This article is for the Professionals
Sign up to Inside Retail Professional now for only $5+GST for your first three months.
That's an 85% discount plus you’ll get FREE access to all Masterclasses during Retail Week. 5 retail industry leaders like you’ve never seen them before.Already a professional? Log in
iHerb’s range spans supplements, health and beauty items, groceries and selected non-food products – many of which are natural, eco-friendly, organic or healthy alternatives. The business has proven particularly popular in markets such as Asia, the Middle East and Russia where such products are either not available or exorbitantly priced by local retailers.
How does iHerb compete with local retailers?
It might seem peculiar that a US-based online retailer can be a price-competitive alternative to local retailers in far flung markets such as Hong Kong and Singapore. So how does iHerb manage this feat? For starters, the company has had longstanding partnerships with a host of brands such as Aveeno and Bob’s Red Mill which helps reduce its sourcing costs.
But iHerb has also increasingly launched or acquired a series of brands that are now available exclusively on its site, such as California Gold Nutrition, Mild By Nature and Lake Avenue. These act as defacto own brands and are likely to offer attractive margins to the retailer.
iHerb ships to over 180 countries around the world and this total has continued to grow in recent years. In 2020 it added around 20 new markets, adding to its footprint in Africa as well as the Carribean. Partnerships with local logistics firms allow iHerb to keep its delivery costs in check. For instance, customers in Hong Kong are only charged HK$30 (US$3.86) for deliveries and these costs are waived if the order is more than HK$300.
New overseas distribution centres planned
In terms of delivery times, there is also no reason to shun iHerb in favour of costlier local alternatives. iHerb has massively invested in overseas climate-controlled warehouses such as its global distribution hub in Incheon, South Korea. This hub, operated in partnership with CJ Logistics, enables Asian shoppers to generally receive their orders within two days.
Even this investment has proven unable to cope with demand. In 2020, the company announced plans to open new distribution centres in Hong Kong, Russia and the Middle East – potentially cutting delivery times and costs even further for customers in these markets.
Customer experience is a key focus
Anyone thinking that iHerb competes solely on price would be mistaken though. The online retailer has been particularly successful in cultivating repeat customers through its customer experience. For instance, the freshness of iHerb’s products is guaranteed thanks to an average inventory turnover rate of 8.1 times per year. It displays the expiration or best-by dates of the vast majority of its offer, so that customers can see how fresh its offer is.
Another critical aspect is that iHerb is not a marketplace. There are no third-party sellers on its platform and hence it is able to fully control the experience. This means orders are consolidated into a single shipment, saving a lot of hassle and frustration for customers.
Innovative rewards scheme
However, the key to customer retention has been its innovative rewards scheme. As you would expect, there is a reward for referring new customers and word of mouth has been a big driver of its recent growth.
But where iHerb really sets itself apart is its reviews system, which rewards shoppers with $1 per review. There is an incentive to leave an informative review as every ‘helpful’ vote results in additional credit. It is therefore not surprising that customers write around 1 million new reviews each month.
A pandemic winner
It is safe to say that iHerb has performed well over the last year. The surge in e-commerce that has been unleashed by the pandemic has proven to be a major boon, as consumers have become much more willing to engage in online retail. In addition, people have taken an increased interest in health issues and boosting their immunity – areas that are iHerb’s bread and butter.
The planned investment in distribution capabilities means that iHerb is well-placed as it continues to capitalise on the growth drivers of the past year. A major target must surely be to raise its profile in more established retail markets such as the US and Western Europe, where competition from local players will be tougher.