Over There

Western Europe in particular beckons with the lure of an eclair in a patisserie window. While the Asia/Pacific region is expected to grow the fastest among world markets outside the U.S., tripling from 19.7 million Internet users in 1999 to 75.6 million in 2003, Western Europe has it beat in sheer numbers. Internet users there will soar from 81.4 million to more than 215 million in three years, according to market research firm IDC, Framingham, Mass.

That’s about 36% of everyone online worldwide. It’s one tasty morsel for e-retailers—and it’s the offshore market in which many U.S. web merchants are attempting to stake their flag first. But those with successful U.S. models who believe the European market—indeed any foreign market—is simply there for the cloning are in for a surprise.

That said, plenty of U.S. players are preparing to take on not only the locals, but also each other as they meet on foreign turf. Amazon and Yahoo have created local sites that have put U.S. retailers and brands in front of shoppers in Europe and elsewhere. Lands’ End is breaking the path on its own with country-specific web sites and fulfillment capacity on the ground in Europe, while pure-plays like Ashford.com are not only recasting site content and language for presentation in other countries, but also linking with online portals abroad and beefing up currency calculation and shipping data for foreign nationals shopping the U.S. site. Ebay in October launched a French-language site in France, adding to the country-specific sites it operates in the UK, Germany, Canada, Japan and Australia.

While the challenges attached to operating in a foreign market are great, so is the opportunity. Accordingly, there’s no shortage of industry consultants posed to point retailers toward squeezing reward out of risk abroad. International online marketing consultant Etranslate, with such clients as CDNow, has an initial checklist for companies eyeing foreign markets. “A number of factors determine if it makes sense for you to enter a market,” says Joshua Morris, vice president of corporate strategy. “The first is Internet penetration—how many people in that country are online? The second is a demonstrated propensity to buy the products you have to sell. The third would be disposable income and the strength of the economy. We try to look at the marriage of those three factors as we evaluate markets for our clients.”

For e-retailers to have a chance of success in any country, all three factors must line up. Research has shown that India, for example, has one of those three—a high propensity to buy product online—but it also has low Internet penetration and a low average disposable income. It follows that India doesn’t make it into the top 10 list of any of several consulting firms prospecting abroad on behalf of U.S. e-commerce clients.

Let’s see, online winners abroad will offer standard products in categories where customer expectations are uniform—where have we heard this before? In fact, analysts say history will repeat itself in Europe and other foreign markets with the same products that were early sellers in the U.S., and for the same reasons. Data from Boston Consulting show that computer hardware and software, books and music and video products are the three top-selling retail merchandise categories online in Europe. Apparel, an online category which has had its struggles in the U.S., ranks correspondingly lower on the scale in Europe.

“The products that are moving are the ones that it’s most economically feasible to distribute, with high value relative to weight and distribution costs,” Morris says. “The same things are going to hold true in Europe, not only in the type of product which sells online, but also in how the Internet will grow in terms of site functionality and the level of integration among channels. It’s really been mirroring the U.S. very closely, and we have no reason to believe that won’t continue.”

Beyond the market opportunity and product category match, e-retailers need to determine something more difficult to measure before heading abroad, and that’s their degree of commitment to the selected market. More than just capital, it’s best measured in the degree of management’s buy-in as well. Being successful in a foreign market has organizational, technical and long-term strategic implications tied to resource allocation. “We spend a lot of time with our clients at the beginning to see if they’re truly committed to globalization,” Morris adds. “For us it’s probably a larger question than the size or assets of a company.”

U.S. e-retailers ready, willing and able to hit the beach at Omaha must first face two essential truths that have challenged the assumptions of many a U.S. executive online and off. They are: One, there is no European market. It’s really a collection of 12 or more highly diverse individual markets, and to treat it as anything else is a mistake. Two, what works in the U.S., no matter how well, won’t necessarily work abroad.

Attempts to meet these challenges have set U.S. web merchants on a variety of strategic paths generally involving some degree of country-by-country localization. “You can’t simply translate the language on your site and expect to serve the entire world out of your data center in Silicon Valley. A bet-the-farm-and-embrace-the-continent-in-one-fell-swoop approach doesn’t work,” says analyst Steven Vonder Haar of the Yankee Group, Boston. “If you want to be an e-retailer in a global market you have to have all levels of operation in individual markets—merchandising, marketing, site development. In essence, if you’re Amazon, you’re creating a mini-Amazon for Britain, for France, and for Germany.”

For Europe, it selects about one-third of its total U.S. SKUs , choosing those that make the most sense for the designated markets. With an established catalog business in Germany and the UK, Lands’ End is able to look at order history to make that choice. It also uses daily sales reports, and a team of local merchants in each country who keep an eye on trends and work with the Dodgeville team on selection. Every product in the company’s UK warehouse selected for Europe is offered on every Lands’ End web site in Europe, but they can be featured in different ways to make sure they fit the market.

“Our merchants in France know what French customers are looking for, their tastes, and what they’re buying,” says Sam Taylor, Lands’ End international vice president. “If you look at the French home page, although the look and feel of the site are the same across countries, you’re going to see a different product there than on the German or UK home page.”

Products also receive different prominence according to local tastes. Germans, Taylor says, go for brighter men’s ties and button-down shirts, while the UK favors straight collars and more conservative tones. Outerwear is featured in the early fall on the web sites of northern countries, but not until the next season in Italy, where cold weather doesn’t arrive until later. “It’s so easy to re-merchandise on the site—you can do it daily if you want to,” Taylor says.

Yes, but at what cost? Lands’ End already sold to more than 180 countries from its catalog, originally shipping from Dodgeville. So it had a fair idea of who its European customers were before it even launched its first country-specific catalog in the UK in 1991. The catalog business in turn yielded data that helped launch the country-specific web sites and justified investment in a UK warehouse and call center and a German call and return center.

The catalogs also established a brand presence in Europe, making it possible for the company to limit offline promotion of the web sites to PR events surrounding the site’s launch in each country and to limit online ad spending to a few top portals, both U.S.-based and local, in each country.

Thus the launch in France cost one-twelfth the launch in the UK, and the Italian site, one-sixteenth. “The beauty of the Internet is its scalability,” Taylor says. “Once you have the infrastructure in place, you copy it and in terms of your investment, this is where the benefits really play out.”

So much so that Land’s End’s most recent web sites—in France, Italy and Ireland—launched where the company doesn’t have a paper catalog. In a role reversal, web sites that are successful could eventually develop catalog businesses in those countries.

“Every new market we enter from now on, we’ll enter on the Internet first,” Taylor says. “We’ve launched six international sites in 12 months. To do that with a paper catalog would be cost-prohibitive.” Taylor adds that the UK and German sites launched a year ago are expected to break even at the end of January and reach profitability next year.

The Houston-based company recently beefed up the welcome directed at international visitors by greatly expanding the detail and amount of information on navigation, shipping, customs and tariff requirements. Distribution and customer support are handled internationally from the U.S., but call center operators can speak German, French, Spanish and Vietnamese. Ashford also is negotiating agreements with several ex-U.S. portals to put local language and a local face on its site in other countries.

Whether it’s by designing a more internationally friendly web site at home, hooking up with international portals or malls, or launching a full-court press with county-specific web sites supported by distribution and marketing power on the ground, market leaders among U.S. web merchants are looking for ways to venture beyond their own borders. Others will be close behind if they successfully break a path. With billions of dollars in potential—and very little of it realized yet—the international markets are anybody’s game, with no entrenched leads that can’t be overcome. But lest an Emerald City of prospective riches abroad dazzle American web merchants, they’d be wise to remember that in going offshore, they’re not in Kansas—or Manhattan or Silicon Valley—anymore.