The web extends a retailer’s reach—but not without a lot of preparation
By Paul Demery
Selling to overseas customers is enough sometimes to give even the biggest
retailers the willies. With their different tax laws, payment habits and even
street address formats, foreign markets seem too, well, foreign to most American
retailers.
But there are some retailers who aren’t afraid of the overseas market. And
they’re not just the big ones like Amazon.com Inc., which operates web sites
serving European and Japanese markets, or Office Depot Inc., which operates
web sites selling to over 20 overseas markets. Barewalls.com, for one.
As much as 20% of Barewalls.com’s orders come from overseas customers. And
they buy more than their American counterparts. “Our international customers
always order more, probably because they can’t get it locally,” says Lorne Lieberman,
CEO. Barewalls has been recording a steady 5-7% increase in overseas sales in
the past few years, Lieberman says.
These days, American retailers ignore overseas markets at their peril, analysts
say. While there’s plenty of growth left in U.S. online sales—after all, e-retail
sales still account for less than 2% of all retail sales—and U.S. consumers
still make up the biggest portion of online shoppers, other nations are closing
the gap. In the fourth quarter of last year, for example, Europe’s share of
online retail sales grew to 41% from 35% a year earlier, while North America’s
share declined to 41% from 46%, according to Gartner Inc.
And most analysts expect the potential for global sales to only go higher,
as the world’s online population also rises. More than 500 million people worldwide
have access to the Internet, according to Nielsen/NetRatings. And while the
U.S. is still out front with 29% of the world’s online population, Europe, the
strongest market for U.S. sales, has 23%, followed by the Asia-Pacific region
with 13%. Moreover, overseas shoppers are known to be more comfortable buying
online. “A lot of international customers are used to purchasing from a catalog
due to the limited amount of products in their local markets, so their comfort
level regarding e-commerce is often more advanced than ours,” Lieberman says.
“For them the Internet is just another venue to buy products.”
Total strategy
But the obstacles to online global sales are also formidable. Making e-commerce
work overseas as well as at home requires a comprehensive strategy that begins
with attractive products and extends to all the details of service, such as
simplifying the purchasing process and making it easy to return products.
Retailers must deal with pricing structures that figure the cost of foreign
taxes and customs duties; they must arrange for returns as well as competitively
priced shipping services; they must handle multiple currencies; in most countries,
they must serve customers who avoid web sites not in their native language;
and they must be alert to the greater potential for fraud to occur in foreign
transactions. In addition, many overseas consumers prefer payment systems other
than credit cards, forcing U.S. merchants to explore payment methods not common
at home. Selling into foreign markets is not for those unwilling to do their
homework. “We went online for foreign markets two years ago, but we’re still
in the first inning,” says a spokeswoman for the Sharper Image Corp.
And then there’s the ever-changing rules about what foreign retailers can
and can’t sell in other countries, driven by international politics, culture,
local happenings and popular sentiment. Those all throw obstacles in any long-range
plans. “For a while we couldn’t ship to Europe, because they didn’t want beef,”
says a spokeswoman for Omaha Steaks International, which operates OmahaSteaks.com.
“Now we can’t ship dairy products to Canada, so we can’t ship a potato with
cheese.”
Despite the challenges, a number of U.S.-based retailers report resounding
success with overseas consumers. For some, like eBay Inc. and Amazon, their
prominent position in the U.S. has expanded relatively quickly through sister
sites in Europe, Asia and elsewhere. EBay’s revenue from international sales
transactions, for instance, is growing faster than its U.S. revenue. For the
fourth quarter of last year, net revenues from international transactions grew
173% over the year-earlier period, while net revenue from U.S. transactions
grew 58%. Amazon’s sales through sites in the U.K., Germany, France and Japan
have risen steadily to $1.17 billion in 2002, or 30% of total net sales of $3.93
billion, up from $661 million in international sales in 2001, 21% of total sales
of $3.12 billion. Looked at another way, while net international sales grew
77% in 2002 over 2001, overall net sales grew 26%.
Successful export
Retailers have created overseas sales by using successful techniques that
they use in the U.S. Sharper Image’s overseas strategy starts with the same
products it sells in the U.S., albeit with appropriate modifications, says Tracy
Wan, president and COO. European customers, for instance, generally favor the
same products that sell best in the U.S., such as Sharper Image’s proprietary
air purifiers and two music products—the CD Shower Companion and the CD Sound
Soother, which plays digital recordings of sounds intended to relax listeners.
But the consumer electronics products sold to European customers require European-style
electrical hook-ups, and European consumers often show different tastes in style
or color. “We’ve learned to adapt quickly and adjust our inventory accordingly,”
Wan says.
Sharper Image sells in Europe through the web, catalog and stores, the same
channels it uses in the U.S. It operates its own foreign web sites, but works
with partners in retail stores in the U.K. and a catalog in Germany. It’s planning
to test its U.S. infomercials in Europe, editing them for each country they
appear in. “We have 25 years of mail-order experience, so we leverage that in
the European market,” Wan says.
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.
Idiosyncracies
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.
Streamlined packages
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.
Even Omaha Steaks, which doesn’t advertise to overseas markets, is strong
in markets that have high visitation rates to the U.S. “We ship quite a bit
to Japan,” the spokeswoman says. She adds that Omaha often hosts visitors from
Japan at its Omaha, Neb., headquarters.
For all its effort in global sales, which account for 15-20% of sales, Barewalls
figures it’s well worth the trouble. “It gives us another demographic, without
taking away from our efforts to sell in the U.S.,” Lieberman says.
paul@verticalwebmedia.com
