How to Get a Bigger Share of Foreign Visitors’ Wallets

The current economy poses challenges for all merchants, but stresses on brick and mortar stores are particularly heightened. The wave of closures that accompanied the Great Recession was only the start of a protracted move for chains to reduce their excess amounts of retail square footage; according to many retail analysts, America remains significantly “over-stored.” At the same time, the rapid and steady rise of e-commerce makes for greater displacement, with increasing numbers of Americans preferring to do their shopping from their homes or offices, or even from their phones. Brick and mortar stores, it seems, are left to duke it out for their share of an at-best limited domestic pie.

Fortunately, that domestic pie is not all there is. Foreign tourists and business travelers have been finding America to be the Golden Land — of shopping, anyway — and overwhelmingly they are not doing that shopping online but in person, in brick and mortar stores. What this means is that merchants can leverage cross-border spending to drive U.S. domestic sales as well as share growth, if they can find a way to target and keep those foreign customers. Key to building a cross-border strategy is an understanding of where to focus merchant efforts. That is, merchants must now put the same kind of effort into identifying and understanding their foreign customers as they do their shoppers here at home.

Awareness of the importance of foreign customers is already present in some industries. Hotels and restaurants in major destinations, of course, as well as car rental companies and airlines understand the importance of this segment to their overall business, even if they don’t have a particularly detailed description of it. And merchants in certain retail sectors and brands may have a sense that they are particularly attractive to foreign shoppers. But in many cases, that is as far as the understanding goes.

Few enough retailers even know what portion of their sales volume comes from cross-border traffic, but this figure by itself is not sufficient foundation for a marketing strategy. In the current economic environment, guesses and intuitions are insufficient; merchants must be able to accurately identify their current and potential market. To begin with, merchants should know from which countries their foreign customers are coming from. This is by no means intuitive, or a reflection of the overall foreign tourist and business traveler population. In the case of one retailer, we found that almost half of their cross-border volume was due to shoppers from only three countries. The attractiveness of a product, brand, or sector will differ from country to country, depending on factors as varied as tariff policies, culture, and domestic availability.

Identifying the geographic sources of foreign shoppers allows a retailer to market to those shoppers even before they arrive in the U.S., whether through general advertising campaigns, joint marketing programs with airlines, or other techniques. More advanced analytical techniques may be used to build a ‘best customer’ model, which can be employed in more powerful direct marketing strategies.

As important as it is to know from which countries foreign shoppers come, it is equally important to know where they’re shopping. What are the top destinations for foreign spend? This knowledge can help a merchant in a number of ways:

First, it can increase the effectiveness of marketing campaigns. Advertisements in the language of the target market in local media, and joint promotions with local hotels, for example, can be highly effective tools for attracting new customers and building loyalty from a segment that is already inclined to purchase.

Second, knowing that stores in a particular area attract the bulk of a merchant’s customers from a particular country allows the merchant to adjust the selection and shopping experience to meet the needs and tastes of that segment. A store may need to add staff that is proficient in a particular language. Apparel stores that receive heavy traffic of shoppers from below the equator may want to have a selection of clothing that is seasonally appropriate to the home country, along with brands that might be more popular there than in the U.S.

The effectiveness of this kind of information is greatly increased when it is supplemented by data on the seasonality of the purchases. There is no point in a store investing in a particular merchandise assortment, or staffing, or other specific strategy to reach certain foreign shoppers during periods when those shoppers don’t travel to the U.S. Patterns of traffic from different countries will give clues to travel seasons as well as specific purchases, and a data-driven approach to targeting cross-border spend must be able to identify these seasonal trends.

Finally, a local analysis of cross-border spend can go beyond marketing implications. Given the current state of the economy, retailers are paying particularly close attention to their market share. This demands awareness not only of one’s own performance, but also that of one’s competitors. At MasterCard, we have been able to look at a merchant’s cross-border sales compared to an aggregated, anonymized competitive set in the same market, allowing a retailer to benchmark its performance against the localized sub-sector, not just overall, but with its intended customers. This can be invaluable both to identify opportunities and to discover that what might have at first appeared to be soft sales was in fact a gain in market share against an even softer sector performance.

While cross-border transactions will not be enough to rescue all brick and mortar stores, they can provide some merchants with an opportunity to grow both sales and market share. To capitalize on that opportunity they will need accurate granular information about those transactions, the analytic ability to make sense of that data, and the strategic wherewithal to put the data to use.

Andrew Mantis About Andrew Mantis

Andrew Mantis leads the MasterCard Advisors Information Solutions/Merchant practice. He can be reached at Andrew_Mantis@mastercard.com.