In an episode of the popular ABC show “Shark Tank” that aired last week, founders of the web-only fashion retailer ranked in the Second ...
(Page 2 of 3)
Shen says the typical way to conduct an international transaction is to make the customer responsible for paying duties and taxes. In fact, that is how Lands’ End conducts its international transactions. Lands’ End provides only an estimate-based on information provided by the governments of countries it ships to-of those costs to its customers.
But companies such as MySource, LogiSoft, FULLeCOM and CyberSource will calculate all or some of the fees associated with international commerce. These services are linked to the retailer’s web site and perform the calculations instantly. This allows e-retailers to tell customers exactly what the costs will be.
The cost of managing the regulations and calculating duties manually is very high, partly because of redundancies, Shen says. “Upwards of 10% of the cost of the goods are being spent basically on moving paperwork,” he says. Companies using MyCustoms can expect to spend at most 5%, he says, adding that the cost decrease as the volume and value of the sales increase.
When conducting transactions in foreign markets, it is best to get the money up front, Fox says. It is much less cumbersome for the retailer to collect the money online before shipping the merchandise. “You don’t want to have the distributors collecting the tax,” he says. This means it takes longer for the money to be routed back to the retailer.
Wilk agrees. Letting the customer know up-front what the end cost will be is a challenge to selling in foreign markets. Many companies offer landed cost services, which calculate the full cost (taxes, tariffs, shipping costs and duties) the buyer will bear. These services have been available for about 15 years, but migrated to the web less than 18 months ago. When an order is placed, the retailer’s web site contacts the landed cost service provider and within seconds the total is displayed on the retail site for the shopper. The cost of the technology to calculate shipping costs is affordable, says Wilk. Retailers can expect to pay from 10 to 25 cents per transaction up to $1 or more; it all depends on the value of the item being moved. The setup fees for such systems can cost several thousand dollars, he says. “Can mom-and-pop afford that? It all depends on the product they are selling,” he says. “If they are trying to sell CDs, it’s just not going to work.” For those selling bigger ticket items, it is worth it.
Government regulations also pose a problem for those shipping overseas, especially where software and computer hardware are concerned. The U.S. Department of Commerce’s Bureau of Export Administration maintains a list of persons, such as known terrorists, that U.S. companies are prohibited from selling to. Wilk says CyberSource developed export-compliance technology that checks where a person is dialing in from and checks the name and address against the list of denied persons.
Necessity was the mother of this technology’s invention. When CyberSource was one with its parent company Beyond.com, it was selling software and hardware online to foreign markets. “The government told us to put a system in place or they were going to shut us down,” Wilk says. Although this was developed for computer-related items, it can be used for other products. This can also keep retailers from shipping to countries where U.S. policy (such as embargoes) or channel controls (some manufacturers have exclusive agreements to only sell through certain retailers in some countries) prohibits trade. MyCustoms offers a similar service.
However, some restrictions are beginning to relax, Wilk says. For example, regulations are becoming more consistent in countries that belong to the European Economic Union. But adopting uniform import rules is slow and not yet across the board.
One method for avoiding some of the exporting hassles is to establish a physical presence in the target country. But setting up shop in a foreign country could be little more than exchanging one set of problems for another. Shen says there is benefit to having a local presence, but says retailers must weight that against the cost of being there. In most cases, it is too expensive to have a local distribution center. One strategy is to set up regional operations after a company has established itself in that market, he says.
No place like home
That is exactly what Sumner, Wash.-based outfitters REI did in Japan. In 1989 REI opened its catalog to the Japanese market. Ten years later it launched a web store in Japan, and this past summer it opened a brick-and-mortar store near Tokyo. In September, the company opened a Japanese distribution center. Shipping from within the country significantly reduced duties and shipping times. Although the company ships across the world, Japan is the only physical presence it maintains. The move to having an in-country presence was not one of cost but of customer service. “If you can run everything from the U.S., it’s probably more cost effective,” an REI spokeswoman says. “We needed to provide a higher level of service. The web wasn’t our only vehicle for moving product in Japan, so we’ve had an advantage there.”
Like REI, Lands’ End established a catalog presence before opening online sales. Lands’ End, which ships to 175 countries, is using its UK distribution center to process all its European orders. Lands’ End has been in the UK for eight years and in Germany for six. The company also has a call center and distribution center in Japan. Lands’ End reported $1.3 billion in total sales in 1999, about 8% coming from abroad. The company recently built a warehouse in the UK with a five-year plan to use it as a distribution center for Europe. “It positioned us well to go further and launch the European web sites,” says Lori Lease, senior outbound manager with Lands’ End, of the company’s UK presence.