Missing the Boat

Feb 01, 2002 10:30 PM  By

Karie Shu would be any U.S. retailer’s dream consumer. A recent graduate of the University of Chicago, Karie is a fashion-conscious young professional, and she likes to shop. She knows and likes U.S. brands, and is among the millions in her demographic profile who are willing to order over the Web and comfortable doing it.

Here’s the problem: Karie lives in Hong Kong. Despite her longing to order online from her favorite stores, they refuse to sell to her. The Gap. Target. Gymboree. Brookstone. Nordstrom. Despite their worldwide popularity and name recognition, these companies currently do not support orders to be sent to Asia/Pacific destinations.

Karie represents an opportunity that many U.S. retailers and catalogers are missing: the American-brand-savvy consumers of the Asia/Pacific region. These customers are ready to buy. Many (like Karie) are U.S.-educated, many have family connections in the U.S., and countless others have been exposed to American brands and stores via television and the Web.

It can be just as disappointing for customers to discover that a company will fulfill overseas. Consider the purchase of a classic flannel shirt from Eddie Bauer at $38, which comes to $56 after international shipping charges are added — a 47% additional cost. A $19 replica jersey from the NBA Store attracts an additional $31.50 in shipping charges, more than doubling the cost of the item. And these figures don’t take into consideration taxes and duties.

Dragonet

Clearly, the costs and logistics effort required to support these customers is a key reason companies either choose not to serve the Asia/Pacific region, or do so only with high shipping rates. This establishes an interesting paradox: Many of the items sold by U.S. retailers are manufactured in Asia to begin with.

While many successful merchants have delayed their entry into the Asia/Pacific region, most executives agree that it is a market that they cannot ignore for long. Here are a couple of ways to reach the Asia/Pacific market quickly and cost-effectively.

A relatively simple initial step is to establish a shipment-bursting program via an Asia/Pacific-based facility. The U.S. retailer receives and fulfills orders as usual, with the exception that Asia/Pacific orders are aggregated over a week or so and then dispatched in a consolidated shipment to a central break point (e.g., Hong Kong). The result: High-cost international shipments become “local” for customers in Hong Kong and South China, and orders to other Asia/Pacific destinations transform into regional deliveries at lower regional rate levels. The impact on overall transit time is negligible, but the cost savings are substantial.

Say that a retailer has four customers in each of the following countries: China, Taiwan, Korea, Singapore, and Australia. Each of these customers purchases goods totaling 1 lb. in weight. If shipped individually by international air courier (at tariff rates), the 20 packages would cost over $810 to ship. But if the orders were consolidated as one 20-lb. shipment to Hong Kong, then burst for onward regional delivery, the total shipping costs would be reduced to just over $210. An Asia-based fulfillment firm would provide the services required in the burst process (such as any required manifesting) as well as any value-added services (gift wrapping, kitting) needed prior to final-leg dispatch.

The cost differential can be even greater if local surface mail is used for the final leg of delivery. Yet another option is Hong Kong SpeedPost, which provides quick air links to all Asia/Pacific destinations at economical rates. With final delivery by local postal authorities and minimal customs issues, this routing provides the cost savings and convenience that might drive more overseas customers to buy.

At home

An even better opportunity to extract costs from the supply chain is to fulfill Asian orders right from Asia — trapping Asia-manufactured product before it even leaves the region. Think of a gift order that Karie might place on a Web site, and the trek it must take before she receives it: The item is manufactured 150 miles away in Guangdong Province; then trucked to Hong Kong; loaded onto an ocean container; shipped to Long Beach; delivered to a distribution center in Kentucky, de-vanned, stocked, inventoried; then picked, packed, and shipped back across the Pacific to Hong Kong. Eliminating that 16,000 miles of transit and handling avoids a number of costly steps, to the benefit of both the retailer and end customer.

An Asia-based fulfillment program would reduce these costs and improve customer service levels. In combination with the burst program described earlier, a retailer can stock its hottest items in an Asia-based center without having to replicate the full breadth of its offering in a Hong Kong facility. Any SKUs ordered but not inventoried in Hong Kong would arrive via the weekly bulk shipment from the U.S., with order elements married in Hong Kong prior to final dispatch of the order.

Retailers should consider the operations of an Asia-based fulfillment center an extension of their U.S. networks. Two service elements require enhancement: the ability to deal with a client’s manufacturers across borders as product is pulled into the fulfillment center, and IT visibility of products processed through the facility. At a minimum, the system should reflect activity on a purchase order basis. As items in the fulfillment center can still be considered in transit, good information can give a U.S. client the option of sending home product that is in short supply and selling it at higher prices in the U.S.

Catch of the day

The traditional way to break into a new market, retail storefronts, is an expensive proposition in Asia. U.S. retailers who have studied the market are painfully aware that some of the highest retail rents in the world are in Asia’s major cities. A fulfillment program that ships to Asia from Asia can add sales, sharply reduce logistics costs, and develop marketing data and experience without opening physical outlets first.

Various sources estimate that there are over 100 million Internet users in Asia (as of December 2000), soon to eclipse the 164 million users in the U.S. Many of these Asian Internet users visit the sites of U.S. retailers. How long can you afford not to be serving this market? As you consider this question, remember Karie, at her PC, credit card in hand, waiting for your reply.

Roger Sklar is vice president of international business development at V-Logic Limited. Based in Hong Kong, this logistics company provides Asia/Pacific business and consumer fulfillment services for U.S. and European retailers. Sklar can be reached by phone at (770) 753-6388, by fax at (770) 753-6389, or by e-mail at rogersklar@v-logic.net.