Why selling online will be vital post-Brexit

Selling online is a relatively cheap and safe way to expand a business overseas, rather than investing in expensive local infrastructure

Every company can sell to the world thanks to the power of e-commerce. It means businesses that might once have focused only on their domestic market can now think globally.

Newer companies, in particular, can expand cheaply overseas with a test-and-learn strategy that uses digital technology and data analytics to gauge the market, without significant capital expenditure or risk.

British companies have a history of exporting goods and services because of the country’s imperial past, long before the rise of the internet and online shopping. But the UK has become a leader in e-commerce more recently, thanks to some of the world’s highest rates of smartphone adoption and broadband penetration, and an ultra-competitive retail sector.

“Your ability to internationalise your business is dramatically easier as an online business,” says Anthony Fletcher, chief executive of Graze, the healthy-snacks-by-post business, which has expanded to America. “Being an online business gives you access to much more data and allows you to understand what’s going on. You can flex your product range much more quickly, and innovate and localise.”

The online opportunity

That ability to sell online, not just at home, but also abroad, could prove vital in a post-Brexit business environment. A near-20 per cent plunge in sterling since the EU referendum in June has already made UK exports cheaper, opening up new opportunities for British companies at a time when the domestic economy is expected to slow.

E-commerce is booming, particularly on mobile. Worldwide e-commerce sales are estimated to be $1.9 trillion (£1.5 trillion) or about 10 per cent of the global market for retail in 2016 and growing at about $500 billion a year, according to eMarketer. E-commerce should more than double in value to $4.1 trillion by 2020 when it is forecast to be around 15 per cent of global retail sales as the wider sector also keeps growing, albeit at a slower pace.

The UK is one of the most advanced markets with e-commerce set to generate about £60 billion or 15 per cent of retail sales in 2016 – close to £1,000 per head annually – and this is set to rise to £95 billion or nearly 23 per cent by 2020.

Companies must be careful not to rush global expansion because it is not always easy to transfer what has worked at home to another market with its own local demands, as Tesco and Marks & Spencer have discovered. Although Silicon Valley has a “try fast, fail fast” mentality, it can pay to move carefully, which is why Amazon, the world’s biggest online retailer, has taken its time to export its grocery offering, Amazon Fresh, from the US to the UK to ensure it gets the logistics right.

Graph tracking online retail sales

Trading technology

Mark Jackson, managing director of MC&C, a media-buying agency that specialises in helping “fast-growth” companies, says technology now allows a business to launch with a lean digital footprint, collect data analytics and see what works. He advises: “It’s best to practise this in one territory, figure out what success looks like for the brand and then roll it out, otherwise there’s a huge risk of getting the wrong strategy out there, which can be costly across multiple territories.”

The rise of predictive analytics is also important because it means a company can test an idea and use the results to model outcomes in other markets. Mr Jackson adds: “This way validity is established before setting up in a new territory. There’s simply more confidence in global expansion when it’s rules-based and proven.”

Selling online, not just at home, but also abroad, could prove vital post-Brexit

Mr Fletcher of Graze is an admirer of how fashion retailer Asos expanded to America, keeping costs low by initially exporting its wares from the UK, rather than investing in US infrastructure. Graze followed a similar route, selling to American customers through online for three years. Only this autumn has Graze now expanded into distribution in bricks-and-mortar stores – a reminder that e-commerce is still only a fraction of the retail market.

Close to half of Graze’s sales now come from the US in a sign of how the company has scaled up, according to Mr Fletcher. He is hopeful the business can avoid the worst of Brexit because it is relatively unexposed to Europe, but he warns that currency fluctuations and the prospect of trade tariffs “will create a lot of difficulties for other businesses”.

A strategic acquisition is another way to expand internationally. Jim Lewcock, the founder of The Specialist Works, a media agency that works with e-commerce brands such as Boden and The White Company, bought a small US agency, Elarbee Media, in the first half of this year to help his UK clients grow in America. It’s a move that looks smarter in the wake of Brexit and the rise in the dollar. “One of my clients said to me, ‘If I can make the US work, I don’t need Europe’,” Mr Lewcock says.

CASE STUDY: M&S MIXES CLICKS WITH BRICKS

Marks & Spencer, the FTSE 100 food and clothing giant, adopted a clicks-and-mortar approach to drive international expansion through a mixture of online sales and physical stores. But its UK website overhaul took the best part of two years and suffered from major design flaws when it launched in 2014, with a knock-on effect on other parts of the business.

“It was an incredibly complex and slow-moving process, when a more nimble approach with smaller redesigns tested more frequently to assess customer response would have been more viable,” says Mark Jackson, managing director of MC&C, a media-buying agency.

Marks & Spencer said in April 2014 that it hoped to increase international sales by 25 per cent and profits by 40 per cent in three years. But overseas sales have stagnated during the past two years. The retailer has now proposed focusing its international division on a franchise model, exiting its loss-making operations across ten markets.

CASE STUDY: ASOS TESTS AND LEARNS

Asos, the online fashion retailer for twenty-somethings and teenagers, has expanded internationally with a test-and-learn approach. Rather than launch physical stores or set up a distribution centre in a local market as a traditional retailer might have done, it initially sent items to overseas customers from the UK.

“Asos went to America and shipped from Barnsley,” says Anthony Fletcher, chief executive of Graze, the healthy-snacks-by-post business. “They got into local delivery once they had tested and learnt, and knew there was a market there.”

The strategy has paid off as Asos has nearly doubled international sales to £800 million in three years. It now operates eight local language websites and claims to deliver to almost every country in the world from its fulfilment centres in the UK, US and Europe. But Asos has had setbacks and pulled out of China earlier this year – proof that smart e-commerce companies keep testing and learning in a fast-changing market.

Also found in Ecommerce Trade Business