Hands Across the Water

The Internet may have made it easier for retailers in the United States to generate traffic and sales from consumers in other countries, but fulfillment remains a tremendous challenge. Logistically, retailers need to be on top of a wide range of issues that include daily fluctuations in currency conversion when billing a customer, duty fees levied by each country to which they ship, and whether the courier used to ship the package can reach remote locations.

Factor in the marketing dollars needed to drive consumers to a site and generate enough sales to make it worthwhile to ship internationally and it is easy to understand why the resources required of Internet retailers to coordinate cross border fulfillment on their own are often greater than the resources available.

A lean team

Most Internet retailers looking to open foreign markets do so with a lean team of employees, largely due to budget constraints. Creating an international sales unit is the equivalent of launching a start-up business. Only the largest retailers with the deepest pockets are likely to have capital to properly fund such a venture.

With that in mind, many Internet retailers are opting to outsource much of the fulfillment duties for international sales, freeing staff to focus on their core competencies of marketing and merchandising. “Internet retailing is in the early stages of international sales and retailers really don’t have the critical mass to justify an in-house fulfillment center,” says Jim Okamura, senior partner with consulting firm J.C. Williams Group. “Moving to an outsourcing relationship for international fulfillment makes a lot of sense from a financial standpoint.”

The services provided by cross-border fulfillment companies are typically full end-to-end solutions that include establishing relationships with payments processors, foreign banks, and couriers, to delivery tracking and coordinating retailer shipments to one or more of their staging warehouses in the U.S. where packages are prepared for international delivery. Fulfillment companies are also charged with staying current with items restricted both for export from the U.S. and for import to foreign countries.

In the case of the export restrictions, the intention is to prevent software applications and computer hardware that can aide terrorists and international criminals in harming U.S. interests from leaving the country. On the importation side, many foreign countries aim to prevent products from entering the country, such as guns, ammunition, and fruit.

Navigating the maze

Given the maze of restrictions and challenges facing cross border fulfillment, the benefit of using a third party outsourcing firm is to create a seamless fulfillment process for the customer that enriches the retailer’s brand equity in foreign markets without straining personnel, even if the retailer ships only a few dozen orders a day internationally.

“It is more efficient to outsource these functions because it enables us to make certain we have the resources available to provide the best shopping experience possible to customers outside the U.S.,” says Steven August, operational vice president, customer marketing for Brookstone Co. Inc.

Brookstone partners with fulfillment outsourcing firm Canada Post Borderfree, a division of Canada Post Corp. Prior to partnering with Canada Post Borderfree in 2003, Brookstone undertook its own efforts to sell to Canadian consumers. The process left much to be desired, since Brookstone, like many U.S. based retailers, struggled with fulfillment issues.

“A lot of U.S.-based retailers did not provide Canadian consumers with a great online buying experience because they lacked the relationships with Canadian companies to provide satisfying fulfillment,” recalls Patrick Bartlett, president of Canada Post Borderfree.

Canada Post Borderfree, which provides fulfillment services for 38 U.S.-retailers and catalog marketing for about 70 more, handled more than 40,000 shipments from U.S. retailers into Canada in November 2005. Retailers ship packages to Canada Post Borderfree’s warehouses in Detroit and Chicago, where they are readied for shipment into Canada.

Canada Post first partnered with Borderfree in 2002 as a way to increase its volume from U.S.-based retailers and acquired Borderfree in April 2005. The company plans to expand into the U.K. in 2006.

Accurate shipping costs

One of the biggest problems facing U.S.-based merchants shipping into Canada was accurately calculating the complete shipping costs for merchandise, according to Bartlett. Taxes and duty, which vary by weight of the package, its origin, and where the item was manufactured, were often estimated on the low side at the time of purchase. That led to many unhappy customers when the final bill arrived.

Fulfillment companies such as Canada Post Borderfree are responsible for accurately calculating shipping costs and will typically cover the difference if they end up higher than originally quoted. If the cost is lower than projected, the difference is refunded to the customer.

“There are a lot of factors that affect shipping costs and duty fees, so it is important to get an accurate price quote in the local currency of the customer and make good if the quote is off,” adds Bartlett.

Other factors contributing to a quality shopping experience for international customers is offering payment options native to them. In Germany, less than 20% of consumers carry credit cards, which creates a significant barrier to Internet retailers in doing business with a large portion of the shopping populace. To clear the hurdle, cross-border fulfillment companies partner with German banks on behalf of their retail clients to accept bank transfers, a popular form of online payment. In the United Kingdom and Italy, consumers prefer to pay with debit cards or bank-issued prepaid Visa and MasterCard cards.

Knowing preferences

“It’s important to know consumer preferences for doing business with retailers when entering any foreign market,” says Brent Rusick, CEO for cross-border fulfillment firm Comerxia Inc., which has 60 merchant clients, including Ashford.com and Ritzcamera.com “Cross border fulfillment is about localizing the customer experience.”

Localization means more than just catering to customer preferences for payment and accurate calculation of shipping costs, it also means striking the best deals with couriers for each retailer. Not surprisingly, international couriers have strengths and weaknesses when it comes to reaching remote towns and villages in rural areas of Asia, say, or the mountains of Europe and Canada.

Comerxia, which is 30% owned by United Parcel Service and operates four international transport hubs in the U.S., will contract with major international couriers such as FedEx and DHL to get a package into a country and then contract with the local postal service to ensure final delivery at the lowest possible price. In Asia, Comerxia contracts with Singapore Airlines to transport packages into the region, where they are handed off to Singapore Post, the country’s postal service. Singapore Post, which delivers to most of Southeast Asia, charges up to 50% less than that of many of major couriers serving the region with no drop off in service.

“It’s about cost effectively delivering a package for the client without sacrificing quality,” says Rusick. “Other couriers will have local partners that can achieve the same goal.”

Comerxia is planning to add at least one distribution hub in China to serve the Asia-Pacific region, and possibly one more country specific hub, to improve overseas delivery and help lower its client’s shipping costs, adds Rusick without being more specific. It is usually more cost effective to strike a deal with a single courier to deliver items bound for a specific country in bulk, where they can then be redistributed locally, than striking multiple deals to ship a small number of items to individual countries.

Goal: Effortless shopping

Comerxia and Canada Post Borderfree use a similar strategy for shipping into Canada, repacking individual shipments into a larger container to reduce transport costs by lowering the overall price per pound. Like many countries, Canada’s duty fees are the highest on the first pound of the shipment. “Why pay more on the first pound for 20 packages, when you can limit that cost to one package?” Rusick says.

Providing customer convenience is another measure used by retailers in determining relationships with fulfillment vendors. One of the criteria used by Flavia Beverage Systems, a division of Mars Inc. that provides single serve drink stations to consumers and commercial customers, was to fulfill a standing order on the date specified by the customer.

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“Making the shopping experience as effortless as possible is a big part of our e-commerce strategy,” says Frank LaRusso, business-to-consumer channel director for Flavia. “Our fulfillment partner has to deliver this level of customer service.”

The company, which began delivering hot beverage service to commercial customers in the U.K. in 1983, partners with PFSWeb Inc. PFSWeb is expected to deliver an order to any home in the U.S., U.K. or Canada within two to five days. Flavia, which also has information-only sites in Germany and France, is preparing to establish a web presence in Japan.

In addition to handling fulfillment, PFSWeb also runs the company’s call center. Keeping caller abandonment rates to a minimum is a Flavia edict. So far, abandonment rates have yet to rise above 2%, according to LaRusso.

Handling returns

Returns are another hands-on service Internet retailers expect near flawless handling of by fulfillment companies. Although consumers outside the U.S. are used to stricter return policies than those offered by most U.S.-based retailers, prompt attention at this end greatly influences customer satisfaction, nevertheless.

One of the considerations the retailer must undertake when establishing a return policy for international sales is the cost of the item being shipped. In some cases, it may be more cost effective to have the customer forgo the return experience in lieu of shipping out a revised order.

“It makes more sense to handle returns on a higher ticket item, like a laptop, than a $20 shirt,” says Steven Graham, executive vice president and chief technology officer for PFSWeb, which delivers to 57 countries and operates an international transport hub in Memphis.

Then again, it does not necessarily make sense for a retailer to market a $20 shirt if the customer can find a like item for a similar price point (see box, p. 44). “Making the customer happy has a lot to do with evaluating the cost of a return,” adds Graham. “The cost of a return starts with whether the retailer provides a unique product.”

Selling a unique product, or the perception of it, is rooted in marketing. While this task has traditionally been the domain of retailers, fulfillment partners are moving into the realm through technology and the availability of quality databases that can aid retailers in their marketing efforts.

Flavia, which aggressively markets its web site offline, relies on PFSWeb to develop source codes that identify the ads to which a consumer responds. Flavia’s ads, which run as part of direct-to-consumer and in-mall campaigns, as well as on television networks QVC and ShopNBC.com, includes a phone number or web address unique to each ad to allow for tracking of customer response rates.

The same strategy is applied to press releases that are picked up and run as a print story featuring company contact information. PFSWeb develops the source code for each point of contact and has a hand in developing search engine marketing strategies. “Our fulfillment partner has been key in helping us develop our marketing strategy,” LaRusso says.

The full breadth

Fulfillment partners can even aid retailers in the development of targeted marketing lists. Canada Post Borderfree has helped Brookstone increase its mailings into Canada fourfold since 2003. The rise is attributable in part to Canada Post Borderfree supplementing Brookstone’s mailings with more than 4 million pieces annually that Canada Post produces featuring Brookstone.com. The retailer is now among the top 15 direct marketers in Canada, according to Brookstone.

For all of the services that cross-border fulfillment companies can provide, retailers still need to perform their due diligence when selecting a partner: that means finding a partner who can deliver on promises for prompt, reliable service, as the failure to do so will damage the retailer’s brand. In most cases a U.S.-based retailer virgin at venturing into foreign markets is likely to have little, if any, brand equity outside its country of origin. Lack of brand equity puts a premium on using fulfillment to help create a pleasant shopping experience.

“Retailers need to consider the full breadth of the fulfillment partner’s solutions, rather than be swayed by the number of countries they service,” advises consultant Okamura. “It’s all right for a fulfillment vendor to be in limited markets provided their solutions can effectively be adapted elsewhere.”

Especially if they are to be a partner in developing a retailer’s international business rather than just a supplier. “Fulfillment partners are not there to just provide basic systems, they are there to help us position our products in a unique way,” says Flavia’s LaRusso. l

Peter Lucas is a Highland Park., Ill.-based freelance business writer.

The dos and don’ts of international sales

Successfully selling to consumers outside the United States requires more than just putting up a web site. Retailers need to consider quality, the breadth of items to be offered, and how much localization they want on their site for international markets.

When selecting inventory to be offered, selling low-cost commodities, such as t-shirts, does not always make sense, since most consumers can buy like items for a similar price locally. Instead, retailers are better served by offering higher-end best sellers and products unique to their inventory.

“The idea is to offer a killer product or something people outside the U.S. want, but can’t necessarily get at home, at an attractive price point,” says Steven Graham, executive vice president and chief technology officer for PFSWeb Inc.

Limiting the breadth of inventory also makes sense, at least until retailers learn the buying tastes of consumers in individual foreign markets. “Editing inventory at the outset is a best practice,” says Jim Okamura, senior partner with consulting firm J.C. Williams Group. “The key is to have discipline in the editing process, because the decision of what to offer is tough to make.”

The logic of taking a cautious approach applies to localizing a web site to a foreign market. Many retailers preferring a higher level of localization typically start with a landing page in the language of the targeted country and a shopping cart that calculates the total cost in local currency. In many cases, retailers will note on the landing page that product descriptions and prices on subsequent pages are in English. Doing so allows the consumer to quickly decide if they want to proceed and lets them know what to expect if they do, according to industry experts.

“If the site is primarily U.S.-centric, it helps to let the customer know that when they arrive at the landing page,” says Brent Rusik, CEO of Comerxia Inc. “So long as the customer knows they can navigate the site, they aren’t likely to abandon it. As sales increase, the site can be localized as needed.”

That is the position taken by Flavia Beverage Systems, which displays all prices and shipping costs in U.S. currency. “We just haven’t had the customer demand for that feature,” explains Frank LaRusso, business-to-consumer channel director for Flavia. “When we do, we will make the change.”

Flavia’s position supports the case that retailers venturing for the first time into international sales are no better off starting in English speaking countries than non-English speaking countries. “Generating international sales comes down to understanding what your customer wants from your web site and what markets offer the best payout for the product being offered,” says Okamura.

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