The world is getting smaller, with lucrative new opportunities opening up to retailers and brands in emerging markets such as India and Southeast Asia. However, with great opportunity comes great risk as these fast-developing regions are completely different than Western retailers’ home territories.
To break down the barriers that prevent many businesses from expanding into Eastern markets, Larry Luk, head of e-commerce for Calvin Klein’s Asia Pacific region, shared his experience of developing an emerging market strategy at Retail’s Digital Summit. He was joined on stage by SP Commerce CEO Marcelo Wesseler, an expert in Asia Pacific commerce. The two shared four key learnings.
See more insights from Retail’s Digital Summit: Check out the event recap.
No two Asian markets are the same
“When we talk about Asia, the perception is that it’s one country, but it’s really not,” Luk said, and this can be seen in key statistics for each region. While e-commerce has a 12.4 percent share of the Asia Pacific retail market as a whole, the figure varies from country to country. In South Korea and Japan it is as high as 15 percent, while in Hong Kong it drops to between 0.5 and 1 percent.
For retailers looking to expand internationally, this can be an important factor in determining where they grow — and how quickly they wish to generate results. Australia, for example, has a mature e-commerce market that can yield quick traction, but intense online competition means results may be limited. India, on the other hand, has much lower e-commerce adoption, but the market there is set for significant long-term growth.
“When we talk about Asia, the perception is that it’s one country, but it’s really not.”
Set clear metrics for judging a market’s suitability
One of the key indicators of an emerging market’s potential is its order value above which consumers must pay duties. This is relatively high in countries such as Australia and New Zealand, but much lower in the Philippines, Thailand and India.
Retailers looking to expand internationally need to consider at what point it becomes unprofitable for consumers to purchase from them overseas, and therefore they are better off launching an in-country presence.
“Look at average basket and product pricing,” was another key lesson from Luk. It’s important for retailers to identify whether their pricing model is global when weighing market opportunities since a country that looks good on paper might not prove so lucrative in reality. An example of this is Indonesia, which much-hyped as an e-commerce market by investors but actually has a relatively low average order value.
Calvin Klein's Larry Luk on stage at Retail's Digital Summit
Seek local knowledge and support where required
Even once a retailer has selected a market with good potential, the practicalities of selling there can change its viability. For instance, Luk said regulations surrounding the stability of color dyes used in fabrics are extremely stringent in China, so products must be carefully tested.
There are many other e-commerce elements that can impact launch logistics. In Thailand, for example, companies must become a local entity to access regional payment methods. Delivery and returns are another key area as consumers in countries such as India prefer to pay cash on delivery, which can result in very high return rates. Factors like this can determine whether a retailer fills online orders in-country.
Local support can come from an online marketplace — Calvin Klein has a presence on Tmall in China and Flipkart in India to enhance its market penetration.
Learn fast and make lessons scalable
With a vast market like Asia, it can be easy for retailers to spend a lot of money without yielding much return on investment. To avoid this pitfall, Calvin Klein has launched a lean Asian digital operation, enabling the brand to test and learn quickly before scaling its enterprise.
Calvin Klein’s fulfilment model has been particularly successful in this respect. Operating a single inventory pool across the Asia Pacific areas in which it has a presence — Australia, Hong Kong, Malaysia, Macau, New Zealand, Singapore and Taiwan — has significantly reduced costs when testing and launching in new markets.
“You can consider stocking in country, but it’s better to start off centralized and then develop your strategy two to three years down the line,” Luk said. Wesseler added that once a retailer is receiving 200 orders a day with an average order value of $100-150, then it makes sense to start stocking locally.
Chelsea Reay is head of content at Retail Connections, Europe’s leading network for retail insight and innovation.