Retail Tourism Unlikely To Return In 2021; Cross-Border Ecommerce Filling The Void

Brahm Buck

A view of Harrods in Knightsbridge, London after the department store cut back opening times. (Photo … [+] by Kirsty O’Connor/PA Images via Getty Images) PA Images via Getty Images With European and UK physical retail largely closed for business, luxury brands are reporting some of the steepest revenue declines […]

With European and UK physical retail largely closed for business, luxury brands are reporting some of the steepest revenue declines on record in the region. Just last week, LVMH reported a 24% revenue decline in Europe, while Capri Holdings
(Michael Kors, Versace and Jimmy Choo) experienced a 29% decrease. US luxury brand Ralph Lauren is feeling the pinch from a lack of tourism domestically as well as in Europe, where comparable store sales declined 38% during the holiday quarter.

A new study from eShopWorld (ESW), a leading cross-border e-commerce provider, found that nearly 70% of global consumers made cross-border e-commerce purchases in 2020 as digital spend replaced physical. Stuck at home, shoppers have been turning to websites outside their own country to find better prices and goods that aren’t readily available in their home markets. This trend has put pressure on brands to create a localized, frictionless shopping experience in each international market where they sell.

I recently attempted to purchase online from an international brand and was hit with a 40% import tax charge at checkout. My serious intent to purchase quickly turned into a lost conversion. That kind of surprise may not be that uncommon, but it’s certainly unwelcome. In ESW’s recent survey, 33% of respondents said that having all charges, taxes and duties clearly displayed was the most important factor in their purchase decision making. 

“Brands have fewer distribution channels available to them due to lockdown orders and travel restrictions, so they have to remove needless complexity and friction from the online shopping experience—in every market,” says Tommy Kelly, CEO of ESW. “That means presenting details in the local language and currency and offering localized fulfillment, delivery and even returns options.” Offering a user friendly and local returns solution saves brands from overseas shipping time and expense and often results in fewer markdowns.  Don’t forget up to 60% return rates are common in online apparel—shipping back to the brand home country becomes costly.

With all the recent disruptions from Brexit, cross-border commerce between the UK and the EU has become a brand-new headache for brands. Some 42% of British luxury goods are exported to the EU and many brands are finding they simply can no longer sell into this important market.

As we look toward the post-COVID future, some expect to see a Roaring 20s type of bounceback in consumer discretionary spending. I don’t doubt that pent-up demand will be unleashed in late 2021, but physical tourism is unlikely to fully return this year. And I’m not alone in that opinion. During a recent earnings call, Capri Holdings suggested that tourism isn’t likely to bounce back until 2022. In the meantime, physical purchase points, namely wholesale points like department stores, will keep falling like dominos. Even the most successful brands are talking about shrinking their store footprints globally as online penetration increases at rocket speed.

One common luxury theme during 2020 was brands accelerating their new customer acquisition efforts, particularly their attempts to woo younger customers, who are typically acquired through digital and social media (just where brands have been focusing). Today, Tapestry (Coach, Kate Spade and Stuart Weitzman) reported that it acquired 1.5 million new customers during the holiday quarter, a meaningful acceleration year over year. Half of these customers were younger (Gen Zers and millennials) and came through social media and digital channels. According to the ESW survey findings, millennials are the highest spenders when it comes to cross border e-commerce. 

Ironically, the pandemic may have been the catalyst for brands to finally “speak digital” and meet their new customers where and how they want to shop.

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