A discussion draft of the Online Sales Tax Simplification Act of 2016 is expected to be introduced in Congress soon.
Untangling the complexities of foreign order fulfillment
If you’re a bricks-and-mortar retailer, to sell abroad, you have to open stores abroad. A catalog merchant? You have to obtain mailing lists-and in some countries, you even have to obtain permission from individual prospects in order to mail catalogs to them. But the beauty of the web is an online retailer’s ability to reach foreign customers without having to go after them.
E-retailers have certainly jumped at the opportunity to sell abroad lately. According to a web-based survey conducted by Internet Retailer in April, 71% of the 186 respondents to the survey report that they regularly fulfill online orders from customers outside the U.S., and two-thirds of respondents have used the web to serve foreign markets for three years or more.
The sinking dollar
“More merchandise is being shipped abroad today because of the low value of the dollar,” says Todd McGeohan, president of ProShopWarehouse.com, a close-out e-retailer of golf equipment, 35% of whose sales are to overseas customers. “And when the dollar is weak, Europeans and Japanese, in particular, buy tremendous amounts of U.S. merchandise. When the dollar is strong, they back off.”
As great as additional sales from abroad are, of course, Internet retailers must know how to fulfill these orders. And there’s much to know about overseas distribution depending on how retailers handle it-be it on their own from a U.S.-based distribution center, farming it out to third-party fulfillment service firms, or placing it in the hands of international carriers, such as DHL, United Parcel Service and Federal Express. Generally, Internet retailers can opt for one of these approaches or they might choose to establish a physical presence overseas.
Then again, some e-retailers shy away from accepting orders from foreign customers altogether because they’d rather not get involved with all the complexities. For the 29% of respondents to the Internet Retailer survey who do not process foreign orders from their retail web sites, the principal obstacle is the difficulty and cost of shipping goods outside the U.S.
But for those who seek out and accept foreign orders, the web “has certainly enabled merchants of any size to have an international presence and gain brand name recognition,” says Patrick Bartlett, president of Borderfree, a partnership with the Canadian postal service Canada Post Corp. that facilitates transactions from the U.S. into Canada and is planning expansion into other markets. “Online marketers’ ability to mirror their domestic customer shopping experience on a global scale may not have kept pace, due to logistics and cross-border challenges.”
Some marketers, such as Overstock.com, Drugstore.com, Shoes.com, General Electric and Gateway work with e-commerce solutions providers, such as Comerxia Inc., Vcommerce Corp., and Borderfree. Others, such as ProshopWarehouse.com, teddy bear retailer The Boyds Collection, and teen knick-knack marketer David & Goliath work with UPS or other carriers that offer turnkey fulfillment systems. And then there are Amazon.com, Office Depot Inc. and other retailing giants who establish foreign presences and handle it all themselves.
Clearly, there is no one right way to fulfill a foreign-placed order. Certainly, larger marketers are in a better position to establish their own foreign subsidiaries-complete with local distribution centers-in many countries around the world. And by operating separate divisions around the world, these companies avoid having to ship online orders across borders.
In the case of OfficeDepot.com, the act of shipping overseas orders isn’t an issue, because “we’re in those countries,” says executive vice president of business development and information technology Monica Luechtefeld, who also is head of e-commerce. For example, German customers are steered to the company’s German site-OfficeDepot.de-and have their orders fulfilled from the company’s warehouse in Germany. “We believe in being in the country we do business with,” she says, “and we have country managers and local customer support and warehouse and distribution teams. We won’t go international without that support and infrastructure already in place.”
Office Depot operates more than 40 international web sites and fulfills orders from 22 countries. U.S. orders are fulfilled only from the U.S. Canadian orders are filled by the Canadian division. U.K. orders are filled only from the company’s British distribution center, and so forth, Luechtefeld says. As for orders from other countries, “we link those customers to our sites in their native countries.”
While setting up shop in foreign countries is certainly easier for larger companies to address the issue of shipping across borders, small companies that fulfill overseas orders through other means are also well advised to avoid some of the sticky issues involved in getting orders across borders. Most e-retailers, in fact, avoid dealing directly with such issues as customs, duties, tariffs, and other details involved in getting packages across borders. In many cases, marketers will even allow service firms to handle site translation, e-mail correspondence, cash conversion, and customer service for their overseas customers.
Besides merely making sure that their packages make it into their foreign customers’ hands, e-retailers need to make sure that with each order, they provide customers with guaranteed landed costs: the complete cost of getting each order to the customer. In fact, FedEx estimates that foreign consumers abandon 20% of international orders because they’re not given total landed costs. Guaranteed landed costs software programs are designed to factor in taxes from destination countries, as well as duties, tariffs, fees, and any restrictions.
That’s why some e-retailers turn to e-commerce service providers like Comerxia, Borderfree or Vcommerce-or the carriers themselves-to handle the complexities of overseas delivery. Comerxia handles all aspects of e-commerce as they relate to international business. “A watch with a leather band may have a different tax rate or customs fee than one with a precious metal band, for instance,” points out Comerxia CEO Brent Rusick. These fees can vary because a country might, for example, produce gold and impose higher duties on gold coming in from the U.S. Mexico, for instance, restricts textiles from China because of Mexico’s own textile industry.