Plain Sailing for Key Markets, Choppy Waters Elsewhere
Overseas expansion can be a comparatively easy way for UK e-tailers to grow their businesses – and fortunately, for many target markets there are few significant logistics challenges. Penelope Ody investigates.
Search on any major UK e-tail site and you will very quickly find plenty of information targeted at overseas shoppers: even without language switches or dedicated local offers, a great many UK retailers are already very happily sending consignments abroad on a regular basis.
Most of the time it is deceptively easy: you call a carrier or take your parcel to the post office, pay a fee and wait for the happy customer to post a glowing review. Thanks to the EU’s single market, shipping to most of Western Europe – Norway and Switzerland excluded – is that simple. Other likely markets, notably Australia and the USA, can be just as straightforward. The problems start with the rest of the world or when volumes begin to ramp up requiring a major overhaul of the supply chain.
“There is a lot of easy stuff,” says Patrick Wall, CEO of MetaPack , “and these days carriers offer a range of suitable cross-border services. There is no problem with duty in the EU and both Australia and the US have quite high duty thresholds. Challenges start where the duty threshold is low, there are legal barriers or where you have security issues.”
Wall suggests that on average around 8% of UK online orders are sent overseas. The average hides a range of values – up to 60% international trade at ASOS and obviously much lower for many other e-tailers. Andrew Starkey, Head of E-logistics at the IMRG , quotes 18.5% for the total proportion of UK online orders going overseas. Key destinations are, as one might expect, Australia and the USA – both at around 14% of shipments – with France and Germany close behind. Others are less predictable with Russia and Singapore among the leaders of the long tail accounting for 3% of orders or less.
“Surveys suggest that 62% of UK e-tailers offer crossborder delivery,” Starkey told last month’s Internet Retailing conference, “but only 6% give free international delivery and 49% of European consumers are concerned about cross-border orders.”
That “worried” figure drops to 20% among customers who have already shopped cross-border so would seem likely to fall as more take the plunge and buy from overseas.
While international carriers offer slick and reliable services to all major markets, consumer concerns can be compounded by duty charges. In some countries, the duty threshold can be as low as $25, and even in Japan it is only $77, which means that the majority of orders are liable to an additional charge at point of entry. Typically, retailers can leave this to the carrier to sort out: paying the charge at point of entry and then collecting it from the consumer. This can lead to intense dissatisfaction if the tariff is unexpected with a high proportion of rejected consignments and major returns issues. Alternatively, the retailer can give the customer an estimate of the duty charge after the order has been placed, collect the money as a follow up transaction before despatch and deliver the goods duty paid.
MetaPack has now come up with a third option – an online duty calculator which calculates the amount due in real time based on the very latest information and adds it at the checkout so that the shopper can see the full amount payable at the time of ordering. “We only launched this in August,” says Patrick Wall, “and it can be difficult for some retailers to implement depending on their ecommerce platform, but we have customers trialling the system and it greatly simplifies duty collection.”
Duty charges are not necessarily a deterrent, as Andreas Kopatz, Head of Product Marketing at Intershop points out: “Certain electronic items might be $200 in Germany but only $100 if I buy from the US. Here we have to pay VAT at 19% on any imports from the USA over $30, but even so, it is still cheaper for me to buy from the US and pay 19% than to buy it in Germany. It is important, though, for the customer to be told the full price with duty before they click the buy button.”
There are also some bizarre local rules to abide by: “Did you know for example that the import of pairs of shoes to India is prohibited,” says Dean Wyatt, VP Business Development, Retail UK at DHL . “They must be mutilated or sent as single shoes.”
While carriers and duty calculators can solve many of the logistics problems they are of little help in more challenging geographies. Security can be an issue with goods sent to some Eastern European markets unlikely to ever emerge from the customs sheds while oddly formatted addresses in South America can see important facts, such as house number, disappearing from standard UK file layouts.
“We are seeing retailers tap into the growing consumer demand in BRIC nations as well as the Middle East as logical areas for potential growth,” says Wyatt. “These kinds of geographies can be more ‘difficult’ for logistics with a less developed transport infrastructure that could disrupt business, poor roads, power outages, and capacity shortages.”
Sarah Lynch, Head of E-commerce Delivery at Salmon , agrees: “The BRIC countries are a challenge, as are South America and South Africa. Delivery is only as good as what is available in each country and website performance can also be poor. It is often best to partner with someone based in the geography who can help deliver a localised offer.”
A local returns address is certainly essential and is generally available via the logistics service provider who will often refurbish goods for resale or arrange for their disposal if it is not worth the cost of shipping them back to the UK. Some retailers work with overseas franchisees or develop concessions which can help give a local presence. Marks & Spencer , for example, has numerous international franchisees and also plans 10 international websites and 100 overseas stores by the end of this year so will be able to offer a full range of ecommerce services, such as click and collect, to many of its overseas customers. While M&S clearly has a global presence, servicing a growing international market efficiently can be difficult for less established players. Craig Sears-Black, UK MD of supply chain specialists Manhattan Associates, cites one of its high volume fashion customers who manufactures in the Far East but brings all products back to the UK for quality control and final pre-sale checks. “They are starting to see online orders from countries in AsiaPac increase, so do they continue to bring everything back to the UK and then despatch orders almost back to where they were made, or do they set up warehousing and quality control facilities in the Far East to service what could be an important and growing market?”
Equally, with Australia heading the IMRG’s list of overseas destinations for UK e-tailers, fashion businesses have to cope with multiple seasons. “Developing regional warehouses may seem a likely solution,” adds Sears-Black, “but there is always the risk of ending up with the wrong products in the wrong place.”
Alek Adamski, Associate Partner at Kurt Salmon , agrees: “If you have multiple stock points then you inevitably end up with redundant product in many locations,” he says. “Also many multichannel retailers still work with separate store and ecommerce stock pools and very few are at the point where they ship goods direct from suppliers to new international markets. There are still many systems issues when it comes to linking stock records and bringing stock back to the UK can be expensive.”
An alternative is to stock only core lines in overseas locations, much as Boden does with its US operation: “Some of our smaller retailers, particularly in fashion, are testing the water on a few key lines held at shared user facilities, where risk is reduced for both partners,” says Dean Wyatt, “It is also important to ensure that the end consumer understands that for these core lines the delivery promise is different.”
Most e-tailers looking to international growth start, as the statistics suggest, with the “easy markets”: Western Europe and English speaking, but when it comes to capitalising on the potentially lucrative markets for consumer goods elsewhere in the world, such as the BRIC countries, good local partnerships and an established international carrier able to offer high-level services would seem essential.