July 3, 2013, 11:24 AM

IRCE 2013 Special Report: Boundaries blurred

The Internet, fueled by the spread of mobile devices, is erasing national commercial borders, breaking down barriers within retail organizations and melding socializing and shopping. At IRCE 2013, retailers explained how they’re adapting.

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The Internet, fueled by the spread of mobile devices, is erasing national commercial borders, breaking down barriers within retail organizations and melding socializing and shopping.

Many e-commerce executives seek to emulate the success of Amazon.com Inc. But Hiroshi Mikitani is not one of them.

The founder of Rakuten Inc., Japan's largest e-commerce company, explained in a keynote address last month at the 2013 Internet Retailer Conference & Exhibition that he wants to go beyond the speed and convenience offered by U.S. web marketplaces like that of Amazon and eBay Inc., to offer online shoppers a personal connection with the e-retailers they patronize. He said Rakuten encourages merchants to tell their stories, and consumers respond.

After all, Mikitani said, "You're not buying from a computer screen or from the screen of a smartphone, you're buying from the people behind the screen."

As an example, he pointed to a merchant that sells antibiotic-free eggs on Rakuten Ichiba, the company's flagship marketplace in Japan. The site describes the family that operates the business, explains how its eggs are superior to those for sale in supermarkets, and even offers naming contests for hens. Mikitani admitted he advised the merchant against trying to sell eggs online, but now the Rakuten retailer sells more than 500,000 eggs per month. "He's very rich now," Mikitani added.

It remains to be seen whether Rakuten can successfully take on international rivals like Amazon, eBay and China's Alibaba Group Holdings Ltd. But the Japanese company has made itself a global player in the last few years through acquisitions in Europe and the United States, where it acquired e-retailer Buy.com and renamed it Rakuten.com Shopping, converting it to a pure marketplace that does not sell products itself. Now selling in 13 countries, Rakuten aims to sell in 27 in the near future and increase its global sales from $14 billion in 2012 to $125 billion in 2020.

That makes Rakuten a prime example of how retailing, traditionally an industry organized by nation, is becoming international in the Internet era. More online retailers need to think globally, said former U.S. vice president Al Gore, a special guest speaker at IRCE.

"Your customers are global, your competitors are global," he said. "The Internet connects billions of people and smart devices; it's unbelievable how the information flows." What's more, the potential for e-commerce will increase dramatically over the next decade as the global middle class swells from 2 billion today to 4 billion, he said. "If you think your businesses are booming today," Gore said, "if you keep innovating and changing, then the opportunities are boundless." Several web retailers are following Gore's advice and described at IRCE their experiences in expanding internationally (see story on page 59).

National borders are just one of the barriers falling before the advance of the Internet. Silos are crumbling within retail organizations, retailers are blending shopping with socializing and entertainment, and mobile devices let consumers research and buy anywhere and anytime. At IRCE, retailers explained how they are revising their strategies in response. And several noted that this innovation and barrier-busting is creating a ferocious competition for experienced e-commerce personnel and requires new approaches to training employees, whether they work in bricks-and-mortar stores or on the online team.

Contributing to all these trends is the rapid growth in the number of consumers walking around with the web in their pockets in the form of an Internet-connected smartphone, and the even faster increase in households with tablet computers. 137 million U.S. consumers own smartphones, well over half of all cell phone owners, and 60 million own tablets, comScore Inc. chairman Gian Fulgoni said in a featured presentation at IRCE. "The tablet is the fastest-growing device ever introduced," he said.

In March, mobile devices accounted for 48% of the time consumers spent on retail web sites—34% for phones and 14% for tablets, Fulgoni said. In the three years from February 2010 to February 2013, he said, desktop visits to retail sites increased 17% while smartphone visits increased 385%. Consumers are not just visiting, they're also shopping: U.S. retail sales through mobile devices increased 31% in the first quarter of 2013 to $5.9 billion, according to comScore data.

"It's staggering the magnitude of this, and how fast it's occurring," Fulgoni said. "Turning to mobile devices is mandatory."

Many retailers have gotten the message, and elevated the role of mobile devices in their digital strategies. A prime example is HSN Inc., the TV shopping network and online retailer whose CEO, Mindy Grossman, preceded Fulgoni to the IRCE stage as the keynote speaker on June 6. She reported that HSN's mobile sales increased 78% in the first quarter of 2013 compared to the prior year, and represented 10% of total company sales.

The mobile shopper has HSN's full attention, Grossman said. "We think of business mobile-first, from the smartphone screen backwards," she said. "Our mobile consumer is the youngest, most affluent and most diverse. A lot of focus in our company is on the mobile experience, giving the customer a reason to check in with us in the morning, just like she would check the weather."

One way HSN does this is with its mobile Spin To Win game, which each morning gives a consumer 10 spins to win a prize. And she doesn't have to buy anything to play.

It's part of a broader HSN strategy that combines entertainment with shopping through the HSN Arcade section of HSN.com, which the retailer launched two years ago. In that area, shoppers can play more than two dozen "casual," that is, not overly complex, games. That's a natural fit because the most avid players of online casual games are women ages 30 to 45, right in HSN's demographic sweet spot. Since introducing the HSN Arcade, Grossman said 700,000 shoppers have registered and they've played 100 million games. And they can watch HSN's shopping shows while they play. "Everyone should be thinking about gamification," she told IRCE attendees.

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