyweight partners.
"There is a period of two years ahead of us which will be
different to the past two to three years," said Aydin, whose
firm attracted a $44 million investment from U.S. private equity
firm General Atlantic last year.
"Smaller firms will need to narrow their distance to the top
ten. Firms with a valuation of $1-10 million need to grow - the
number of small-scale firms is too high."
At current growth rates Turkey's population is set to
overtake Germany's, the largest in the European Union, by 2025.
Per capita income has nearly tripled over the past decade,
though the crisis in Europe slowed growth last year.
Shopping malls sporting luxury brands from around the world
have sprung up in cities across the country to meet the demands
of a rapidly growing middle class, but as Internet penetration
rises, online shopping is proving just as addictive.
The country has over 35 million Internet users, and ranks
seventh in the world for Facebook users, according to
Socialbakers, a social media analytics platform.
Industry executives estimate at least 8-9 million people are
shopping online with a turnover of some $7.2 billion last year.
Internet card payments for various purposes rose about 30
percent to 30 billion lira ($17 billion) in 2012 and are
expected to more than double by 2015, according to Interbank
Card Center, which collates data about card usage in Turkey.
According to calculations based on the data, Turks spent
$450 million on clothing and accessories, $395 million on
grocery and food shopping, and $2.1 billion on electronics
bought online last year.
The shopping clubs draw in customers by offering them
discounts on branded and luxury goods and sending them daily
emails of the latest offers once they register.
"Women have discovered online shopping in the past two to
three years," said Burak Buyukdemir, founder of Etohum, an
initiative that supports Internet entrepreneurs in Turkey.
"That was one of the most important reasons behind the boom
in e-commerce. Private shopping clubs like Trendyol and
Markafoni, their target audience is women."
Online revenue in 17 major European markets, excluding
Turkey, will increase from 96.7 billion euros ($129 billion) in
2011 to 172 billion euros by 2016, with an annual growth rate of
12 percent, according to Forrester Research.
Turkey could see even sharper growth than more developed
economies in debt-choked Europe. Meanwhile, its robust logistics
and banking payment infrastructure make it more attractive for
investment than many emerging markets peers.
But almost every e-commerce business in Turkey with annual
turnover of over $30 million already has a heavyweight investor
behind it, and there are not many potential targets left for
newcomers, industry executives say.
There are hundreds or thousands of small-scale e-commerce
firms, but many are too small to absorb big investments easily
and lack distinctive business models.
"Foreign funds are trying to find potentially promising
targets," said Serkan Borancili, co-founder of GittiGidiyor, who
sold his stake to eBay in 2011 when his company was valued at
"Some funds are willing to invest $200 million. Such large
funds are coming to Turkey, but there's no target."
Turning a profit is increasingly difficult in a highly
competitive market. Borancili estimated that all except the
largest e-commerce firms in Turkey were in the red, and said
margins had fallen sharply as firms tried to scale up.
That means foreign investors interested in entering Turkey
may be best advised to remain on the sidelines for now.
"Private shopping models are going to consolidate," said
Yemeksepeti co-founder Aydin. "We are going to see acquisitions,