The dynamics of the retail landscape are fundamentally shifting. Internet penetration and individual spending power are growing rapidly across the globe, and consumers in many of these regions have become more comfortable researching and purchasing goods online. At the same time, the rise of ecommerce behemoths such as Amazon has dramatically transformed customer expectations. Previously unthinkable perks like near real-time fulfillment, rock-bottom prices, and virtually unlimited product assortments have fast become the new norm. The result? A generation of increasingly empowered global consumers with the determination and wherewithal to get exactly what they want—however and whenever they want to get it. By Carl Miller, The GRIN
When retailers are unable to deliver a localized experience that fulfills customer expectations around price, quality, assortment, and convenience, today’s global shoppers have no problem turning elsewhere: even when elsewhere is 7,000 miles away. This phenomenon, which the GRIN has identified as ‘suitcase retail’, can take one of two forms. Consumers might: 1) travel abroad themselves—or ask travelling friends and family members—to bring cross-border purchases home with them in their suitcases, or 2) use a cross-border freight forwarding service to obtain a mailing address in other countries; pay in their own currencies using their preferred payment methods; and have overseas purchases shipped to them without ever having to leave home.
Key drivers of suitcase retail
- Severe price discrepancies.For global retail executives, the Internet is not unlike Pandora’s Box—along with the possibility of reaching customers by the handful, it introduces a hoard of entirely new challenges. Radical price visibility is one such challenge, as country-specific taxes; licensing fees; and monetary conversion rates can cause the cost of a single item to vary dramatically across markets. (Luxury goods in overseas markets, for example, will frequently cost over 20% more than identical goods purchased in the United States.) Retailers beware: sophisticated international consumers will quickly find out when a given item is less expensive on a cross-border website, and will confidently work the system to acquire that item at the lesser price.
- Perceptions of higher quality.In a number of product categories including apparel, cosmetics and health products, foreign goods are often considered superior to goods produced in the shopper’s home country. In China, incidents such as the 2008 melamine-tainted baby formula scandal have cause consumers to question the safety of domestically produced baby products. Consumers will pay a premium for foreign brands to ensure quality, especially in markets with a high propensity for counterfit or unsafe products.
- Inadequate payment, fulfillment, or customer service options.Global shoppers have high expectations when it comes to convenience, and retailers must accommodate each region’s specific preferences. As Fredjoseph Goldner, CEO of Latin American eCommerce and logistics provider Aeropost, told us, “it’s not enough to just put a retailer in front of the consumer; you have to allow consumers to purchase in the way that’s most comfortable to them.” Shoppers hesitate to purchase goods online if they are unable to pay with their preferred payment methods, receive packages within an acceptable delivery time, track their shipment throughout its trajectory, or be assured that they will receive timely assistance if there is any kind of problem with their order.
- Limited product availability and novelty of foreign goods.As individual spending power grows, so too does the consumption of luxury goods and sophistication of luxury shoppers. These shoppers will often go cross-border to acquire niche products that are not available in their home countries. Furthermore, global consumers are often frustrated by the limited product assortments available domestically and look to global markets to in search of greater breadth.
- The ability to reduce shipping costs through package consolidation.Global shipping charges are typically calculated based on a package’s volumetric weight rather than the package’s actual weight. This means that package consolidation—a service provided by many freight-forwarding companies—can save customers money by repackaging shipments into smaller boxes and combining items from multiple stores into one shipment. According to estimates from freight forwarding company MyUS, consumers can save up to 80% on global shipping charges through package consolidation.
What You Don’t Know Can Hurt You
If you’re like many of the executives we spoke with for this report, addressing challenges posed by suitcase retail is probably not the number one task on your global laundry list. In fact, there’s a good chance that suitcase retail is not on your radar at all. Regardless of whether you’re acutely aware of it, however, suitcase retail is likely impacting your business in a bigger way than you realize.
Suitcase Retail: Major origin and destination countries
Suitcase retail can hamper top-line growth by:|Impeding promotional efforts by restricting access to valuable customer data.According to recent research from paypal, cross-border shoppers spend over twice as much as their domestic-only counterparts. When these high-value shoppers purchase goods through a freight forwarding company they provide the freight forwarder’s U.S. warehouse address—instead of their own mailing address—as they complete their order at checkout. So what does this mean for retailers? Aside from thwarting their ability to send these shoppers any type of direct mail campaigns, the lack of insight into global customers’ locations hinders television, radio, and out-of-home ad targeting efforts.
- Restricting access to insights that drive globalization strategy.For organizations just starting to get their feet wet with global ecommerce, international order data can be enormously helpful in determining where global demand exists and which markets should be tackled first. Without knowing suitcase retail customers’ home addresses, though, retailers are blind to a certain degree of international demand.
- Relinquishing control of the customer experience.One executive at a global fulfillment company told us, “As soon as the customer decides to use a freight forwarding service, the retailer no longer owns that customer.” In other words, the retailer can no longer guarantee that a package is delivered within a certain timeframe, send out delivery status updates, or provide fulfillment-related customer service. Moreover, the package is no longer covered under warranty once it arrives at the freight forwarder’s U.S. warehouse.
- Threatening relationships with global distributors.Jonathan Kapplow, CMO of cross-border shipping solution Borderfree, said, “Freight forwarding is a double-edged sword. On one hand, it brings in new customers—but it also strains relationships with global suppliers.” If you have the license to sell a certain brand in the U.S., for example, but Brazilian consumers use freight forwarding services to acquire the item from you at a lesser price than is available in their home market, distributors in global may try to hold you accountable.
If You Can’t Beat ‘Em, Join ‘Em
There is unfortunately no silver bullet that will completely eliminate all obstacles presented by suitcase retail. That would be far too easy! However, there are five steps retailers can take to help mitigate suitcase retail’s effects on the business. If you’re an executive leading your retail organization’s global initiative, you should:
- Recognize whether suitcase retail is happening.Examine your shipping labels to see if a disproportionate number of packages are being sent to the same U.S. address. Freight forwarding companies and fulfillment partners can help with this too. A senior executive at a large retail brand told us he didn’t know suitcase retail was affecting his organization until a fulfillment partner mentioned that a number of the brand’s labels had been coming through the shipping company’s freight-forwarding arm.
- Use suitcase retail data to inform your globalization strategy.Evaluate the demand in your top suitcase retail markets to decide whether it makes sense to establish a local presence or work with providers who provide a Merchant of Record model which you can leverage for local expertise and legal structure. Based on your firm’s global maturity, resources, and existing roadblocks to market entry (e.g. Language or infrastructure barriers), you may decide to put that market on your globalization roadmap. If this is the case, be sure that you can effectively deliver on consumer delivery, payment, pricing, and assortment expectations. Otherwise, you’ll quickly find yourself back at square one.
- Embrace the best solution for now.Localizing a key suitcase retail market may not be logical for your organization. (One global leader told us that even though his company had a sizeable consumer demand coming from Russia, his team wasn’t prepared to tackle the market’s delivery, infrastructure, and payments-based challenges.) In this case, consider establishing a formal partnership with companies who use the merchant of record model, or freight forwarders who work in your regions of interest. On top of providing you with valuable consumer data that your organization would otherwise miss out on, partnerships with these types of companies can engender affiliate-marketing opportunities—all at no cost to the retailer. Certain retailers may want to establish a partnership with a freight forwarder even if they do offer a direct shipping option, as some consumers will still prefer to use freight forwarding services for their package consolidation benefits.
- Select a freight-forwarding partner based on regional presence and consumer value adds.There are a handful of reputable freight forwarding companies out there, and partnership means different things to each of them. Choose a partner based on what attributes are most important to you and the markets you want to tap into. Certain vendors also offer package consolidation services, for example, while others have brick & mortar stores for customers that prefer to pay for their purchases in person.
- Be transparent with global distributors, but don’t feel the need to bend over backwards.Luxury brands with a relatively high prevalence of freight forwarding activity may want to reject large orders to known warehouses in an effort to preserve brand integrity and maintain distributor relationships. For the majority of retailers, though, the best you can do is to be upfront with global partners about where your suitcase retail orders are coming from. Because at the end of the day, the customer is king. If a pricing discrepancy exists, today’s consumers can and will take advantage of it—and refusing to service freight forwarding orders is akin to slapping a temporary bandage on a deep-seated wound. Moving forward, luxury brands will follow Chanel’s lead and increasingly align the prices of more popular SKUs across global markets
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Sources:
[1] http://www.wsj.com/articles/china-to-cut-tariffs-on-some-imported-consumer-goods-to-spur-spending-1432538808
[1] http://www.bloomberg.com/news/articles/2015-03-02/the-infant-formula-s-in-the-mail-as-chinese-consumers-buy-online
[1] https://stories.paypal-corp.com/archive/merchants-should-think-global-this-holiday-season-cross-border-shoppers-out-spend-domestic-shoppers-by-double
[1] http://qz.com/364157/chanel-is-making-its-bags-equally-expensive-around-the-world/
