Do U.S. retailers have a big cross-border opportunity?

Discussion
Photo: Getty Images
Oct 20, 2017
Tom Ryan

According to the “2017 Pitney Bowes Global Ecommerce Study,” 52.7 percent of U.S. retailers already engage in cross-border e-commerce and another 39.7 percent plan to in the next 12 months.

By all accounts, U.S. retail is already reaching its nearest neighbors. The study found 80 percent of Mexicans and 81 percent of Canadians had made a cross-border purchase versus 43 percent of Americans.

A recent Bloomberg article also noted that purchases from Canada and Mexico should increase if the Trump administration succeeds in raising the threshold at which duties are applied to cross-border purchases as part of NAFTA renegotiations.

While many retailers focus on “near-border” opportunities because of proximity and similar cultures, the “greatest opportunity” for cross-border growth is further from home, according to the Pitney Bowes study. “Entering new markets with different cultures, languages and laws is complex, but the rewards can far outweigh the investment and challenges.”

Retailers are looking to sell cross-border in order to capitalize on their global brands and because it can be profitable. The study found average cross-border order values are 17 percent higher than domestic AOV.

Still, Pitney Bowes found retailers are often hesitant about investing in a foreign market with unknown demand. A small majority, for instance, prefer shipping cross-border versus owning inventory and shipping within a foreign market (either via owned distribution centers, stores or bonded warehouses). Depending on the region, a country’s primary online marketplaces or a retailer’s branded website may be a better option to enter a market.

Delivery costs, duty and tax costs were found to be the biggest inhibitors to cross-border purchases, so those must be kept at a minimum. Retailers and brands also often overlook the importance of high visibility of delivery, localized customer care and localized marketing in their cross-border approaches.

Said Lila Snyder, EVP and president, global e-commerce and presort services, Pitney Bowes, in a statement, “It is important that cross-border retailers focus on the consumers they are trying to reach; not necessarily the consumers they are most used to dealing with.”

DISCUSSION QUESTIONS: Do you see the cross-border opportunity for U.S. retailers as limited to Canada and Mexico, or is it broader? What do you see as the main challenges in pursuing cross-border growth?

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"Physical locations require understanding local laws. Online there is a great opportunity."
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11 Comments on "Do U.S. retailers have a big cross-border opportunity?"


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Charles Dimov
Guest

Cross border can be tricky — if you don’t have the right systems for it. Most medium-to-large retail chains will have (or need to have) an order management system to handle these transactions. Sure shipping to Canada is easy (it’s mostly English-speaking with some French regions). But when you go further than that, your systems you need to think about multi-currency, multi-lingual capabilities, and if you ship to APAC (huge potential) — look for double-byte character capabilities (Japanese, Korean, Chinese characters).
The technology is there to help retailers … just make sure your systems can meet your needs!

Art Suriano
Guest

Many retailers have opened stores in different countries, and that will only continue. So why wouldn’t e-commerce develop as well? I see it as a natural evolution, one that will grow beyond our Mexican and Canadian neighbors. Retailers will just have to figure what will work best for them as they explore different cultures but e-commerce expansion is doable and can provide significant success.

Phil Chang
BrainTrust
Phil Chang
Retail Influencer, Speaker and Consultant
3 years 1 day ago

I see cross-border opportunities to be limitless — with some caveats. We’ve seen (and some of us have lived) expansions that haven’t gone well. Target probably holds the most famous retreat in recent memory. With the ability to use e-commerce to reach consumers anywhere, retailers will be able to use all sorts of delivery methods to be able to complete the purchase for the consumer.

I do not see brick-and-mortar expansion across borders. There are too many variables. Target went to Canada and couldn’t reconcile the demographics, and Saks Off 5th have cooled their expansion hopes too. The cost of physical expansion while learning demographics is very steep. An e-commerce presence with an agile eye on analytics will be the way to make consumers in other countries happy.

Neil Saunders
BrainTrust

Theoretically the cross-border opportunity is massive; in practice, it is full of pitfalls and challenges — many of which have overcome or stymied U.S. retailers looking to expand.

History is littered with such examples. Forever 21 opened foreign stores that were too large and too expensive. J. Crew set prices too high in Europe. American Eagle’s offer was off-pitch and undifferentiated. Brooks Brothers shirt collars were too “American.” David’s Bridal did not understand how British women buy bridal products. Walmart did not initially appreciate that Japanese households don’t have the space to buy in bulk.

So yes, there’s a big opportunity; but it requires extensive effort to understand local cultures and norms and to get the offer right.

Shep Hyken
BrainTrust

The world is getting smaller. Brands are discovering international opportunities. Physical locations require understanding local laws. Online there is a great opportunity. There are three issues with e-commerce cross-border which can be easily solved. The cost to ship international (including duty, taxes, etc.), the time it takes to ship and the distribution logistics. The opportunities are there for the retailer who figures it out. Just study what other retailers have done and you’ll start to get the blueprint you need to expand internationally.

Ralph Jacobson
BrainTrust

The world is our oyster! Yes, I can name several retailers that have had great successes in North America as far back as the ’90s. Expanding beyond North America is the obvious next step. However, retailers need to thoroughly investigate the cultures in those new (to them) markets before moving in. There are just as many case studies out there of “expat” U.S. companies failing to sustain a presence when trying to get a foothold in a new country, and realizing that they tried to do their business exactly the way they do it in the U.S. That rarely works, unless you are already a truly global brand.

Ricardo Belmar
BrainTrust
Ricardo Belmar
Retail Transformation Thought Leader
3 years 1 day ago

There is tremendous potential in cross-border sales for US retailers, but it can be difficult to manage. There are many variables and therefore many opportunities to fail if the right processes aren’t followed. And let’s not forget that a retailer still needs to understand its customers no matter where they live. Assortment and pricing could be challenging in some markets without the right upfront research into what consumers want. Then retailers need to have the right systems in place for fulfillment and may require different logistics than what they are used to. With the right discipline and strategy, the potential is absolutely there for great success.

Craig Sundstrom
Guest

I’m confused what is meant here by “cross border” retail. Before reading Tom’s article I thought it was referring to literally crossing the border and buying something (what keeps malls in Buffalo and dive bars in Tijuana in business). After reading it though, it seems what is meant is really more along the lines of exporting goods.

So while I don’t see a whole lot of potential in the former type of “cross border” selling, the latter should be judged by the usual criteria: proximity, competition, income and market size. Both nations score well on the first two, but Mexico does poorly on the third and Canada does poorly on the fourth.

Sarah Nochimowski
Guest

Definitely! American brands have such of an aura abroad that there is a lot of potential to ship directly there!

Cameron Conaway
Guest

Retailers in a variety of sectors would do well to learn from the many fast-food and restaurant chains that have already made the leap.

Those that have been successful, beyond the initial 3-5 years, are those that went beyond cultural sensitivity (closed on holidays and days of remembrance, for example) and into understanding, appreciating, and respectfully representing the culture in its ways of working and in its product offerings.

Swing by a KFC in Bangkok at around 6pm, for example, and you’ll likely see a line of people ordering ice cream topped with corn and Macau-style egg tarts.

Lastly, Lila Snyder’s comment was spot-on. Expanding cross-border reach will likely demand stepping outside of (several) comfort zones.

Mark Price
BrainTrust
Mark Price
Managing Partner, Smart Data Solutions, ThreeBridge
2 years 11 months ago

To the extent that companies can identify specific customer segments within new markets that would benefit from their product, new markets can be profitable. The barriers to entry are high, though, in terms of regulation, shipping and VAT. One additional cost that manufacturers underestimate is the cost of distribution, both in terms of dollars and time to train, manage and ensure effective operations.

Increasing free trade zones can help to reduce those costs and grow businesses in the U.S. by opening those markets to new products for those segments that would really benefit.

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Braintrust
"An e-commerce presence with an agile eye on analytics will be the way to make consumers in other countries happy."
"Physical locations require understanding local laws. Online there is a great opportunity."
"Let’s not forget that a retailer still needs to understand its customers no matter where they live."

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