Cross border ecommerce white paper - Pitney Bowes

Time to Get Serious About CrossBorder Ecommerce

Every connection is a new opportunity™

WHITE PAPER

Preface

Too often U.S. Ecommerce brands do not welcome international online shoppers. Payment issues, high shipping and unexpected cross-border costs; di!culties tracking orders and long delivery times are just some of the challenges global shoppers face when they try to buy from U.S. Ecommerce sites.

Yet they keep coming. Whether sought-after brands, unique products or better deals drive the demand, there is no denying that signi"cant revenue opportunity exists beyond the U.S. border. Is it time for the Ecommerce community — retailers of all sizes and specialties and their commerce technology partners and marketplace platforms — to have a plan that not only welcomes international shoppers, but also generates a new source of growth?

Executive Summary: It’s Time to Get O# the Fence

A commonly held view on cross-border Ecommerce is that it’s too di!cult and too expensive—or too risky for the brand. Some, believing that the risks outweigh the bene"ts, are content to forego the cross-border revenue opportunity. Others passively ful"ll orders, knowing that the online shopping experience they provide lags expectations. Yet, they do little to improve it.

Barriers to cross-border Ecommerce do exist. Yet no longer is serving inter-national customers an all-or-nothing proposition. Unlike in years past, cost-e#ective, resource-friendly ways to overcome these barriers are increasingly available. Throughout the "rst quarter of 2010, we asked leaders within the Ecommerce community about their current and future cross-border plans. Given the immaturity of international Ecommerce, it was not surprising that most do not yet have solid plans, regardless of the size of their Ecommerce business or the number of Ecommerce businesses to which they provide Ecommerce technology and services.

Time to Get Serious About Cross-Border Ecommerce 2


Figure 1: The Impacts of Top Cross-Border Challenges According to the latest J.C. Williams Group Study

Barriers or challenges cited to cross-border Ecommerce were plentiful and varied. E#ective in-house solutions were sporadic at best. Success stories were limited to a handful of leading brands.

Why aren’t more retailers leveraging their investment in U.S. Ecommerce operations to ful"ll global demand cost-e#ectively? Why aren’t more Ecommerce platforms pursuing the software, services and partners needed to improve the cross-border online experience for international shoppers?

For some, the upside of Ecommerce’s international future is weighed down by the reality of a choppy global economic recovery. Others remain grounded by the gravity of the domestic multi-channel market: slow store sales, maturing U.S. Ecommerce growth rates, high customer acquisition costs and market share gains by established, competing brands. For these, both dynamics dictate a primary focus on domestic Ecommerce operations as a safer, albeit conservative, near-term bet.

A key take-away from the latest J.C. Williams Group research is that resource-friendly, low-risk cross-border practices can cost-e#ectively drive growth and shore up $agging domestic sales. At the same time, they can signi"cantly enhance the cross-border shopping experience of international consumers.

Brands working with providers of cross-border Ecommerce solutions are helping international shoppers more easily "nd the products they want to buy, view pricing in preferred currencies, check out and pay the way they prefer and receive orders in a timely fashion at a reasonable cost—all with no surprises. Retailer satisfaction with these service providers was strong, indicative of the e#ectiveness of the solutions.

The following pages outline the main barriers that internationally ambitious retailers told us they face as they go global. Use this study to understand how your organization and solution providers can anticipate, prioritize and overcome barriers to cross-border Ecommerce. Use it as a call-out to the members of the Ecommerce technology ecosystem to focus their vision, technology road maps and energies internationally.

The study provides initial insights into emerging practices that are helping retailers grow their cross-border sales. It speaks to what hasn’t worked and why. It pro"les cross-border capabilities retailers told us they need, proven solutions that are now available (whether retailers and platforms realize it or not).

We suggest that the next phase of cross-border success will require evolving beyond today’s operational focus on ful"lling latent global demand. We conclude that the next wave of cross-border success will require proactively developing

country-speci"c demand generation and customer retention programs.

The Cross-Border Ecommerce Opportunity

Market projections collectively forecast that global Ecommerce will reach $711 billion in sales this year.

Search activity is a leading indicator of the growth of Ecommerce. The total number of online searches conducted worldwide grew 46% in December ’09 vs. December ’08, according to qSearch data from comScore. U.S. search volume grew 22% while France increased 61%, Brazil was up 53% and Japan grew 48% (see Figure 2 for the top ten international markets).

Figure 2: Year-to-Year Growth (Dec ’09) in Number of Online Searches Conducted Globally (comScore)


Forrester reports that online retail sales in Western Europe reached %68 billion in 2009 and are projected to grow 68% to %114 billion by 2014. Forrester expects business-to-consumer online sales to continue growing at double-digit rates, in part because most Western European countries’ online retail sales are still relatively undeveloped. Even the more mature markets (e.g., the UK) will experience very nice growth in the years ahead due to more shoppers becoming more comfortable with Ecommerce.

There is no shortage of compelling estimates of the dollar value and near-term growth projections of Ecommerce in emerging markets. By 2012, IDC expects Ecommerce sales in China to total $134 billion. iResearch.com.cn projects that China’s online apparel market will grow 63% this year and 40%+ in 2011. Newegg, a US-based computer and electronics Ecommerce retailer, reported more than 300% growth in its Chinese sales during the "rst half of 2009. The company surpassed $80M in sales to China in 2009.

This study did not focus on the many and varied market data points; rather, it focused on the challenges and solutions in a immature cross-border Ecommerce market.

The State of Cross-Border Ecommerce

Among the retailers we interviewed, few have proactively committed capital investments or strategically altered operational practices to optimize the cross-border Ecommerce opportunity. We found that some cross-border successes happen by accident, others emerge through trial and error. In spite of the haphazard plans to capture global demand, some retailers are realizing signi"cant portions of their revenue from outside the U.S.

Q: In 2009 what percent of your total web sales was generated from outside the United States?


Figure 3: Dual-peaks Reinforce the Early Beginnings, and Early Successes, of Cross-border Ecommerce Today

! !

The early leaders—be they large, medium or small merchants—have no

knocks and a propensity to work with others.

with an operational focus on overcoming barriers such as localization, payment, fraud, and logistics. Tborder solution providers to overcome the initial operational blocking and tackling required to expand across the border. Our research indicated a growing desire to minimize the number of internal and external resources necessary to administer a cross-border initiative, particularly when it comes to logistics. In fact, a need to reduce the number of vendors necessary to get product from a retailer’s warehouse to the cross-border consumer was also a key driver that emerged from the study.

Not surprisingly, more retailers are evaluating cross-border Ecommerce solutions. Left unsaid was their desire for Ecommerce platforms to lend a hand in the process by developing partnerships and tight integration with providers of these cross-border solutions.

Third-party Global Logistics Specialists Deliver the Goods

While no single barrier was deemed more acute than another, the executives we interviewed most commonly mentioned shipping-related issues when discussing their cross-border challenges. Retailers that outsourced all or most

Internet Retailer Top 500). Smaller merchants took a more hands-on approach to processing orders and relied more on “point solutions” for shipping insurance and fraud prevention.

In this scenario, retailers typically ship goods destined for international shoppers from their own domestic distribution centers to third party partners. These partners process packages for international delivery (e.g., open and inspect boxes, harmonize for customs clearance, complete customs paperwork, etc.) and then ship orders to cross-border customers via networks of international carriers and local, in-country delivery agents.

A number of these third parties do more than just forward orders internationally. Tovercome the barriers to cross-border Ecommerce success.


“International customers

found us [and] it was really

about not wanting to say no.

Plus we could just use the

same DC & sell them the

same merchandise.”

How do cross-border

web-only merchants and

the multi-channel retailers

interviewed?

Smaller and niche-product oriented pure plays indicated that customer service and cost related issues are their biggest barriers.

Larger multi-channel retailers tend to be more concerned with brand localization, protection, and credit/

security issues.This is an ideal approach for retailers who are still at the discovery phase of the global markets, allowing them to test demands from various markets before committing to a heavier infrastructure investment overseas.

Barriers to Cross-Border Ecommerce

Shipping-related problems include 1) lower conversion due to the high costs of shipping and clearing customs and 2) customer service issues centering on the timely delivery of products and poor (or cost-prohibitive) order tracking of packages as they pass among di#erent global carriers and delivery agents. These issues, especially when coupled with another common challenge—higher-than-quoted landed costs (which means international shoppers end up paying more for the product than expected)—degrade the online shopping experience and can damage the seller’s brand.

Non-top 500 retailers were particularly vocal about their shipping challenges, which varied greatly from untimely delivery to discomfort with handling customs forms/fees.

These smaller retailers are especially challenged by the lack of reasonably priced international express shipping options with end-to-end order tracking. On one hand, passing along to the customer the expense associated with tracking orders lowers conversion rates. On the other hand, the lack of order tracking raises costs, as merchants have to deal either with lost orders or with fraudulent claims from customers who say that their orders never arrived.

In addition to the challenges highlighted in Figure 1, common challenges faced by the retailers we interviewed included: dealing with country or region-speci"c legislation and regulations (e.g., cultural and country-of-origin restrictions, data privacy, etc.), determining how best to handle in-country distribution and cost-e#ectively sourcing products sought by international consumers.

Translation (e.g., translating customer service requests and related emails) was a challenge commonly referenced by Non-top 500 retailers.


One marketplace executive

commented, “Cross-border

has been interesting in that

moving product around

inside the country is much

harder than getting product

into the country.”

!

!!!GO GLOBAL. BE SOCIAL?

Although few of the retailers

interviewed have conducted cross-

border social media campaigns,

numerous merchants mentioned that

social media was “something we need

to look at... sooner rather than later.”


Growing Cross-border Sales: What Works?

To no one’s surprise, cross-border promotions featuring free and conditional shipping discounts are working. Marketing tactics ranging from simply promoting a site’s ability to ship to a visitor’s country (e.g., using geo-location/IP

two other common ways to successfully grow cross-border sales.

display, search and email campaigns to grow their cross-border Ecommerce business, whereas smaller pure plays are more likely to rely almost-exclusively on paid search.

Larger, leading retailers in the cross-border space told us they are just beginning to do a better, more consistent job of planning campaigns that target

These retailers are modeling online campaigns on successful U.S. online marketing initiatives including themed promotions tied to holidays (Valentine’s Day, Halloween, End-of-the-year Holidays, etc.) and to cultural/social get-togethers (CyberMonday, World Cup, blockbuster movie releases, etc.).

and cultural nuances of targeted markets and incorporate elements of

Itactics and best practices gained from their U.S. experiences. One marketing executive from a global apparel manufacturer commented that although cross-border e-mail campaigns have had much higher click-through rates, conversion rates have been lower. Hacross-the-board surcharge to cover cross-border customs, duties and taxes is likely negatively impacting conversion.

The retailers stressed that they will need to continue building marketing databases and executing marketing campaigns appropriately on a market-by-market basis. According to our interviews, this will require expanding their

Several pointed to the recent emergence of “in-country demand aggregators” that contact owners of U.S. Ecommerce businesses and promise to utilize their

Although these varied models are still emerging, they tend to encourage the

marketing and demand generation to them. Tin that the demand aggregator simply adds their premium to the order. The U.S. supplier is not asked for a share of its sale to the international shopper.


It remains to be seen whether online merchants in the U.S. will be content to allow in-country partners to “own the customer” while they remain in the

marketplaces generate for them. Tonline merchants are primarily using search marketing which, in many cases,

Apparently mastering international search marketing requires its own set of skills, one of which is patience as the “Google ecosystem” gains market-by-market international sophistication. So too regarding Facebook and other social media.

What needs work?

Plenty. Hconsistently—with one notable exception: many admitted that their cross-

Smaller merchants that sell primarily through marketplaces expressed some degree of frustration “dealing with rules and policies that don’t always make sense.”

Others said that they needed help with the basics of cross-border shipping, such as validating international addresses, “Today we do this manually and it would really help us.” Although currency conversion was also a consistent miss—“I imagine we could go with an Ecommerce site platform that actually does pricing in multiple currencies”—the smaller merchants agreed that by and large the international

The same held true for translating web content.

We also found that a commitment to using basic analytics to understand the international customer and to react accordingly was consistently missing.

What’s Next? For Many, That First Step

Although numerous retailers involved in the study have been serving cross-border customers for more than two years, we also included other retailers that don’t ship internationally or that have only recently begun selling cross-border.

Our cross-border research during the past two years clearly indicates that early

Still, we notice a lack of awareness of solutions that facilitate cross-border Ecommerce among online merchants, marketplaces and the commerce platform community. However, we expect to see this awareness grow quickly and anticipate that partnering activity between the best-of-breed cross-border solution providers and the commerce platforms will pick up substantially in the second half of 2010 and into 2011.


What They’re Looking For

Retailers of varying sizes discussed their need for a low-cost comprehensive, cross-border Ecommerce solution that required minimal set-up and integration, ideally via web services.

Their preferred solution provides reasonably priced shipping options, fraud protection and “plug and play compatibility” that o#ers built-in translation capabilities and currency conversion. Also sought after was a single cross-border platform that allows retailers to guarantee their international shoppers accurate landed costs (i.e., the total cost of getting a package from a retailer’s shipping dock to a customer’s doorstep including shipping, duties and all other taxes and fees).

The preferred solution delivery model minimizes any signi"cant up-front investment and delivers the necessary technology and services on a revenue-share basis.

The J.C. Williams Group’s ongoing research also indicates that online merchants would welcome more assistance from their commerce platform providers when it comes to improving the online shopping experience for their international customers.

Some retailers, especially smaller merchants, mentioned that some basic commerce platform re-tooling was long overdue (e.g., some commerce platforms and marketplaces don’t even allow for the basic form capture of international addresses). Others can be expected to step up the call for their platform partners to provide integration and other “connections” to the leading providers of cross-border Ecommerce solutions.

In addition to providing technology leadership, commerce platforms are also in an advantageous position to take on a thought leadership role and to begin providing guidance as cross-border Ecommerce best practices begin to emerge. Given the expected growth of both cross-border Ecommerce and Ecommerce within international markets, commerce platforms that take the lead today can expect substantial rewards tomorrow.

“We would like to see a

multi-faceted solution that

facilitates the completion

of the [cross-border]

transaction, ful"llment

and shipping... with a

marketing component.

We wouldn’t be an advocate

of heavy capital expenditures

for growth that is not

yet predictable.

We would like to see

solutions that take a

percentage of revenue or

pro"t... a pay for

performance model.

We’d be very open to that.”


Conclusion

Our latest study suggests that early leaders in cross-border Ecommerce are today generating incremental revenue growth of 5% to 10%, with little addition to !xed costs.

Retail brands working with cross-border solution providers are improving both the online and post-order experience. In doing so, they are converting !rst-time cross-border customers into repeat customers. Longer-term, our analysis suggests that leaders will expand beyond their present operational focus, beyond simply settling for ful!lling cross-border latent demand.

The next stage of growth will come from online retailers proactively growing demand, geo-targeting both their cross-border growth initiatives and supporting e"orts based on new analytical models and opportunistically leveraging emerging mobile and social media channels.

Aligning multi-channel organizations with the global opportunity, enhancing the sophistication of merchandising practices and building appropriate, sustainable demand generation programs will also allow the initial cross-border market share gains captured today to evolve into a sustainable competitive advantage tomorrow.

Much work still lies ahead. If you are on the fence about whether to prioritize cross-border Ecommerce, it is time to take an important step ahead. It’s time to get serious.

Do not be misinformed about the challenges of cross-border Ecommerce. Demand will grow and consumer expectations will rise. Low-risk, cost-e"ective solutions exist today that can help retailers of all sizes expand their cross-border and international Ecommerce.

Whether your organization is a web-only merchant, a multi-channel retailer, a consumer product brand—or a commerce platform or marketplace provider—you owe your international customer the courtesy of a closer look at the companies who are expanding the reach of Ecommerce globally.

If your organization is

content to be a “slow follower”

on the cross-border front,

know that the global window

of opportunity will close.

Foregoing the cross-border

Ecommerce opportunity could

be a monumental miss.

ABOUT THE AUTHOR:

J.C. Williams Group (www.jcwg.com) is

a boutique retail-consulting !rm with

recognition in the !elds of strategic planning,

retail branding, research, technology, and

multi-channel retailing. With o#ces in

Chicago and Toronto, J.C. Williams Group

provides practical, creative, and in-depth

knowledge of retailing. Internationally, the

!rm is a member of The Ebeltoft Group

(www.ebeltoftgroup.com), an international

consortium of retail consulting !rms.

Cross border ecommerce white paper - Pitney Bowes

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