The e-retailer reports a $126 million net loss, stemming from a $640 million year-over-year increase in spending in the quarter on technology and content ...
Despite the pitfalls of global selling, U.S. retailers ignore overseas markets at their peril.
Selling to overseas customers is enough sometimes to give even the biggest retailers the willies. With their different tax laws, payment habits and even street address formats, foreign markets seem too, well, foreign to most American retailers.
But there are some retailers who aren’t afraid of the overseas market. And they’re not just the big ones like Amazon.com Inc., which operates web sites serving European and Japanese markets, or Office Depot Inc., which operates web sites selling to over 20 overseas markets. Barewalls.com, for one.
As much as 20% of Barewalls.com’s orders come from overseas customers. And they buy more than their American counterparts. “Our international customers always order more, probably because they can’t get it locally,” says Lorne Lieberman, CEO. Barewalls has been recording a steady 5-7% increase in overseas sales in the past few years, Lieberman says.
These days, American retailers ignore overseas markets at their peril, analysts say. While there’s plenty of growth left in U.S. online sales-after all, e-retail sales still account for less than 2% of all retail sales-and U.S. consumers still make up the biggest portion of online shoppers, other nations are closing the gap. In the fourth quarter of last year, for example, Europe’s share of online retail sales grew to 41% from 35% a year earlier, while North America’s share declined to 41% from 46%, according to Gartner Inc.
And most analysts expect the potential for global sales to only go higher, as the world’s online population also rises. More than 500 million people worldwide have access to the Internet, according to Nielsen/NetRatings. And while the U.S. is still out front with 29% of the world’s online population, Europe, the strongest market for U.S. sales, has 23%, followed by the Asia-Pacific region with 13%. Moreover, overseas shoppers are known to be more comfortable buying online. “A lot of international customers are used to purchasing from a catalog due to the limited amount of products in their local markets, so their comfort level regarding e-commerce is often more advanced than ours,” Lieberman says. “For them the Internet is just another venue to buy products.”
But the obstacles to online global sales are also formidable. Making e-commerce work overseas as well as at home requires a comprehensive strategy that begins with attractive products and extends to all the details of service, such as simplifying the purchasing process and making it easy to return products.
Retailers must deal with pricing structures that figure the cost of foreign taxes and customs duties; they must arrange for returns as well as competitively priced shipping services; they must handle multiple currencies; in most countries, they must serve customers who avoid web sites not in their native language; and they must be alert to the greater potential for fraud to occur in foreign transactions. In addition, many overseas consumers prefer payment systems other than credit cards, forcing U.S. merchants to explore payment methods not common at home. Selling into foreign markets is not for those unwilling to do their homework. “We went online for foreign markets two years ago, but we’re still in the first inning,” says a spokeswoman for the Sharper Image Corp.
And then there’s the ever-changing rules about what foreign retailers can and can’t sell in other countries, driven by international politics, culture, local happenings and popular sentiment. Those all throw obstacles in any long-range plans. “For a while we couldn’t ship to Europe, because they didn’t want beef,” says a spokeswoman for Omaha Steaks International, which operates OmahaSteaks.com. “Now we can’t ship dairy products to Canada, so we can’t ship a potato with cheese.”
Despite the challenges, a number of U.S.-based retailers report resounding success with overseas consumers. For some, like eBay Inc. and Amazon, their prominent position in the U.S. has expanded relatively quickly through sister sites in Europe, Asia and elsewhere. EBay’s revenue from international sales transactions, for instance, is growing faster than its U.S. revenue. For the fourth quarter of last year, net revenues from international transactions grew 173% over the year-earlier period, while net revenue from U.S. transactions grew 58%. Amazon’s sales through sites in the U.K., Germany, France and Japan have risen steadily to $1.17 billion in 2002, or 30% of total net sales of $3.93 billion, up from $661 million in international sales in 2001, 21% of total sales of $3.12 billion. Looked at another way, while net international sales grew 77% in 2002 over 2001, overall net sales grew 26%.
Retailers have created overseas sales by using successful techniques that they use in the U.S. Sharper Image’s overseas strategy starts with the same products it sells in the U.S., albeit with appropriate modifications, says Tracy Wan, president and COO. European customers, for instance, generally favor the same products that sell best in the U.S., such as Sharper Image’s proprietary air purifiers and two music products-the CD Shower Companion and the CD Sound Soother, which plays digital recordings of sounds intended to relax listeners. But the consumer electronics products sold to European customers require European-style electrical hook-ups, and European consumers often show different tastes in style or color. “We’ve learned to adapt quickly and adjust our inventory accordingly,” Wan says.
Sharper Image sells in Europe through the web, catalog and stores, the same channels it uses in the U.S. It operates its own foreign web sites, but works with partners in retail stores in the U.K. and a catalog in Germany. It’s planning to test its U.S. infomercials in Europe, editing them for each country they appear in. “We have 25 years of mail-order experience, so we leverage that in the European market,” Wan says.