Is it Worth it? The Evolution of Brand.com Stores in Southeast Asia
While there is plenty of buzz around brands building their own webstores instead of a strategy focused on distribution through e-tailers such as Amazon, Tmall, or Lazada, Southeast Asian brands are still undecided on whether to move online at all. This is despite ecommerce growth projected at 25%, tantamount only to China’s growth (AT Kearney 2015) but there are trailblazers – brands ahead of the curve who have decided to invest in their brand.com stores in Southeast Asia such as HP, Maybelline, Kiehl’s and Nescafe in Thailand.
In the US, brand.com accounts for only a small portion of online sales. For example, Estée Lauder’s brand sites generate 5.56% of all online sales – around $10.79B. In Southeast Asia, the number is even smaller primarily because of how early stage ecommerce is compared to Western counterparts. Yet as seen with SME Mabeza in the February Newsletter, businesses of all sizes are starting to mark their own online territory. Figure 1 shows that for enterprise level brands, there is indeed optimism in the channel. *These brands were chosen specifically because they use end-to-end services with aCommerce, decreasing the variables.
Aggregating internal data from 2015 revealed that webstores experienced 15% month-on-month GMV growth from Jan 2015 to Dec 2015 and averaged over 300% growth in the same year. The brand that grew the fastest was Maybelline then HP, Kiehl’s and lastly NESCAFÉ Dolce Gusto.
Cost Breakdown of a Webstore Strategy & Ecommerce
The investment into a full brand.com strategy for a globally recognized business, which includes site development, store management, merchandising, logistics, fulfillment for one year is not black and white. There are many variables such as industry, product category, order size, volume of orders, packaging and more. To illustrate, here is a very rough breakdown of the process, but again, it does vary depending on the client and their needs.
Site development & backend.
To develop a fully integrated ecommerce store with Magento can cost anywhere between $20,000-80,000 USD. This price doesn’t include hiring a webmaster, someone technical who maintains and fixes the site issues and bugs, who can charge almost $3,000 USD monthly maintenance fee. Webhosting and bandwidth usage can also range anywhere between $2,000-10,000 USD per month, depending on the size of the business. How developed and fast the site is will directly and indirectly impact conversion rates, Google SEO rankings, average order values (AOVs), and repeat purchase rates.
Your team will also require a Store and Merchandising Manager. This process covers merchandising, inventory, promotions on site, updating images and more across the brand.com site as well as other channels such as Lazada, starting at $4,000 USD per month. This is not a low-level operational role; Store and Merchandising Managers for ecommerce sites make scientific, data-driven decisions to optimize product and promotional placements across the site. Good and average store managers often mean the difference between 1x and 3x your monthly average order values.
Fulfillment and delivery can range between $1-5 USD per order depending on location and weight of order, customer service requirements, etc. Based on your company’s volume, the cost of logistics will vary greatly. Due to low credit card penetration and inexperience with online shopping, last mile in Southeast Asia requires options such as cash-on-delivery and reverse logistics to appeal to customers trying ecommerce for the first time.
Kevin Costner’s famous line in Field of Dreams, “if you build it, they will come,” does not apply to ecommerce shops. A brand webstore needs online marketing campaigns that include Google Adwords, Facebook marketing, dynamic re-targeting , email newsletters, and more. There is too much competition that exists online meaning sites will not sell unless they pay for the attention of the consumer. Even the most popular of brands have large marketing budgets.
Brands are expected to spend between 20-30% of sales revenue on marketing and advertising. For offline brands and retailers, the cost of sales (CoS) metric is typically a single digit percentage. However, for ecommerce, this number is higher, especially during the first two years of operations, when the main focus should be on building the brand, acquiring customers, and increasing the subscriber database. Once the number of repeat customers increases, revenues go up and CoS will go down. Multi-channel brands and retailers often struggle to build a case for ecommerce because the entrenched mindset still expects single digit CoS but to succeed online, brands need to look at the long-term benefits and set expectations for CoS accordingly.
Overall, businesses are looking to at least $100,000 USD investment over a one year period and this does not factor in the variable factors: logistics or marketing.
Why Businesses are Investing in Brand.com Stores in Southeast Asia
Brand.com stores in Southeast Asia are an important channel. As Fig. 2 in Graph 1 indicates, this channel was the largest driver of gross margins in 2015 with over 45% MoM. Beyond sales, there are three critical reasons why brands are building out their webstores:
- Owning customer data – This is important because applying this data can increase customer lifetime value in the long run via targeted, personalized marketing, particularly O2O opportunities & loyalty reward programs.
- Total control of branding – For high-end businesses, brand identity is as important as the product itself. Owning your own webstore allows you to fully showcase and build a solid brand that your customers can identify with. You have complete freedom on how you wish to market your shop.
- Higher margins – By selling on your own domain, there will be no expensive commission or payment processing fees.
So is it worth it for your business to invest in a brand.com store?
Yes, but the answer is not that simple even for enterprise level brands. These are some factors to consider beforehand:
- How many SKUs does your brand have? If you are an FMCG brand who only sells toothpaste, consumers will not buy it online as it is a product that can be easily purchased offline amongst a larger selection (eg. grocery store). To drive traffic to your site, you can offer an immensely beneficial reason for shopping on your webstore. Take the Dollar Shave Club for example, an ecommerce business that generated a mass volume of orders from a small range of products ($1 razors). The secret? A subscription model. On the other hand, in the case when a major brand, like P&G for example, has a wide range such of toothpaste, shampoo, dog food and everything for the home, it may be worth creating a branded store.
- What is the average order volume and average order value? Low-priced items do not make the investment into brand.com worth it unless coupled with other strategies such as order bundling, subscription models or charging delivery fees.
- How loyal are your customers to the brand? When fake items are rampant in Southeast Asia, customers are loyal to an outlet they can trust and a brand.com store guarantees that. People who buy high-end goods are also not necessarily bargain hunters and are looking for a site they can trust coupled with convenience.
As more entrants tackle Southeast Asia, like imminent Alibaba and Amazon, this may change over time, but our data shows that Lazada remains the most powerful marketplace for non-fashion and luxury brands at 36% of GMV. Other channels such as mobile, online pop-shops and other marketplaces play an important role as well.
The key take away from brand.com stores in Southeast Asia and channel data in figure 1 and 2 is that businesses should be taking a multi-channel approach.
“What our 2015 data shows is that it is important to realize that brand.com strategy is a complement and not a replacement of a wider distribution strategy,” said Raphaël Gaillot, Director of Merchandising at aCommerce.
And as ecommerce in Southeast Asia matures and more brands take the plunge, it is equally important for brands to be creative in ecommerce strategies because there is not a one-size fits all model.
By Felicia Moursalien, Director of Research at aCommerce.
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