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May 13, 2014
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E-commerce edge helps British retailers expand abroad

May 13, 2014

Marks & Spencer is making a new push to expand abroad, hoping e-commerce will give Britain's biggest clothing retailer a better chance to succeed than earlier attempts to enter new markets.

It is one of several retailers that are using expertise developed in the UK's fast-growing e-commerce market to expand overseas. Store chains like M&S are starting to emulate the success of online-only fashion players like ASOS.

Britain is the world's most developed online retail market, according to a ranking by commercial real estate firm Cushman & Wakefield, followed by the United States, Germany and France.

M&S withdrew from mainland Europe in 2001 after a failed expansion. The retreat was temporary. In March the firm said it would use "bricks and clicks" - opening new stores in a few markets while offering online sales in several more - to accelerate growth abroad.

"Because we sit in the UK we sometimes forget how advanced the UK is," said Laura Wade-Gery, M&S e-commerce executive director.

Although the United States is the biggest e-commerce market by absolute turnover, internet orders make up a bigger portion of total retail sales in Britain - about 11 percent in 2013 to 7.3 percent in the United States, Euromonitor data shows.

Britain's leadership position in e-commerce has been driven by its compact size - which make delivery more cost-effective - along with its relatively high internet penetration.

Retailers are seeking to ship more goods to shoppers abroad, a drive the British government is supporting to diversify exports from a heavy reliance on finance. It launched a plan last year to help 1,000 retailers break into international markets by 2015.

Consultants OC&C say UK retailers are beating domestic competition overseas due to wider choice, better prices and fast and reliable delivery. They predict overseas online sales by British retailers will jump to 28 billion pounds ($47 billion)by 2020 from just 4 billion in 2012.

"You can go quite a long way with one warehouse serving the world," said OC&C partner Anita Balchandani. "We should feel pretty confident about the prospects for a nation of shopkeepers with an advantage in the digital world."

Global market place

M&S is investing 1 billion pounds on logistics, IT and systems. It launched a new web platform in February and is ramping up a new distribution centre in central England to fulfil all online orders.

It hopes that will help reverse nearly a decade of market share decline at home and pay dividends abroad as it targets a 25 percent increase in international sales in the next three years and a jump of 40 percent in overseas profits.

After its retreat in 2001, M&S started a tentative return to the international stage in 2011 when it opened a store on the Champs Elysee in Paris and launched a French-language website.

The move is part of Dutch Chief Executive Marc Bolland's strategy to turn the British group into an international "multi-channel" retailer, reaching customers through stores, the web and mobile devices.

Credited with turning around grocer Morrisons, Bolland took over at M&S from Stuart Rose in 2010.

M&S grew international sales by a third in three years to account for 10 percent of the 10 billion pounds ($16.82 billion) 2013 total and more than 15 percent of operating profit.

Bolland's "bricks and clicks" mantra involves opening stores in prime locations to publicise the brand, complemented by online sales from local-language websites.

The attempt to meld stores and online presence is best illustrated in Bolland's birthplace, the Netherlands, where M&S launched a Dutch website and "e-boutique" store in Amsterdam last year that allows shoppers to browse the full range of clothes on life-size digital screens and then order online.

There was a 13 percent rise in overseas customers searching for UK apparel retailers online in the first quarter of 2014, according to a British Retail Consortium and Google study, with growth strongest in China, Russia, France and Germany.

Nine local M&S websites are already live, with plans to launch in Russia and Finland this year. M&S also hopes to add 250 stores abroad by 2017 to the current 455, including new lingerie and beauty boutiques in Saudi Arabia and India.

It already delivers to countries including Australia and Canada from its UK warehouses, a similar strategy to that pursued by Next whose strong online growth has helped it almost catch up with fashion sales at M&S.

Next, which sells from 200 stores in 30 markets and delivers to 60 countries from a UK warehouse, saw international online sales grow by 86 percent last year and expects a rise of another 50 percent this year to 150 million pounds.

However, the further afield that retailers stray from Britain, the more they have to plough into local logistics.

ASOS, a darling of the stock market since listing in 2001, saw its shares fall sharply in March when it said investment in warehousing in the UK and Germany, as well as start-up costs in China, would hit annual profit.

Sophie Albizua, co-founder of retail consultancy eNova Partnership, cautions that e-commerce does not mean that expanding abroad has suddenly become risk-free.

She notes that ASOS, which already makes almost two-thirds of sales overseas, is still far more profitable in Britain than abroad if the costs of the head office are taken into account.

"You should be careful with the myth that international expansion online is easier than store expansion," Albizua said, noting it is costly to create brand awareness online in new markets, especially without the physical presence of stores.

"In practice there are few people who have managed to do that profitably and successfully because the same rules apply as to physical stores."

$1 = 0.5938 British Pounds

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