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Challenging times ahead

Planning for post Brexit cross-border trade, increased use of mobile and looming problems in the logistics sector are among key strategic issues facing European retailers. How are leading retailers coping? Penelope Ody reports

When it comes to strategic issues on the boardroom agenda, there can be few online retailers that have yet to add Brexit to their “to do” list – and that goes for those in mainland Europe as well as in the UK.

According to Eurostat data, a third of EU shoppers bought goods or services online from other EU countries in 2017, almost a quarter shopped online outside the EU, while around 80% of cross-border purchases involved physical goods requiring some form of home delivery or collection*. In recent months the IMRG MetaPack UK Delivery Index has also reported steadily rising numbers of parcels sent to EU shoppers by the UK retailers it surveys – at times EU sales have accounted for up to 70% of their total cross-border business, thanks in part to the weakness of sterling.

A survey last year by the International Post Corporation also looked at where EU shoppers go for their cross-border purchases, with typically around 15-18% of them ordering from the UK. The exception is Ireland where 63% of cross-border orders are to UK sites. Traffic in the opposite direction is rather less significant with more UK buyers ordering from China or the USA, pushing Germany into third place, accounting for 10% of UK cross-border purchases.

Currently all these EU-to-or-from-the-UK purchases are within the single market, but after Brexit if, as expected, the UK is outside the customs union, then imported goods from non-EU countries on sale in the UK will no longer be subject to the EU’s common external tariff (CET), potentially making them up to 15% or more less expensive than elsewhere in Europe – always assuming, of course, that the UK lives up to its free-trade reputation and does not impose new tariffs itself. As for those EU shoppers still buying from UK websites, then they could be faced with demands for duty or VAT on their purchases when the postman finally delivers them – even if they find the UK’s weak sterling and tariff-free prices tempting.

For companies such as Asos, which made around 29% of its sales to EU shoppers last year, the impact could be significant. Small wonder then, that the company has opened a second EU-based distribution centre with its Eurohub 2 in Berlin. Once any non-EU sourced products are delivered to the DC – having paid the necessary CET – they are within the single market and can be sent to EU shoppers with no additional charges due. As CEO Nick Beighton, said in his annual review last year: “The local stockholding …will grow to around 9m units in readiness for peak trading this year,” while Phase 2 of the project will “double the square footage of the fulfilment centre”. By Brexit proper, Asos will have plenty of capacity to meet its EU orders from within mainland Europe with no need to worry about customs delays and tariffs involved in shipping from the UK – although not all UK etailers will be in a similar position.

Most EU etailers sell rather less to the UK than Asos manages to the EU, but with the prospect of a significant price differential caused by CET, it’s possible that they will find it harder to do so post-Brexit. For those with a significant UK customer base then the same issues apply: is it worth using a UK-based DC with direct imports of, for example, fashions from the far east to thus avoid CET and offer British shoppers a more competitive price?

Different strategies

However, for many IREUTop500 retailers the UK is clearly not a target market as they do not provide an English language website: Polish retailer Empik, for example, provides no other languages but Polish, although it does offer international delivery, presumably for ex-pat Poles elsewhere in the EU. RetailX researchers working on behalf of Internetretailing find that Top500 retailers typically sell to between two and three markets in between two and three languages, but the analysis disguises a wide disparity in the strategic ambitions of the Top500. At one extreme are the likes of Empik focusing largely on their home markets with a single language site, while at the other is AliExpress – part of China’s Alibaba Group – which presents visitors with a choice of 95 languages, including Scots Gaelic, Yiddish, Shona and Hawaiian, which is probably a trifle excessive but may represent some extremely ambitious global expansion plans.

Rather more realistic is the Inditex Group with brands – including Zara, Pull&Bear, Bershka, Stradivarius, all in the Top100 – that sell in 96 markets, with national websites currently in 49 of them in multiple languages. Perhaps not surprisingly for a Spanish company, it ensures its home market is completely covered with its domestic website available in Catalan, Galician, and Basque as well as Spanish and English.

The group has a strategic aim to increase its international presence and as well as 7,475 stores in those 96 countries, last year added national websites in Thailand, Malaysia, Singapore and Vietnam with Japan and South Korea among newcomers this year. Ultimately there will be national websites for all its operating markets. As Pablo Isla, Inditex CEO, said, when presenting the company’s 2017 results “Online sales are becoming an element that is contributing significantly to the company’s growth” – contributing rather impressively with a 41% increase in online sales last year and now accounting for 10% of total group revenue. Creating local websites in appropriate languages is clearly a winning strategy for Inditex.

With increasing pressure on the high street, as online sales across Europe continue to grow, omnichannel retailers, such as the Inditex brands, look to innovative methods of engaging and attracting customers. Zara is already trialling augmented reality accessible via a mobile app in some of its display windows. Among UK retailers, Debenhams has announced plans for greater interaction with customers by providing more personalised services and apps, allowing them to schedule collection times for online orders or arrange pre-selection of a range of styles to try on during a busy lunch hour. Esprit, too, plans a greater focus on mobile after recording a 164% increase in online orders coming from mobile phones last year. “We cannot compete directly with giant pure players in this field,” said CEO Jose Manuel Martines Gutierrez, in the company’s latest annual report, “but we aim to keep adopting the most relevant practices from the market as speedily as possible. under this philosophy, we know that the next generation of our eshop will be primarily designed for mobile devices.”

From digital to the real

While traditional retailers are embracing digital technologies, some pureplays are looking to innovative ways to bring their brands into the real world. Pop-up shops are proliferating both in shopping malls and vacant outlets. Last year Amazon opened a pop-up in London’s Soho to promote Black Friday. For four days shoppers could browse the display while ordering goods via their mobiles as well as take part in workshops and contests. Missguided – which moved into the real world in 2015 with concessions in Selfridges stores, and now has its own standalone outlets at Westfield Stratford and the Bluewater shopping centre – opened a pop-up at Boxpark in Shoreditch to launch its Mennace “brother label” last autumn. According to Mintel the outlet reputedly has a 12-month lease, so a rather extended pop-up.

Researchers also looked at the delivery options offered by the Top500 with next-day delivery offered by one in five and almost two-thirds allowing shoppers to collect orders from stores. Delivery preferences also vary by geography: according to the IPC survey, 54% of French online orders are delivered to a courier’s parcel shop while parcel lockers are most popular in Finland and Denmark. Others are looking for more innovative options with pure plays striking deals with bricks and mortar companies to enable collection from high street stores – as with the 50 brands, including Asos and Missguided, that can be collected from Asda.

A growing problem across Europe, however, is a shortage of lorry drivers. While some in the UK blame Brexit, the dearth is not confined to Britain – as Renaud Bouet, human resources director of STEF Transport France, told Les Echos earlier this year: “The skills pool is seriously inadequate. The profession is looking for around 20,000 drivers across France.” Last year Ocado blamed a slowdown in its expansion plans and sales growth (down from 13.1% to 11.6%) on the driver shortage. “More people are buying products as soon as they want online and there is more demand for delivery services and a tight labour market,” said cfo Duncan Tatton-Brown. Ocado’s solution has been to raise driver wages and revise recruitment methods while other companies are paying bonuses of £100 a shift to attract and keep drivers.

Rather than focusing on solving the driver shortage with drones, Amazon has come up with an innovative way of avoiding repeated delivery attempts when there is no-one at home to receive the parcel. Amazon Key, which is now live in around 40 cities in the US, allows delivery drivers to leave packages inside the house rather than on the doorstep. It involves fitting a smart door lock and Amazon Cloud Cam so that when a courier arrives, householders are informed via a mobile app and can authorise the door to open. Once the parcel is placed inside, the door can be remotely locked again while the Cloud Cam relays the activity for additional security.

A more practical solution for Europe’s retailers, may be to promote a greater range of collection options persuading shoppers to collect from stores or communal facilities – such as parcel shops or lockers – rather than expect a diminishing number of drivers to deliver their goods, and with fewer drivers the “next day” option comes at an even greater premium. Adding a review of fulfilment choices to the strategic “to do” list should perhaps be another priority?

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