UBQ NEWS & INSIGHTS
LAUNCHING A DIGITAL BUSINESS IN EUROPE
The collision of BREXIT, COVID & sustainability create significant opportunity for retailers, B2B and DTC companies wanting to identify new customers, business models and innovative ways of trading.
With a struggling economy in the UK, and companies looking beyond UK shores for new revenue opportunities, we examine the most important considerations to ensure successful growth.
Retail in the UK has been hit hard in recent years with what has been a near-perfect storm. Costs have been steadily increasing driven by; changes to business rates; increases in the minimum wage; rent increases; the fall in value of the £ which in turn leads to an increase in the cost of imports. Brexit has led to uncertainty as to what the future holds, not least the unknown burden to our economy that will have to absorbed. We also should not forget the very apparent changes in shopping behaviour as consumers move steadily away from physical retail to digital, a blend of in-store and mobile.
If these challenges were not enough for an industry that was already struggling with the pains of transformation, then the world was hit with something that could not have been expected or planned. A global pandemic and subsequent lockdowns have proven to be the death knell for many British retailers teetering on the edge of their own existence. Even with rent holidays and furloughed staff, most struggled with the cashflow tap being switched off on 23rd March.
Monsoon Accessorize, Victoria’s Secret, Aldo, Laura Ashley, Kath Kitson, Oasis, Warehouse and Debenhams did not make it out of lockdown and others, will no doubt also fail to recover, as the country struggles with a 3rd lockdown set to impact companies for at least the first quarter of 2021.
Despite all the doom and gloom, we are starting to see the first shoots of retail recovery. The new normal is still taking shape, but social distancing, masks and plastic barriers at tills are certainly here to stay for a while yet.
So, what of those retailers that are left to fight the good fight? In the middle of the Brexit storm and a global pandemic, expansion into Europe might be the last thing on your mind. If we assume the adage that the best time to invest is when the market is down, then this may not seem like such a crazy idea. If you are considering a move into Europe, this document highlights three key areas to be considered to ensure that any launch is a successful one.
You have a great ecommerce platform and can rollout a new country website with a few clicks. Local currency and translation all come out of the box and seemingly working well. But is it as simple as that or are you missing a trick? Understanding the different shopping needs and cultural variations of consumers in the target region you wish to serve is critical.
There are some significant differences in online shopping habits between countries. We have highlighted some of the differences between UK and Germany as examples – despite both being relatively mature from an online perspective.
Direct debit and bill pay are attributable for 63% of all online transactions in Germany with PayPal (20%) and credit cards (11%) accounting for the lion’s share of the remainder. Mobile commerce transactions only account for 27% of transactions, and while this is increasing, this is significantly different to what we see here in the UK at 51%.
CHOICE OF DELIVERY METHODS
German consumers put a high emphasis on efficient delivery systems. It is common practice for retailers to display a selection of their partnered carriers on-site and allow consumers to select their favoured one. This is a relative rarity in the UK.
The returns rate of online purchases in Germany has historically been relatively high compared to the UK. While it is common practice to allow customers to return an item purchased online in store in the UK, relatively few retailers in Germany provide this. On the flip side, German retailers are more likely to offer free returns than compared to the UK. Increasingly German retailers are becoming ever more innovative in ways of finding points to disrupt their consumers from making returns, such as live chat. They are also putting even more effort on providing higher quality product content and information to reduce the chance of disappointment when the consumer receives the product
While these are quite broad-brush trends, we can quickly understand that creating a customer experience that not only caters for the local market but also differentiates from competitors, will mean your site has a better chance of succeeding from the outset.
Experience is more important now than ever. Pre-Covid, there was a distinct trend for brands to use their physical stores as a brand experience channel more than a sales channel. Think Tesla, Dyson and Bose to name a few. In the new normal, where customers are reticent to return to store, it becomes more important than ever to provide that experience online.
Keeping customers engaged used to be simple. We are used to the mantra of ‘content is king’, and therefore experience and engagement could be ‘won’ by creating more content. More content means the brand is more likely to be heard. Being heard equates to being top of mind.
But is that approach still true now? With so much content being produced are retailers really thinking about their readership, or merely trying to get one over Google’s algorithm? it has become ever-more difficult to gain cut through. If we think of our customers as a community, we can then consider what experiences, content and conversations are more likely to engage.
Communities tend to be a breeding ground for super fans –customers who are authentic brand ambassadors, spreading the word of your brand and providing the insights and feedback that would otherwise require expensive and time-consuming market research to understand.
Extensive research, usability testing and customer journey mapping will ensure that not only do you understand the marketplace and your customers’ expectations, but how to engage them.
By continually iterating, testing, measuring and improving, customer loyalty can be harnessed which is so important when entering a new territory. Think customer experience not customer service.
LOCATION, LOCATION, LOCATION
Having the ability and experience to deliver to outlying countries and regions should not be underestimated. Not to mention that serving the mountainous Auvergne region France or the canals of Venice does not usually come easily or cheaply.
Disappointing customers at the final delivery hurdle, can be more expensive than a lost sale – it can damage your brand’s reputation.
WHY NOT JUST SERVE FROM THE UK?
The thought may have crossed your mind that you have a perfectly good distribution hub in the UK. Why not just use that to serve your European customers? The simple answer is twofold; Brexit and the English Channel.
Having up until recently operated in the single EU market it was easy for people to buy and send goods across Europe from the UK. The same applied to import. Brexit makes that more complex and importantly is likely to be more costly. This is coming at a time when cross-border trade in Europe is expanding apace.
Shipment destination, size and product content, especially level of product originating in Europe are important drivers in new business models. This is outlined in the Brexit Deal and will play a critical role in future sourcing, sales and distribution strategies.
Aside of the potential bureaucracy involved, there may also be customs charges to consider. Factor in the additional cost and time of transporting good across the Channel and this starts to become a less feasible route to take.
Onshore in Europe or outward investment, either alone or in syndicate with other companies may be an appropriate route to go. Location strategy should be very firmly aligned with the businesses’ expansion plans in Europe. It maybe that from the outset, one warehouse is sufficient to serve the whole of Europe.
As your business grows, additional hubs can be brought on board to serve different regions but picking the right locations, partners and approach is a delicate balance.
Predicting the future can be a risky business. Few people would have realistically predicted the entire country grinding to a halt, being forced to stay at home or that ‘social distancing’ and ‘furlough’ would be phrases that would enter our everyday vernacular. Predicting trends in ecommerce might seem a safer bet in comparison.
The UK is a relatively sophisticated market when it comes to online shopping, so why should we consider innovating in Europe when consumer shopping habits there may not have caught up to ours yet?
We have seen the emergence of Digitally Native Vertical Brands (DNVBs) disrupt in most forms of retail. Aside from the fact that DNVBs are intrinsically focused on consumer experience, they are also agile enough to introduce new innovations for their customers and adapt them as they see fit.
Innovation not only provides an opportunity to delight consumers in a way that they may not have expected, but also helps you to differentiate from other brands who you are looking to take market share from.
“Alexa, what are the latest DeWalt drills”? “Siri, how much are Adidas Ultraboosts”?
According to some predictions, over 8 billion devices will have voice assistant by 2023. Around 20% of UK households currently have smart speakers but most importantly, nearly 60% of them have bought items via voice commerce.
This share of search should not be ignored as it is likely to grow and be mirrored in Europe.
ARTIFICIAL INTELLIGENCE (AI) & PERSONLISATION
AI is transforming ecommerce by predicting shopping patterns based on the products that consumers buy and when they are bought. Through machine learning, the analysis of multiple data touchpoints can deliver intelligent product recommendations which are not only personalised but are also likely to reduce return rates.
As an example, luxury beauty brand L’Occitane implemented personalised recommendations based on just a short time browsing the site.
Customers browsing a product page are also presented with suggestions to “Complete your routine” by being offered complementary products.
AI is already commonly used through chatbots and virtual assistants to provide 24-7 customer experience and support as well as supporting in inventory management. The emergence of personalised dynamic content based on user journeys is especially powerful. That content can be used to support at various stages of the buying lifecycle and sending highly targeted marketing messages.
Adidas’ email campaigns for their Originals series, dynamically altered the products being promoted based on the subscriber’s gender to ensure they only received relevant product promotions.
The subscription economy is growing. Royal Mail forecast that the value of the subscription market will have increased 72% over the five years to 2022 while McKinsey also highlights that global goods have been declining while services have risen. There is not too much that we cannot subscribe to now. Music (Spotify) and films (Netflix), coffee (Pact) and groceries (Hello Fresh), shaving (Harry’s Shave Club) and even office space (WeWork) – though that’s very 2019.
It might be time for a fundamental rethink on whether your business can operate as a subscription offering. In its most simple form this might be a subscription pass to unlimited deliveries.
Guaranteeing revenue is one way of looking at things. The other is a changing mindset from a one-off transaction to an always-on service. Striving to constantly improve is something we are all trying to do.
More UBQ Insights
A selection of newsworthy and noteworthy stories from the industry covering everything from M&S’ Sparks loyalty scheme, Collabs by Shopify, H&M’s aggressive marketplace strategy, Meta’s Threads and the potential impact of Temu’s UK launch.