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3, issue of
The journal of high-performance business
Industry Report | Retail
Shoppers without borders
By Nathaniel Fry, Matthew J. Prebble and Christoph R. Loeffler
Responding to the needs of the world’s borderless shoppers can be challenging for traditional retailers. But by recognizing these consumers’ diversity, taking a multichannel approach to serving them and forging collaborative alliances, some are starting to offer a truly seamless global shopping experience.
There’s no doubt that more and more of the world’s consumers want to buy anytime, through any channel— and, increasingly, from anywhere. That’s especially true in emerging markets. In some of these economies, the combination of a rising, Internetempowered middle class and wealthy elites is driving a strong desire to shop online for Western brands that convey social status and a sense of economic security. In China, shopping overseas via the Internet is now so common that it has a nickname—hai tao, or “ocean search.” According to the China E-commerce Research Center, the total value of cross-border transactions between Chinese consumers and American or European websites reached $1.9 billion in 2010, and is expected to quadruple to $7.6 billion in 2012. Indeed, while mature market growth rates stagnate or slump, emerging markets are powering ahead. Although their predominantly youthful populations have yet to reach their peak shopping years, they are already brand-conscious, status-seeking consumers—and some are rapidly becoming as affluent as shoppers in Europe or the United States. Retail sales in China, Vietnam, India and Russia, for example, are forecast to experience compound annual growth rates of 13.9 percent, 13.2 percent, 10.6 percent and 9.2 percent, respectively, between 2011 and 2014—compared with just 4.1 percent in North America and 2.4 percent in Western Europe. For Western retailers, the benefits of being able to fulfill the demands of these shoppers promise to be huge. And the online pure plays are moving fast to leverage their single-channel advantage: agility and speed. Two years ago, for example, Amazon.com was the world’s 28th largest retailer; if it maintains its current growth trajectory, it will be the world’s sixth largest retailer by 2015, with revenues of more than $100 billion.
What’s more, some nimble imitators are showing that Amazon’s business model can be replicated in markets beyond the online giant’s reach. Witness Lazada, the latest offering from German digital entrepreneurs the Samwer brothers, which has sought to replicate the Amazon model in such major growth markets as Indonesia, Malaysia and the Philippines.
These developments confront traditional retailers, saddled with bricks-and-mortar business models, with some complex choices. Which particular growth markets should they target? Which channels should they use to reach them? Which operating model and ownership structures should they build to ensure fulfillment? Developing the right response will take time and careful strategic analysis. And different retailers will follow different paths to success—depending, critically, on factors including how aggressive they are in their investment and branding strategies, the types of products they sell and the geographies they choose to focus on. All winning companies, nevertheless, will have a deep understanding of three essential strategic considerations.
1. The nature of the target consumer
Leading retailers recognize that not all global shoppers are alike. Shopping preferences vary enormously from culture to culture, and in the world of online retail in particular, they result in stark differences in attitudes toward the user experience, customer service, product information, payment methods and fulfillment needs. In many Asian countries, for example, online shoppers expect to find far more product information on a website than European or North American consumers would require—more detailed descriptions, more pictures and more delivery
Macy’s: Using third parties to ensure global fulfillment
Macy’s flagship store at 34th Street and Broadway is an important shopping destination for overseas visitors to New York City. But it’s not the only way they can buy from the iconic retailer. Overseas shoppers have also been visiting Macys.com in droves. And since last year, after the store engaged the e-commerce services provider FiftyOne to handle such critical fulfillment details as exchange rates, taxes and tariffs, those customers have been able to have their online orders delivered to them—direct—in 94 countries. Macy’s is one of a growing number of US retailers that have recognized the huge potential of international demand— especially from emerging markets (see story)— and have sought to fulfill it through e-commerce middlemen like FiftyOne. The trick to successful international fulfillment is ensuring a customer experience as compelling as that offered to domestic consumers. If a retailer’s website only offers an overseas shopper pricing in US dollars, for example, or asks for a five-digit zip code at checkout, it’s a turnoff. But the new breed of services providers manages all aspects of the international order lifecycle—from multicurrency payment processing through customs clearance to fraud management—on the customer’s own terms. Macy’s international customers, for instance, can click on “change country” at the bottom of the store’s homepage to view prices in their own currency, and they can usually expect to receive their order within four to 13 business days. In some countries, however, the relatively high delivery costs and waiting times associated with international online sites mean that locally operated alternatives remain the preferred option. Case in point: China, where Macy’s recently acquired a $15 million stake in VIPStore Co., parent company of Omei.com, which markets a variety of luxury and fashion brands to relatively wealthy Chinese consumers. By selling its merchandise directly through a dedicated section on its partner’s website, and having Omei.com fulfill orders from its own in-country facilities, Macy’s is jump-starting its China business—and learning a lot about the true potential of what could become one of the world’s leading luxury goods markets. Macy’s, of course, isn’t the only fashion retailer to take such a step: The Neiman Marcus Group, for example, recently bought a stake in Glamour Sales Holding, which specializes in online flash sales in both China and Japan. And Missoni, the high-end Italian fashion label, has partnered with Shangpin. com, another China-based online luxury retailer, to gain easy access to a population that is already enthusiastic about spending on luxury items.
options. Their payment preferences, too, are different from those of most Westerners. In Japan, for instance, shoppers want the option to pick up and pay for online purchases at neighborhood convenience stores (often on the same day). They also like to pay cash on delivery, or with an online bank transfer. In China, similar preferences are forcing Western brands to introduce local payment options on their websites. And when it comes to fulfillment, local laws and conditions can greatly complicate the delivery process.
taxes, delivery systems, and credit and payment systems, as well as local laws governing consumer protection, data privacy and warranties. These make buying online from retailers in other member states particularly challenging, and help explain why less than 9 percent of European consumers are currently cross-border shoppers. In Russia, meanwhile, problems with the security of online payments and the lack of a robust supply chain infrastructure force many to buy from retailers abroad via an e-commerce middleman (for an added fee) and pick up their purchases from kiosks, bank branches and post offices— sometimes weeks later. It can be a similar story in China. One high-end European fashion
Anyone operating in the European Union, for instance, will encounter a bewildering diversity of languages,
For further reading
“Serving the nonstop customer,” Outlook, 2012, No. 3 “How to make your company think like a customer,” Outlook 2012, No. 1: http://www.accenture.com/us-en/ outlook/Pages/outlook-journal2012-make-company-think-likecustomer.aspx For more related content, please visit www.accenture.com.
house, for example, has a fully localized e-commerce site in China, which offers an up-to-date and complete product range. But the fashion retailer still fulfills all online orders from its home country, which means, of course, that its Chinese consumers often experience long delivery delays. That may not matter so much for patrons of this sort of luxury brand, who are probably prepared to be patient in return for the cachet of owning the genuine article.
dozen other far-flung major cities in both countries with populations in excess of 1 million people who may be remote from stores but are spending more and more time and money online. Some 54 percent of Indian e-commerce shoppers already part with more than 30 percent of their disposable income online, for example— and most of them (91 percent) would be willing to boost that proportion to half in the future, according to WorldPay data. In emerging markets, indeed, most consumers first learn about Western brands online rather than in stores. And if they can’t get the brand they covet directly from its maker, they may well turn to alternative sources. In China, for example, there’s a huge “gray market” in luxury goods obtained from distributors and wholesalers by third-party players who sell them more cheaply than the brand owners themselves. (So-called gray goods are usually legitimate, not stolen or counterfeits.) Plainly, it pays to be actively present in a market if you want to keep control of your brand. That may not require a physical presence— but it probably does require either a local website, a link back to the home market website for ordering or third-party fulfillment providers.
2. A multichannel approach
To be sure, the online channel is not the only one that retailers could be developing in response to the global shopping boom. When Accenture recently surveyed almost 150 retailers on behalf of the European Retail Round Table, they told us, almost unanimously, that they view the growth opportunity in Europe, for instance, as multichannel. Some are opening their domestic websites to European orders, or pursuing cross-border sales from a domestic location. Some are testing new markets with a purely online model and following up with stores. A few are doing both simultaneously. Still, for most retailers entering a new market, making the choice between opening a physical store and launching a local, online retail presence as a first step can be tricky. Accenture research confirms that in both the US and UK retail environments, too much space is effectively chasing a finite amount of spending and hence not all space makes a satisfactory profit. Yet the reverse is true in many emerging markets, which might suggest that retailers should make stores their preferred channel for entering new markets. However, retailers should remember that selling in Brazil or India doesn’t just mean serving São Paulo or New Delhi. There are more than a
3. Collaborative alliances to mitigate risks
Once an online presence is established in a new market, retailers need to be extremely careful. If your online brand and shopping experience is not user-friendly, or if your goods get lost en route to the consumer, the damage to your brand can go viral pretty fast—and that could spoil an online shopping fulfillment venture before it even gets off the ground. It’s also important to recognize that digital channels are becoming
increasingly diverse and complex. It’s no longer enough to launch a branded online shop. You also need to be present in such online marketplaces as 360POP and Tmall in China, be active on social networks and offer a mobile commerce channel. Leading retailers take steps to mitigate such challenges and risks—as well as to overcome the global welter of both legal and fiscal regulations and credit acceptance processes—by collaborating with local solutions providers and even with full-service e-commerce outsourcing services. The latter enable brands to launch faster, without having to make huge investments in technology, by facilitating the management of multiple partners, from creative, through technology, right through to warehousing, fulfillment and customer service. Such outsourcing initiatives may, of course, be challenging for retailers unaccustomed to surrendering a degree of control. Which is why some seek to jump-start their initiatives in new markets through strategic partnerships. Witness, for example, Macy’s strategy—acquiring a stake in VIPStore Co., the parent company of the Chinese online retailer Omei. com—for testing the waters in China (see sidebar, page 3).
About the authors
Nathaniel Fry is a Chicago-based senior executive in the Accenture Retail industry group. email@example.com London-based Matthew J. Prebble is a senior executive in the Accenture Retail industry group. firstname.lastname@example.org Christoph R. Loeffler is the North Asia lead for the Accenture Interactive group. He is based in Shanghai. email@example.com
Outlook is published by Accenture. The views and opinions in this article should not be viewed as professional advice with respect to your business.
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Responding to the global shopping surge is a complex challenge for retailers. It involves making difficult choices about markets, channels and collaboration initiatives—choices that will vary from retailer to retailer—as well as requiring seamless operating models that combine the agility and flexibility of the online pure plays with the brand power and convenience of store-based businesses. The potential rewards of getting it right, however, are legion in terms of sales, revenues and growth. The time to start making these choices, moreover, is now.
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