How Retailers Can Tackle Cross-Border Commerce

The proliferation of omnichannel retailing has empowered consumers to buy from their favorite brands and retailers at any time and use their preferred channels. Thanks to e-Commerce, consumers now have the ability to browse and buy from retailers around the world.

As a result, total cross-border shipping is expected to skyrocket from $80 billion in 2014 to $330 billion by 2020, according to the UPS Global Pulse Of The Online Shopper Study. In fact, global shoppers surveyed in the study said that they made 24% of their purchases with online retailers outside of their own country. These behaviors confirm that more consumers are able to access retailers regardless of location and, in turn, are eager and willing to buy from brands that are not local to them.

While a small percentage of U.S. brands currently engage with international consumers via brick-and-mortar and e-Commerce, many retailers also recognize the value of breaking into new markets. American retailers account for 26% of foreign retail expansion, the highest percentage of any country, according to the 2015 CBRE Report titled: How Global Is The Business of Retail? Even popular brands such as Nordstrom have only recently entered the Canadian market, while Macy's is set to open its first international store in the United Arab Emirates (UAE) by 2018. In the e-Commerce realm, Amazon and QVC have made entry into Mexico and France, respectively.

While considering international expansion, retailers must consider a multitude of factors before finalizing their plans and investments. Prior to making the overseas leap, retailers must be aware of the differences between domestic and cross-border shipping, the costs attached to the expansion and the barriers to entry in numerous markets. These factors all have a heavy influence on the success of a retailer as it expands beyond U.S. borders.

E-Commerce Is An Easy Entry For International Growth

Expanding brick-and-mortar presence overseas certainly has benefits and risks, but many retailers might find it cost prohibitive. For many retailers, e-Commerce provides a more realistic alternative for expanding abroad.

The online store has become a primary outlet for retailers looking to reach new consumers. It is apparent that consumers worldwide are embracing technology to shop, as global e-Commerce sales in 2015 are projected to boost 25% year-over-year, according to a July 2015 report from eMarketer. The report also indicated that online purchases accounted for 7.3% of global sales in 2015; this number is expected to swell to 12.4% by 2019.

"To a certain extent, the world has flattened from a commerce perspective," said David Spitz, CEO of ChannelAdvisor. "There's never been a time where it's been easier to find, buy or get a product from anywhere in the world. You look at that from the perspective of a U.S. consumer buying directly from a merchant in China, to the polar opposite, where a Chinese consumer buys something from a U.S. retailer. We continue to see the democratization of commerce through e-Commerce."

In fact, cross-border trade is expected to account for 20% of e-Commerce transactions by 2017, according to ChannelAdvisor.

Retailers can have numerous motivations for international growth. For example, a business may have maxed out its potential consumer base and experienced declining demand, or maybe it seeks to differentiate itself from competitors that haven't yet expanded overseas.

"Even if someone is growing in their domestic market, there's always pressure to continue to grow and keep up with the global rate of e-Commerce growth," Spitz said. "A U.S.-based retailer may add an e-Commerce site in the U.S. and still not proactively market to customers outside the U.S., but they're still going to get demand from outside the U.S. Right off the bat, you can get an initial sense of consumer demand for your products just based off the traffic you're getting from those foreign countries."

E-Commerce Retailers Embrace Marketplaces

Many smaller businesses looking to gain traction through e-Commerce are working with major marketplaces, such as eBay and Amazon, to reach a larger pool of shoppers. This provides SMBs with the added publicity of the marketplace provider's brand and third-party tools that simplify retail management processes. Additionally, marketplaces enable smaller brands to better plan for seasonal inventory, according to Sudhir Holla, Senior VP of Retail at Ugam.

"If you look at the marketplace model, many retailers are significantly relying on drop shipping as a concept," Holla stated. "In the case of drop shipping, I can go with a lesser amount of inventory and items in my catalog. It's just a function of how many items I can observe in my catalog. Then when I get an order, I'm essentially packing on that order to a supplier, and the supplier is shipping it directly to the consumer. So essentially I'm the front desk; I'm not housing the inventory, therefore there is no added cost."

From that point, retailers can make easier inventory decisions — whether that means keeping items at a distribution center or a local store — without any significant working capital investment, Holla indicated.

Toynk Toys is one e-Commerce retailer that has leveraged marketplaces to bolster its international business. After initially selling its products on eBay and later on its own e-Commerce site, the toy and costume company launched on 10 additional marketplaces. When it noticed foreign demand for its products, the retailer partnered with ChannelAdvisor to automate internal processes and spread its business to 17 online marketplaces, including Best Buy, Newegg and Rakuten.

"From our standpoint, the advantage is that all our inventory is now stored in one platform," said Dave Madoch, E-Commerce Director at Toynk Toys. "Once we configure all the settings of a new marketplace, it requires almost zero effort to add on another marketplace, so why not sell on an additional platform and bring in those extra sales?"

These additional marketplaces provide Toynk Toys with new audiences, allowing the company to cater to and better judge demand from international consumers.

"If a brand of items isn't selling well in the U.S., it might be selling great internationally," Madoch said in an interview with Retail TouchPoints. "We definitely can expand our item selection to satisfy international needs. For example, movies will release in the UK months after they release in the U.S. It might be a rush here for a couple months and then die down, but then it will be a big rush in the UK for that same selection of items based around that movie months later. We can essentially keep our peak going longer."

Understanding The Difference Between Domestic And Cross-Border Shipping

Packaging and shipping e-Commerce purchases remains one of the biggest factors that retailers must consider when deciding to break beyond the U.S. Costs are higher for foreign shipments, forcing retailers to think creatively in how they deliver products.

"If you're competing with a local brand that is producing in that country, and fulfilling and delivering to the customer locally, they're not going to face any issues around the import of the product because it's already there," said Greg Hewitt, General Manager of Northeast U.S. for DHL Express. "Theoretically, they are closer to your customer, so they will have a faster speed of delivery. They shouldn't have to worry about any regulations, customs or taxes that you as an international company have to deal with in that market."

Trade agreements determine cross-border shipping costs and delivery times that otherwise would have no effect on domestic purchases. Getting a product from one point to another in the U.S. also tends to be more consistent due to established infrastructure. This is not necessarily the case in many foreign nations. Thus, transport of goods is more likely going to take longer, go through more stops and accumulate more fees that cost more to the retailer and the customer.

"In Europe, you have a mixture of truckload transportation and short sea freight, with it sometimes being quicker to go from Spain to Italy by crossing the ocean than it is to go on the road," said Jaime Reints, Global Marketing Director at Chainalytics. "If I ship from Chicago to Atlanta, it would be a two-day transit. But if I were to go that same distance in India or an APAC country, it would probably take a lot longer, and I couldn't be as certain on that delivery timeframe. It's a little more unpredictable across the board."

Retailers often use third-party fulfillment services to assist with shipping process. For example, EM Cosmetics leveraged the MyUS.com international shipping and consolidation service to keep pace with increased global product demand. With the MyUS solution, the brand's e-Commerce sales grew by approximately 20% in 2014, above its 15% growth goal. With MyUS, consumers can make purchases on multiple online shops and have every item shipped in one package to their doorstep, saving them money on shipping costs.

"Retailers must look at the cost of shipping and how it can truly increase the conversion rate and make incremental revenue for that customer during the checkout process," said Ramesh Bulusu, CEO of MyUS. "A new incremental revenue growth channel is ultimately what all these retailers are shooting for. Shipping cost is truly what makes or breaks a transaction for an international customer."

Additional Barriers To Entry

Even if retailers can adequately address shipping concerns, more obstacles remain. Varying languages can hinder communication between a retailer and its intended audience. Consumers are unlikely to shop at retailers they have difficulties interacting with.

Numerous countries impose taxes and tariffs that add onto the final cost, while currency exchange rates and differing payment preferences make it imperative for the retailer to accept various payment plans at the checkout line.

"The U.S. is one country with 50 states, yet it has seven to 10 debit networks," said Rod Katzfey, VP of Sales and Business Development at payment processing provider Credorax. "In Europe, there are 28 countries, and every country could have its own debit networks. Each country has its own rules and regulations, as well as compliance."

Individual retailers also have to avoid fines and adhere to specific country's rules regarding what product categories can exit and enter a country.

"We try to educate consumers and retailers as proactively as possible on what they can and cannot import from the U.S." Bulusu said. "Rules change from country to country. When they make the purchases on any U.S. retailer, and the product purchases come to a warehouse, we take care of the export paperwork and ensure that we follow all U.S. compliance as well as the destination company's import guidelines. We often know the nature of the products retailers are selling and we can tell them what categories are acceptable to ship overseas, such as toys and electronics."

Steps To A Successful Expansion

With various barriers to entry, retailers have their work cut out for them when considering international expansion. However, there are plenty of steps both e-Commerce and brick-and-mortar brands can take to ensure international success.

Regardless of channel, retailers need to know their own business and define their goals before entering untapped markets. These differentiation points personify the brand itself, enabling retailers to own the consumer experience.

"You need to know your customer, you need to know what they find special about your brand," Hewitt of DHL Express said. "You need to ask: ‘What is it that sets this brand apart?'"

Additionally, retailers must educate themselves on the technologies they intend to use so they can find the proper fit for those business goals.

"Retailers overemphasize the technology concern, and rightfully so, but they need to look into the export competency of any service provider they want to work with," Bulusu of MyUS stated. "At the end of the day, it's the retailer's liability if a product goes to a country it shouldn't be going to.

Once a retailer has a profile of demand in their intended market, it can set up a localized web site catered to the country's language and shopping culture. From there, businesses can slowly introduce new tactics, such as email marketing and affiliate marketing, into the expansion plans. In taking these steps at a slower pace, retailers minimize risk and can learn more about the plans that work best for them.

"Eventually, a retailer can build a full web site where they spend a lot of money on marketing it aggressively into the local consumer base," said Spitz of ChannelAdvisor. "These businesses can even hire workers local to that market so that they understand the cultural differences of how people like to shop and pay. By taking that incremental path, you can scientifically test, iterate and adjust based on results and continue to build out that way."

Expanding a retail business overseas, like any kind of domestic expansion effort, is going to take a calculated risk. Given that there are many retailers that haven't made the leap to foreign soil, it is safe to say that there are still plenty of opportunities available. As competition continues to brew domestically, merchants would do best to pinpoint their business model, work with the right technology providers and seek knowledge on global cultures if they want to make the most out their international expansion efforts.

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