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The Benefit Of Clicks Before Bricks In International Markets

Sean Sands

As retailers explore new international markets, they are increasingly looking for quantifiable proof points of success through online channels. Internet retailing enables companies in their efforts to build their brand beyond domestic borders with a natural testing ground for products, while also allowing them to initially reduce the risks of opening a physical store in uncharted territory.

It is no secret that the retail world is becoming significantly more and more digital. Internet and mobile retailing are forecast to continue their strong growth over the next five years. In 2013 Internet retailing recorded a 15% value growth, which was the strongest rate across all retail channels, and also generated $6.5 billion in revenue. The increased consumer demand for online goods and services along with the convenience of online shopping have been driven by continued growth in computer literacy, accessibility, internet speeds and security. Consumers are able to enjoy the convenience of online shopping while retailers reduce costs associated with owning a physical store.

At a global level, the rise of Internet retailing has allowed certain brands to gain popularity as they look to move beyond their country of origin and expand in new international markets. Retailers can explore new markets while avoiding costs that include rent, labor and insurance. They are then able to pass these savings along to customers. However, ultimately there is a convergence from clicks to bricks, with many retailers still seeing the benefits of opening physical stores in international markets. More and more, we are seeing that online sales results are inspiring retailer confidence as they target specific locations beyond domestic borders establishing a brick-and-mortar presence. 

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One prime example of this is Melbourne, Australia, a city where more and more retailers are choosing to open physical locations, in part due to its increasing pedigree as a fashion capital of the Asia Pacific region. Australians travel frequently and are exposed to many international retailers which increases awareness as well as desire for these brands when they return home.

Around 75% of Australians who shop online make purchases from overseas sites. This is a result of a greater variety of goods available on these sites, as well as the ability to obtain lower prices than are often available locally. Based on targeted data identifying high Internet sales in Melbourne, many U.S. retailers see it as an ideal candidate for physical locations as well as flagship stores.

There are many factors contributing to this growing appeal for Melbourne. It is Australia’s fastest growing city, with one of the world’s strongest economies — ranking in Fortune 500 as one of the world’s top 15 best new cities for business. It has also recently been named for the 4th year in a row as the world’s most livable city. Melbourne is widely regarded as a shopping and fashion hub. The city is already home to leading US and international brands including Williams Sonoma West Elm, and Brooks Brothers Zara, Muji, Uniqlo, Top Shop and H&M. H&M decided to open its flagship location in Melbourne — slated to be its largest store worldwide. These store openings often result in a great deal of consumer interest with shoppers lining up to visit the store for weeks after opening.

Australia is particularly attractive for stores due to the strength of its economy when compared with North America and Europe. Its Western counterparts have watched their retail markets stall over the past decade without any clear sight of a turnaround. In comparison, Australia was the only developed country that did not fall into a recession during the global financial crisis. According to Colliers, this quality exhibits comparative stability and gives retailers the confidence necessary to push their business overseas. Also, by establishing a presence in this key Australian city, it allows global retailers to easily transition into growth economies in Asia. Australia’s high Asian ethnic population and high number of Asian tourists provide a litmus test for the Asian market.

Similarly, with limited impact from the global recession, Melbourne residents have not been forced to make aggressive cuts in their disposable income and as a result have more spending power. Australians like to be at the forefront of new technology, fashion, and other trends. According to Colliers, “Nordstrom, Saks Fifth Avenue, Macy’s and Bloomingdale’s all ship to Australia and openly consider the country as one of the biggest online customers.” These large retailers are gaining a huge competitive advantage by tapping into this market because they are able to gather data related to successful sales.

Data such as this makes it incredibly easy to justify opening physical shops overseas.  It is no secret that the activity with all e-commerce sites is now tracked and the information needed to generate future sales is readily available. The benefit for retailers looking to open stores is that they are able to create a strategy based on local demographics, eliminating a significant amount of the risk associated with opening up a new store location.

Online and mobile retailing trends are projected to continue their rapid growth on a global level and as a result we will increasingly see more specific and accurate consumer metrics. This data has the ability to complement physical store locations which still hold value for many retailers as we have seen firsthand in Melbourne.  


 

Sean Sands is a Senior Research Fellow within the Department of Marketing and Research Director at Australian Center Retail Studies (ACRS). As part of his role, Sean engages in commercial research with commercial, Government and not-for-profit organizations. He has extensive commercial research and consulting experience in the fields of retail and consumer behavior. He has presented as numerous industry conferences and seminars including the World Retail Congress in Europe and Asia. 

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