Mobile accounted for 25% of Ulta's e-commerce revenue during Q2.
American web merchants are fairly salivating over online prospects ex-U.S. Poised to catch up with the domestic market over the next few years in their adoption of the Internet-and to overtake it by 2003 to account collectively for two-thirds of all Internet spending (both b2b and b2c)-foreign markets are viewed as a way to sustain aggressive growth rates by U.S. market leaders and as a shot at redemption for others who missed the boat. They’re a chance to replay the game with different strategies that could make winners out of those that didn’t grab significant U.S. share. Throw in a wide-open b2c market projected to reach $90 billion outside the U.S. in three years (from $7.2 billion in 1999), and it’s no wonder everyone’s drooling.
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.
Logistical, market-readiness and economic differences aside, merchandising requires a different approach in Europe; no wait, make that a different plan for each country. Although a few companies like the French-based retailer Carrefour are trying for pan-European dominance, the numbers are piddly compared to the market penetration of the leaders here. No European retailer, online or off, has the continentwide brand penetration of a Wal-Mart in the U.S.
There are, however, dominant players in each country, with brand recognition, supplier relationships, the language and culture base, and the desire to grab a big piece of the pie on their own turf. Facing off against them are early-moving American web sellers, hoping to carve out solid positions in a still-embryonic European market. Relative innocents abroad, at least in comparison to the home field advantage of the locals, American retailers still possess the greatest online retailing expertise and certainly the most experience on the globe. “Will it be enough to compensate for all the other areas where the local player has a leg up? We’ll find out,” says James Vogtle, director of e-commerce research at the Boston Consulting Group.
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.
But that’s just the market side of the equation. To gauge the chances of success, e-retailers must turn the microscope on themselves and evaluate their readiness to commit to a market in another country. That means a look at product category and how easily it will travel across borders and cultures. “If I were selling groceries online, it would be an entirely different system in Europe versus the U.S.-different suppliers, different customer expectations. English-language books such as best sellers or business texts, on the other hand, are uniform around the world. If that’s what you’re selling, that’s a lot easier to do internationally,” Vogtle says.
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.