By Daniel Hunter
Online sales generated by UK retailers from international markets are expected to soar sevenfold to £28 billion by 2020, according to new research published by OC&C Strategy Consultants in collaboration with Google.
Whilst in 2012 online sales from outside the UK were worth £4 billion and made up 14% of total online sales, the OC&C and Google research, Britain’s Retail e-mpire, predicts that international sales growth will outpace domestic growth to make up 40% of total online sales by 2020.
This increase in the international sales of British goods by 2020 will come from across the globe, and represents a promising pool of opportunity from a range of geographies:
- Sales in Western Europe are expected to soar to £9.8 billion in 2020 from £1.5 billion in 2012. These markets offer favourable trading conditions as a result of low barriers to entry through the European Union, combined with ease of delivery across the continent.
- As the emerging economies of Central and Eastern Europe and Asia continue to expand, sales are predicted to reach £6.9 billion by 2020 from £400 million in 2012 and £4.5 billion by 2020, up from £400 million in 2012 respectively.
- North America will continue to be the single biggest regional market for British online goods, with sales expected to increase from £0.8 billion in 2012 to £2.7 billion in 2020. However, the growth rate will be slower than other countries due to the relative maturity of the market and tougher competition from established national brands.
The OC&C and Google study shows that the number of consumers searching online for British brands and retailers from outside of the UK is growing on average by 46% a year since 2010. Flying the flag for British online retail abroad are well-known brands, such as — Asos, Burberry, Jimmy Choo, Net-A-Porter, The Outnet, Topshop and Wiggle, who already receive over half of their traffic from overseas.
“We have seen a significant increase in the volume of searches for British retailers and brands coming from overseas," Peter Fitzgerald, Director at Google, said.
"The majority of non-UK searches are currently coming from Europe, followed by North America and Asia, driven by the increased popularity of British brands abroad. Retailers can use search data to identify pockets of demand and move quickly to meet the needs of customers.”
The research reveals that many smaller UK-based retailers — such as Farfetch, Isabella Oliver, Surfdome and Corsets UK — are embracing international opportunities more rapidly than their larger counterparts. Small and mid-sized companies currently receive nearly half (47%) of their online searches from overseas, tend to ship to more countries and offer multi-lingual sites. Conversely, only 13% of online searches for retailers with turnovers of more than £250 million come from outside the UK.
“E-commerce has transformed what was once a game anchored in local markets - with retailers choosing to expand internationally when they reached saturation nationally - into one where they can pursue internationalisation at the same time as domestic expansion," Anita Balchandani, Partner at OC&C, said.
"It is perhaps no surprise that companies like Amazon and eBay now generate about half of their revenues from international markets in a fraction of the time that it has taken the likes of Walmart and Tesco.
“There are a number of reasons why growth in e-commerce is changing the rules of internationalisation. Firstly, geographical proximity no longer determines which market is best suited for expansion — the internet allows customers seek out the best offers from around the world.
"Secondly, the nature of risk has changed. International expansion is much less capital intensive and this is creating growth opportunities which have a more controlled exposure to risk. Thirdly, the speed with which companies expand has also accelerated — over 40 of Britain’s top-100 etailers serve customers in more than 40 countries.”
British brands performed strongly across all sectors, with luxury goods, fashion and footwear the star performers. UK retailers performed strongly against domestic competition overseas for a number of reasons:
- Better choice: e.g. UK beauty specialists, on average offer twice as big a range as their Scandinavian competitors.
- Advantaged pricing: The pricing regime in the UK is relatively competitive, and further supported by the pound’s depreciation compared to local currencies, especially in Australia and Scandinavia.
- Compelling site and service experience: Free, fast and trustworthy delivery is the norm for British retailers shipping internationally, e.g. ASOS offers a fast and effective returns policy overseas and Wiggle can ship its unrivalled range of cycling equipment to Australia in two to four days — as fast as or faster than many local competitors.
“There is a huge opportunity for companies who want to capitalise on international expansion online — and this applies to a range of categories from clothing and couches, to cycles. There are, however, a number of strategic and operational considerations to avoid falling at the first hurdle," Anita Balchandani continued.
“Firstly, retailers need to carefully assess which markets are more favourable for expansion based on their individual circumstances. Countries like Russia and China have a huge potential customer base but are also extremely challenging. In Russia, for example, difficulties in getting goods through customs can be burdensome, often adding to the time it takes to deliver goods. In China, local partnerships are required to navigate the market successfully and retailers are often required to tailor their shipping to offer ‘cash on delivery’.
“Retailers also need to bear in mind that international ecommerce requires new capabilities. Whether it’s the ability to respond quickly and tailor to local consumer demand or navigate international regulation and pricing, international e-commerce requires a healthy dose of all of these skills.
“Notwithstanding these challenges, there are a number of countries which present UK businesses with growth that is relatively easy to access — such as the English proficient world, like Australia and Scandinavia, and the rapidly emerging markets of Eastern Europe. And finally, even markets such as Germany, France and the US that tend to be classified as ‘mature’ are still emerging in ecommerce terms and offering plenty of growth potential.”
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