How Shoppers, Shopping Behaviors And Retailers Have Changed


Shopper Marketing RevolutionWhen Mike Anthony and I started writing “The Shopper Marketing Revolution” in 2009, the world was a very different place.  In our book we set out to define a new marketing model for the consumer goods industry. In 2009 we felt the need for this change had become extreme. We saw that most companies with whom we worked with were applying a classical approach to marketing their brands. This traditional model seeks to create massive awareness through traditional media and to convert this awareness into sales through extensive retail distribution. By the end of 2009, this model was under extreme stress as media had become ‘hyper-fragmented’ and retailing had become dominated by a small number of global players.

In the four years it’s taken us to complete the book the entire landscape in which consumer brands operates has changed more dramatically than we expected. The global adoption of smartphones, the ubiquity of social media and the transformation in entertainment that services like youtube.com and youku.com has provoked has, in effect, democratized media with both positive and negative effect.

Whilst it’s now possible to finely target and focus messages on key consumers it has also become increasingly difficult to define, locate and communicate to the right people; many marketers continue to make the mistake of applying a mass media model to the digital world.  As hundreds of companies clamor to reach similar market segments the cost of media overall is growing faster than ever. IBM suggests that media costs in the first decade of the century inflated at 5.5% per annum. PWC’s research indicates that in the first 5 years of this decade, cost inflation will grow at nearly 10% a year.

In 2009 the march of e-commerce had long since begun and purchasing airline tickets and hotel rooms online was common practice. In entertainment, Amazon and iTunes were already significant players but e-commerce was only just beginning to affect consumer brands. Looking back over the last four years it’s startling to reflect on what’s changed. The book-selling industry in developed economies has swung hugely online, as has the market for video and music. The list of businesses that have died in these markets includes household names like Woolworths, HMV, Tower Records, Virgin Megastores, Blockbuster Video and Borders.

In the last two years this increase in online purchase has begun to affect consumer electronics significantly. This is a global phenomenon. In China leading retailers Gome and Suning both limped through 2012 in the face of fierce competition from online and Media Markt this week announced its departure from China. This now has a significant impact of some of the largest consumer goods companies in the world (think Samsung; Panasonic, hp and Sony). It has also led to major restructuring of the trade in developed economies; the UK for example has seen the closures of Comet and Jessops in the last two months alone.

It’s clear now that the future of shopping is online, or at least a significant share of shopping will be. Whilst the impact on FMCG brands remains relatively small, shoppers all over the world are beginning to see the benefits of buying groceries online. It would be wrong, we think, to presume that what has already happened to retail in other categories could not happen in the FMCG business.

So as we look forward in 2013, when we will finally publish “The Shopper Marketing Revolution”, we see a very different world to that of 2009. The consumer goods industry is likely to go through tremendous structural upheaval in the coming years and the model we thought was important in 2009 has now become essential in 2013. In The Shopper Marketing Revolution, we introduce a five-step ‘Total Marketing’ approach which creates an integrated strategy for driving profitable growth. This approach helps marketers, sales professionals, advertising agencies and retailers to focus investment on the right consumers, shoppers and retail channels in these exciting and challenging times.

Click here if you would like to be the first to know when The Shopper Marketing Revolution launches! 

The Future Of Shopping (Part 2)

the future of shoppingIn my last post, I discussed some recent retail casualties and covered just some of the reasons WHY shopping has to change in the future if retailers of tomorrow are to survive. Today, I’m looking into WHAT I believe that we will see this happening in 2013 and the years to come

If the future of shopping is more online, more globalized and more fun what are the implications for retailers and brands? 

 

Since we are still close to beginning of the New Year here are a few of my predictions about what we will see happing in 2013 as the future becomes reality.

Grocery shopping will move online significantly:

For most manufacturers ‘online’ is still a small share of total sales. Clients in China tell me that the proportion of sales online last year varied from 3% to 12% of total sales. This is similar for retailers. 7% of UK retailer, John Lewis’ sales in 2012 were online and nearly 13% of Debenham’s sales were online. But in all cases the growth in online sale is exponential. Grocery retail has been affected at much lower levels to date – this will begin to change this year.

Here in Asia I make a fairly unscientific prediction that by 2020, 20% of grocery purchases will be online. This is based on my view that roughly 40% of Asia’s FMCG sales will go through the 13 or so million local independent stores by 2020 and the rest will be split between chain retailers (who now hold in the region of 54% of FMCG sales) and online. This year we should expect WalMart’s investment in Yihaodian and Tesco’s launch of an online offer in Thailand and Malaysia to give online shopping a major boost towards this.

Big boxes will go into decline

The days of the hypermarket are numbered, even in markets where online will remain insignificant this year. People want to shop locally as time becomes more limited, this promotes an increasing shift towards local independent stores, convenience stores and supermarkets will see reduced hypermarket market shares. And as online really begins to bite, it will be the big boxes that start to suffer first. Expect major retailers to switch their focus towards smaller store formats to a greater degree this year.

Multi-channel will be the watchword for 2013

To those in the know this will see this statement as being desperately out of date but the idea of browsing in the real world and buying online will really take hold this year. Retailers who embrace this aggressively now via acquisition (note WalMart in China) and re-invention (note Debenhams in UK and Suning in China) will be more likely to grow through the changes in shopping habits.

Expect some major casualties

Some global players, especially in grocery retailing are really grappling with their offer and Carrefour in particular has been struggling with this for some years. It has consistently under-performed its peers in EBIT delivery,  is way behind in customer engagement (think loyalty programs and customer service) and in online offers. This year could see a major restructuring of Carrefour’s business especially as it moves into heavier waters in Asia where it’s failed to achieve critical mass and has had to exit key markets. I personally would not be surprised if we were to see another high profile exit this year.

Look out for new business models

There’s been a lot of hype about ‘pop-ups’, ‘virtual reality stores’, ‘magazine stores’ and the importance of show rooming. Many of these have yet to demonstrate that they can make money as well as noise. This year retailers, facing relatively grim trading environments will have to make this pay. Expect to see internet-based retailers creating showroom environments to engage untapped customer bases and expect to see retailers, particularly department stores in more traditional markets like Japan and Australia looking for opportunities to re-invent themselves online. Most interesting though will be the confluence of entertainment and retail, a good example of this is  Chefday.com launched recently in New York. We should anticipate more innovations like this in the coming year

Shopping behavior is changing dramatically and retail in general is going through a major shift. 2013 is likely to see acceleration in the rate of change and could prove to be a transformative year. For those businesses planning for the status quo this could lead to unexpected consequences and a need for major re-structuring in advance of 2014. Those who are already acting to engineer shopper solutions that embrace the changes ahead could well be smiling broadly next New Year.

So those are my predictions for 2013, what do you see as most important in your markets? I’d love to hear alternative views

2012 – The end of retail as we know it?

the end of retail as we know it?

So if you are reading this, the world hasn’t yet come to an end. The end of the Mayan calendar hasn’t yet heralded Armageddon and yet another doomsday prophecy has hopefully been put to rest.

Since the world has not come to an end, I’ve been thinking about other prophecies that have been made in 2012. One such prophecy is that offline retail is dying. I most recently heard this from Piers Fawkes during the “2013 Trends Predictions via @PSFK” Hangout when he was heard to say “The big story is that retail is dead”

Really? Dead? Let’s see.

Plenty of developments in 2012 might suggest that traditional offline retailing is in crises. Over the last decade online retail has led to the decline and closure of traditional stores in travel, music and video and in 2011 in book selling. 2012 saw the consumer appliance retail sector rocked by competition from online. In the UK, Comet filed for bankruptcy and in China, the country’s largest retailer, Suning announced its existing business model of focusing just in consumer appliances was no longer sustainable. Around the world electronics retailers struggled with what to do about “show rooming” (where shoppers use a physical environment to check out a product before buying online) and the concept of multi-channel retailing (the strategy of creating coherent links between physical and virtual environments as a way to secure greater loyalty) became common parlance in the industry.

In the US, 2012 saw the biggest daily sales online in history with Cyber Monday delivering US$1.25 billion. But the real online story was in China where TaoBao’s singles’ day promotion on 11/11 set the world record for online sales in one day at US3.06 billion through one portal, nearly three times as much. In China we also saw the greatest evidence that the next battleground between bricks and clicks will be in Grocery retail as global behemoth Walmart acquired online retailer Yihoadian. When retailers like Walmart start acquiring in this space, we should take this as a clear sign that grocery retail is about to change.

Indeed grocery retailing has changed in other ways during 2012. Speaking at the Asia Shopper Marketing & Insights 2012 conference early in the year Anson Dichaves of Nielsen suggested that Hypermarkets are in decline with fewer trips being made less often in Asia. He also signaled that the more proximate offers of conveniences stores and local supermarkets were gaining ground. A major casualty of the this was Carrefour who completed their exit from South East Asia. With their offer struggling in China too, it may be a matter of time before Carrefour, that once claimed that it was the most global retailer in the world, might be again constrained to markets closer to home.

Certainly 2012 did not see any major expansionary steps by the big global grocery retailers, but with fashion players like Zara and H&M continuing their global march it’s hard to say retail globalization has stopped.

So do all the changes in 2012 really indicate the death of retail?

Like the Mayan’s prediction, this is probably a false prophecy. Extrapolating Nielsen’s data on “Asia Pacific Shopper Trends” in 2011, there may be more than 60 million shops across the world. These employ a vast workforce – a report in the Economist showed Walmart to be the number 3 employer in the world. Deloitte’s “Global Powers of Retail, 2012” report showed that the top 250 retailers have grown faster than their major manufacturing partners over the last four years. It also showed that the top 10 retailers have nearly doubled in size in a decade.

Earlier this year new data from POPAI claimed that more purchase decisions that ever are made in retail stores, fully 76% of the decisions appear to be made in actual shops. And very recently online retailers like Bonobos.com and Yihoadian have created their own showrooms for shoppers to have a offline experience of their online offer. So to declare this industry ‘dead’ is naïve, but to deny the facts that indicate retail is changing dramatically is equally wrong-headed.

There should be no doubt that in the next year, online will pick up greater pace and we should probably expect further casualties in offline electronics retail. It’s likely that grocery retail will be the next sector to feel the effects of e-tail and this will probably start to have significant impacts on sales in 2013. Whilst this will be truer in key western markets, the huge success of China’s online retailers in 2012 is likely to drive the expansion of internet shopping in Asia in 2013.

In all probability, physical stores will be forced to innovate more in 2013 to keep shoppers engaged, and whilst this has been an imperative in the west over the last few years, it will start to impact on developing economies very soon. This will mean that retailers will seek more creative input from manufacturers and demand greater support for in-store initiatives too.

So 2013 is likely to be a year of challenge for manufacturers serving the retail industry. As shopping behaviors change, brands will have to be more aware of the way their shoppers engage within and across channels. Manufactures will need clearer retail channel strategies, based on a better understanding of which shopper segments to prioritize. These strategies will also depend on more granular channel segmentations, if anything 2012 should signal the end of ‘modern trade’ and ‘general trade’ thinking. Finally these strategies will need to specify creative ways of getting shoppers to buy regardless of whether they are online or in stores.

Featured image: Flickr – Kim-Bodia

China Sets The World Record for the Biggest Sales Online in One Day

Singles Day China

This was the doorway of an express company in Guangzhou on November 12th 2012. Its warehouse could not accommodate all the packages received from Taobao on “11.11 Singles’ Day – Online Shopping Festival”. Never heard of it?  On that single day, 72 million online-shopping-packages were sent out. This amounted to RMB19.1 billion transactions which is equivalent to about US$3 billion. The Singles’ Day promotion was created by Taoba and targets single men and women of China. It is neither traditional nor official  but for this one special day, Taobao’s Tmall  offered huge discounts to online shoppers.

These results complete eclipse the combined sales online during BOTH Black Friday and Cyber Monday in the US this year:

This year’s Black Friday saw an increase in online sales by 26% to $1.04 billion. Cyber Monday sales reached a record $1.25 billion, up over 20 percent from last year, to become the heaviest online shopping day in American history. According to the Wall Street Journal, this is only the second time a billion dollars in online commerce has occurred in one day. And yet, on the other side of the world, Taobao’s  Single’s Festival delivered nearly three times the turnover.

More than ten years ago, when e-commerce was sprouting in China, some retail professionals asserted that three barriers – “trust”, “payment method” and “delivery” would prevent an e-commerce explosion.. Taobao has conquered the three barriers completely. Founded by the Alibaba Group on May 10th, 2003, Taobao Marketplace facilitates C2C and B2C retail.  The marketplace structure has effectively emulated and built on the core concepts which drive trust in ebay. Tmall’s payment system, Alipay shares similar functionality with PayPal and  Taobao’s delivery system is unsurpassed in China..  This system has made availability ubiquitous, which is essential to online shoppers.

E-commerce still has a long way to go in China: according to the transaction data for the “Single’s Festival”; sales are clustered around the affluent tier one conurbations. But it is not hard to imagine more and more people living in less developed districts  joining this “online-shopping army” in the near future as availability to consume improves.

Transaction by City (unit: million)

Transaction By City

China’s e-commerce world is not only  a huge opportunity for Chinese retailers; increasingly, international retailers also see this trend. The international fashion giants like Uniqlo, Gap and Forever 21 took part in TaoBao’s campaign. Forever21 launched its Tmall on Taobao almost at the same time as they opened   their first bricks and mortar store in China. This underlines the necessity to build multi-channel environments as a critical success factor in China.

China’s e-commerce rise is of global significance; it demonstrates that the massive emerging economies of Asia are ripe for online shopping. With 200 million potential online shoppers in China alone (according to BCG), it’s easy to predict that these markets potentially dwarf the US and Europe combined. Today much of the world’s focus is  on the changes on retail in the developed markets but the changes in emerging Asia  are likely to be faster, more dramatic and more profound. This will require some major re-thinking in sales, marketing and logistics.

What has been seen recently is just the beginning, China’s e-commerce boom is soon to be tested again .  Taoboa has announced another campaign just one month after their succes, the “12.12 Shopping Festival”. They have promised even lower discounts. This could be the biggest online shopping day ever!

 

Researched and written by Irene Luo (engage Shanghai) & Toby Desforges

China – the next multi-channel frontier

Pioneers of the past were told “go west”. In the world of multi-channel retail, this has been very much the case in the last few years as the US has seen an explosion in online sales. Like most pioneers many have ended up with arrows in their backs so now, as China’s retail world is rapidly swinging towards multi-channel formats, the opportunity to take what has been learnt into a new frontier is huge.

BCG believes China has the potential to offer 200m online shoppers within the next 5 years – a bigger and considerably richer online market than any other on the planet. The rate of adoption of online retail is already impressive, in the last four weeks; every educated, high-income manager we have met in Shanghai has claimed to buy “at least” 90% of their groceries online. One mother enthusiastically spoke about how her eight-year-old son actively searches the Tao Bao malls for his next birthday present. For these kids toy stores are no longer physical environments.

Global retailers see this. In August Walmart snapped up a 51% share of Yihaodian – one of China’s leading online players. Yihaodian themselves have opened “QR stores” in the southern cities of Guangzhou and Shenzhen where shoppers scan products on their phones for delivery later in the day (yes in the day!).

Image

Manufacturers are also beginning to feel the pinch: Sony has seen its sales in physical retail decline as TaoBao malls have grown and as the traditional leaders in the market Suning and Gome have shifted sales online. Even dairy companies recognize sales of milk online have reached notable levels.

This is provoking huge changes. Gome and Suning (mentioned above) have been hit hard by online retail. As sales have shifted onto their own websites and others like 360buy.com, stores have been hit hard. Gome put out its second profit warning of the year. Four weeks ago Suning (China’s largest retailer), in perhaps the bravest retail strategy move ever, have announced a wholesale change in their retail philosophy. Sun WeiMin, Suning’s president and head of Suning.com, recently stated the intention to re-position the appliance retailer as “A combination of Amazon and Walmart”. If this is successful this will be the first time a 1700-store retail giant has dramatically changed its offer, solely in response to pressure from the online world.

Multichannel retail has three major implications: firstly it democratizes demand, making wider ranges available to a broader base of shoppers faster than bricks and mortar can possibly deliver; second it demands a complete re-think in shopper engagement, requiring greater consistency and continuity throughout the path-to-purchase and; thirdly it dramatically changes the supply chain, requiring absolute levels of product availability that go way beyond the current expectations of traditional retail.

These implications affect the operations of retailers, manufacturers and agencies alike.

Retailers will face enormous financial pressures as stores become less competitive. Retail is a low-profit model that depends on massive returns on capital employed in bricks and mortar and inventory for its survival. Those who will survive will not only have to re-engineer their marketing models to keep stores attractive whilst capitalizing on online opportunities but also they will also need to re-invent the underlying financial models they use to stay profitable.

Manufacturers will come under massive pressure as the demands of retailers increase to match online prices and to meet shoppers’ expectations for product today. Traditional mass-marketing models are becoming irrelevant as personalization drives shopper choice and as the line between “above-the-line” and “below-the line” disappears.

Agencies will have to respond by thinking ‘beyond 360’ and into the creation of contiguous shopper journeys – the rules for which are only just beginning to be written.

With all this change happening in the world’s largest emerging market multi-national players have some tough questions to answer:

  1. Do we understand the implications of the shift to multi-channel retail in China? If not, now is the time to understand which consumer groups will be served by online shoppers and how to maintain and grow sales to these groups in new environments.
  2. Do we have the right talent in China? If the leading thinkers in online currently reside in the US or Europe can this talent be leveraged in China or is new talent required. If so how can this talent be developed now?
  3. Do we have the willingness to embrace change? The status quo is always attractive but expecting the future to emulate the past is the easiest way to wholesale collapse. Organizations need to embrace the potential changes rapidly to get ahead in China.

For the last twenty years China has been the game changer for many companies, now is the time for multi-channel pioneers to “Look East”.

Featured Image: Ogilvy Shanghai

How to build an online retail offer – a guide for CPG teams

I’ve blogged a few times about the increasingly urgent need to develop an online retail offer but I’ve yet to give clear guidance as to what CPG manufacturers should be doing. Let me be clear in this, I have no doubt that leading manufacturers are already thinking hard about this but my perception is that most of this thinking is being done in global and regional offices far from the action. So here is my view of what should be done to address the opportunities and threats that the inevitable growth of online sales present

1. Get serious about this now – I’ve said this before but the potential for online sales to rise dramatically and exponentially exists globally – in both developed and emerging markets. There is a potential for online to take between 15% and 20% of sales of sales in the medium-term (IGD Report). If you wait for this to happen there are some nasty surprises in store. As retailers lose the advantage of location, and as sales slip from in-store to online, they will compete ferociously to sustain margins and price points. This is already happening in China and elsewhere and it’s likely to put manufacturers under extreme margin pressure. Anticipate this in your-medium term plans and gear up for wholesale changes in the retail landscape.

2. Anticipate shopper behavior – practically speaking and in the short-term, online sales are most likely to come from the younger, more time-poor segments of the population. If your brands depend on young singles and new families, it’s these segments whose attitudes and propensity to shop online you need to understand now. It will be important to understand how many people will shop online and what would motivate them to or prevent them for doing so. Quantify this so that you can estimate the potential flow of volume that you can expect under different scenarios.

3. Anticipate the needs of an online channel – online retailers don’t need to worry about availability in multiple stores – what’s key is availability in their warehouse at the point of demand. This will require a responsive demand planning and replenishment approach that works in tune with e-tailers’ forecasting and fulfillment systems. Online retailers will be much less forgiving as they seek to hold optimum inventory levels. Online retailers will need to know more about the people consuming and buying your products so that they can make fast judgments about which segments to prioritize and how to increase basket size

4. Develop an understanding of how shoppers buy online – Today many online grocery retailers mostly catalogue alphabetically (which means shoppers see products that begin with A first). If your brand begins with C, D, P or O – you won’t be seen first. This means that Aquafresh will probably outperform Colgate online, especially when Aquafresh offers the first three SKUs half price as they do today on Tesco’s mobile app. Shoppers will need to change: today they are used to navigating in-store environments by using brand cues like colors, fonts and block merchandising. This doesn’t happen online – shoppers will have to find products in a completely different environment. Manufacturers have to lead in providing insight into how to get the most from a category online – otherwise the retailer will make up their own mind.

5. Plan where to invest and what to invest in – the structures of trade investment are about to change – the price of a home page Ad. could well become the largest investment companies make in the future, the cost of leading shoppers through search processes, creating curated product recommendations and personalizing offers will be high. In a world where the retailer can stock any brand, slotting fees could well become a thing of the past. But so could the notion of credit terms – in the same way that Amazon can print books on demand, online grocery stores can order to demand making payment on sale a logical way to avoid the cost of holding inventory.

6. Organize for change – things are going to be different and radically so. In an environment where a consumer can be sitting at home playing on Facebook or watching a video could spontaneously become a shopper, the concepts of above-the-line and below-the-line advertising are going to merge rapidly. Key account and trade marketing teams will need new skills and technology to support them. New jobs will be invented, for which, the rules have yet to be written so recruitment will be tough. Find committed intelligent individuals who ‘get’ the idea of buying online and can leverage technology to manage complexity

I believe things are going to change radically and quickly and I’m pretty certain that some readers might think all this is a bit over-blown so here’s a few thoughts to consider: Let’s say I’m right and online takes off rapidly – if you act now, you get to benefit from being a leader in the space and not being a follower, you get to capitalize on a brand new channel for selling your goods. If I’m wrong and shoppers are slow to adopt online and sales are insignificant – taking the actions I’ve suggested above still make you more responsive to the market and more competitive as a result. The worst case scenario is that I’m right and you don’t act – consider the costs of catching up in a market that has already changed where competitors are ahead and where your brands have suddenly become invisible.

An Online Grocery Shopper’s Manifesto

Even though in my day job I consult and speak on all things shopper marketing, I have a dirty secret: I hate shopping! Especially, I hate shopping for groceries. I hate the time it takes, the struggle to find just the thing I’m looking for, the frustration I experience when what I’m looking for has been deliberately hidden in another aisle. I hate the angst I experience in queuing (Am I in the right line? Why do I always choose the slowest one?) and I hate the sense exhaustion I feel when my family and I get home and have to unpack bags and bags of “stuff”. So why do I do it? Why not simply go online and get it all done over a cool glass of wine in my garden?

Well here’s the thing – I love shopping online for books and music online – mostly because iTunes works so well and I can do it anywhere. I buy Christmas gifts online which I often find frustrating , but I do it infrequently and I know that the time it takes and the frustrations I experience payback in the hours I save avoiding the Christmas hoard.

But I don’t buy groceries online because the process is almost as equally frustrating s going to a real store, and where I live in Singapore often leads to the goods I ordered not turning up, or worse turning up in state that renders them in-consumable.

Bearing the difficulties and frustrations many of us experience with online grocery shopping and each of has a unique set of needs as shoppers; I’d like to put forward a manifesto of how I dearly wish grocery retailers would approach their online customers:

Personalise the experience for shoppers  – I’m a human being. As a result my choices are complex – learn about me – ask me my preferences (organic versus regular) and how far I will stretch my preferences (will I pay more for organic?). In which categories are brands important and in which will a store brand do? Do I have principles, for example “never company Y” – and to what extent am I prepared to stand on them? And since I’m a human and, in most cases I don’t know the answers to these questions, analyse my behavior and learn about me from that.

Curate – Ok I’m an individual but in each category I shop in I’ll behave like some others. Place me in the right segment and show me what other shoppers like me are interested in. I’d like to know when there’s a new product on the market for people like me, I’d like to know that my peers prefer a different brand of olive oil, or that there really is a low-cholesterol alternative. When you see me behaving outside of the segment norms, like when I buy energy drinks, more salads and vegetables and so on, recognize this and help me find more products that might help my transition.

Reinforce my habits – in some categories I don’t care about the range you offer, I’m only interested in one thing – a brand, a variant, a pack size. In these places I have a habit, reinforce it. Make it easy for me to buy what I want, or better don’t give me the option to buy anything else and you know what, help me save money on it!

Make it easy – I’m amazed that the new Tesco app lists products alphabetically – this isn’t a library! I’ve spend the last 30 years being Colgate, why now do I have to scroll through the A’s and the B’s to get there? Oh and by the way use my everyday language, I don’t think like a computer or a professional buyer – in my world, a six pack of green apples is not “G.SmithFrench6PKreg” so give things a name – or better still give me a picture!

Make it reliable – simply put, if you don’t have it in stock, don’t sell it and if I’ve bought it please deliver it! Otherwise I may as well go to the shop thank you!

Make it convenient – If I’m going to save time I want shopping to take ‘no extra time’. I want to be able to shop when I’m on the bus or the train, when I’m stuck in a jam. I want to stick things on my shopping list when I think of them not when its “shopping time” – in truth I’d rather “shopping time” were actually “all of the time, with no extra time”. So please, please, please don’t presume I’m going to shop at home in front of my computer and give up more time for you, the retailer than I have to.

Here’s the really funny thing though, these ideas work in the bricks and mortar world all the time – wouldn’t be great if all grocery stores did this?

What Wal-Mart’s Latest Acquisition in China Tells Us About The Future of E-commerce

I’m not a gambling man but I’m prepared to bet that many people who read of China’s approval of Wal-Mart’s acquisition of 51% of Yihaodian this week probably said “who?”. They would most likely be readers from outside China who have never heard of this super-star of e-commerce.

Yihaodian is only four years old and in the last three years it has grown by over 19000% and employs 4200. It sells over 180,000 products which can be delivered within 24hours to the residents of 30 of the largest cities in China (which represent some of the world’s largest cities).

But above all its cool – it has marked its territory with an outstanding Ad Campaign, created by Ogilvy and Mather Shanghai which encourages shoppers to ditch traditional retail in favor of the ease of shopping at home. (1)

For China’s young, educated professional class Yihaodian is the only way to go. Irene Luo, a member of our team at sums this up, “Now I buy 90% of my groceries from this e-retailer except fresh food (but they do sell fresh food as well).” She goes on to say “You just need to buy over RMB 100 stuff, then you can get free delivery next day. So you can see how popular Yihaodian is here [Shanghai]”

Wal-Mart’s purchase of conditional control of this player is therefore big news in China. It should be big news worldwide and here’s why:

1) e-commerce is a global story

For most of the last decade most of the big news in eTail has come out of the US and South Korea where great logistics have been matched with great Internet infrastructure. Yihaodian’s success shows the potential for e-commerce in not just in the mega-cities of China but across the emerging economies of Asia and beyond. China’s e-commerce market is set to be the world’s largest by 2015, according to Boston Consulting Group and this demonstrates that the new generation of shoppers markets can easily be served, even in environments where logistics and broadband infrastructure remain a challenge. The days when nay-sayers claim ‘it could never happen here’ are numbered.

2) Global retailers now see e-commerce as the next channel for expansion

Major grocery multinationals have, for at least the last decade, sought new channels to expand into. Many have realized that the time of the hypermarket format is over and many have sought new growth in convenience retail and speciality stores. Some, such as Tesco in Korea and the UK, have made successful forays online already. But what’s happening in China is new, in that it indicates the potential for offline retail consolidation (2) to go online. Such expansion is, in effect borderless, which may lead to retail brands, whose global expansion has been stymied by geographical barriers to entry, launching into markets without the need to gain critical store mass.

3) If you can’t beat them, buy ‘em

Let’s be really clear, Yihaodian has been winning battles in China with younger shoppers. Its cooler, easier, better stocked, more reliable and altogether more attuned to this generations shoppers than the big boxes like Carrefour (3). In other sectors 360buy.com has been kicking bricks and mortar’s ass over the last two years (4) and the potential for grocery to go this same way has clearly been recognised by Wal-Mart. The great lesson here is that with mammoth cash piles the potential to buy upstarts to mitigate the downsides of e-commerce cannibalising existing store sales is absolutely here.

4) Manufacturers, globally, have got to take note

Consolidated retail is a problem for manufacturers now, it will be a greater problem for them in cyberspace. Greater choice will put pressure on brands; global price comparison and competition will force prices down; whilst marketing complexity will increase. Today’s consumer goods companies still rely on marketing models created in the 1950’s for the run of the strategic thinking and these models were never meant to cope the realities of media fragmentation and retail consolidation of the 90’s – let alone the challenges that e-commerce poses. Addressing both the opportunities and the issues will require some major re-calibration of the way people think about marketing and selling consumer goods and time is running out.

Ok so I’ve said this before (5) BUT this not just about the boardroom setting up a task force in key markets, it’s really about operational units addressing the e-commerce potential directly too. How many sales directors have this on their agenda now? In many markets, these guys have not yet got beyond ‘modern trade’ and ‘general trade’. That thinking may cost company’s big time, especially in markets which have avoided the onslaught of global players to date.

Wal-Mart’s move this week is probably not high on the agenda in many HQ’s this week but it is a major shift – it is likely to be the beginning of a new wave.

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Does China’s E-commerce rise signal the future of bricks and mortar globally?

 

 

I don’t own an iPad. I’ve always wanted one but probably more for the kids than anything else.

I guess I’ve just felt that I had better things to do with the cash. So price has been a barrier (especially since I have three kids!) Not anymore – and mostly because of e-commerce. Why? Because here in my second home of Shanghai they’re cheap – Gome one of China’s two leading electronics behemoths has just dropped the price on an iPad 2 to CNY 1999 (that’s just over 300 of your American Dollars) so ok now I’m getting three!

China is fast becoming one of the cheapest places to buy online as Gome, its arch-rival Suning and relatively recent e-commerce entrant 360buy.com seek to beat each other  online. As they do, the incumbents are closing non-performing retail outlets (which less than five years ago accounted for over 80% of Sony’s sales in China) and cutting price across the board.

Chinese shoppers are reaping the rewards but the retailers are hurting – according to The Global Times “Suning Appliance Co, China’s largest home appliance retailer by market value, saw its net profit drop 15 % year-on-year during Q1 this year, while the profit of Gome plunged some 88% over the same period”.

Youngchinabiz.com reports that Suning saw its share value drop 10% on 16th July alone. What does this tell us? 

The move to online costs hurts incumbent bricks and mortar retailers most. 

I blogged about the urgent need for manufacturers to recognize and address this rapidly  and I predicted that as online sales boom traditional retailers would have to fight hard to sustain their position. China’s appliance retail sector shows how global retailers will pursue price hard and they illustrate the consequences. Ultimately manufacturers can expect to foot part of the bill, if not in the search for direct contributions towards discounts, they will pay as the price positioning of their brands erode.

Manufacturers need to gear up for price competition to become more intense and for the gap between gross and net sales to widen rapidly in the coming years. If this is not yet on the radar for your business – it needs to be – and so do the huge upsides that the global re-structuring of retail offers.

In the last decade the Top 10 global retailers have doubled in size, accounting for over USD1 trillion in sales (see Deloitte’s “Global Powers of Retailing 2012”) . This has lead to a global acceleration in trade spend to fuel this expansion. Global manufacturers have felt the profit pinch and margins are at an all-time low. As the global economy slips back into recession, manufacturers will be hit harder, not just in the top line but the also in the bottom line. Its time manufacturers got smart to the potential to re-invent their retail model. And now is this time to act. Today 9% of UK retail sales are online – this will increase exponentially from now on.

So if you are a manufacturer what should you do?

Focus on your target shoppers – who are they? Where are they buying? What will make them choose you? The days of generic approaches are gone – it’s now time to create clear specific targets and chase the ones who produce the most value for your brands.

Re-calibrate your channel strategies now – look not at where you sell most today, but where you will sell most tomorrow. Seek out only those retail environments where you can really win with your target shoppers and build your route-to-market strategies to anticipate the shift in buying behavior.

Seek alternatives to price – chasing price points can never add value to your brand, nor does it guarantee a sale. Avoid the pressure to support retailer’s demands for keener price points just because they are in a pickle and focus on activities that will cement loyalty. E-commerce will be a part of this, its inevitable, so now is the time to build your competence in the virtual world as well as the bricks and mortar one.

Invest more wisely – simply put – stop supporting retailers who have no future and shift your expenditure to those who are best equipped to whether the storm. Remember that the retail model depends not just of front margins but also on back margins. This is true both offline and online so take maximum care to avoid repeating the mistakes of the past as retail evolves.

China is still considered by most as a ‘developing market’ so this massive change shows how quickly e-commerce will impact on the fastest growing markets – this is a global imperative for manufacturers not just an western market phenomenon so it’s time to act!

3 reasons for getting serious about online retail now!

Most manufacturers I speak to don’t have a strategy for developing online retail channels. Very few have a dedicated team working on online at all and even fewer take online retail seriously as a sales channel. For most online retail is just too small, perceived to be irrelevant or it’s considered as ‘being done’ as part of the management of key customers who already sell through web-sites. But here are three reasons why you need to get very serious about online retail very quickly.

1. Online retail can grow exponentially

Let’s learn from ‘digital’ history. The social media explosion of the last 5 years demonstrates very clearly that the rate of change online is rarely linear – in point of fact it’s often hugely exponential. A recent IGD study suggested that grocery retail sales could grow at a whopping 15.8% CAGR. But this study suggested a linear growth. Actual performance in the UK during the last quarter of 2011 showed online sales for retailers like Waitrose and Debenhams’s and nearly doubling! Both have made serious, focused investments in online and these have delivered startling growth. The potential for what is now small to become very significant, very quickly should be clear. Those who have a strategy for exploiting this change may find new growth in markets once stymied by overbearing mega-retailers.

2. Shopper marketing potential

I blogged last week about the potential for digital and shopper marketing to combine, this potential is greatest in online retail environments. Amazon shows how product ranges offers and suggestions can be personally tailored to individual shoppers. The opportunity this presents is that, for the first time in history, the potential to apply a personal marketing mix to change a targeted shopper’s behavior now actually exists. Ultimately by combining digital tools with online retail the age of superfluous marketing spending may be at an end. In anticipation of this, begin work now defining the role of online retail environments for key target shoppers and start developing clear investment strategies for the web.

3. The potential response of big retail

Major bricks and mortar retailers have been slow to embrace online. Some (eg. Blockbuster, Borders) have been blindsided completely. Others have selected markets where a strong competitive position and high Internet penetration makes online retail an effective competitive strategy (Tesco in South Korea and UK). But in the main uptake has been slow and in many cases, reticent. This is for good reason – the retail business model is one which depends on return on capital employed. What happens do you think, to those millions of square feet of real estate when 20% of your sales go online? Now you own millions of square feet of warehousing in prime retail space – not a great way to drive returns. When online retail explodes those retailers caught napping may have to do some radical business re- engineering. This is going to have a major impact on their suppliers. Retailers under pressure are dangerous beasts: they will seek to enhance profitability by seeking greater contributions for vendors and concurrently make radical cuts in ranges to improve efficiency. Anticipate these shifts now and factor this into customer prioritisation for the future.

Of course things could move slower than I’m suggesting, but I doubt anyone would argue the fact that online retail will be a significant part of consumer goods sales sooner or later, so it’s worth being aware of the costs of not being proactive now. Firstly, your competitors have the same information as you have and the same pressures so if you don’t act they probably will (or are already). Next consider the implications of the rapid demise of a key customer or the rapid escalation of costs that a struggling customer can force you to incur – can you afford reduced margins on a smaller turnover base? Last think about the opportunity cost, digital offers the opportunity to exploit a new, highly attractive channel; one which has a high impact of targeted shopper’s behavior but which is currently low cost to manage: few channels would meet these criteria so not embracing this opportunity leaves you competing in sub-optimal spaces.

Don’t get left behind! Make online retail a part of your channel strategy now, include online environments in research programs and seek to develop talent in this space ahead of the curve.