Gijs Verheijke

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Mail order catalogues as a precursor to eCommerce

17 Oct 2018

The uptake of eCommerce in Asian Emerging Markets has been disappointingly slow. Traffic is expensive, conversion rates abysmally low, and returning customers all but non-existent.

Surprising, when you consider how pervasive internet already has become in most places. Take smartphone penetration in Myanmar (80%) and Indonesia (65%), or the fact that smart phone users in all Asian countries spend much more time on social media than their American counterparts.

With the looming bankruptcy of Sears, it struck me that there is a very logical explanation for the slower than expected uptake. One that I had not heard anyone discuss ever before.

There were never any Mail Order Catalogues in any of these countries.

People in the US had been ordering items from the Sears Catalog for more than 100 years when eCommerce first started Let me explain:

The main issue with eCommerce in most emerging markets has been trust: People have a difficult time believing the products will arrive as promised This is well documented through surveys. For example, in Indonesia more than a third of 1,800 people surveyed by MARS, a researcher, said they don't trust online retailers. In Myanmar, survey results indicated that most people prefer to see the product physically before buying, because they don't trust the merchant.

Part of the explanation for the reluctance may be a history of genuinely untrustworthy merchants. For example, when buying a product, it is customary in Myanmar and Bangladesh that the box is opened by the store clerk while you are watching, so you can see that it in fact contains the right product before you pay.

But this cannot be the whole story. All eCommerce players offer cash on delivery and when I once bought an iPhone online in Myanmar, the box was again opened in front of me by the delivery guy.

The main problem is great reluctance in embracing the concept of buying something from a faceless system, and trusting that it will then come to your house. This is evident in customer support questions ("Where can I go to see the product?", "Where do I have to go to pick it up?") and fulfilment challenges. A friend who runs an eCommerce platform tells me that the first part of their order fulfilment proces still is to call every person on the phone to make sure they didn't order by accident or because they were "just clicking things".

And you can't blame them! All of this stuff was completely new to them a few years ago! The issue is much easier to understand if you think about the lack of experience people have in general with getting things delivered to their house.

In contrast, people in Western countries have been ordering things from their home for five generations As an eighties kid I can remember the time when internet was just going mainstream. With our 28k modem we would dial into the internet (remember the sound?), and nobody could use the phone while you were online. The rare picture on a website would gradually load from top to bottom. Forget about shopping online.

But we did have all sorts of mail order catalogues. For toys, for appliances, for just about anything you would now buy online really. You would cross the things you wanted, fill-out the order form and mail it to the catalogue company. And a week later your order would be delivered at your house. I don't remember how my parents paid, probably by direct debit?

The mail order catalogue companies of the West are really old:

Royal Welsh Warehouse (UK): 1861 Sears (USA): 1888 LaRedoute (FR): 1922 Otto (DE): 1949 Wehkamp (NL): 1952 That means people had around 100 years, or 4-6 generations to get used to ordering things to your home. That's a very, very long time to gradually learn to trust the fulfilment systems.

Case in point is Amazon, the first eCommerce site (1995), which has been called an "online catalogue" at the time. Apart from online payments, which took some time to become secure enough for people to use, the idea of ordering from a catalogue was not new at all when eCommerce first started.

Where do we go from here There were two recent events that led to this realisation: Sears is going bankrupt and, amazingly, Amazon is launching a printed toys catalogue for the holiday season. Sears started opening physical stores in 1925, just like nearly all successful "Direct-2-Consumer" (D2C) companies (Warby Parker, Bonobos, etc) see themselves opening physical stores at some point. Amazon has acquired Whole Foods in 2017 and uses that physical presence partly to support online sales (and now also to distribute their printed catalogue). This continued blending of online and offline commerce is summarised by Alibaba's "New Retail" ideas.

Now I'm not proposing to start printing catalogues in Asia. The key problem in Asia is not reaching the customers, smartphone penetration is growing quickly enough for that. The key problem is trust in fulfilment. For me this whole story leads to a closer look at "Online-2-Offline" business ideas, like Kudo in Indonesia and Deligram in Bangladesh. In a nutshell these ideas aim to create an offline "agent network" of small traditional retailers where customers can go to look at products, ask questions, pay, and pick-up and return online orders.

I had previously dismissed these models as an expensive intermediate step, a waste of time. But understanding that the (fulfilment) trust issues that plague eCommerce in Asia were just never there in the US and Western Europe makes you reconsider. I still believe there are big cost challenges for these models, but these will be alleviated as logistics and payments systems improve. It could most certainly be a better way of investing in market adoption than spending millions on facebook ads.

Also on the other side of the world, as facebook and Instagram have become ever more saturated with similar looking ads, the ROIs on digital marketing have come down. ROIs are now already at the level that online brands are increasingly going back to magazine and TV ads. It would not surprise me if someone starts a new successful mail order catalogue showcasing all these branded, online-first, D2C products.