E-Commerce: the New Normal for International Retail Expansion?

At the World Retail Congress in Paris earlier this fall, the chairman and CEO of Carrefour, Georges Plassat, delivered a poignant statement: the “era of imperialism” for retail has ended. Instead of trying to breach new markets abroad, Plassat declared, retailers should focus their efforts on stabilizing their domestic operations and adapting their brands to stay competitive locally. While Plassat’s statement was timely, it failed to address a significant trend that’s been emerging in the global retail space.

Just two months before his speech, several of the world’s largest retailers—Carrefour included—announced that they were reigning in their aggressive expansion plans after being unable to compete in several foreign markets. In one of the most valuable surrenders in recent years, Tesco—the world’s third largest retailer—opted to fold its struggling venture in China after significant, consecutive losses. At the same time, though, major retailers such as Wal-Mart remained steadfast in their ambitious approach for growth in China and other developing markets.

These inconsistencies in strategy and success hint at the complex challenges retailers face when expanding globally. Success can be elusive, as each market comes with its own challenges that require nimble, specially-tailored strategies. With intense local competition, international companies face an uphill battle to win customer loyalty, especially when a lack of scale makes it more difficult to offer lower prices. To meet these obstacles head on, an adaptable brand strategy is critical, as Target has painfully discovered upon recently venturing into Canada.

Realistically, the lure of growth opportunities abroad remains strong for many retailers, and brick and mortar outlets offer brands a unique opportunity to establish a tangible presence in new countries. But given the necessary investment of time and capital, more retailers are reconsidering their exposure before setting up shop overseas. As an alternative to these risks, many are vamping up their e-commerce in their attempt to penetrate foreign markets from home, where they can more safely leverage the ever-increasing pool of global internet users.

Over the past five years, global online retail has undergone an annual compound growth rate of 17 percent, and, according to IDC projections, international e-commerce is expected to expand at more than double the rate of the U.S. e-commerce industry between 2012 and 2017. IDC estimates that the sales volume for physical goods, especially clothes and consumer electronics, will grow 18 percent annually on average over that timeframe, outpacing the United States’ projected seven percent growth.

Major brands, such as Macy’s, J. Crew and Saks, Inc., have taken note. Since beginning its online sales in 2012, Neiman Marcus has also taken the e-commerce market by storm, boosting its online revenues by 17 percent in FY 2013 to over $1 billion, which accounted for 22 percent of its overall revenue for the year.

In the upcoming months, the global market will likely face several major developments, perhaps most notable of which is the highly anticipated IPO of Alibaba Group—Hong Kong’s Amazon.com. Of course, as the holiday season is now upon us, e-commerce platforms should see another spike in activity, as well. For the third year in a row, online holiday sales are expected to grow by a double digit rate, with Forrester projecting over $78 billion in online volume this season. Our 2013 Retail Compass Survey of CMOs showed that U.S. retailers expect a 3.7 percent boost in Cyber Monday sales, while a plurality of retailers (38 percent) cite free shipping as their most prevalent online promotional tactic this year.

International e-commerce comes with its own risks, however. As we discussed last month, there are considerable security risks associated with online retail. Additionally, top of mind for retailers selling virtually overseas are considerations about currency volatility and logistical concerns around various import-export regulations.

Looking forward to 2014, the question on everyone’s mind is whether the e-commerce movement will maintain its momentum as a new force for growth in retail’s global expansion.

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