In its second-largest acquisition, Amazon buys the company for $970 million.
Office Depot blazed the trail to global web selling and learned lessons that can benefit others: Establish a local physical presence, staff help centers with native speakers, buy locally, tune into local preferences on minimum order and shipping costs.
Throughout history merchants have been tempted by the allure of treasures from exotic lands. Today’s e-retailers are no exception. And some are setting sail to see what perils and rewards lie beyond the horizon.
Now that retailers have almost mastered the basics of web selling in the U.S., many are hoping to leverage their web site investments and expertise by selling overseas. But if retailers have learned anything from their U.S. experience, it’s that nothing on the web is as easy as it first seems. And that goes for creating a global presence. Tapping into the potentially lucrative overseas market is not as easy as throwing up some web sites in foreign languages.
No retailer knows the challenges to global web selling better than Office Depot. The Delray Beach, Fla.-based office-supply retailer had a dizzying year in 2000 in which it launched 10 international web sites.
While Office Depot executives won’t reveal sales volume on their web sites, they are pleased so far. “We’re just delighted with our international Internet experience,” says Bruce Nelson, Office Depot CEO. “It has the same metrics of growth as the U.S.”
Indeed, the numbers and potential for growth of the non-U.S. market should be attracting other retailers. “The European market will catch up to the U.S. in three years,” says Stephen Zrike, senior analyst of online retail for Forrester Research. European sales today equal about 12% of U.S. online sales. “By 2004 that is expected to be half the size of the U.S. market. Asia, by 2005, will probably surpass the U.S,” he says. The U.S. now accounts for more than 75% of all online sales; by 2005 sales outside the U.S. will be double those from the U.S.
“We don’t see Japan taking off until 2003, but then it will grow very rapidly,” Zrike says. Japan has half the population of the U.S., but it is a very consumer-oriented society. “In about 2007, we see China taking off. U.S. retailers can get 20% of e-commerce sales if they get into the market and start developing it over the next year,” he says. “If U.S. retailers wait much longer, it is going to be far more competitive; they have to move now.”
But moving now means laying the groundwork, not throwing up a web site. No retailer can get a successful web presence going without a lot of planning. In fact, Office Depot’s plan to strike out across the globe was not hatched overnight. It was the result of a long-term strategy in which web sites were the capstone. “Office Depot decided five years ago it wanted a worldwide brand,” Nelson says. “Our international strategy was to put web sites where we had the largest presence.”
A milestone came nearly three years ago when Office Depot and Viking Office Products merged. At that time, Viking was a catalog retailer in 10 countries with two-thirds of its business coming from outside the U.S. Nelson was Viking’s COO and Viking had an infrastructure of offices and warehouses.
Viking’s strong international presence and catalog experience added a new dimension to Office Depot and made Office Depot one of the most aggressive U.S. retailers abroad, Zrike says. The company now has web sites in Australia, France, Germany, the U.K., Italy, The Netherlands, France and Japan. The latter two have both Viking and Office Depot sites. “The U.S., Japan, U.K., Germany, France and Italy account for over 80% of the world’s retail sales,” Nelson says.
Several qualities characterize Office Depot’s global approach. For one thing, Nelson believes there is no such thing as a global market. “We’ve been successful because we’ve looked at each country as a market rather than the world as a market,” he says.
For another, Office Depot tries to create as local an operation as possible. That means local hiring, local buying, local distribution, local languages and local currencies.
And third, Nelson believes Office Depot needs to establish a local physical presence before a web presence.
“Regardless of the product, an e-retailer going overseas has to have a good fulfillment system,” says Duif Calvin, senior retail consultant with Atlanta-based iXL. However, not every retailer will need a system as extensive as Office Depot’s; it varies by product line, she says. Companies like Lands’ End and The Sharper Image have been successful in international sales with less extensive fulfillment systems.
The benefit to the local physical presence is that it gives Office Depot a local back-end system. “Single-channel players don’t win,” Nelson says. “The real issue with the web is the ability to deliver. You can have the prettiest web site, but that means nothing if you can’t pick it, pack it, wrap it, and ship it with no errors. We see the web as an integrated part of our business.”
In fact, for a retailer of necessities such as office supplies, such a move may be a requirement. “Office Depot is dealing with replenishment and necessity buys. It makes a great deal of sense that they focus on infrastructure; they don’t get a second chance,” Calvin says. To a business retailer, fast delivery is a big selling point. “People are not purchasing from Office Depot to have fun, they are purchasing because they need something,” she says.
When in Rome ...
In addition to creating the fulfillment infrastructure, maintaining a local presence helps the company recognize local nuances. “For example, in the U.S., I can personalize an offer based on demographics and encourage you to buy by offering a premium,” Nelson says.
But German law prohibits that type of selling. “In Germany you have to bundle things together. That means that if you bought something in the U.S., you could get the accessories free. But in Germany, the item and the accessories are packaged under a lower price. The problem is the lower price doesn’t have the same marketing appeal as something free. People respond to free.” Also, the company can offer a unique price to a French customer, but not to a German customer. “If I offer a price to one customer in Germany, I have to offer it to everybody,” he says.