September 1, 2005, 12:00 AM

The (insert foreign nationality here) are coming

Foreign retailers use the Internet for an easy entree into the U.S.

When FigLeaves.com went looking for a new international market to crack in 2003, it quickly settled on the United States and then used the full power and speed of the Internet to launch a separate e-commerce site in just a few short weeks.

Rather than spend years and millions of dollars launching a network of stores or a series of print catalogs, FigLeaves, an online intimate apparel retailer headquartered in the United Kingdom, added a U.S.-oriented home page and a shopping cart that processed e-commerce transactions in U.S. dollars and began operations.

The result: a low-cost, high-yielding U.S. e-commerce site that generated more than $1 million in sales in just under six months. "Our start-up costs were relatively small compared to what they would have been for a bricks-and-mortar operation opening up in a new market," says Ed Bussey, FigLeaves senior vice president and general manager of U.S. operations. "We knew we could use the Internet and our e-commerce platform to quickly make things happen and we did."

Creating a bridgehead

Before the onset of the Internet and the maturation of e-commerce hardware and software, FigLeaves would have been hard-pressed to enter, let alone succeed, in the U.S. retailing market. But now more foreign retailers such as FigLeaves, YOOX SpA, an online Italian apparel retailer, and YesAsia.com, an Asian entertainment products merchant, are bypassing traditional market building strategies and leveraging the Internet to make a run at the U.S.

Hungry for part of the $106 billion that U.S. consumers will spend online this year, a growing number of foreign web retailers are setting up or expanding North American operations and looking for new marketing and technology providers to help them create a U.S. bridgehead.

They are also taking successful web strategies developed in other international retailing markets, such as Europe, and applying them in the U.S. and Canada. "Companies such as ourselves have established infrastructures we can leverage and we are used to shipping to new markets," Bussey says. "We can quickly do a live test to a certain global audience such as U.S. web shoppers and see if we can drive traffic."

The U.S. Internet retailing market remains dominated by domestic companies. Today, there are thousands of web retailers operating in the United States, ranging from Amazon.com to mom-and-pop shops with a storefront on eBay. But the ranks of foreign web retailers, estimated to be 1% or less of the market today, could increase to between 2% and 3% within five years. Though smaller in number, foreign web retailers could also pose a significant competitive threat to U.S. retailers, particularly in certain merchandising segments such as apparel, books, movies, music and luxury goods.

Not immune

Some analysts and merchants even see a scenario where U.S. web retailers, if they don`t remain competitive, could fork over significant market share to savvy--and more aggressive--foreign companies "Other parts of the U.S. economy such as manufacturing have ceded market share to foreigners because they didn`t remain competitive," says John Yunker, president of Byte Level Research, which researches and consults on e-retailing, including foreign markets. "Web retailing is not immune to foreign competition. There are foreign companies such as IKEA and others already here and doing very well."

Today, the barriers to entry for foreign web retailers into the U.S. market aren`t as prohibitive as they were five years ago. Significant upgrades of global communications networks and improvements to e-commerce hardware and software are making it easier for international e-commerce sites to interact with U.S. shoppers connected to the Internet. "U.S. retailers have for many years had the luxury of addressing a very large market that mostly speaks the same language, while European retailers have been doing business in multiple languages on the Internet, including English," Yunker says. "They are well prepared to localize their web sites for the U.S. market."

In addition to the ease of entry, foreign web retailers are building a U.S. base because in many cases they have the brands that U.S. shoppers want and can`t get anywhere else, particularly for higher-end goods. For instance, eLuxury.com, a U.S. business unit of Paris-based LVMH Group, an international luxury goods retailer, draws almost 1 million monthly visitors, according to comScore Networks Inc. ELuxury.com carries more than 40 high-end brands from Christian Dior to Louis Vuitton. "Certain foreign web retailers are going to be quite successful in the U.S. because they have the brand online shoppers want and an infrastructure they can build on," says Lauren Freedman, president of Chicago-based consultants The E-Tailing Group Inc. "It`s retailing 101. If they have the products people want and back up the merchandise with customer service, they will do well."

Ten years ago, when the Internet began drawing the interest of retailers as a serious new sales and marketing channel, the web made it easier and cheaper for tiny start-ups to take on established chain retailers and catalogers and, at least, make a run at the market. And that precedent, coupled with the fact that the U.S. e-commerce market is home to a ready and available host of potential technology and marketing partners, is hardly lost on foreign web retailers.

Quick and easy

FigLeaves, for example, noticed that 10% of its sales were coming from U.S. shoppers despite the fact that the company didn`t have a U.S. site. To create more opportunity in the U.S. market--and buy some time to study U.S. shopper demographics and characteristics-- FigLeaves added more U.S. specific keywords and phrases to its Google and Overture (now Yahoo Search Marketing) search engine marketing campaigns. The result, Bussey says, was a big jump in U.S. pay-per click revenue in just a few months. "It was easy to expand the keyword search," Bussey says. "It helped us remote test the U.S. market without having to commit substantial upfront marketing costs."

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