Retail TouchPoints Global Growth Report Part 2
Global expansion has become a necessity for U.S. retailers looking to expand their businesses following the recent recession. Retailers that have found success by opening brick-and-mortar locations abroad include Target, Abercrombie & Fitch, and Urban Outfitters. Other retailers, however, are opting to go the e-Commerce route before investing in brick-and-mortar.
To help in that effort, many retailers are investing in cross border trade (CBT) technology, which is designed to help merchants adapt customer messaging, payment and shipping options to reflect country-to-country differences. Creating an optimal customer experience for shoppers worldwide is dependent on the retailers’ ability to understand cultural differences and how to cater to different audiences, while continuing to deliver a consistent brand image. Providers of CBT offer solutions designed to help retailers develop a strong international customer experience, often from a single web platform.
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“Retailers should really work hard to understand the consumer,” said Michael DeSimone, CEO of FiftyOne, in a recent interview with Retail TouchPoints. “It shouldn’t be a shock that retailers have to work hard to understand the international consumer when they have already worked very hard to understand the domestic consumer. We just tend to forget because it has become automatic. The things retailers learn might make [international consumers] look different for different reasons. But the effort that goes into understanding them and really fine-tuning the market to who they are, is the same principle American retailers have been using for 100 years.”
DeSimone noted a few best practices that retailers can easily implement, such as displaying a country’s flag at the top of a web site’s international landing page, and offering language translation.
Local Personnel Shed Light On Payment and Delivery Norms
While CBT helps in the process of developing international web sites, experts advise retailers to consider hiring locally for a variety of responsibilities. For example, employees who live in the country can help the retail company manage inventory for both e-Commerce and brick-and-mortar locations. By using local talent to determine overall product demand in a given country, retailers can decide whether they should offer an entire catalog in an international location, or present specialty collections based on culture-specific tastes and styles.
“Retailers need to be prepared to staff locally and have local expertise in areas including basic buying and merchandising, and consumers’ taste in what they want to buy,” said Joanne Bethlahmy, Director of Retail and Consumer Goods Practice in the Cisco Business Solutions Group.
DeSimone agreed: “In order to really achieve a global e-Commerce platform, you have to be able to act local.” Understanding import regulations also will help retailers better understand which items to make available for international consumers shopping via the web. “There are certain products that can’t be shipped to a particular country due to import restrictions. Don’t show that product — it’s just frustrating for the consumer,” DeSimone said. “Or at least flag an item as ‘U.S. only.’”
Deloitte Touche Tohmatsu’s report titled Leaving Home: Global Powers of Retailing 2011, reaffirmed that learning about local tastes and customs by hiring local personnel is as a key way to assure success in international development. “The best global retailers tend to rely on the fewest number of expatriate managers,” according to the Deloitte report. “The ideal situation is for most stores to have local managers…Local managers often possess connections to the local business community and government. They usually have a better understanding of local consumer culture and they often engender greater loyalty within the organization than do foreigners.”
Developing relationships with local retailers within the same market also can help increase the likelihood of nurturing local partnerships and encouraging supportive supplier relationships. In turn, U.S. retailers can further their knowledge of an unfamiliar marketplace and marketing tactics, such as site design and buying incentives.
Other International Obstacles
According to Kasey Lobaugh, Principal of Deloitte Consulting, purchasing capabilities and product deliveries are additional obstacles that can hinder a U.S. retailer’s international expansion, and in turn should be addressed first. Other regulatory issues to consider include: taxes, function features and payment options, he noted.
To address differing regulations regarding taxation DeSimone encourages retailers to consider altering e-Commerce prices to cater to specific preferences.
“Americans are continually surprised that it’s only in North America that the price tag on an item is not the price you pay — you go to the check-out and they add taxes to it,” DeSimone said. “In my experience, most of the world puts sales tax in the price. Technology can enable retailers to use inclusive pricing in countries where it’s the norm — in countries like the UK and Australia — but not do it in countries like Canada.”
Differing cultural norms and preferences also come to play in payment systems. Often, the types of payment systems adopted by a specific country are the result of historical occurrences in that country. For example, countries that experienced significant inflation following World War II avoid the use of credit cards. In turn, retailers must develop a payment system those consumers feel comfortable using, rather than merely allowing standard credit card and PayPal. Therefore, U.S. retailers should consider implementing multiple payment options in different countries.
“The preferred way to pay really varies dramatically by country,” Bethlahmy said. “An example is Germany, where the number one way to pay for e-Commerce is online bank transfer — the second is PayPal. You compare that to other countries where cash on delivery (COD) is the most preferred way to pay. These different methods of payment systems are not used typically by U.S. retailers today…But if they really want to unlock revenue in these new countries they really have to allow consumers to pay the way they feel comfortable paying.”
Although the majority of e-Commerce sites offer shipping through UPS and FedEx, developing countries are reliant on the postal service and local carriers. According to Bethlahmy, retailers must cater to standard local expectations to ensure satisfaction.
“When U.S. retailers consider starting e-Commerce operations abroad, not only do they have to have the merchandise consumers want in that area, the marketing tactics that will appeal to those tastes, they have to be able to pay the way they want to pay,” Bethlahmy said. “They have to become knowledgeable about what the customer expectations are around shipping and delivery as well.”
To avoid customer dissatisfaction, retailers should consider partnerships with local retailers to improve product availability and available shipping methods. Countries like the UK, Japan and Korea have implemented standard one-day delivery, while central London is currently testing one-hour shipping. One-hour delivery options are successful primarily for companies with a really high density of customers and a local distribution to stock highest selling items, according to DeSimone. He noted that cities such as Shanghai, Tokyo and London are prime targets for successful adoption of the quick-delivery system. In Japan, retailers also have the option to ship to local convenience stores so customers can pick up items and pay cash-on-demand.
The Brick-And-Mortar/Digital Divide
More retailers are realizing the benefits of global expansion by witnessing the success of companies like Wal-Mart, Target, Bloomingdale’s, Apple and Urban Outfitters. Although there is promise for brick-and-mortar development, technological innovations have made the digital shopping experience process seamless and easier for retailers looking to test the international waters. Regardless of entry method, Lobaugh advised retailers to attempt both options for a favorable response.
“If you’re going to go into Canada or any other country, and you’re thinking about physical, you have to think about digital too — it can’t be an afterthought,” Lobaugh said. “More importantly, [digital] can be an important element of a physical expansion strategy to prepare the market and to drive traffic and conversion in the store, so it’s a way to mitigate the risk of investment in the physical footprint. Our view is, if you’re going physical, you can’t think of digital separately. It should be part of an integrated strategy.”
Global Opportunities Differ Country To Country
A survey of 60 retail executives conducted by A.T. Kearney found that nearly all respondents (92%) from emerging markets are planning to expand beyond their home market, while nearly half (46.4%) were looking to expand even further outside their region.
According to the 2010 A.T. Kearney report titled Expanding Opportunities for Global Retailers, the BRIC (Brazil, Russia, India and China) were top countries on the development index, with 80% of survey respondents naming one of these countries a priority for international growth plans. China was named the first choice, with India third, Brazil fifth and Russia in 10th place.
In the 2011 edition of the study, there was an extreme shift within the BRIC, which was caused by multiple factors, according to Hana Ben-Shabat, Partner, A.T. Kearney. In the latest rankings, Brazil is first, China fourth, India sixth and Russia placed 14th.
“Brazil’s movement from number five to number one on the rankings is driven by strong growth in retail sale per capita, an improvement in the financial stability of the country, and investment in retail selling space,” said Ben-Shabat. “Additionally, Brazil continues to remain relatively unsaturated when compared to many of the other large developing markets (e.g. India, China) which makes it a more attractive market.”
Other factors that influenced index results include:
- Brazil is slated to be the home of the 2014 World Cup and 2016 Olympic games, which increased building investments for malls and shopping centers; Brazil’s general retail market is predicted to grow to $8.5 billion in the next three years;
- India’s current retail market is worth approximately $435 billion, and is expected to increase to $535 billion by 2013, with 10% coming from organized retail;
- The A.T. Kearney 2011 Retail Index ranked China the number-one most attractive emerging market, due to growth in upper and middle classes and increased disposable incomes;
- China and India display greater growth opportunities in small, yet quickly developing tier two cities rather than more developed, tier one areas. Tier two cities respond strongly to standard retail models — similarly to tier one areas — but have lower operating costs; and
- Russia’s drop in the index is attributed to several factors, including “slowdown in GDP growth, less investment in retail selling space, and increased political risk,” Ben-Shabat said. Swedish furniture outlet Ikea recently halted expansion in the country after allegedly refusing to bribe safety inspectors.
Although mediocre profit and lackluster brand awareness are issues many retailers face while attempting to go global, several companies have successfully expanded their brand internationally by understanding cultural norms and adapting to them, forming partnerships with local companies and implementing the proper solutions to create an ideal shopping experience through the e-Commerce site and brick-and-mortar stores.
