Private equity firm Apollo Global Management will take Rackspace private in the all-cash deal.
U.S. online retailers are looking overseas to tap a growing market
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.
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.