International Intrigue: How Retailers Can Gain Share of Cross-Border Spending

crossborderInternational travel has been remarkably resilient in the post-financial crisis period. In fact, MasterCard research shows that since 2009, international visitor arrivals and spending have grown faster than real global GDP. Despite its size and strong growth, cross-border spending is a challenging area for retailers. When international travelers arrive, many merchants have difficulty recognizing them, anticipating their needs and catering to them. Even worse, most merchants neither recognize the size of the cross-border opportunity nor understand their current share. This is important, since even a 1% share of a leading market such as New York or London is near $200m in annual revenue. As it does with so many retail issues, data can play an important role in gaining share of cross-border spending. Insights into spending and behavioral trends can help retailers understand their current share of wallet and provide the intelligence needed to attract more cross-border dollars.

The International Traveler of Mystery

For those who are successful at attracting the international traveler, the ‘prize’ can be substantial: MasterCard research forecasts that cross-border visitors to the 10 leading destination cities will spend $136 billion during 2014. Narrowing that down to the biggest cities for cross-border spending and the opportunity becomes even clearer. In London, the leading global destination this year, this translates to an average of more than $1,000 per visitor. Average spending is even more impressive for other major travel destinations, such as New York ($1,600) and Taipei ($1,700).

Retailers seeking to gain cross-border sales should consider four approaches to anticipate the arrival and needs of the cross-border customer, to capitalize on the opportunity:

1. Benchmark the Current Competitive Set

Retailers and other types of merchants typically lack data on their share of cross-border spending, and have even less visibility into their share of spending by visitors from specific countries. A first step should be to measure current performance and compare it to that of competitors. In doing that, merchants can gain valuable insights by analyzing key indicators based on recent transactions and determining how they stack up against their competitive set.

2. Leverage Existing Customer Base

After benchmarking competitive performance, retailers can capture a greater share of cross-border spending by analyzing existing customers. As an example, many types of merchants – including airlines, hotel chains and luxury fashion brands – have established relationships with travelers through loyalty programs. Analyzing the spending patterns of frequent traveling members of the program can help identify the merchant types with which members engage most frequently. This may uncover partnership and ancillary revenue opportunities for the brand.
Analyzing the membership of a hotel chain affinity program, for example, may show that affluent customers from certain countries engage frequently with particular luxury industries. Such insights may yield partnership potential as a means of attracting customers from those markets and gaining share of spend while they visit.

3. Understand Spending Habits of Cross-Border Customers

Another strategy to gain share of wallet with international travelers is to analyze past spending activity by international traveler customer segments for predictive insights. As an example, a retailer at a shopping mall in London could see that high-income customers from New York City are likely to have shopped for apparel before they come to the mall. The retailer may also notice that the international traveler segment frequents bookstores at some point after leaving the mall. These insights may help the retailer evaluate partnerships or category expansions.

4. Choose Influential Partners

Cross-border travelers interact with many different travel market participants, including airlines, airport authorities, tourist boards, car rental companies, hotel chains, online travel-related services and banks. These are potential partners to other merchants looking to grow their business with international travelers.

A tourist board, for instance, may wish to attract visitors from certain markets. From some markets, a high proportion of travelers will be affluent, while those from others will be predominantly business travelers. These different cohorts may favor certain types of retailers, restaurants and hotels during their stay. A tourist board will have an interest in connecting the two, both to improve the customer experience of the traveler and to drive business within its region. Insights from spending behavior patterns of travelers from these markets will identify areas of alignment and potential partnership between the tourist board and merchants in its region.

Cross-border spending is growing rapidly and should be of particular interest to retailers in geographies with high penetration of international visitors. With cross-border visitors to the 10 leading destination cities alone forecasted to spend $136 billion during 2014, the opportunity for merchants cannot be ignored and a critical first step is tapping into and understanding the right data and insights.

A version of the article appears in the Fall 2014 issue of the MasterCard Advisors “Compendium.”

Small Retailers Face Huge Technology Gap

Restaurant ownerTalk about proof points. In the April issue of The Robin Report, Gary Kearns from MasterCard wrote about the level of technology needed for retailers to create and maintain one-to-one relationships with consumers. “Few retailers today have the sophistication, systems and savvy to create a mutually rewarding relationship with [key consumers],” he wrote. A new MasterCard survey illustrates that point and details a huge capabilities gap between large and small retailers. That gap must be addressed if smaller retailers will have a chance to compete in a data-rich world.

The survey comes from MasterCard’s Global Insights team and is detailed in its recent Merchant Scope report. MasterCard conducted qualitative and quantitative interviews in Canada, Germany, South Africa and Brazil to identify the attitudes, opportunities and obstacles that are driving small business technology use.

The 90/20 eCommerce Equation

While most of the findings varied by vertical and country, a few numbers jumped out. The first: Nearly 90 percent of small to mid-sized merchants have an online presence, but only 20 percent have an eCommerce website. They lack the technology to accept payments online. That is a significant number, regardless of how big your store count or balance sheet.

It’s significant because the concept of financial inclusion is not limited to certain consumer groups in developing economies. Inclusion is about retailers, too. The retailer who cannot sell online is missing opportunities for themselves, but is also underserving consumers. Mega-retailing has had its share of consumer advantages in terms of price and service. But the overall health of retailing also depends on smaller regional chains, local favorite boutiques and rural multi-purpose stores.

Part of the responsibility falls on the data and payment technology communities. Small merchants need their help in understanding and meeting the evolving expectations of more informed and digitally connected consumers. These expectations center on convenience, an innovative shopping experience and personalized customer support. In the current data-driven retail environment, the consumer shopping experience starts long before entering a store, and includes the ability for the merchant to be present in different devices and channels. Advances in technology – including payments – have often presented an opportunity for small businesses to level the playing field. But, as consumers take advantage of mobile technology and real-time information, businesses of all sizes find themselves needing to create an “always on,” omnichannel presence or mobile app offering instantaneous rewards that attract new and repeat customers.

Barriers to Technology Adoption

The second set of numbers that jumped out from the study concerned barriers. The two clearest barriers to adopting technology, according to the report, were cost (46 percent) and know-how (31 percent). Here, small merchants need to prioritize resources for marketing. When examining what can be spent on digital marketing, they need to address key questions to help determine if an investment is worth it. Is this the key to improv-ing the customer experience? Do you understand how to use sales data to effectively build marketing propositions? Are you losing out on sales because you are not sure how to identify your best customers? What can you invest in now to make this pay off and run your business better?

Now let’s look at the ability to generate customer data. Here the capability of small merchants also needs to be improved. The Merchant Scope report shows that merchants find point-of-sale (POS) devices in large measure work as a transaction terminal. Half of the respondents globally indicated satisfaction with the payments acceptance experience. Nevertheless, MasterCard’s research indicates that the data passing through POS systems are under-utilized. They are leveraged for the authorization of transactions, but not as a potential window into insights on their customers. Today’s consumers are increasingly driven to shop by intelligent offers – perceived value over price and customized messaging. Consumers don’t just want to receive discounts; they want to be offered discounts on the products they care about. Developing ways to collect and use consumer purchase behavior data, in line with prevailing data laws, to offer them the things they really need depends on effectively utilizing the data flowing through the POS.

Regardless of the merchant’s size and geography, the most cited challenges (on average 41 percent of merchant respondents) revolve around identifying new customers. More than 32 percent cited Internet marketing and promotion, and 28 percent cited offering loyalty benefits to customers. Today, as more and more data is generated about customers’ shopping behaviors and preferences, there’s an opportunity to use that data to tail customer experiences, working with existing laws on data usage. Smaller merchants are starting to see the challenge and look for competitive solutions.

Leveling the Playing Field

Improving this situation requires a mind shift. Consider technology in the context of how it is integrated. Buildings blocks like eCommerce and effective new digital marketing will be greatly improved when technology is integrated. The sales data that comes through a well-developed eCommerce and invent-ory system is the fuel for developing strategies of product promotion and how to offer customers the goods and services they want most.

The rise of the mega-retailer has changed everything about the competitive environment for merchants of all sizes. Large, vertically integrated merchants have revolutionized supply-chain and inventory management, taking technology in those areas to a level that enables them to cut pricing and improve the customer experience. They have exploded across continents, with technology channels creating the “omnichannel” reality of global shopping. According to information published by the National Retail Federation, the top 250 retailers control $4.3 trillion in revenue; 63 percent of them are global. They have leveraged their scale and technology resources to present customers with a unitary, integrated shopping experience that inexorably is moving to an individually customized marketing model. That model has effectively upended the traditional merchant/consumer relationship, empowering the consumer to the point where customer experience and online agility are increasingly important as growth drivers for top global online retailers.

When it comes to leveraging technology, the picture for the mega-retailer is much clearer. But for small and medium-sized merchants, it’s still murky. The ability of large, often global merchants to dominate retailing creates an arena where small to medium-sized merchants may feel they cannot compete. The ability of large merchants to integrate technology both on the macro level outlined above, as well as in-store, presents a daunting competitive environment for small and midsized merchants.

The gap in technology resources between global retailers and smaller-scale merchants is glaring, and can be closed with the coordination and participation of banks, governments, and technology providers, as well as merchants. The downside of not addressing these gaps is that smaller retailers will fall further behind in becoming better engines for economic growth. The upside is huge.

The Power of One

shutterstock_93965347Consumer Insights from MasterCard Advisors

The digital age has brought a shift in power from retailers to consumers unlike anything known before. Each consumer is now a market segment of one. Within the next five years every retailer will learn to win consumer business and sustain loyalty by understanding behavior as it’s reflected in what consumers buy, the experiences they covet, the networks they leverage and their attitudes regarding data usage, price and convenience.

The year is 2020. Isabel, a 35-year-old professional, opens her tablet. First stop is her home screen, from which she controls her universe. She has her favorite brands, her product wish list with the prices she’s prepared to pay (information she has shared with those same favorite brands) and an easy-to-manage dashboard defining what the outside world sees about her. Certain brands she trusts enough to share quite a lot about herself. These favorites, of course, know the most about Isabel, so that she can get exactly what she wants from them. [Read more...]

Selling Luxury: Going Beyond In-Store Experiences to Inner Experience

brooksbrothersLuxury Retailers Alert: The Aspirant Shopper Is Back, and Ready for School.

Five years ago, the luxury sector took a nasty hit.The prevailing message at the onset of the Great Recession to high-net-worth consumers was, “just because you can flaunt it doesn’t mean you should.” And the message to the aspirant luxury buyer was, “you shouldn’t have been buying this in the first place.” So we tightened our belts, made do with less, and witnessed unprecedented levels of discounting – up to 70% – which became the luxury retailer’s main tactic for getting customers back into the store.

The post-crash disappearance of aspiring luxury shoppers has been well documented, but now there’s evidence that this segment of consumers is back – both because of increasing demand and because of what retailers are doing to attract them. The most attuned marketers are discovering there’s a new, younger face to the aspirant shopper – Millennials (those born in the 1980s and ’90s) who love high-end goods. And one of the most effective ways to reach this capricious audience is by schooling them on how to live the luxurious life. [Read more...]

Getting a Return on Post-Holiday Returns

As a merchant, you’ve watched holiday shopping seasons come and go, and you’re well aware that in the last few years, consumer spending behavior has been through radical changes. It’s been a slow recovery since the precipitous drop in holiday spending in 2008. The excessive pre-holiday stocking of inventory and concomitant mad spending seem to be bygones.

Savvy retailer that you are, you’ve become very smart at balancing inventory with sales, and you’ve planned inventory very carefully this season. You’ve made well-informed estimates of consumers demand for the upcoming holiday season. According to industry analysts, this year’s second quarter saw the slowest inventory growth in the U.S. since 2009, and in light of that, you probably don’t have huge concerns about overstocking. Nevertheless, when you placed those orders into your suppliers’ line months ago, the world was a different place.

Which gets us to this point  one thing that hasn’t changed, and it’s almost as certain as death and taxes, is that there will still be a flurry of post-holiday returns and exchanges coming back through your doors come December 26th. How will you handle them?

As you’ve kept your stock lean and mean this year, there’s already a much more highly specialized collection of merchandise coming back than in previous years. While in prior years, these returns have always stretched your customer service goodwill to its limits, this year, and in this uncertain economy, you’re a little concerned about how to handle returned merchandise. [Read more...]

Multichannel Breakthrough: Segmentation Powers Insights into the Empowered Shopper

The Robin ReportAs with all new approaches, the best innovations in the digital marketplace occur not as a result of reinventing the wheel, but by integrating and retooling existing assets. Things become truly exciting for the merchant in the combination of insights derived from spending behavior with insights derived from transaction analysis—in time as well as virtual space. By including the insights from real-time transaction data, behavioral models of different segments of e-shoppers can help to extrapolate that a device that has clicked on these specific links is likely to make purchases in certain market sectors within a specified period of time. At MasterCard, we are creating a breakthrough for merchants in segmentation by bringing our own enormous anonymized data set to bear on the task of identifying shopper segment behaviors. By applying insights on spending behavior to our partners’ online populations using common geo-demographics, our partners are able to identify online shoppers with a high propensity to spend in a given industry in the next 30 days. [Read more...]

How Analytics Can Help A Stores-Within-A-Store Strategy Succeed

The Robin Report - big boxThe past several years have been rough on most retailers across all categories and levels. Some of the savviest merchants have responded to the challenging environment with a “stores-within-the-store” strategy, in which individual brands lease space and bring their own boutiques within the walls of a larger store, helping to turn that large space into a sort of mini-mall.

There has been increasing excitement about this model, and it is starting to be deployed widely in range of stores. The model is usually a specialty brand leasing space within a department store. Though primarily seen in department stores like Macy’s and JC Penney, big-box retailers – both general, like Walmart and Target, and specialty, like Best Buy – have been using it as well.

The increasing popularity of stores-within-stores strategy isn’t hard to understand; the hope is that the outside brand will both drive traffic into the store and provide revenue through the rent they pay for the otherwise under-utilized floor space they occupy. Yet the model is not a panacea, and merchants need to approach it with a dose of caution and an even larger measure of analysis of purchase behaviors.

An effective stores-within-a-store strategy depends on synergy – both between the outside brand (or brands) and the host merchant, first of all, and also among the various boutiques collectively. The goal is for the various outlets to work together to create a compelling and unified shopping experience for the consumer, thus creating the kind of overall brand experience that results in more customers, and more purchases per customer. [Read more...]

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. [Read more...]

What Do You Get When You Cross Luxury Spend with Discount Buying? Affinity Plays!

It’s commonly assumed that the creeping social stratification that’s widely written about crosses over to the retail sector, with the higher-end consumer shopping exclusively at luxury retail outlets and the lower-income buyer shopping at discount stores.

In fact, our analysis of anonymized transaction data at an aggregated level is painting quite a different picture. This aggregated data consists of segments of anonymized transactions with similar spending patterns, matched against categories of retailers.

Not only do high-end shoppers tend to “cross the street,” buying designer clothing at a luxury department store, but spending on school supplies and household goods at a low-end department store or eating at a quick-serve restaurant; but over a six-month period in 2011, in our analysis of aggregated transactions at 20 high-end brands, we found that a remarkably consistent portion of spend by regular shoppers at high-end stores was at discounters. A number of factors may be driving this. [Read more...]

As The Housing Recession Winds Down, Furniture Pureplays Can Benefit from New Analytical Tools

Consumer Insights From MasterCard Advisors

Despite the sluggishness of the so-called recovery, industry experts are predicting a pickup in the housing market early next year. This will have broad implications for retailers of furniture, furnishings, and other home items. How retailers can prepare for this opportunity is a favorite topic for the data collectors and analysts at MasterCard Advisors, the merchant services arm of MasterCard. Here are some ways in which furniture retailers, who’ve gotten pummeled in this recession, can capitalize when the upswing occurs.

While sluggishness in the housing market and changes in the retail environment are leaving furniture merchants feeling besieged, one development is showing great promise as a powerful tool for remaining competitive.  The increased use of cards and electronic payment has led to an explosion in the amount of data now available that that can be analyzed to better understand consumer preferences.  A recent study by MasterCard Worldwide showed that the data warehouses at the cutting edge of this development are managing over 100 terabytes of information, and are seeing those numbers grow by 20 billion transactions, every year. [Read more...]

Now You See It, Now You Don’t

The Increasing Allure of the Pop-Up Store

Consumer Insights from Mastercard Advisors

Last November, Hermes did it in West London. This spring, Apple (AAPL) did it in Austin. And in October, Brides did it in downtown Manhattan. That’s right, they opened pop-up stores, the temporary retail settings that once were almost synonymous with cheap Halloween costumes.

The Robin Report - Now you see it...In fact, pop-up stores are a growing phenomenon across the spectrum, from eBay (EBAY) to Liberty of London, and from mass-market retailers like Target (TGT) to fashion labels such as Kate Spade. Last holiday season Toys ‘R’ Us (TYJ) had over six times as many pop-up stores as in 2009; their holiday pop-up stores alone required 10,000 hires. And their popularity isn’t limited to the big name chains. They can be as important to small independent businesses without the capital for a site of their own as to major retailers, looking to explore a new market or meet the demands of a seasonal rush.

[Read more...]

Timely Data, Timely Strategies

High-Speed Economic Data for the Fast-Paced Ever-Changing Retail Industry

Insights From MasterCard Advisors SpendingPulse

Retail is by nature a forward-looking business. You decide now what you’ll be selling next season; then you get ready today for tomorrow’s needs. Inventory, marketing, and sales decisions are based on predictions and forecasts. One way merchants approach this is by combining a measure of where the economy is today with an understanding of upcoming trends. That’s why it is critical that retailers get the best data they can — their business depends upon it. They watch their own sales and store traffic, read the government and industry reports, survey their own customers, and follow broader consumer research. Many of these traditional sources of information take a while to compile and deliver to the market, but in a fairly stable economy, taking this approach has until now been the best way to move forward.

But one of the big lessons from the recent economic turmoil is that consumers can rapidly and significantly change their spending behaviors based on fast-moving economic news. In the wake of the market collapse and subsequent recession, we have seen consumers turn their spending behaviors on a dime. As a result, retailers have found that it is no longer sufficient to manage to the previous month’s results; merchant strategies must be based on the most current consumer behaviors allowing them to be more nimble in responding to changing consumer behavior. They also need a better understanding of demand cycles so that they can take some of the guesswork out of provisioning for the future.

[Read more...]