Emerging Markets are Leapfrogging Mature Retail Markets by Investing More in Omni-Channel

Intuitively you might think that ecommerce levels the playing field for retailers, since consumers can access ecommerce websites anywhere around the world. But in the omni-channel era, where physical and digital channels are merging, omni-channel readiness appears to be more closely linked to where retailers are on their journey to omni-channel maturity. And this often plays out on a regional basis according to new research conducted by PwC on behalf of JDA Software.

In a survey of 300+ CEOs from China, Germany, Mexico, the United Kingdom and the United States, PwC found trends in omni-channel adoption and investment that varied across the five countries. The interesting thing is how the similarities and differences between countries were grouped across various dimensions. In some ways the differences can be seen by region—Asia vs. Americas vs. Europe. Other times the differences were between emerging markets (China and Mexico) versus the more mature markets of the other three countries. And surprising, sometimes China and UK stood out from the other countries. I’ll discuss some of these comparisons below, but first it is important to note that location matters when designing your omni-channel initiatives.

Regional Variations

It is probably no surprise to anyone that responses from Chinese CEOs stand out from those of their peers in other regions. China is just at the early stages of building a consumer culture, which has coincided with the rise in omni-channel retail. Therefore, they are weighed down much less by legacy operations and have started fresh building an omni-channel infrastructure. For example, 25 percent of Chinese CEOs say they do not have siloed operations and are providing seamless shopping experiences, compared to only 16 percent in the rest of the world who claim this. Another 65 percent of Chinese CEOs say although they operate in silos, they are providing seamless shopping experiences compared to 57 percent for the rest of the world. Chinese CEOs also say they are investing more heavily in almost all omni-channel capabilities than their peers from other regions. The downside is that Chinese CEOs feel much more susceptible to all threats from competitors, but especially from online, borderless entrants and from retail giants like Amazon and Walmart.

Contrast China’s situation with the more mature omni-channel markets of Germany and UK. They have already made investments in omni-channel capabilities so their investments now are more focused on adding stores, including dark stores for fulfillment, their supply chains and last mile delivery.

Emerging Markets

The most obvious and extensive differences in responses from CEOs in the five countries studied came from countries in emerging markets (China and Mexico) versus the more mature markets of Germany, UK and US. The emerging markets were more concerned about virtually all of the external and internal threats in the survey, generally saying they were more likely to occur and would impact them more. Especially concerning to them is threats from new online entrants and service providers. They are also more likely to say their fulfillment costs are increasing (72% vs. 67%) and that their largest cost is shipping directly to customers from their warehouses (49% vs. 38%). These increased costs are likely from less mature infrastructures and distribution networks.

Faced with higher costs to fulfill omni-channel orders, companies in emerging markets have little choice but to offset those costs with higher fees to consumers, as shown in Figure 1.

Figure 1 – Response to the high cost of omni-channel fulfillment

high cost of omni-channel fulfillment fig1Dealing with the higher costs of fulfillment is by no means dampening the enthusiasm of emerging markets, however. They are generally making larger investments in omni-channel capabilities and in expanding their supply chains than their mature market counterparts, and they are expecting higher growth rates in online sales—10-20% vs. 0-10% for mature markets.

Omni-Channel Readiness

While the survey showed many differences in responses based on region or for emerging markets versus mature markets, there was also curious agreement on certain issues from countries at opposite ends of the omni-channel maturity curve—China and the United Kingdom. While China is very new to retail and omni-channel, the United Kingdom is recognized as a strong early adopter of many omni-channel capabilities such as Click & Collect.

For example, China and UK were most likely to say their omni-channel fulfillment costs are increasing, but it would appear for different reasons. In China, the costs are increasing due to the rapid growth of ecommerce coupled with limited infrastructure. In the UK, the continued expansion in use of Click & Collect is likely pushing fulfillment costs higher. To help offset these rising costs, China and UK are the most likely to raise the minimum order value for free Click & Collect services. China and UK are also the countries most likely to offer specific time slots for deliveries.

Location Matters

If you are a small regional retailer with all of your operations and customer base within one country, the insight JDA’s research provides on the differences in omni-channel practices and investment intentions by country and region may only be interesting sidelights to you. But for any retailer who plans to operate physical stores or ecommerce sites in more than one country, or whose customers are apt to access competitors’ ecommerce sites globally, this information can be critical to designing your omni-channel strategies. In these cases, location most certainly does matter!

To read the full study report, access CEO Viewpoint 2016: The journey to profitable omni-channel commerce

To get a better picture of the statistics behind the report, access the infographic.

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