Growing online in uncertain times
For British fashion retailers today, the only certainty seems to be uncertainty. Brett Lawrence, Senior Consultant, Inviqa examines how retailers can grow and thrive online in this climate of currency fluctuations, ever-tighter margins and growing competition from pureplay brands.
There’s no escaping the reality of the financial markets’ reaction to the EU referendum. In its wake, the pound recently hit an almost 31-year low, and currency fluctuations are having serious implications for manufacturing and buying costs.
The fall in the pound means that manufacturing and sourcing clothing overseas has become a lot pricier. And – with more than 70% of their stock purchased in US dollars – the likes of M&S , New Look and Matalan are particularly vulnerable.
On top of this, retailers are bracing themselves for higher duties and taxes connected with importing from, and selling to, overseas markets.
Fashion retailer Next has already suggested that it will need to bump product prices by around 5% as a result and others are likely to follow or take other measures to protect their margins. For example, while Asos has vowed not to raise its prices and to seek more cost-effective practices, John Lewis has set a £30 minimum order level for its free ‘click and collect’ service to help minimise operational costs on low yield sales.
IS DIGITAL STRATEGY STILL A PRIORITY?
As fashion retailers grapple to understand the longer-term impact that Brexit could have on their businesses, and look to make cost-cutting decisions, some may be asking whether their digital investment should take a backseat.
The answer is ‘no’, because investing in digital and online strategy is what will help retailers differentiate through the experiences they provide and ultimately win over customers. And with recent surveys suggesting that 63% of customers are planning to spend the same on fashion in 2017 as they did in 2016, demand from consumers is still high – and their expectations cannot be ignored.
Sector leader Asos, for example, plans to increase its capital expenditure to nearly £170m (from £140m) in 2017 in order to invest heavily in digital, technology and operational infrastructure. Despite pulling out of China, Asos maintains a keen focus on international expansion with its overseas growth in 2016 surpassing its domestic advancement. Last year, Asos saw its US operation increase sales by around two thirds and, fittingly, investment will be made here with a new warehouse able to handle ten times more capacity than its current setup. Likewise, investment in Australia and Russia has seen the introduction of free delivery and a 75% cut in delivery times respectively.
Affordable luxury brand Radley is another inspiring example of how to grow through global ecommerce expansion. Investment in its online business and international markets was the impetus behind a 4% revenue rise to £67.1m in the year to 30 April 2016 with some regions seeing triple digit growth.
Radley has proven that developing a digital strategy and investing in it pays off. Its online sales grew 20% in the year to 30 April 2016 with its products now shipping to 47 countries. Aiming to double its global online sales in the next three years, Radley is a testament to the rewards of making careful, business-goal-oriented investments in your web presence. Recent investments included the option for overseas buyers to purchase from the UK site in Euros, key enhancements to its existing German site and a dedicated US site.
As Radley’s ecommerce head Rowan Luckie puts it: “We’re seeing significant growth in the US and we are looking at strategic channels to help us reach our target audience and sell to them in the ways that are most convenient to them. We want customers to be comfortable in the way they shop, so if the demand is there through new channels, we’ll look to support that choice”.
Beyond this, Radley has established a clear business case for further investment in a dedicated China site. The decision was informed by observing the shopping habits of Chinese tourists and students visiting the UK, who then shop from the UK site once they’re back home, and by monitoring reselling activity on China’s leading C2C marketplace, Taobao.
There are clear business cases for expanding online reach, but with all eyes on cutting costs and inefficiencies, how can fashion retailers prime themselves to grow online in these uncertain times?
DIPPING YOUR TOE IN THE WATER
International ecommerce leverage is not only about protecting market position and gaining international presence – it’s about unlocking the new growth opportunities that come with operating on a global scale.
Ecommerce lowers barriers to entering new markets, giving flexibility and the ability to act and learn fast. Strategic digital investment can allow you to explore markets without the need to initially invest in market infrastructure, warehouse, and other considerations that come with launching a bricks-and-mortar store.
When looking to sell internationally, you obviously don’t need a designated site for that country, because you can sell worldwide from one global site. But a light-touch approach restricts your ability to experiment with, and mine data around, a new customer base. And, increasingly, meeting customer expectations and keeping pace with your competitors means supporting the likes of native language content, local payment options, country-specific content, and ‘follow-the-sun’ support.
So, for those businesses wanting to test out new international customer bases with minimal investment, marketplaces offer a low risk approach to driving sales in foreign markets. Fashion marketplaces such as UK-based Farfetch continue to attract a strong customer base from overseas, and country-specific marketplaces such as TMall (China) and Myntra (India) offer ecommerce leaders the opportunity to reach a wide overseas audience without having to create market-specific sites.
Whilst one could argue taking such an approach reduces the control you have over how your brand is presented to the end customer, with more than 80% of ecommerce transactions in China and India being made via marketplaces, the insight they can give into whether your value proposition transfers to a new market cannot be ignored.
For those looking to use their own site to launch in a new market, chances are, if you’re entering a market where others have gone before you, the services you need – from translation services, to payment providers and distribution – will be easily accessible. And without the ties that come with heavy investment in one particular market, retailers focusing on a web-first growth strategy have the freedom to change direction and move focus from one market to another.
John Lewis is a great example of the benefits of a web-first expansion strategy. In recent years the retailer has bolstered its website to attract international orders from a wider pool of countries including The Philippines and Malaysia. It’s an approach that allows John Lewis to quickly collect valuable data and learn where further investment (including physical stores) could make strategic sense.
For many fashion retailers, emerging markets like China and Russia remain their ‘next big thing’. And for good reason. The increasing weight of emerging markets is expected to account for 60% of growth in the women’s apparel market by 2025, according to McKinsey.
These markets come with a lot of complexity – from legal issues to taxation – and gaining traction isn’t easy. For this reason, it’s key to think big, start small and do your homework first.
In many high-growth markets, online marketplaces are the dominant channel for shopping and starting small may mean first selling a few items on a regional marketplace, or on a global marketplace (set to represent 39% of the online retail market in 2020) that serves your target market. Likewise, it may be beneficial for your brand to consider a B2B strategy to help you gain traction through an established regional player.
Manchester-based fashion etailer Glamorous was quick to recognise the opportunity to increase market reach by integrating its ecommerce store with Shangpin.com – a leading online fashion retailer in China, a market with a famous appetite for international fashion.
Backed by a powerful supply chain, Shangpin gives its 30 million registered customers access to more than 600 international brands, and it’s a tempting proposition for retailers looking to break into an unknown market – retailers like Topshop, which is now an official Shangpin.com partner and is set to open five stores in China this year as part of the partnership.
Despite the current economic uncertainty, your competitors and your customers won’t sit still. It’s widely expected that spend across the retail sector as a whole will be stronger in 2017 than 2016, fuelled mainly by inflation rather than volume, according to PwC. With changing consumer habits, emerging technologies, and disruptive competitors on the scene, your digital products need to continually change and evolve to maintain a competitive advantage.
Ecommerce remains a crucial growth opportunity, but with uncertain times and tightening margins it’s crucial that you build flexibility into your digital strategy. Instead of trying to go to market with a fully-developed solution, address your greatest business challenge with the simplest digital product. Doing so will enable you to move faster than your competitors by using data insight to learn what creates value for your customers and what has the biggest impact on driving traction towards your business goals.