4 Sept 2018
Accessing the ASEAN Consumer Market: Fashion and Accessories (Market Entry Strategies 2)
For Hong Kong SMEs in the fashion and accessories industry interested in selling to the ASEAN markets, they should consider the pros and cons of various market entry methods, to choose an optimal market entry strategy which best suit their business needs. (For details of other entry methods, please refer to “Accessing the ASEAN Consumer Market: Fashion and Accessories (Market Entry Strategies 1)”.
Sell Direct to Consumers via E-commerce
Fashion brands selling direct to ASEAN consumers via e-commerce will be the next big wave in cross-border trade. The past decade has seen a remarkable turn for the world of luxury fashion brands that had long been resistant to selling online, fearful that the internet’s mass access would damage luxury brands’ exclusivity. Now luxury fashion houses have started to embrace e-commerce, whether partnering with multi-brand sites, developing their own platforms, or both. The pivot to the digital channel makes sense as online sales are expected to become one of the drivers of future growth in luxury goods, making up an estimated 25% of the market by 2025. Hong Kong fashion brands and suppliers who want a share of the high growth fashion market in ASEAN must not ignore online channels that sell direct to the consumers, even if they currently use distributors and/or retailers.
Benefits of Direct Selling to Consumers
There are many benefits of direct selling to consumers. Firstly, time to market is significantly decreased. Instead of the long traditional retail sales cycle that requires locked-in product development well in advance of order and delivery, fashion brands can design and produce apparel and accessories, moving to market quickly.
In addition, brands can have complete control of their brand image, free from distortion or dilution by third parties. Direct interaction with consumers can also raise brand loyalty. In a direct to consumer model, manufacturers or brands can have price control as well. Direct selling allows manufacturers to further reinforce manufacturer’s suggested retail price (MSRP) and communicate directly with consumers about price points.
Most importantly, selling direct allows brands to gain access to consumer data, such as consumer profiles, locations and preferences. Making use of customer data effectively can result in better product development, marketing and customer relationships.
Risks and Mitigation
If Hong Kong fashion brands see the rise of e-commerce as a catalyst for direct selling to customers, they should carefully consider the risks associated with selling direct and have a plan for mitigation.
Risk One: Disrupt Existing Channel Relationships
The first risk of selling direct is damage to existing relationships. Distributors and retailers may react negatively to brands selling direct to consumers. When a brand is currently selling through distributors and a network of retailers, starting to sell direct may be perceived as a competitor with its existing distribution channel partners. Under such circumstance, the brand may offer exclusive products to its distributor or retail channels. These can be exclusive sizes, colours or designs that it does not offer in the online sales channel.
Risk Two: Underinvest in Infrastructure and Manpower
Brands that leap into the direct market without the proper infrastructure and manpower will only hurt the brand image. First, they need to have a deep understanding of local customer expectations and behaviours. Second, they should ensure the shipping and customer service infrastructure are in place to support direct sales. Third, they may incorporate additional features, such as live chat and click-to-dial in their websites to facilitate customer service. Most importantly, they need to have a comprehensive digital marketing and social media strategy that allows interaction and engagement with their potential customers and divert traffic to their websites. Meanwhile, handling quick deliveries and returns is also important in operating online sales channels.
Picking the Right Platform
One of the most important decisions when suppliers intend to migrate to selling direct is the selection of the right platform that is powerful enough to operate efficiently and flexible enough to customise for the sophisticated demands from consumers.
If suppliers decide to use their own websites consumers will interact with the brand directly, with sales made directly on the site. On the plus side, the brand can keep all the revenue and all the customer data collected with each visit to the website and each transaction. On the downside, the brand has to localise its websites, bear the risk of credit card fraud, as well as achieve and retain high rankings on search engine results to maintain visibility.
Not all brands have the digital expertise to create and manage an online platform effectively by themselves. By listing on key regional players, like Lazada, Zalora, Shopee, or other marketplaces, brands can build a better brand presence in major ASEAN markets and boost search engine results overall. Multi-brand marketplaces are digitally savvy and know how to provide an excellent online shopping experience. They provide good back-end support and cross-border logistic programmes for their sellers, such as the logistic programmes provided by Lazada and Shopee. Another benefit is that regional marketplaces have a reach across key markets in ASEAN. That said, foreign brands and sellers are responsible for localisation of product information uploaded to the marketplaces.
On the downside, some marketplaces charge a commission on sale, and brands have to compete with many other online merchants on the same platform, and they cannot capture customers’ data for future direct marketing opportunities.
Many fashion brands have started to embrace third-party marketplaces in ASEAN even if they already have their own localised websites. These marketplaces put the brand and its products directly in the path of consumers who are looking for products with wallets in hand. If a brand’s fashion items are not showing up where the customer chooses to search them, then the brand is not even in the running. Today’s e-commerce industry is multichannel. If a brand is planning to join the legions selling direct to consumers via online channels, building its own websites and listing on online marketplaces are equally important.
Omnichannel Redefines the Retail Experience
Today’s consumers are engaging in an omnichannel world; therefore, brands must support a seamless cross-channel customer journey, with consumers’ web and mobile experience bringing them back to the bricks-and-mortar store, and vice versa. In-store experience can also be extended to web and mobile.
A retailer with physical stores might have an edge. Bricks-and-mortar shops have traditionally added value by providing product display, face-to-face interactions with customers and availability of services – even online shoppers choose to buy from a familiar and trusted brand. Despite the remarkable range of products and price advantage offered by pure online retailers, they do not enjoy the same brand heritage and loyalty as legacy retailers. Furthermore, the need to try products on for fit, coupled with the hassle of returns, remain barriers to purchasing fashion items online.
For this reason, Zalora has opened pop-up shops in major ASEAN cities, which further blurs the lines between online and offline shopping, giving customers a consistent brand experience across channels. The Zalora pop-up store combines old and new engagement, including clothing racks, changing rooms and a mobile cafe. Customers who order online may collect their purchases at the Zalora pop-up store, which also serves as a central location for hassle-free order returns and exchanges. Customers can try on clothes featured on the website before purchasing them online.
In addition to self-service checkout stations, customers can download the Zalora app and use their phones to scan barcodes on the pieces they like to get similar style recommendations for a more personalised customer journey. Orders made at the pop-up shop can be delivered straight to the customer’s doorstep, eliminating the hassle of having to carry bags.
The Bangkok-based online fashion portal Pomelo, has launched its biggest pop-up store in Siam Square, the fashion centre of Bangkok. The store offers ‘click-and-collect’, enabling customers to order online and try items in store before deciding which to keep or return.
While online only e-commerce is making moves offline, traditional offline retailers, like Central in Thailand and MatahariMall in Indonesia, are scrambling to move business online and embrace full e-commerce integration to stay competitive. Central Department Stores have introduced an Instant Messaging Shopping Service with personalised assistance. By connecting with Central Department Store via WhatsApp in Indonesia and LINE in Thailand, a digital personal assistant will help customer find the shopping items desired. If the item is available, the customer can choose to have it delivered to the doorstep or come and pick it up at the Click & Collect service counter. In Indonesia, one of the archipelago’s largest conglomerates, Lippo Group, invested US$500 million in 2015 in its e-commerce venture – MatahariMall, the online version of one of the nation’s biggest mid-priced department stores.
It is expected that more ASEAN marketplaces will adopt the omnichannel strategy, which will create both opportunities and challenges for Hong Kong brands and suppliers. Big data analytics, social media and seamlessly transitioning across different channels are the key to thriving in an omnichannel environment.
Consider Singapore as an ASEAN Entry Point
Diverse economies, divergent tax systems, and challenging regulations are perceived by many Hong Kong firms, especially SMEs, as significant barriers to enter the ASEAN market. Without a personal connection, market knowledge, or business experience in the region, overseas companies often consider Singapore as an entry point to the region.
Singapore is a member of the ASEAN Economic Community (AEC). While tariffs on goods are close to zero among the AEC member states and progress has been made on harmonisation of regulatory standards, access to goods, raw materials, or product components for final assembly are much easier. As of 2016, Singapore has Double Taxation Agreements (DATs) with nine other ASEAN member states.
Many of the largest suppliers for international brands like Nike, Macy’s, and GAP are apparel manufacturers based in Singapore. They have been able to ride the wave of supply-chain integration in ASEAN to provide a global sourcing solution to international retailers and buyers. Hong Kong suppliers may consider Singapore as a distribution and marketing gateway into the region.
Singapore citizens are mostly literate in English, the city has a transparent business environment and legal systems are based on English Common Law. This could facilitate contract interpretation and communications. In addition, Singapore is an open economy in ASEAN. Coupled with efficient transport infrastructure and effective foreign investment protection, Singapore can offer a first port of call or an easier ASEAN entry point for Hong Kong exporters, especially those who are more risk averse or cautious about establishing operations in unfamiliar markets.
Apart from its geographical proximity to many ASEAN countries, Singapore is a melting pot of major ASEAN cultures and races – Chinese, Indian, Malay etc. As such, it can serve as a testing ground for new brands and products that endeavour to make an inroad into the ASEAN region. For instance, P&G chose Singapore as a base to manage its regional supply chains and develop consumer products specially catered to the region.
Fashion brands can often leverage a network of distributors in Singapore who understand both the local and the wider regional cultures, retail climates, and consumer behaviour. For example, Singapore-based FJ Benjamin is a leading distributor for international luxury and lifestyle brands across Southeast Asia. The company has offices in three cities, manages over 20 brands, including Céline, Rado and Givenchy, and operates 250 retail stores/shop-in-shops across Southeast Asia and Australia.
Working with partners in Singapore helps fashion brands and suppliers to better understand the profile of their target customers, fine-tune product design, as well as marketing and communications strategy before a major rollout across the region. That said, choosing Singapore as an entry point may involve higher costs of doing business compared with the rest of the region.
 “Luxury Goods Worldwide Market Study” Fall-Winter 2017, Bain & Company (December 2017).
Please click here to purchase the full research report (English only).