8/04/14

Survey: Big expectations (not-so-great results)

While the vast majority of respondents to a new Internet Retailer survey sell internationally, their sales from abroad are often small.

By Zak Stambor and Katie Evans , Managing Editor

When Benefit Cosmetics LLC surveyed the Chinese e-commerce landscape in 2010, it found the market’s lure was too strong to resist, says Valerie Hoecke, senior vice president of digital for the U.S.-based luxury brand.

At the time, China was poised to surpass the United States as the largest e-commerce market; it likely eclipsed the United States last year as Beijing Internet research firm iResearch Consulting Group estimates Chinese online retail sales totaled $305.74 billion in 2013, while the U.S. Commerce Department says 2013 U.S. online retail sales reached only $262.51 billion. And one in four purchases of personal luxury goods comes from Chinese consumers, according to a recent report from consulting firm Bain & Co. Those trends led Benefit, whose products had been sold in physical stores in China since 2007, to launch a Chinese e-commerce site in 2011.

But nearly four years later, Benefit, part of global luxury conglomerate LVMH, has found it’s not easy to generate significant online sales in China. The brand, which operates 47 cosmetics counters in department stores and seven boutiques in China, generates a “very tiny portion” of direct sales online, Hoecke says, even though the retailer has devoted significant resources to e-commerce. That includes hiring a Chinese team tasked with developing an all-encompassing online strategy—from marketing to fulfillment—tailored to the Chinese market.

While Hoecke is optimistic the efforts will pay off, she also understands it takes a lot of resources for a U.S. brand to adapt to a market extremely different from that of the United States. “If we were just replicating what we do in the U.S. we might not need to hire Chinese talent on the ground,” she says. “But China is a very unique technology and consumer environment.” While it’s costly to hire Chinese workers and invest in technology, she says that Benefit is looking at the bigger picture. “Selling internationally, and in China specifically, is a long-term play,” Hoecke says. “Success doesn’t happen fast.”

Benefit’s experience underscores the challenges of retailers selling online in international markets. While global markets offer online retailers vast potential for growth, the sales that result—at least at first—often aren’t that large, suggests a new Internet Retailer online survey focused on international e-commerce. The survey, which polled 80 retailers in June and July, found that 53.8% of the retailers that sell online to international shoppers generate 5% or less of their total sales from consumers abroad. Another 20.0% generate 20% or less of their overall sales from international customers. On the other hand, more than a quarter get more than 20% of their revenue from global web sales, including 9.2% for whom such sales represent more than 80% of revenue.

Most online retailers struggle to generate large returns from their international efforts because it takes time to build a presence online in new markets, says Zia Daniell Wigder, a Forrester Research Inc. analyst who specializes in global e-commerce. It typically takes three to five years for a merchant to understand an international market and to build a strategy that suits that market’s idiosyncrasies. For example, Benefit has found that while consumers who buy after arriving at its site via natural search account for 31% of its U.S. web sales, natural search only accounts for 15% of its online revenue in China, far behind the 59% of revenue that stems from shoppers who buy after clicking from other web sites.

Despite the challenges of international e-commerce, the vast majority, 84.0%, of respondents to Internet Retailer’s survey accept orders from outside the United States. Online retailers are increasingly selling abroad because the opportunities are too large to ignore, Wigder says. Moreover, going abroad is easier than in the past. For instance, roughly half, 50.7%, of retailer respondents say that they sell internationally via web marketplaces, which reduces their need to build their brand name in a foreign market, while 12% say they work with e-commerce services companies such as Borderfree to overcome the many obstacles to selling and fulfilling orders across international borders.

The push for an e-retailer to sell abroad sometimes comes directly from international consumers. Take Gilt Groupe Inc., which launched as a flash-sale seller of fashion apparel in 2007 and rolled out international shipping in November 2011. “[Shoppers] were posting on our Facebook wall, calling customer service and e-mailing our executive team asking us to ship outside the U.S.,” says Marshall Porter, senior vice president and general manager of the retailer’s international and business development division. Web analytics showed a significant share of Gilt’s site traffic came from international IP addresses, further making the case for international shipping.

But rather than use a traditional carrier—as 44% of the Internet Retailer survey respondents do—or operate its own warehouses abroad—as 17.3% of respondents do—the retailer enlisted Borderfree to enable it to go to market quickly. Borderfree handles the logistics of selling abroad—from converting the site’s prices into a shopper’s local currency to factoring in taxes or tariffs the destination country might require on the purchase. The move let Gilt begin selling in more than 100 countries right away—and that number has since grown to more than 180. “Working with Borderfree meant we didn’t have to target one country over others from the outset,” Porter says.

But to generate significant sales from international shoppers requires more than just being able to ship to them. The retailer also tailors the customer experience to the particular market, based on the user’s IP address.

Porter says Gilt can’t simply translate its site into Korean and expect to generate sales because while the retailer’s flash sales start at 12 p.m. Eastern time, that’s 1 a.m. in Seoul. “We need to localize the site into Korean,” he says. “We need to take the right payment types. The shipping time frames have to be reasonable and the price compelling [the retailer offers $9.95 shipping for most orders]. The merchandise also varies by country based on those countries’ preferences.” Gilt tailors special offers to country-specific holidays, too, such as presenting special offers for China’s big online shopping day, Singles Day, which takes place on Nov. 11.

Those efforts have helped make international sales a major part of Gilt’s business. The retailer says about 20% of its revenue—Internet Retailer estimates the retailer took in $600 million last year—came from shoppers outside the United States. That translates to an estimated $120 million dollars.

While large brands like Benefit, whose parent company LVMH reported $39 billion in 2013 sales, and Gilt have the resources needed to build and promote their own web sites in international markets, that often isn’t the case with smaller merchants like Plugable Technologies. Plugable sells specialty and niche USB and Bluetooth-related products, such as computer docking stations, on Plugable.com, and also sells its products abroad on Amazon.com Inc. marketplaces in seven markets, including Japan, France and the United Kingdom.

Plugable, which uses Amazon’s Global Selling and Fulfillment by Amazon services, says most of its international sales come through Amazon’s marketplaces. Global Selling offers tools to help merchants sell on Amazon’s international marketplaces, while Fulfillment by Amazon is a service that lets merchants store inventory at Amazon warehouses with Amazon handling delivery to the customer.

Amazon’s tools remove many of the barriers to global selling that small e-retailers typically encounter, says Bernie Thompson, Plugable’s CEO. “Historically only really big companies with lots of money could make a go of it internationally,” he says. “Without Amazon I wouldn’t have had the money or the knowledge to sell internationally. The programs give us a reach we otherwise wouldn’t achieve.” That reach amounts to several hundred thousand units a year in international sales, he says. He would not disclose total or global revenue in dollars.

Those programs might help explain why Amazon is the preferred marketplace among the 50.7% of survey respondents who sell internationally via online marketplaces. 38.8% of respondents who sell via online marketplaces sell on Amazon, topping eBay (31.3%), Rakuten (7.5%) and Tmall (3.8%). Tmall is one of two big Chinese online shopping portals operated by the country’s dominant e-commerce company, Alibaba Group Holding Ltd.

The services offered by Amazon and competing online marketplaces seek to address some of the biggest headaches e-retailers face when selling online across borders. Respondents put fulfillment at the top of the list, cited by 27.1%; next were legal/regulatory issues (20.0%) and marketing (18.6%).

The wide array of speed bumps e-retailers may encounter in selling abroad explain why international e-commerce remains challenging for most e-retailers, Wigder says. To drive significant sales, online merchants have to study carefully the markets they’re entering because both shopper behavior and the major players may vary significantly from one country to the next. For instance, most Russian consumers use Yandex as their default search engine, while Chinese shoppers typically use Baidu and most Japanese use Yahoo. Consumers’ expectations vary too. For example, Canadian and Australian consumers, who are accustomed to cross-border shopping, are more willing to endure extended shipping times than U.K. shoppers, Wigder says.

Despite the challenges of learning the intricacies of multiple markets, the majority of respondents, 55.3%, say they sell in 10 or more countries. Another 10.5% sell in one to three countries, 14.5% in four to six countries and 5.3% in seven to nine countries. (Another 14.5% selected “not applicable”; the percentages add up to more than 100% due to rounding).

Despite the differences among countries, Wigder says most online consumers around the world go online for the same reasons: price, selection and convenience. Many online merchants who have achieved domestic success believe they can serve those same needs to shoppers abroad, particularly those in markets where e-commerce is surging.

That might help explain why the number of e-retailers selling abroad seems likely to continue to grow; a recent Forrester survey found that 75% e-retail executives ranked international expansion as either “very important” or “somewhat important” to their overall business strategies. While sales may be small for now, e-retailers like Benefit figure that today’s investments in fast-growing markets are laying the foundation for significant online sales in the years ahead.

zak@verticalwebmedia.com / @ZakStamborIR

katie@verticalwebmedia.com / @KatieIR

 

 


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Topics:

Alibaba Group Holding Ltd., benefit cosmetics llc, Forrester Research Inc., Gilt Groupe Inc., international marketing, plugable technologies

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