PetSmart acquired Pet360 for $130 million in cash and up to $30 million more in future performance-based payments.
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In addition to its flagship SharperImage.com serving the U.S., the company operates 10 other sites for markets worldwide, all based on U.S. web servers. Included among the 10 is a Spanish-language version of its U.S. site that’s used by consumers in Mexico and Latin America as well as by Spanish-speaking people in the U.S. The other sites are designed for the U.K., Germany, Australia, Hong Kong, China, Japan, Singapore and Taiwan, with a separate site for the European Union. In addition, the company licenses its name for the Swiss-based SharperImage.ch, which sells its own merchandise in addition to Sharper Image Corp.’s.
To expedite shipping and returns in its busiest foreign markets-several European countries-Sharper Image maintains a distribution center in Rotterdam, Netherlands, for returns as well as deliveries. And to make it easy for shoppers to pay value-added tax, proprietary software automatically calculates the VAT for each order and includes it in the purchase price.
A big challenge
The value-added tax is one of the biggest challenges in selling to European shoppers, retailers say. 15 member countries of the European Union levy the VAT on purchases, with another 10 planning to charge it at the beginning of next year. Plus, there are different VAT rates charged against distinct product categories, such as books and software. “You can’t get away from paying VAT, so we try to make it as easy as possible for them,” says Wan. “We figure it all out for them.”
Another challenge is the different forms of payment that overseas customers prefer. They don’t all use credit cards for online purchases as American consumers do. “If you want to sell to European consumers, you’re missing the boat if you don’t recognize that they prefer local payment types that have migrated to the web,” says Tracy Wilk, vice president of product management for Cybersource Corp.
Sensitivity to local payment preferences is crucial to success, analysts say. “Just giving foreign consumers options of how they want to pay can literally double the amount of sales in a market,” says Richard Mitchell, general manager/Europe for payment services firm Digital River Inc. “You’ll find it very hard to target a foreign market if you’re not using their local payment options.”
For instance, Germans are averse to credit, he notes. “Less than 20% of Germany’s population have credit cards,” he says, “so if you’re only offering credit cards you’re limiting the amount of people who can buy on your site.”
Many European consumers prefer debit cards that deduct funds directly from their bank accounts. Another popular payment method in Germany is the Giro bank transfer system, through which consumers direct their banks to transfer funds from their personal bank accounts to a merchant’s account. To assure such transactions are made, some retailers develop relationships with local German banks; another option is to outsource payment services to a company such as Cybersource or Payment Partners, an international payment company made up of former MasterCard and Visa executives, who create the local relationships and affect the transfers.
Further, every country has its idiosyncrasies. If an online merchant selling in France wants to accept Carte Bleu credit cards from the 7 million Carte Bleu cardholders, it must have a local physical presence in that country. “You need a distribution center or a retail store, or some other legal entity,” Wilk says.
Experts say merchants should try to cater as much as possible to consumer needs and interests in the country they’re selling into, such as pricing products in the local currency and clearly marking the consumer’s final purchase price, including taxes and other fees, and avoiding charging customers currency conversion fees. Two of the options to avoid charging currency conversion fees are to repatriate the funds into the seller’s currency, absorbing the conversion fees as well as any exchange rate risk; or leaving funds in a customer’s currency, taking on exchange rate risk from the other side while using the money to pay local suppliers.
Accepting payments on credit cards can assist shoppers by letting the card companies handle currency conversions.
Another alternative is to subscribe to a currency conversion service such as from E4X Inc., which handles conversion processing and guarantees exchange rates to both merchants and their customers. The E4X system is designed to let merchants price their product in their home currencies while letting foreign consumers view those prices online in their local currencies.
E4X, whose clients include Art.com and Barewalls.com, works out an exchange rate with the merchant that is somewhat higher than the actual rate; the merchant then gets to share in the spread while charging the higher exchange rate within the prices it charges customers. The customers wind up paying a premium for the assurance that they won’t have to pay a higher exchange rate than reflected in the retailer’s advertised prices.
To help work through the intricacies of selling to overseas customers, companies like Retail Decisions, CyberSource and Digital River offer packaged systems to streamline payment processing. CyberSource and Retail Decisions, for example, offer a system designed to provide risk assessments of online customers within seconds of an initial purchase transaction. Integrating with multiple databases of consumer records, the system automatically checks for information that might indicate fraud, such as unusual shopping behavior, bad credit records, or past incidents of fraud.
CyberSource recommends that its users double-check key security measures, such as confirming that a customer’s billing address matches the address filed with his or her credit card account. The extra confirmation can pay off in stronger customer relationships, Lieberman says. “People are happy to hear that we get confirmation to assure there’s no fraud involved.”
Barewalls helps drive international sales by advertising on other web sites that attract foreign shoppers, such as travel and foreign language sites. It also offers a standard shipping fee of $29 for all international shipments other than unusually large orders, and has designed a shopping cart with common symbols that explain its usage. “We try to make them feel comfortable,” Lieberman says.