January 29, 2010, 12:00 AM

Going Global in Retail

Many U.S. e-retailers are looking to grow by selling globally. Kasey Lobaugh of Deloitte Consulting suggests five keys to success.

Even before the U.S. entered a period of souring consumer confidence and slowing sales growth at home, several U.S.-based retailers were looking internationally for growth. Over the last decade or more, however, many retailers have realized that expansion by building physical locations abroad can be risky, expensive and time-consuming.

As a result, retail executives today are instead considering using their company`s online retail channel to see how the brand and its products are received abroad before committing the entire business. Adding to the allure of international expansion is the projected growth in foreign markets, improving Internet access penetration rates, and volatile exchange rates that can make U.S. goods more attractive to international shoppers.

Here are five steps that retailers should consider when looking into expanding overseas with e-commerce:

1. Define your expansion strategy
Some companies may be able to quickly launch a web site and capture sales if they have well-known, premium brands and established distribution capacity. But many brands struggle to demonstrate their value proposition to a new set of consumers and may have to adopt a more transformational approach to entering a new market.

Such companies will have to build their brands abroad, such as through direct online marketing, opening flagship stores, or entering into partnerships with established bricks-and-mortar stores. Hosting local brand-building events, launching foreign language sites and further tailoring your marketing to the region (for example, using pictures of native models on product or promotion pages) shows commitment to the market and can increase consumer loyalty. Some retailers establish an online marketing team in-country so they can stay close to regional trends and better monitor their brand.

2. Decide what and where to sell
A retailer must decide whether it will offer its entire domestic product catalog to international customers, or create a separate offering. Commodity items or bundled products that rely on providing services (like electronics installation and configuration) are less desirable items when customers are shopping purely on price or may not be able to take advantage of certain services due to geographic constraints. On the other hand, if you are the only seller of an item and there are no local options, there is clear value for your customers, assuming they know you have what they want and where to find you.

Your retail brand may be known for low prices in the U.S., but the value proposition to international customers may change drastically when considering the total cost of goods, including currency conversion, international shipping, customs, and value-added taxes. To have an item delivered, the international customers will pay higher overseas shipping costs and value-added taxes which can be as high as 15% to 20%. Your cheap shirt may suddenly become very expensive and not nearly as competitive as one sold by a local web or store merchant.

Many countries require retailers to price items inclusive of value-added taxes, including the U.K., where the tax is 17.5%, and Japan, 4%. Other countries have extremely complex tax requirements. Brazil, for example, levies taxes from 0% to 365% based on product category. Vendors offer tax management software that can help manage this complexity. But, depending on the size or scope of your international expansion, these tasks could be handled in-house.

3. Set up your supply chain
E-commerce retailers and consumers in the U.S. expect reliable service from delivery companies like FedEx and UPS. But some emerging economies abroad still struggle with a lack of reliable delivery partners and infrastructure. Retailers may find that in developing areas the postal service is not as reliable as the U.S. Postal Service and the shipping costs for package carriers are much higher.

To navigate these delivery systems, a U.S. retailer should identify its customer base, the nature of the host country`s infrastructure and the available delivery options. An e-commerce retailer that has a geographically dispersed and rural customer base, in a country with limited third-party logistics options and poor infrastructure, may want to consider initially partnering with a local player. This could be a retail company within the same retail category or another business with an established distribution network that can help a foreign-based retailer get product as close to the customer as possible.

4. Serve the customer
Throughout the shopping and ordering process, representatives who speak the local language, local contact numbers and regionalized hours of operation may all be required to give the customer the total brand experience. A retailer must be clear before, during and after the purchase as to how customers can receive customer service in their home country.

While many developed countries in Europe and Asia have widespread credit card penetration, other countries rely more on other payment methods such as cash on delivery, and in Japan customers are able to make online payments through convenience store payment kiosks.

For cash on delivery payments, a company can team with a courier that collects cash payments, which is common for Asian couriers. In Japan, service providers charge retailers a fee to set up their payment systems and manage relationships with convenience store operators in that network.

While foreign consumers may be willing to pay higher shipping costs to receive an item, they will reject having to also pay international shipping to return an item to the U.S. Processing returns can also involve taxes and duties that, like original shipments, can be as high as 15% to 20%. And many countries with mature Internet retail markets have established stringent return policies to protect the online consumer. Working with an in-country or regional returns processing company gives the customer a local return option and also prevents one-off merchandise from arriving back in U.S. fulfillment locations.

While a retailer cannot completely eliminate returns, having adequate pre-sale web site information and upfront customer service may reduce the occurrence of more complicated foreign returns.

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