Cross-Border Shopping

When a customer lives in one country and purchases from another, it is known as cross-border shopping. There are two key types of cross-border shoppers:

• “Touristic” shoppers travel to another country for the primary purpose of shopping.  A recent study shows that 40% of luxury purchases made by Chinese are made outside of China. Wealthy Mainland Chinese make an average of 5.9 international shopping trips per year. Hong Kong, South Korea, and Japan are the top destinations. Instead of selling to local customers, a recent survey by ContactLabs showed that 90% of all luxury goods sales in Hong Kong and Macau come from foreigners who engage in “touristic” shopping.
• Internet shoppers purchase directly from a foreign website or hire a person to purchase from a foreign location.  In China, Haito (海淘), buying imported products directly from cross-border vendors over the web, has grown at the breakneck rate of 74.8 percent annually since 2011 and exceeded $657 billion in 2014.

Chinese customers account for a third of the worldwide cross-border spending on luxury goods, and that percentage is growing rapidly.  By 2025, McKinsey and Company forecasts that Chinese luxury consumers will account for 44% of the global market

Why don’t Chinese purchase luxury products at home? Chinese consumers engage in cross-border shopping to get higher quality products (67%), to avoid counterfeits (45%), and to take advantage of lower prices (35%), according to Frost and Sullivan.

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Luxury customers expect a consistent, outstanding customer experience at every touch point, on-line and in-store across the planet.  A recent McKinsey & Company report focused on the Chinese luxury customer states that the luxury customer expects:

• “Being individually recognized by the store staff in every store of their favorite brands they walk in (to the store).”
• “Experiencing a similar level of familiarity with sales staff as if they were in their preferred stores, like color preferences…”

In response, luxury brands focus on customer experience cross-border shopping. For example, Burberry, which is well-known as an early adopter in customer experience, has reportedly hired 150 Mandarin speaking sales associates across popular travel destinations in Southeast Asia just for the Chinese traveler. However, placing Mandarin speakers in a store does not solve the problem of recognizing your best customers in every store around the world. To do that, the sales associate needs to be able to retrieve all the relevant information about the shopper at their fingertips.

Internet shopping sites also need to be sensitive to the local customs and regulations of the shopper.  Among other things, sites need to be able to handle different name formats. Also, conventions for addresses and phone numbers vary considerably by market.

Navigating the Challenges of Data Quality and Recognition in China

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There are many excellent reasons for cross-border luxury shopping. Depending upon the market, these issues come down to authenticity, price, and/or choice of goods.

Authenticity drives much of the cross-border shopping in Asia and Latin America. For people living in the West, the grey market often brings up images of taking a risk on low-quality knock-offs. But, in large parts of the world, the opposite is true.  Counterfeiting of luxury goods is so widespread in China and Southeast Asia that the chance of buying a fake is considered to be much lower if the products come from legitimate outlets overseas.

However, fakes are a global problem for luxury retailers. In the European Union, €26.3 billion euros (about $27.7 billion) of counterfeit clothing, footwear, and accessories are sold, according to official EU statistics. That’s equivalent to nearly 10 percent of total sales.  In many cases, the quality of the fakes is so good that many consumers think they are getting the real merchandise. (Business of Fashion)

Price can be a factor because import tariffs, national taxes, and currency valuation spreads can make local prices so much higher than cross-border items that it is economical to travel to another country for a large luxury purchase.  To counter this, companies like Chanel, LVMH, TAG Heuer, and Patek Philippe cut prices in China to reduce the grey market of imports due to import costs.  In some other countries, prices are higher due to the costs of running a retail operation in those countries.  The Nordic countries and Australia/N.Z. are examples where domestic costs drive higher prices when compared to buying overseas.

The lack of product variety is an important factor in some markets. Shoppers in Mexico, India, and Canada are examples of countries where shoppers are particularly likely to across borders to find a broader choice of goods than what is available locally.

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Cross-border shopping is a global phenomenon that impacts both the online and brick-and-mortar worlds.  Almost half of all cross-border luxury goods purchases are made by consumers who are traveling, either in a foreign market (31%) or while at the airport (16%), stated the Deloitte Report on Global Luxury Goods.  Less than 10% of luxury shopping comes from cross-border e-commerce, but the number is growing quickly.  Most of the growth in luxury e-commerce is in children’s wear and accessories, fashion jewelry, and footwear. Luxury dresses, handbags, and silk have lower e-commerce penetration rates.

China and The World:  Chinese customers account for a third of the worldwide cross-border spending on luxury goods, and that percentage is increasing.  By 2025, McKinsey and Company forecasts that Chinese luxury consumers will account for 44% of the global market.

Canada and Latin America to the U.S.:  There is a long history of Canadians and Latin Americans traveling to the U.S. to purchase luxury goods because of the availability of products.  Until recently, few luxury brands had operations in Canada, and U.S. travel is easy.  However, luxury retailers have recently taken notice of Canada. In 2017, 20 new international luxury retailers, including Chanel, Hermès, and Swiss watchmaker Richard Mille, opened flagship stores in cities like Toronto and Vancouver.

Britain and the Eurozone:  A new cross-border opportunity is opening up due to Brexit.  The outcome is not yet known. However, the British pound has dropped 15-20% since the referendum, which has encouraged shopping in London by Europeans.

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Luxury retail customers want to be recognized and delighted at any location. To design experiences for a cross-border shopper, the very first step is to make customer information available to every retail location and online. Retail sales representatives need to be able to retrieve information about her purchasing habits and customer preferences as if she were in her preferred store.  With that information, she can be delighted in many ways.

The first step in the process is to break down data silos between countries as well as between online and brick-and-mortar locations.  The idea is to create a single source of truth that can be accessed everywhere and brings together all of the customer’s shopping information and preferences.

To cultivate the Chinese consumer, breaking down data silos also means that you need to handle personal names and addresses that may be represented one way in China (likely in the Chinese character set) and a different way overseas (likely in a Romanized alphabet). Special transliteration and matching capabilities are needed.

The best way to integrate data silos is to create a system of reference that can be accessed by each data silo. The silo is synchronized with that system of reference. It sends updates to that system, and it retrieves information when it needs it.

For each customer, the system of reference contains a “Golden Master Record.”  This record is linked to every customer transaction in the data silos by a “persistent key.” In that way, all of the source data remains intact. The new system brings the information together, resolves conflicts, and updates information without destroying the original.  This capability is often referred to as Master Data Management (MDM).  Care needs to be taken to respect the privacy wishes of the individuals and any regulations regarding personal data.

The second step is to design a system for the sales associates and the website to retrieve the information from the system of reference. You can also connect the system of reference to recommendation engines, VIP programs, and marketing systems.  That provides the necessary information to create tremendous personalized customer experiences.

Navigating the Challenges of Data Quality and Recognition in China

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