How can businesses mitigate risk and capitalise on international opportunities in the dynamic retailing landscape?
The UK’s retail sector has undergone seismic changes over the past 12 months, with the coronavirus pandemic dramatically reshaping the way consumers make purchases. As well as accelerating existing global trends, such as the move towards ecommerce and sustainability, coronavirus has prompted businesses to consider opportunities created by increased connectivity and higher customer expectations. The challenge for retailers today is how to develop a strategy and organisational model that can quickly take advantage of these new trends and opportunities.
The story so far
So what are the most significant changes we’ve witnessed since the start of 2020? The mass shift to online sales is the most consequential and eye-catching. In the UK, the proportion of retail sales made via the internet rose from around 18% to over 30% at its peak during lockdown. This percentage hadn’t been expected until well into the current decade. The shift to online has had a number of knock-on effects. For example, retailers have ramped up their efforts to re-purpose physical outlets to complement their online activity, by driving awareness and helping with fulfilment.
The pandemic has also created a high degree of polarisation in the sector, between retailers considered essential and those classed as non-essential during lockdown periods. In sub-sectors, areas such as athleisure/loungewear and household goods have performed strongly.
The coronavirus pandemic has also expedited the move towards ethical and sustainable consumerism, amid widespread realisation of the fragility of the society in which we live. Not only is there more pressure on retailers around staff welfare, there’s also greater public focus on supply chain transparency and accountability.
Customers aren’t the only source of supply-chain pressure. Over the past year, retailers have been shown the importance of supply chain resilience and diversification when it comes to their ability to cope with disruption. The UK’s new trading relationship with its closest neighbours in Europe will only serve to exacerbate the challenges in this area.
Looking further afield
As UK retailers adapt to this new landscape, it’s imperative they look outside their domestic economy for new opportunities. This can help them not only find new sources of revenue, but also avoid the potential pitfalls of concentrating all their risk in a single market.
The Asia-Pacific region is of particular interest with around $2.5 trillion retail ecommerce sales. It’s sure to remain the international retail industry’s key source of growth in the post-pandemic world, accounting as it does for around three-quarters of global growth. In the five-year period to 2019, the compound annual growth in retail sales in Asia-Pacific was more than four times as fast as in the rest of the world, driven by the rapid expansion of the middle-classes and dual-income households, increasing digital penetration.
Here, the UK has a competitive advantage in areas such as health and wellness and sustainability. UK retailers are set to benefit from a review of cosmetics testing regulations by regulators in China, which is expected to remove a number of existing import barriers.
Meanwhile, the UK-Japan Comprehensive Economics Partnership Agreement (CEPA) will cut tariffs on nearly 99% of products traded between the two countries. Japan is the UK fashion and textile industry’s third-largest export market, with particular strength in the higher-margin luxury segment. CEPA also introduces more liberal rules of origin for knitwear, among other products, which will make exporting more straightforward.
Across the Atlantic, opportunities in the US market include the rapidly expanding household goods segment, growth of sustainable fashion and cosmetic brands, and an ecommerce market reaching just over $800bn. Subscription retail models have also become more popular in America, helping to deliver higher levels of customer loyalty and brand attachment, while technological advances such as artificial intelligence are helping to improve conversion rates and supply chain efficiency. The key to a successful US entry strategy lies in selecting the right channel and collaborating with marketing agencies that are aligned with the business’s brand story.
In the Middle East, many businesses are exploring experiential retailing, while online or click and collect models have come to the fore during this pandemic. The concept of ‘storetainment’ – where retailers use a mixture of shopping and entertainment to attract customers and build loyalty – remains important in the region.
Developing an international business model
Taking your first steps in exporting and expanding into new international territories can be daunting at the best of times. The travel restrictions imposed by the pandemic only serve to make this process – of selecting the right entry channel, finding suitable marketing partners and protecting intellectual property – even more challenging.
Fortunately, there’s a wide range of tailored support available to help retailers move onto the international stage. Virtual meet-the-buyer events and market insights from experts on the ground can make sure businesses forge partnerships and carry out necessary due diligence quickly, helping them save valuable time and cost resources. At Santander, we’ll be providing insight programmes over the course of 2021, including a Global Retailing Insight & Connections virtual showcase, which will provide detailed insights about how to go about taking your first steps in regions such as Asia-Pacific, Europe, the Middle East, South America and the US.
There is a wide range of tailored support available to help retailers move onto the international stage. Virtual meet-the-buyer events and market insights from experts on the ground can ensure businesses forge partnerships and carry out necessary due diligence quickly, helping businesses save valuable time and cost resources.
The retail environment has never been more dynamic and by embracing a global perspective as part of their core business strategy – both in terms of generating demand and increasing supply-chain diversification – retailers can give themselves the best chance of sustainable success.
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This article was also published in The Retailer, our quarterly online magazine providing thought-leading insights from BRC experts and Associate Members.