Moving into new markets is about more than looking at potentially high sales, it's about seeing if these sales will generate sustainable profits. This all requires careful planning and monitoring from the board, advises Chloe Rigby
International sales are now firmly on the agenda for retail boards. As the UK market matures and competition becomes more intense, British retailers are looking evermore seriously at new markets, as they target sales growth beyond the 14 per cent expansion in UK online retailing that IMRG predicted for 2012. With the French market growing by 22 per cent, and those in Italy and Sweden by 18 per cent there is, says Shane Fitzpatrick, Chase Paymentech Europe’s managing director, “a prize to be had, and an opportunity that merchants are looking to access”.
For many, early steps into overseas expansion meant first adding new countries to the list of delivery destinations, and later new currencies. Today retailers are getting serious about new markets, researching them carefully and investing for success.
Inspiration comes from the recognised success of operators such as fashion pureplay ASOS , which now turns over more from international sales than it does from the UK market, and cycling website Wiggle , which sells to more than 80 countries. But eCommera co-founder and director Michael Ross warns that retailers need to think through their own reasons for expansion before taking the plunge. “I think the starting point is to reach an international strategy within a coherent overarching strategy,” he said. “What strategically is driving them to think of international?”
There can be a real temptation to plunge into less familiar markets in search of higher levels of growth. But, points out Seamus Whittingham, managing director, EMEA, ChannelAdvisor , unforeseen issues such as complex logistics or high fraud rates can easily eat into profits. “Go where the numbers tell you it makes sense and where the latch is for your particular business as a brand or retailer,” he says. “People sometimes have a bit of a quirky expansion plan that ignores geographies that are a short distance away, easily reachable and quantifiable, for a desire to go further afield to zap into China. But that’s probably more appropriate to brands. [The Chinese market] is largely around two conurbations and beyond that disposable income is significantly lower and logistics significantly more complicated.”
Niraj Shah, chief executive of US homewares website Wayfair puts it succinctly when he says: “I think you want to be less surprised, and the more research you do, typically the less surprised you’ll be.”UNDERSTAND THE MARKET
Retailers who take international growth seriously, then, are doing their due diligence on potential new markets. That means asking specific questions about how their business is likely to fare in any given market, and what it will take to make trade profitable. For example, do consumers in the country in question want to buy these products and can they afford the products in sufficient numbers to make the investment worthwhile? Will the cost of getting goods to the buyers and potential returns, as well the costs of raising brand awareness through local search engines, outweigh any profit likely to be made?
Niraj Shah heads US homewares website Wayfair.com, founded in the USA in 2002. Since 2009 it has expanded overseas, selling today in four markets: Canada, the UK, Germany and Australia. Wayfair.co.uk launched in 2011 and recently announced gross sales of £20 million in its first year.
Shah says his priorities when deciding where to expand include an assessment not only of economic headline figures but also of the on-the-ground capability to deliver the wide selection, high quality and fast delivery that consumers demand. “We care about the market size and whether we think the economic opportunity is interesting enough,” he said. “But there’s a few other things we’ve found matter a lot, to do with what customers expect from delivery and logistics. Are the resources in the country there that we could build on? In most industrialised countries the answer is yes. But some of the emerging countries where there’s really good economic growth you find sometimes that the logistics infrastructure is sometimes not great or the payments infrastructure is not great.” Other considerations include whether there are suppliers in the market that can provide Wayfair with products to sell, since shipping from the US would be prohibitively costly and time-consuming.
Other issues to investigate in relation to each market are local taxes, customs duties and legal issues. For example, says Andrew McClelland, managing director of IMRG, it’s important to remember that in Germany returns are free – and once a website or even a search strategy is pointed towards a territory, a company will be deemed to be trading there.MOVING INTO THE MARKET
Once a trader has established a strong likely opportunity, they will then set about working out how best to go into the market. An early step might be a simple one: to open up delivery to that market from a UK website. Later a retailer might launch a dedicated country-specific website. But others may choose a step in between that, opting to trade across third-party marketplaces such as eBay or Amazon.
“Don’t assume,” says the IMRG’s McClelland, “that the best way to go into a market is to have your own website – it might be better to trade through a number of different marketplaces in those territories because that’s how consumers in those territories shop. A marketplace will have a lot of local connections and local partnerships that you can piggyback on the back of while you get used to and know who the main competition and main supplier partners are.”
Some retail brands, says ChannelAdvisor’s Whittingham, use marketplaces as a way of testing their entry into new markets. “There are different reasons why a brand or retailer would use a marketplace in a separate geography,” he says. “Some of it is around testing the water, but it’s also testing their own capabilities to support that geography.” But others still will see an eBay or Amazon store as their main route into that market.
“There is generally no one particular answer because actually it all depends on where your starting point is,” says Whittingham. “It depends on who you are, where you’re trading today, and whether you have physical assets in those individual geographies. All of that looks different for each individual retailer or brand.”CROSS-CHANNEL OR ONLINE ONLY?
And just as there are decisions to be made about what online channel to use, there is also a question to be asked about whether shops are a potential international sales channel. Tristan Rogers, chief executive of international branding specialist ConcretePlatform says that while an online-only strategy may appear low cost, success in new markets will inevitably bring with it a need for local distribution centres and physical investment. Shops can work well to enable cross-channel services such as click and collect and returns, as well as to raise brand awareness amongst potential customers.
“I don’t think any bricks-based retailer who has moved into online should think about new markets just as online-only,” he says. “They’ll probably find that culturally their business is built around high street retailing and that’s the expertise in the gene pool. There’s a lot of logic in moving into the high street.”
The risk can be shared, he suggests, through a franchise approach.
“If people did their homework more to see what level of sales they could generate I think they would be thinking about franchising as opposed to ecommerce and possibly in tandem, as long as they can work out their royalty rights – and whose sale it is if someone from the new market buys online after the franchisee has done marketing.”
He adds: “People need to do their research and think five years ahead about how they’ll make it work for them in that market.”
The IMRG’s McClelland also sees potential in store launches. “If you’re a multichannel retailer you might test the water with a website but actually you also might find you get more brand impact by actually coinciding your website launch with a high street launch or an offline launch. If you launch a store in Berlin and generate press and publicity around that, it gives people the confidence to go and look at your website.”TO LOCALISE – OR NOT?
Retailers need to consider just how local their online presence needs to be.
ChannelAdvisor’s Whittingham suggests that in some markets, such as Germany and France, a website has to appear as local as possible. “If there’s a choice between choosing between a domestic provider and overseas, culturally the French will always prefer to purchase from the local provider,” he says. But in areas such as Scandinavia, where consumers are more used to buying from foreign websites, localisation may be less necessary.
So what does that localisation entail? Translation of the site is key, and involves significant investment. As seen in our case study, website Party Delights had around 500,000 words of text translated for its move into Germany.
But it also means offering the local payment methods used in that market. In Germany, where fewer people have credit cards, a significant proportion of payments are made through bank transfer. In the Netherlands, more than half pay with the Ideal system, which transfers the customer to their bank for payment. “For consumers to gain the confidence to complete a cross-border international transaction it’s very important that the merchant has a local method of payment,” says Chase Paymentech’s Fitzgerald.
Local customer service can also be key. A local address will reassure when customers consider the possibility of returning items, something that’s likely to be more expensive to an overseas address. Customers also value the ability to speak to customer service staff in their own language, though that could be supplies by UK-based staff working in a variety of languages.MEASURING SUCCESS
No retailer should trade overseas without continuing to ensure that the operation continues to make business sense. For Whittingham, measuring turnover is not enough. “The absolute measurement is profitability,” he says. “In other words it’s not just revenue but can I successfully transact in that region and support payment methods and get it there and back in the instance of returns?”
And, says Ross, it’s important to measure success for each market separately. “You have to understand your delivery on promise, your customer repeat purchase rate, your basket abandonment rate. You have to be measuring this by market to tell you if performances are what you want it to be.”Speaking from Experience
“Don’t try and do it on the cheap – you need to invest properly if you’re going to take that market seriously.”Steve Graham, sales director, Party Delights
“Whether you’re looking to start a project on a direct website presence or via a marketplace, the absolute number one rule is do your homework to quantify the market opportunity within that individual geography.”Seamus Whittingham, managing director, EMEA, ChannelAdvisor
PUT IN THE SPADEWORK
“I’m not really sure that all retailers are doing their due diligence on the market. They may argue they don’t need to but I think there’s never a particularly good answer that’s based around not doing due diligence.”Tristan Rogers, chief executive, ConcretePlatform Recent Developments
In the last year more retailers have got serious about international expansion. While many still start out on their overseas adventure by simply offering delivery to new territories, fully translated and localised websites for major European markets are now routine, while those at the cutting edge are also looking to China and Asia.Case Study: Party Delights
UK online-only business Party Delights recently launched its first overseas website in Germany. The company, which expects to turn over £14.6 million in its current financial year, established through market research, including the use of free Google analysis tools, that there was demand for the fancy dress and party products it sells, that the German market is less developed than its UK equivalent, and that the items it sells are standard across northern Europe. “If you’re buying a Disney princess plate in the UK, it’s the same as in Germany,” says Steve Graham, sales director. “If you buy a Happy Birthday banner it’s the same too – it isn’t translated for different countries. There’s a lot of product synergy.”
Delights.de is a fully translated site, supported by German-speaking customer service agents in the UK. “We did decide from day one to make sure the site for all intents and purposes looked like a German website rather than just doing it in euros,” says Graham. “For us it’s quite a big investment because we probably had to get just over 500,000 words translated.”
The logistics of supplying to Germany were also reasonably straightforward. Using the fact that the company was set to open a dedicated German website it negotiated with couriers to offer a standard €4.95 service, offered as a three-day service but actually shipped on a two-day service.
But there were wider gaps between the UK and German experience when it came to payment methods and clothes sizing – and payments has been the biggest challenge. When 50 per cent of German consumers pay through bank transfer it was important to offer that type of payment. “The biggest change for Germany was offering Sofort, bank transfer, and GiroPay,” says Graham. At the time of speaking, Party Delights was still tweaking presentation of the payments section “to make sure it is how Germans would like to see it”. Graham adds: “The beauty of the web is that you can do multiple testing by showing different screens to visitors and seeing which is more successful.”
Party Delights is launching in France in January 2013, followed by the Netherlands and then the Scandinavian countries.
“Online retail in our sector is continuing to hold up nicely,” says Graham. “When you look at the success people like ASOS and Wiggle have had overseas, it seems the natural progression, with the world seemingly decreasing in size and being much easier to sell over there.”
He advises others considering overseas expansion to “speak to the specialists in the market and don’t try and second guess it. Don’t try to skip using a good translation company – and don’t use Google Translate.”