August 4, 2014, 11:30 AM

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.

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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.

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