U.S. online retailers hope their e-commerce expertise translates into overseas sales
By Paul Demery
In the mid-1990s, two college buddies with computer experience couldn't resist the excitement of grabbing hold of a new thing called the World Wide Web and figuring out a way to capitalize on it. And when Mike Marston and Josh Chodniewicz started selling art online in 1995, they based their growth strategy on several assumptions: Art would sell online because consumers would know exactly what they were getting without having to try it on or try it out; they had a ready base of shoppers among tech-oriented college students; no one had consolidated the online art market; and, not the least important, international markets beckoned. "At launch we were thinking international, to put us in all countries," says Marston, now chief strategy officer of Art.com, which ships to more than 150 countries. "We knew this would be a global demand business."
Ten years later, following their 2001 acquisition of Art.com after having founded its predecessor, AllWall.com, Marston and chairman and CEO Chodniewicz say they still see the world as their market--but with a higher level of excitement. "International is growing about twice as fast domestic," Marston says.
Definite parallels
The opportunity for growth in foreign markets today, he says, recalls the euphoria over U.S. e-commerce in the '90s, when the initial build-out of web retailing infrastructure and the early stages of consumers' adoption of online shopping promised runaway growth opportunity for anyone able to develop a niche for selling online. "There are definite parallels," he says. "There's a large population outside the U.S. just getting online, and there are a lot of countries where the web infrastructure is being developed today like it was being developed in the U.S. in the '90s."
Art.com is far from the only U.S. retailer who has discovered the power of the web to take a company international. "It's a big growth opportunity," says Mark Staudinger, vice president of international and technology solutions for apparel retailer Eddie Bauer, which ships to about 40 countries from EddieBauer.com and operates joint venture Eddie Bauer-branded sites in Germany and Japan. "The penetration of consumers shopping online is lower than in the U.S., but the growth rates are higher."
Those higher growth rates are pushing U.S. online retailers to look beyond their country's borders. "The fact that online shoppers comprise nearly 70% of the online population, and will likely top out at that point, raises the question about where continued online retail growth will come from," Jupiter Research says in its retail industry trends report, "Market Forecast: 2005-2008." Forrester Research adds in its "Trends 2005: Online Retail," that online retailers will look to international expansion as one of the key areas for growth as competition becomes "increasingly fierce" in the maturing U.S. market. "There's a sense of urgency," Marston says. "International is a critical strategy for us."
Indeed, the retail industry's leading competitors are posting some impressive numbers. At Amazon.com Inc. and eBay Inc., each of which offer several shopping sites dedicated to individual foreign markets, international sales are on pace to match or exceed U.S. sales. EBay, with nearly $5 billion in fourth-quarter 2004 gross merchandise sales transacted internationally--up 62% over 2003--expects international sales to surpass domestic sales this year. International sales accounted for 44% of total sales last year at Amazon, up from 38% in 2003.
Global sales up 56%
Global Internet sales will reach $150 billion this year, up 56% from $96 billion in 2004, according to figures compiled by Visa International. By comparison, U.S. online retail sales grew 26% last year to $66.5 billion, up from $52.9 billion in 2003, according to comScore Networks Inc.
There are several developments driving the sharp growth in global e-commerce sales, including an increase in the number of payment options in foreign markets and the growth in both the number of online consumers as well as the comfort level in online shopping, experts say. The number of consumers accessing the Internet in
Europe alone grew 12% during the year ended October 2004, to 100 million, according to Nielsen/NetRatings Inc. It notes that the sharpest growth in Europe occurred in France, at 16%, followed by Italy, 15%, the UK, 13% and Germany, 12%.
Moreover, Nielsen/NetRatings notes that the number of European consumers accessing the web through broadband connections--which tend to result in increased online shopping--rose 60% over the same period, to 54.5 million. The largest increases occurred in Italy, 120%, and the UK, 93%. Other regions are showing strong growth, including South America and Asia-Pacific. EBay says it sees China as the single largest e-commerce opportunity and plans to invest up to $100 million to support sales to Chinese consumers this year.
One thing that's for sure, experts say, is that the trend toward global e-commerce will impact many retailers whether they sell internationally or not. Because global online retailing goes both ways, with many foreign markets having retailers who also want to sell to U.S. consumers, locally oriented retailers wil find themselves competing internationally. "There's both the opportunity to expand into new markets and the risk; if you wait too long, someone will come in and get a share of your own market before you get a share of theirs," says John Yunker, president of Byte Level Research, which ranks online retailers on the ability to serve international markets.
At the top end of the spectrum, retailers like Amazon and Eddie Bauer have established distinct sites for serving particular foreign markets, with merchandising content, pricing and the web address itself all based on the home market. At the other end are retailers that provide shipping to one or two countries outside the U.S., without any sign that they serve foreign markets until a shopper clicks on the shipping menu during checkout.
Defining success in serving international e-commerce markets, experts say, means setting market goals and meeting them. That can be mind-boggling, because forging an international strategy requires making decisions on how to handle all the aspects of running a domestic market site, but with merchandising, order taking, payment processing, fulfillment and customer service all geared to separate markets with different languages, currencies, payment methods and means of distribution. Then there are local rules and taxes that can add days to delivery times and extra costs to a shopper's bill.
Steps to global sales
One common thing that Art.com and other retailers have learned is that it pays to take careful steps to international growth, launching tools and strategies that make sense for each market served. While some strategies like currency or language translation tools make sense for multiple markets, there are other strategies, in merchandising, for instance, that may be more suitable for individual markets.
With its dedicated web sites in Germany and Japan, Eddie Bauer found that German and Japanese consumers have distinctly different tastes and needs. In addition to creating different sizes and styles for the Japanese market, it also developed and shipped more dresses for Germany and more casual dressy lines for Japan. "These are examples that led to good sales and conversion rates," Staudinger says. "Just taking what we do in the U.S. may not work in foreign markets. The key is to address localized needs, but to come across with a consistent brand appearance."
Those details count, retailers say. International sales took off gradually at AllPosters.com, but every step it took to improve service to customers led to significant increases in sales, says Tristan Money, vice president of marketing. "Each time we did something, we had a sizzling impact on sales," he says. "The volume was small initially, but when we compared growth to the prior year, it was astronomical." For example, sales to Europe spiked after the retailer began displaying posters and prints in metric sizes.
Foreign distribution center
AllPosters.com, which ships to more than 30 countries, is opening its first foreign distribution center this month in the UK to better deal with national rules on cross-border e-commerce transactions throughout Europe as well as to better serve customers, says Money, a native of Great Britain. Putting a retailer in the best position regarding foreign duties and taxes can be a complicated matter, he adds. While operating a physical facility in the UK requires the U.S.-based e-commerce retailer to collect sales tax from UK customers, it's worth it to build a more consistent experience with local shoppers, he says.
Without a local physical presence, a U.S.-based online retailer might be inclined to leave it up to foreign customers to settle sales tax remittances with their home governments. That kind of situation may go on without causing a stir among customers or government tax collectors if the retailer transacts only a few sales in that market, but once it hits higher sales volumes, it can attract attention from the local government and upset customers who have to pay extra fees on top of sales tax rates that can range from 15% to 25%, Money says.
"The larger you get in a foreign market, the more attention you have to pay to these things, because you can't expect every customer to pay the taxes at their end," he says, adding that having a UK-based distribution center will also make it less expensive to ship across other European borders.
Apart from legal concerns, the UK distribution center will support AllPosters.com's ability to sell more expensive products, such as picture frames to go with the posters, Money says. "Poster art is an easy product to ship internationally in poster tubes," he says. "But if we up-sell the art with frames, it becomes expensive to ship."
Shipping costs have also been one of the major challenges at Art.com. It has cut shipping costs by consolidating shipments through FedEx to take advantage of bulk shipping rates, while streamlining its warehouse to assure that shipments go out as quickly as possible.
Payment options
One of the more challenging aspects of international sales is deciding which payment options to offer targeted markets--a decision that can affect the amount of transaction fees a merchant pays as well as the comfort level of foreign shoppers.
Although major credit cards Visa, MasterCard and American Express are widely accepted in international markets, consumers in some countries prefer local payment methods. Many German consumers favor debit cards, for example, and many French consumers prefer the Carte Bleu credit card. "If a web site is without a Carte Bleu payment option, a lot of French consumers will say it's not a French site," says Ashwini Narayanan, director of product management for CyberSource Corp., provider of payment processing and fraud prevent services.
In addition to offering payment options most attractive to local consumers in foreign markets, retailers can also take steps to lower their card transaction fees and their exposure to payment fraud, experts say. By maintaining a local physical presence in a foreign market, whether it's a warehouse or an office, a retailer can benefit from lower credit card interchange rates--the rate that transaction acquiring institutions pay card-issuing institutions and the floor for all discount rates. In the UK, for example, the Visa credit card interchange rate for a $100 ticket would be $1.65 for a U.S.-based merchant without a local presence, but $1.30 for the same retailer with a local presence, according to Wells Fargo, which offers international merchant acquiring services.
Retailers also need to work out a way to check fraud in foreign markets, where fraud prevention techniques can operate differently from in the U.S. Address verification procedures common in the U.S. are not always as effective in other countries, Narayanan says. In the UK, she notes, the password-based Verified by Visa and MasterCard SecureCode systems for entering credit card information are more effective than address verification, because the postal system grants individual residents the flexibility to change their address numbers.
One of the best means available to merchants of securing payment transactions is direct money transfers from a consumer's bank account, an option that more European banks are offering, Narayanan says. She adds that CyberSource is working on a service that will let European consumers log onto a merchant's bank's web site to process direct transfers from the shopper's bank account.
Art.com, meanwhile, routinely reviews its payment transaction records to look for unusually high levels of chargebacks from particular countries. If it decides card risk is too high, Art.com will ship orders only after receiving and cashing money orders, Marston says.
Marketing
At AllPosters, a foreign marketing strategy came to life after the retailer deployed a language-translation tool from SDL Inc. "We had a fairly sizable international business from non-English-speaking countries," Money says. Last October, the retailer began using the SDL application to translate content into French, German and Spanish. The SDL tool recognizes a shopper's IP address, then translates site content in the native language of the shopper's country. The shopper has the option to click back to English.
Surprisingly, the translation service itself didn't have a direct impact on sales, Money says, but it made marketing in local languages possible. "It was purely a foundation with which we could scale up our international business," he says. By populating the site with words in native languages, the translation made it easier to build a marketing program through Internet search and affiliates. "We were able to build a marketing campaign to direct people to our site," he says. "That brought a big lift in sales."
SDL charges a translation fee based on the number of words on a web site and the number of languages, says Terry Lawlor, vice president of worldwide marketing. A large site with a few languages could cost $50,000 to $100,000 to translate, he says.
Online marketing techniques that work in the U.S. tend to work abroad, experts say. "Our primary international marketing is Internet search and affiliate marketing," Marston says. But he notes that Art.com is constantly learning about how demand differs among foreign markets and then figuring out how to apply that knowledge to marketing campaigns. "We have to make sure we're not doing a one-size-fits-all solution," he says. "Every country has its own customs and flavors. We'd need to know which countries like to decorate with art, and which decorate more with tapestry."
Build or buy
While some retailers handle their international sales mostly through in-house systems, there is an expanding range of outside services to support foreign markets, including stand-alone applications and turnkey platforms. Retailers have the option of patching together commercial applications or going with e-commerce providers like Vcommerce Corp., Comerxia Inc., Canada Post Borderfree and Venda Inc. that offer ranges of services that can include e-commerce platforms, fulfillment, payment processing and currency conversions.
At Art.com, where Marston and Chodniewicz head up a team accustomed to building its own e-commerce systems, outside technology is beginning to play a more important role, Marston says. Last year the retailer deployed a currency translation application from E4X Inc that recognizes the IP address of a visitor and translates the prices showing on Art.com's pages to the visitor's local currency. The service hit home with foreign customers, who have shown an increased propensity to buy when they can see localized pricing. "We've seen an uptick in our international conversions from where we were a year ago," Marston says. "We're experiencing twice the sales volume from overseas customers."
Because Art.com sells easily definable and universally recognized products--such as images of international celebrities and art from widely recognized artists--the currency-translation feature alone can bring huge benefits, Marston says. But as it continues to build international sales, Art.com will also consider using technology to localize content for higher-ticket items like limited editions of original art that sell better with lengthy descriptions, he adds. "It can be important to describe these products with some history and culture," he says.
While some retailers prefer to limit their use of outside technology and services, in the process maintaining more control over their operations, others are turning to more outside systems that handle multiple operations and can make it relatively easy to enter new markets.
Ritz Interactive, which operates 15 e-commerce sites but gets most of its foreign sales through RitzCamerca.com, BoatersWorld.com and ShopatShark.com, the online shop for golfer Greg "The Shark" Norman, is handling international sales through Canada Post Borderfree and Comerxia. "Wherever they go, we go, we piggyback on their coattails," says Ritz Interactive CEO Fred Lerner. "If Comerxia goes to a new market tomorrow, we're automatically there."
Complete cost
Ritz signed up with Comerxia a year ago. At the time, the only market Ritz served outside the U.S. was Canada, for which it still uses order and fulfillment services provided by Canada Post Borderfree. Now with Comerxia, it ships to more than 40 countries, Lerner says.
When international customers place their orders on a Ritz site, checkout and foreign shipment are handled by either Borderfree or Comerxia, which ships to markets throughout the world including South America, Europe, New
Zealand and China. When it accepts foreign-market orders, Ritz ships products to the U.S. warehouses of either Borderfree or
Comerxia, which handle shipment to the customer's destination.
A main advantage of going through the third-party services, Lerner adds, is that they figure and present to customers the complete costs of shipping, including taxes and duties. Presenting foreign consumers with the complete cost of delivering packages to their doors is one of the most important steps retailers can take in winning foreign consumers, The Aberdeen Group Inc. notes in its 2005 Global Trade Study.
"We estimate and guarantee the cost of duties and taxes at time of shipping," says Patrick Bartlett, president of Borderfree. "If we underestimate the cost actually paid by the customer, we eat the difference."
Vcommerce also offers a range of international services, letting retail clients choose particular services or going with a turnkey e-commerce system including order management, fulfillment, drop-shipping and call center services. It charges $85,000 to $100,000 for basic services, but $250,000 to $500,000 for its full range of services. In addition to those set-up costs, it charges per transaction fees that range $1.15 to $1.20 for clients with 10,000 to 20,000 transactions per month. The rate declines with higher transaction volumes.
Even more markets
Like Canada Post Borderfree and Comerxia, Vcommerce says it expects to increase the number of markets it serves. "We're pretty booked now with North America, Latin America and the UK, but if a retailer wants to go to Thailand or New Zealand, we'd build a presence there," says CEO Dan Clarke.
Bartlett, noting that Canada Post Borderfree plans to begin serving markets in Europe this year, says he expects 30% of his revenue to come from markets outside Canada within two years, up from nothing today.
Art.com, though it continues to handle most of its global e-commerce on home-grown systems, will consider outside services as it continues to grow, Marston says. He notes that Art.com's call center services, for example, are not multi-lingual nor equipped to handle calls or e-mails form foreign customers. "As international continues to grow twice as fast as our domestic market, these are things we'll be taking a hard look at," he says.
Without a doubt, international e-commerce leaves much to be improved, even by retailers considered in the forefront, experts say. One common shortcoming is that retailers fail to prominently note on their home pages whether they serve international markets; another is that they don't display merchandise intended for foreign consumers with localized images or pricing, says Yunker, whose firm recently published the "2005 Web Globalization Report Card." Although Amazon and eBay may be leading the way in global e-commerce in terms of overall sales, they downplay their international presence on the home pages of their main sites, presenting at the bottom of the page only textual links, in English, to their foreign sites--an obscure display that could go unnoticed by a non-English-speaking foreign consumer who visits Amazon.com or eBay.com, Yunker says.
Growing competition
Lands' End is judged by many measures to be among leading international as well as domestic U.S. retailers, with five sites that serve markets outside the U.S. But its international gateway, with an English-language textual link in a navigation bar, is only slightly better than Amazon's and eBay's, Yunker says. He adds that Lands' End loses points for using American models in merchandise displays on its
Japanese-language site.
By comparison, Yunker ranks IKEA, the Sweden-based discount retailer of home furnishings, as the leading international retail web site in terms of catering to local customs. Among its leading characteristics: an international gateway in the top half of its home page that lists more than 30 foreign-market sites with links written in the local language. Models in merchandise displays appear to be natives, he adds.
Competition for international sales will only continue, both from online retailers based in the U.S. and those based abroad, Art.com's Marston says. Keeping on top of things internationally will be rewarding, but not easy, he adds.
"Retailers are getting more comfortable with it, and there are more tools that benefit the consumer and improve the international shopping experience," Marston says. "As we continue to grow internationally, we'll look at specific regions and engage certain companies about the best practices and tools we can use. Art.com wants to be at the forefront of that."
paul@verticalwebmedia.com
Eddie Bauer takes the tri-channel road to global sales
When Eddie Bauer decided to enter foreign markets, it started out with a multi-channel approach. "Right off the bat, this model was focused on being a multi-channel retailer," says Mark Staudinger, vice president of international and technology solutions.
Although Eddie Bauer also ships to international customers through its U.S.-based EddieBauer.com, it has not paid much attention to building that site up for international sales. Instead, its foreign-market strategy is focused on two joint ventures it set up in Germany and Japan, respectively EddieBauer.de and
EddieBauer.co.jp.
The retailer kicked off its foreign sites a decade ago in partnerships with German retailers Otto Versand and Heinrich Heine, and, in Japan, with Otto-Sumisho Group (itself a joint venture of Otto GmbH and Sumitomo Corp.).
The joint ventures develop a tri-channel approach to retailing, with stores, catalogs and web sites, all operated under the Eddie Bauer brand. While its partners in Germany and Japan operate the retail channels, Eddie Bauer controls its brands and merchandising strategies from Seattle. It also operates a sourcing and distribution center in Hong Kong, which supports both its U.S. and foreign operations, Staudinger says.
The joint ventures give Eddie Bauer insight into how to serve the German and Japanese markets that it otherwise wouldn't have, such as knowing that Germans tend to return products frequently or that Japanese consumers needed a separate set of apparel sizes, Staudinger says.
As it considers serving other foreign markets, Eddie Bauer may replicate its joint venture approach if it feels the market is strong enough to support a major tri-channel presence. Meantime, it will also consider adding features to EddieBauer.com, like currency and language conversion, to support international sales. "We see a huge opportunity to improve on how we serve international customers," Staudinger says.
Eddie Bauer, a unit of Spiegel Inc., plans to emerge as a new company, Eddie Bauer Inc., this spring as part of Spiegel's bankruptcy proceedings.
