Sell Global, Think Local

Viking’s strong international presence and catalog experience added a new dimension to Office Depot and made Office Depot one of the most aggressive U.S. retailers abroad, Zrike says. The company now has web sites in Australia, France, Germany, the U.K., Italy, The Netherlands, France and Japan. The latter two have both Viking and Office Depot sites. “The U.S., Japan, U.K., Germany, France and Italy account for over 80% of the world’s retail sales,” Nelson says.

Several qualities characterize Office Depot’s global approach. For one thing, Nelson believes there is no such thing as a global market. “We’ve been successful because we’ve looked at each country as a market rather than the world as a market,” he says.

For another, Office Depot tries to create as local an operation as possible. That means local hiring, local buying, local distribution, local languages and local currencies.

And third, Nelson believes Office Depot needs to establish a local physical presence before a web presence.

“Regardless of the product, an e-retailer going overseas has to have a good fulfillment system,” says Duif Calvin, senior retail consultant with Atlanta-based iXL. However, not every retailer will need a system as extensive as Office Depot’s; it varies by product line, she says. Companies like Lands’ End and The Sharper Image have been successful in international sales with less extensive fulfillment systems.

The benefit to the local physical presence is that it gives Office Depot a local back-end system. “Single-channel players don’t win,” Nelson says. “The real issue with the web is the ability to deliver. You can have the prettiest web site, but that means nothing if you can’t pick it, pack it, wrap it, and ship it with no errors. We see the web as an integrated part of our business.”

In fact, for a retailer of necessities such as office supplies, such a move may be a requirement. “Office Depot is dealing with replenishment and necessity buys. It makes a great deal of sense that they focus on infrastructure; they don’t get a second chance,” Calvin says. To a business retailer, fast delivery is a big selling point. “People are not purchasing from Office Depot to have fun, they are purchasing because they need something,” she says.

But German law prohibits that type of selling. “In Germany you have to bundle things together. That means that if you bought something in the U.S., you could get the accessories free. But in Germany, the item and the accessories are packaged under a lower price. The problem is the lower price doesn’t have the same marketing appeal as something free. People respond to free.” Also, the company can offer a unique price to a French customer, but not to a German customer. “If I offer a price to one customer in Germany, I have to offer it to everybody,” he says.

One thing that doesn’t change from U.S. to foreign markets is the appeal of free delivery. Minimum order sizes for free delivery vary by country but they are similar when the currencies are translated. “It’s a selling tool that works the same in most countries,” Nelson says. In the U.K., the minimum order is £30 (US$44), in Australia it’s $50 (US$27). The average order size is about US$125, and that too, says Nelson, does not vary much among countries.

Understanding local culture, customs and law becomes less onerous with local staff. Nelson says staffing a foreign operation with local employees is critical. “The first person we hire is a new country manager, and he has to be from that country,” he says. That manager must speak both the native tongue and English as well as understand and fit the Viking/Office Depot culture.

The country manager, in turn, oversees all domestic hiring. “The second person in is a merchandiser, who also has to come from the country,” Nelson says. “We send people there to teach them, then we let them run their business.” Each country is different in terms of salary, benefits and social aspects, as well as product, prices and currency, he says.

“It takes a tremendous amount of research and work. The hiring process is enormous,” Nelson says. Local staffing means that when customers call in they will always speak to someone in a native voice, not a translated voice, Nelson says. This also is true for the web help staff. “If a customer from Italy has a problem with our web site, they talk to an Italian; if they’re from Germany, its mother-tongue German,” he says. “We think that’s what customers want.”

IRCE 2008 Conference Multi-Media CD-ROM

Some retail analysts downplay the importance of local management. Sid Doolittle, founding partner with Chicago-based retail consultants McMillian/Doolittle, says it is often the executive from the home country who imparts company values. “Expatriate managers are very useful in transferring a culture,” he says. When Wal-Mart went into the U.K., for instance, it was not able to transfer cultural attitudes toward non-promotional marketing, customer service, organized labor and human relations using national management, he says. “Eventually it replaced the U.K. CEO with one from the U.S.”

Like the staff, the merchandise is mostly of local origin. “We buy 95% of what we sell in a country in that country,” Nelson says. “There are a few global suppliers, but we buy from them locally.” Companies such as 3M or Hewlett-Packard have a local presence in the countries where Office Depot is retailing. The local buying practice stems from customer demand—partly for products made in their native country and partly for brands that can only be found in the native country.

Besides the language and currency differences, the content changes from country to country based largely on local preference. For example, The Netherlands’ site offers 4,000 products, whereas the Japanese site has 8,000. “The product offering on each site mirrors that country’s catalog,” says Tim Toews, Office Depot’s senior vice president of systems development.

A chunk of the human resources costs include translating words. “English doesn’t always translate word for word,” Nelson says. For example, the word for shopping cart in the U.K. is “trolley”, but when trolley is translated into Japanese it means bus.

Office Depot created a template used when translating its site from English into other languages. “We built tools allowing human translators to type into a template that then goes into a database,” Toews says. Office Depot created a browser-based tool that the business team in each target country could access. This was established before the web site was developed so that the local team could begin translating products into the native language. This allowed the teams to work at their own pace and immediately review the translations on the developing web site.

Translating the language has been fairly simple because there are not a lot of ambiguities in the items and their descriptions, Toews says. “You get some amusing literal translations, such as with ‘trolley’, but it’s been pretty straightforward, even with Japanese, the one we were most concerned with.” Japanese-language web sites present the unique problem of being a double-byte character set language—whereas Latin-based is a single-byte character set. Because the Japanese characters are more complex, they require the additional byte of information to be stored and displayed on the site. “Luckily we were in Japan with systems that were DBC compatible.”

Simple or not, translation is an important issue. “The U.S. retailer can get a small percentage of the international market using only English and U.S. dollars,” Zrike says. “But, to take advantage of international sales, they have to deal with a consumer in his own language—verbal, written and financial.”

Office Depot did not experience currency conversion problems because it created each site to function in the native currency, Toews says. Catalog sales were already conducted in native currency. “The servers and the back-end systems are configured for that national currency,” he says.

He cautions, though, that retailers should think about how much local currency it takes to buy a product. “You run into issues of field size,” Toews says. “Italy’s lira and Japan’s yen need more room for numbers.” The European sites do not show euro pricing, but totals are shown in native denominations and euros.

Before launching a site, several technical details must be addressed, such as translating error messages. “Somebody has to go in and say ‘invalid customer number’ in Japanese,” Toews says. Office Depot sets up a test site and a quality team checks the content.

Finally, all the back-end systems are as close to the markets as makes sense. That means placing distribution and call centers where they are needed. The company has 15 warehouses outside the U.S.: the U.K. has three; Australia, Germany, France and Japan have two each; and Ireland, The Netherlands, Belgium and Italy have one each. The company has four other warehouses in Mexico, Poland and Israel that either are joint ventures or franchise agreements.

Office Depot’s approach to warehouse locations makes sense to analysts. “To fully compete, you can’t deliver product from the U.S.,” Zrike says. “You can do a certain amount of your business, such as hard-to-find products, that way. Some consumers are willing to wait longer and pay more to have items delivered from the U.S., but that is a small opportunity.”

So far, Office Depot has been satisfied with its web approach. “The way we structure web sites, we are almost profitable from day one,” Nelson says. Part of the reason is Office Depot does not spend much to advertise its web presence because it gets mileage from cross marketing through its catalogs. This is especially true with the Viking name because of the many catalogs mailed to small businesses. Office Depot does, however, buy premium spots on search engines.

Now with a strong global foothold, Office Depot does not feel bound to the physical presence first, web presence second model. The company plans to open in a new country this fall (but will not say where), and when it does, its web site will launch immediately. “We will have the web site up the day we open,” Nelson says. “It may not be retail in the beginning, but there will certainly be a warehouse and distribution center and an infrastructure.” Simultaneously opening in a country speeds the process of preparing the web, Nelson says. “As we build product content, we’re building it with the thought in mind that we are going to have a web site.”