Internet Retailing’s Research Editor, Liz Morrell takes a look at EU legislation and considers the differences across what could be a digital single market.
SELLING ACROSS borders has long been both challenge and opportunity for the retail market but increased use of technology, more sophisticated logistics options and a more international customer has meant that many retailers are looking to international expansion to grow their business.
However doing so is not quite so easy as one may expect. Whilst the ideal is of a common market within the European Union that allows for a complete harmonisation of cross-border trading the reality is somewhat different and the varying requirements for markets across the EU alone can make international expansion – whether physical or just online – a daunting prospect for retailers considering it and a tough challenge for those already doing it.
Although it seems everyone is looking at an international strategy to boost sales the reality is that less than a third (27%) of all UK merchants sell cross border into the EU Digital Single Market, according to the recently published IMRG X-border Trading Guide 2013, International Developments in Ecommerce.
This means that there is still huge opportunity for a majority of retailers for further growth. In March of this year the UK Government tasked an EU ecommerce taskforce, chaired by Lord Young of Graffham and involving IMRG, to find out why adoption was so low. Over a four month period of research they found that a significant factor was in play – that businesses often avoid selling cross border even in the EU – because of the legal uncertainty it involves. What should be a common market has such a variation of consumer protection rights, sales laws, logistics practises and payment methods that international expansion can simply be too much of a challenge for some.
Individual Country Customs – Germany and France
One of the biggest barriers for cross border trading for retailers comes from the differences in payment methods between EU markets. Though the Euro may be a common currency the variance between countries of payment methods when it comes to online retailing can throw up problems beyond simply paying for goods.
For retailers in the UK long used to credit or debit card payments for goods ordered online the reality of different payment practises across countries we associate as being close to ours can come as a shock. In Italy, for example, cash is the preferred method of payment and in the Netherlands the iDEAL card is the most popular method of paying.
Meanwhile in Germany, shoppers rely on direct debit or an open invoice system which allows the shopper to pay up to a month after they have received their goods. This not only affects retailers and their ability to charge for goods before receipt but also means that German shoppers have a much higher propensity to return goods since they have nothing to lose from ordering multiple alternatives of an item since they don’t have to pay for them at that point. “It’s both a cultural and a legal thing and is a big surprise for a lot of retailers,” says James Roper, founder and CEO of the IMRG .
Iain High, Managing Director at EMV and ecommerce payment service provider Anderson Zaks, says payments need to change since the fragmentation of the current card payments market across the EU makes it hard for both retailers to trade and consumers to buy. “Whilst credit transfers and direct debit schemes are already established, an integrated market for payment cards, internet and mobile payments is still lacking,” he says. “The European Commission has a range of proposals in the pipeline, however, due to the large number of players involved and vested interests, change is likely to take a while,” says High.
Indeed the EU has called for the development of a formal European Payment Council to provide the necessary guidance for standardising new means of payments that would then help to introduce a raft of changes including caps on interchange fees that could help stimulate the market. However, High believes the EU Commission is rushing change. “We feel that some of the powers currently held by the international payment schemes need to be relinquished but that the Commission may be going too far too quickly in some other areas,” he says.
The IMRG report also highlighted the differing legislation affecting different countries in terms of sales promotion and competition laws. “For example buy one get one free would not be allowed in some EU Member States that ban selling goods below cost prices,” says the report. This makes life difficult for retailers says the report since they have to either operate separate national websites to comply with national sales promotion regulations or have to temper their promotions and offers accordingly to ensure they better comply with local legislation.
Returns are also a huge issue for retailers to tackle. Under the EU Customer Rights Directive a basic minimum level of rights is expected but many retailers exceed this according to the IMRG report. “There is a huge variation between countries on consumer rights which often exceed the European minimum,” says the report. It surmised that consumer expectations in this regard then are more often led by market leaders setting their own standard for returns – something which retailers face a challenge to emulate.
The problem of clarity over consumer rights was also a prohibitor to customer confidence in international retailers the IMRG report found. Footwear retailer Office is looking at European expansion for next year and the company’s Ecommerce Director Robin Worthington says he has spent much time looking at the implications of the Distance Selling Regulations and how they would affect his ability to trade across the EU, particularly looking at the challenges the market sets with its obligations around returns. The peculiarities of the German returns market sit at odds with Office’s trading model and is therefore an obstacle to cross-border trading that needs to be overcome. “Germany is particularly challenging because you are looking at free returns there but we don’t even offer that in the UK,” says Worthington.
The reality is that the market, consumer expectations and behaviours, and legislation is changing all the time. In December of this year, the EC Directive on Consumer Rights will become law with the new rules to be applied in all member states by mid-June next year at the latest.
Yet another new law currently going through the motions is the Common European Sales Law – a new law which claims to allow EU firms to trade more easily in other member states, whilst allowing cross-border shoppers to be better informed of their rights. The new law was backed by the Legal Affairs Committee in September and would lay down optional EU-wide rules for purchases from other EU member states made online.
Yet the new law has already been dismissed by many. It aims to help businesses enter new markets without having to pay the extra costs incurred by having to adapt to different rules in different member states. The theory is that it would enable retailers to offer products in a number of member states under the same contract rules and could therefore mean a wider range of products available at lower prices as well as building confidence in online shopping within the EU. However, the rules are entirely voluntary and are dependent on both buyer and seller agreeing to the rules – something many believe will be hard to enforce – otherwise the national rules the law is designed to supersede apply.
“The Common European Sales Law is regarded as a joke that will never happen. It’s a voluntary scheme that everyone has written off already as a non-starter,” says Roper. So faced with so many different policies to get their heads around are we any nearer to a true harmonisation of cross-border trading? It seems not yet. “Whilst there are European laws and guidelines they don’t seem to be enforceable and are open to misinterpretation,” says Worthington. “We need a set of rules you have to stick to because otherwise businesses just interpret them as they see fit,” he says.
Roper admits it is a confusing challenge for retailers. “There is a lot of legislation that just doesn’t work and gets in the way,” he says. But he believes there is a simpler solution and that instead of simply concentrating on toeing the legislative line retailers should instead work on looking after their customer and their business as best they can – since in many instances good customer relationship handling and service naturally overrules many of the legislative requirements in place. “If you are a good retailer and don’t evoke the law then the law is sort of irrelevant,” says Roper. Whilst he isn’t of course advocating breaking the law his advice is obviously key – offer an excellent customer experience and service and it won’t matter what border you are crossing because your customer will be happy.