Although he may not have intended to flatter us, I’ve no argument with Napoleon when he described Britain as a “nation of shopkeepers” and it seems that we’re proving this once again in the digital era.
While its now clear that physical retailing has largely run out of road with a 17.7% year-on-year decline in new retail space planned for the UK this year, we have embraced the digital age and are now generally regarded as the world’s most successful on-line retailing nation. However, this isn’t just about switching customers to the on-line model, its a real opportunity both for retail start-ups with a shiny new model and for established brands to take their offer to new territories without incurring the cost and risk of a traditional retail business.
We are already seeing how the varying on-line competence of big UK retailers is causing the league table to be re-written in the context of the digital, rather than physical market. In the supermarket sector alone Morrison’s represents a vivid illustration of what happens when you don’t get your digital act together with physical sales declining and no on-line business to fill the void. However the real value in the on-line phenomenon is the opportunity it provides for retailers to enter markets that offer a far higher return than their core domestic business.
Sure the volume of traffic on UK retail sites from US and UK customers is phenomenal. Of our non-UK customers 21% are from the US, which has to represent a success, but in terms of value, Asia and other emerging markets are a far more enticing prospect. A Malaysian customer for example is worth six from the UK or US and although we are only slowly making in-roads into the Chinese market a Chinese on-line shopper spends around five times what a Brit will. Nevertheless, there’s a sting in the tail of this beast that we need to be aware of.
It easy for UK retailers to operate in a bit of a vacuum, but, as I have pointed out on numerous occasions in the past, these developing markets are not without their own retail heroes. India, in particular, boasts some really good supermarket chains who are quickly catching up with their Western counterparts in terms of quality of product and professionalism of their operation. The other thing about these places is that they have thrown themselves into the digital age embracing it with considerable enthusiasm, unhindered by existing infrastructure and business models that have caused delays with better established British retailers – Morrisons being a case in point. Admittedly, their delivery doesn’t always live up to their enthusiasm, but they are getting there and what’s grease for the goose … as the saying goes. Already Indian retailers are scoring sales in the UK and US. Don’t let’s forget that a large proportion of the UK’s budget fashion comes from India, so it will be tempting for locals and attractive to UK shoppers to cut out the middle man and get even better prices. This is already happening with many small limited-inventory operations emerging and it is only a matter of time before they work out how to scale up and market to Western markets. There could even be a social welfare aspect to all of this, because one assumes that by cutting out the UK retailer there will be enough margin in the deal, even with lower retail prices, to pay Indian fashion workers a better wage or at least improve their working conditions. Sustainable fashion retailing could be the next big thing!
However, new markets mean new challenges that not every UK retailer is going to be able to get its collective head around. Supply chain is an issue in many countries. I’ve reported before that a lot of these countries don’t have what we would recognise as postal services nor street addresses, so delivering orders is a bit of a challenge. There’s also the question of warehousing. It’s easy for UK retailers because we are a very small country with good infrastructure. India and China though are a different matter (being a bit bigger!). I mentioned in an earlier post that Tesco, through their appointed regional distributor, (the conglomerate MENA Holdings Group) have arranged for the (African, but Indian run) Choithrams supermarket chain to stock Tesco products in (initially) 1,000 stores across the Middle East and India. Waitrose have been following a similar strategy with their own label for a few years too. The Tesco deal has since been extended to include another MENA Holdings members in Kuwait and Qatar. Meanwhile Argos has been trying to extend its global presence in a similar way. We all know that Tesco have announced increased focus on their on-line business recently and having your product on the ground in these places is a very useful first step to on-line supply chain development.
There’s another important challenge to the on-line globalisation though. Shopping habits and consumer attitudes in many promising markets are often very different. Not only are infrastructures frequently incomplete by Western standards, but consumer attitudes to on-line payment, returns and delivery demand that Western retailers reconsider a model born of the neat and tidy western marketplace. Nevertheless, its all do-able and with Western ingenuity and standards of execution there’s no reason why Western retailers can’t maintain their lead over the burgeoning ranks of more-Eastern challengers. In the next few months the on-line marketplace is going to be a pretty interesting place.
August 18, 2014