e-dition 2013

A Study on the Internationalisation of Britain’s ecommerce Businesses

BRITAIN’S RETAIL E-MPIRE

• Retail is transforming itself from a local, national industry into one which is fundamentally about competing globally in international markets. This will have a profound impact on what it takes to succeed as a retailer in 2020

• However, this imperative for retailers to internationalise, remains a poorly examined topic

• In order to understand how big the scale of opportunity from internationalisation could be and what it takes to succeed, Google UK partnered with OC&C Strategy Consultants to produce this independent study

• The study draws on some of Google’s proprietary data and has been discussed with Google executives, but OC&C is responsible for the analysis and conclusions

• Google UK and OC&C are delighted to launch ‘Britain’s Retail e-mpire’, a study that aims to put the spotlight on the internationalisation of ecommerce, one of the most material opportunities facing British retailers

Background to the study

1

ecommerce is accelerating the internationalisation of Retail

Source: Datastream, Press search, Retailer websites, OC&C analysis

1. Market Capitalisation based on constant 2012 exchange rate, excludes unquoted retailers, market values on: 25 Apr 2013 2. International revenue as % of total revenue. Where not available, international sales as % of total stores 3. Time from founding to first international presence (store or website)

Internationalisation of Top 10 Global Retailers by Market Capitalisation Years, %, $bn

47

82

69

257

41

4745

50

109

122

10

0

70 0

50

10

100

15

90

20 25 30 35 60 75 80

80

70

60

65

40

30

20

5

Time to Internationalise (Years)3

Lowe’s Woolworth

Costco Tesco

H&M

eBay

Inditex

Shar

e o

f In

tern

atio

nal (

%)2

Home Depot

Amazon.com

Walmart

Bubble Size Indicates Market Capitalisation1

Amongst the top 10 retailers by market capitalisation globally, online

retailers have had an accelerated international trajectory – years,

rather than decades

2

Consumers increasingly search cross-border to meet their needs

3 Source: Google, OC&C analysis

Share of International Searches for UK Brands, 2012 %

15.9%

Entertainment & Electricals Sports

28.2%

62.5%

Luxury Fashion1 Clothing (Mainstream)

39.2%

28.9%

Beauty

1. Clothing, Footwear, Jewellery & Accessories

UK retailers are gaining traction internationally

Source: Google, StatCounter, Civic Consulting Survey (2011) for EU DG Health & Consumers, OC&C analysis

5579

106

22

34

4619

28

21

13

13

6

7

4

12

+46%

Europe +39%

North America +44%

Asia +49%

Oceania +83%

Other +63%

2012

212

2011

152

2010

100

International Searches for UK Retail Brands1

Indexed – Rebased to 2010 EU Consumers Purchasing from UK eRetailers – 2011 %

29%

29%

33%

34%

34%

35%

39%

40%

41%

41%

48%

49%

74%

74%

93%

Estonia

Lithuania

Finland

Portugal

Bulgaria

Denmark

Greece

Cyprus

Ireland

Malta

Italy

France

Latvia

Slovenia

Sweden

CAGR 2010-12

2x growth rate of

searches by UK consumers

4

International capability is already the ‘norm’ for UK retailers

Retailers Delivering Outside the UK % Retailers

Languages other than English Offered by Retailers % Offering Languages,% Retailers Offering Specific Language

21%

21%

22%

10%

26%

>100 Countries

40-100 Countries

5-40 Countries

< 5 Countries

Not Offered

19%

5%

10%

13%

53%

More than 10

7 to 10

4 to 6

1 to 3

None

17%

18%

22%

24%

31%

40%

43%

Chinese

Russian

Japanese

Portuguese

Spanish

French

German

47%

74%

eg Sports Direct

eg Mothercare, Wiggle

eg House of Fraser, Dorothy Perkins eg Chain Reaction, Next

Source: OC&C Website Checks, December 2012, ComScore ,OC&C analysis

Top 100 UK Retail Websites

5

Proportion of International Searches by Company Size

% of Searches from Outside the UK

The ‘small’ are embracing international faster than the ‘large’

47%

30%

13%

Small Retailers Mid-size Retailers Large Retailers

Source: Google, BvD, Comscore, OC&C analysis

1. Online and offline revenue 2. Visitors to UK site over 12 months, from Comscore – some manual adjustments made where sense-checks showed large retailers with low site traffic

Annual Turnover1

UK Traffic2

OR

£250m + £25m-£250m <£25m

26m+ visits 3m – 26m visits < 3m visits

6

Internationalisation Index: Top 50 Indexed Scores Based on Consumer Searches1

The jewels of Britain’s Retail e-mpire

Source: Google Search Data, OC&C analysis 7

1. Does not use advertiser data, e.g. clickthrough, bid values etc and is purely based on consumer queries 2. International Share / Volume of queries both based on 2012 3. Volume of International Queries on logarithmic scale 4. Growth in queries coming from outside the UK – 2010-12

Total Score (100)

Indexed Share of International

Queries (100)

Indexed Volume of International

Queries (100)

Indexed Growth Rate of

International Queries

(100)

1 ASOS 100 58 100 46

2 Farfetch 99 92 45 66

3 Book Depository 98 96 63 41

4 Burberry 96 100 83 12

5 Boohoo 93 26 64 100

6 Net a Porter / The Outnet 89 75 78 30

7 Beauty Bay 86 60 21 94

8 Photobox 83 72 72 24

9 Jimmy Choo 81 88 64 13

10 Chain Reaction Cycles 76 65 65 25

11 Topshop / Topman 72 35 88 24

12 Pro-Direct Soccer 72 68 60 18

13 Wiggle 72 55 62 29

14 Agent Provocateur 71 75 52 18

15 Clarks 70 51 73 19

16 Superdry 69 40 61 41

17 Endclothing 68 47 31 60

18 Mulberry 63 54 58 17

19 Ted Baker 62 33 53 40

20 FeelUnique 61 41 43 41

21 Charles Tyrwhitt 61 56 43 26

22 Karen Millen 60 43 57 22

23 Dorothy Perkins 60 18 62 41

24 Harrods 58 42 58 18

25 River Island 58 17 72 28

Total Score (100)

Indexed Share of International

Queries (100)

Indexed Volume of International

Queries (100)

Indexed Growth Rate of

International Queries

(100)

26 Specsavers 57 39 54 24

27 JP Boden & Co 57 35 60 22

28 SimplyElectronics 56 55 26 33

29 Mothercare 52 20 60 26

30 AllSaints 52 50 37 20

31 The Savile Row Company 49 56 23 20

32 Matches Fashion 49 48 20 32

33 Kitbag 48 51 34 13

34 Watchshop 47 26 14 56

35 Cath Kidston 45 23 47 22

36 Mamas & Papas 44 20 45 25

37 Monsoon UK 44 22 55 12

38 Overclockers 44 32 36 21

39 Surfdome 43 20 22 45

40 Reiss 43 22 40 25

41 Hobbs 39 18 36 26

42 TM Lewin 39 30 32 16

43 Sweaty Betty 31 18 12 34

44 Links of London 30 25 34 3

45 Holland & Barrett 28 23 6 29

46 Corsets UK 27 26 1 29

47 Aspinal of London 25 20 5 26

48 Isabella Oliver 22 31 12 1

49 Sofa.com 21 18 1 25

50 DV 247 19 25 13 0

International ecommerce set to grow seven-fold to £28bn

Sales from UK eRetailers1, UK & International £bn, % Total, % CAGR

Source: IMRG, Euromonitor, Forrester, Google Queries, OC&C analysis

63

39

(61%)

24

(39%)

2018

56

37 (65%)

20 (35%)

2017

50

34 (68%)

16 (32%)

2016

45

33 (72%)

13 (28%)

2015

40

31 (76%)

10 (24%)

2014

36

28 (79%)

8 (21%)

2013

International

UK

+12%

2020

69

41 (60%)

28

(40%)

2019

32

27 (83%)

5 (17%)

2012

28

24 (86%)

4 (14%)

1. Excludes grocery, 2man fulfilled and click and collect orders

CAGR 2013-20

Forecast

26%

6%

8

Europe and Asia will be the engines of growth

1.9

North America

2.0

Asia

4.1

Central / Eastern Europe

6.5

Western Europe

8.3

2012

Other 36%

1.5 0.4

0.4 0.8

0.5

0.2

2020

9.8

27.9

Oceania 25%

North America 20%

6.9

4.5

2.7

2.4

1.5

3.8

Other1

1.3

Oceania

Asia 39%

C/E Europe 49%

W. Europe 31%

UK ecommerce International Sales Growth by Region, 2012-20 £bn, % CAGR

Source: IMRG, Euromonitor, Forrester, OC&C analysis

CAGR 2012-20

Ireland, France, Spain & Germany drive 35% of growth in Western Europe

Poland and Slovenia drive 17% of growth in Eastern Europe

China, Singapore, Hong Kong, Philippines to grow by £2bn

Australia is largest single growth market at £1.32bn

1. “Other” includes South America , Middle East & Africa

9

US is key driver of growth at £1.1bn

When prioritising expansion, market ‘readiness’ matters

• ‘Operational Readiness’ reflects the level of friction faced by retailers attempting to capture sales in that country

• Factors considered to identify potential pain points

– English proficiency

– Credit / Debit card penetration

– Delivery cost

– Import tariffs

• ‘Strategic Readiness’ evaluates the market opportunity for both size and competitive intensity

• Evaluation factors are

– Market size 2012

– Absolute growth to 2020

– Share of leading online retailers

– Online share of total retail

Market Readiness

Operational Readiness

Strategic Readiness

10

Saudi Arabia

Nigeria

Lithuania

Israel

Chile

Ukraine

Argentina

Hong Kong

New Zealand

South Africa

Slovakia

Romania

Greece Singapore

Taiwan

Portugal

Ireland

Hungary

Turkey

India

Norway

Mexico

Switzerland

Czech Republic

Austria

Sweden

Belgium

Spain

Finland

Canada

Denmark

Brazil Russia

Italy

Poland

Netherlands

South Korea

Australia

Japan

France

Germany

China

USA

Uzbekistan

Bosnia-Herzegovina

Azerbaijan

Morocco

Uruguay

Peru

Georgia

Indonesia Ecuador

Latvia

Kazakhstan

Estonia

Macedonia Egypt

Colombia

Croatia

UAE

Philippines

Venezuela

Slovenia

Malaysia Serbia

Market Readiness Framework Forecast £bn 2020

Source: Euromonitor, Forrester, Mintel, World Bank, WTO, Crystal 2003, Parcel Force, OC&C analysis

1. Excludes 2man and grocery

Major Markets £180bn

Big But Challenging £175bn

Accessible Anglophones £30bn

Nascent Neighbours £20bn

A number of markets are ‘ready’

Increasing Strategic Readiness

Incr

easi

ng

Op

erat

ion

al R

ead

ines

s

11

Canada Poland Russia Netherlands China Spain Italy

Mainstream Footwear

Sports

Mainstream Clothing

General Merchandise

USA

Luxury Fashion

Jewellery & Accessories

Electricals

Home & DIY

Entertainment

Beauty

France Ireland Australia Germany

Clear winners (eg Fashion, Luxury) and white spaces

Higher Reach Countries

Hig

her

Rea

ch C

ate

go

ries

Brand Searches for UK Retailers – Countries & Retail Segments, 2012

Average Searches for UK Retail Brands

Source: Google, OC&C analysis

Most successful country-category

combinations

12

The rules of Retail internationalisation have changed

International typically a response to maturing presence in home

market though a carefully planned multi-year approach

International expansion pursued simultaneously with growing share in home market – with serendipity and a dynamic planning approach

playing a role

Speed

Proximity and cultural similarity as key elements of expansion logic

Traction with customers and scale of opportunity drive the decisions

around markets to ‘go deep’ or ‘skim’

Sequence

Capital and resource intense approach to build presence and

infrastructure

Lower capital and resource intensity, also enabled by the

ability to rapidly test and iterate Risk

Was Now

13

International ecommerce requires new capabilities

Engaging Local Customers & Competing Effectively

Dynamic and Data Driven

Decision Making

Operating Geographically

Diverse Multi-Channel

Footprint Managing Rights and Protecting

Brand Image

Risk and Foreign

Exchange Management

International Regulatory &

Tax Compliance

14

We believe winning retailers will share 5 traits

No substitute for a great proposition (range, price, service advantage)

Ability to spot and respond fast to evolving demand

Cost effective routes to build awareness and customer volumes

‘Selective’ and resource-light localisation

Mastery of the order economics and mechanics to create profitable customer behaviour

Traits of Winners

15

• Patrick Wall and all at Metapack

• Andrew Starkey at the IMRG

• Eric Fergusson at eCommera

• All the dynamic entrepreneurs and business leaders amongst our international super-league who generously shared their successes and challenges, enabling us to test our theories against their practical experiences

Acknowledgements – we would like to thank:

16

For more details, please contact

BOSTON DUSSELDORF HAMBURG HONG KONG LONDON MUMBAI NEW DELHI PARIS SÃO PAULO ROTTERDAM SHANGHAI WARSAW

Anita Balchandani

anita.balchandani@occstrategy.com

Alex Mathers

alex.mathers@occstrategy.com

John Franklin

john.franklin@occstrategy.com

17