Low Dollar Encouraging British Shoppers to Buy Online
By Bernice Hurst, Managing Director, Fine Food Network
Airfares between the U.K. and the U.S. may be cheap, and the cost of a holiday going from my direction to yours an absolute bargain, but many British shoppers are saving even that expense by getting their retail therapy online. According to cost comparison website Pricerunner, visits by British consumers to online shops in the U.S. have increased 92 percent this year, while the number of passengers boarding planes has dropped. “Sit back and shop” seems to be the rage.
With the dollar hitting a 26-year low against the pound, many goods on U.S. websites cost two thirds or even half compared to sites in the U.K.
Based on an exchange rate of £1 to $2.07, as it was just a few short days ago, The Telegraph calculated that British consumers could spend some £63 (U.S. $130) less buying
four items online from American stores than those same items would be if purchased
from U.K. high street shops or websites, including additional costs for postage
and tax.
The paper’s New York correspondent, Melissa Whitworth, selected as her own favorites: Zoomies; Beautyhabit.com, Otte, Neiman Marcus, Vivre, and Yoyashop.
There are a few downsides, however, for British consumers. Many American retailers including Wal-Mart, Abercrombie & Fitch and Apple will not ship to the U.K. Others refuse to even accept credit cards with non-American billing addresses. Alternatives such as using MyUS.com or MailForwarding.biz to set up American posting addresses can be expensive. Asking friends or relatives to accept delivery and then re-ship may be acceptable the first or second time but may not be suitable for frequent shopping.
The costs of shipping, customs, value-added tax and the price of extracting parcels from the post office when they finally arrive can also mount up. Passengers returning to the U.K. have a tax-free allowance of £145 whereas goods purchased online and shipped in are limited to £18. Perhaps the biggest drawback, however, apart from missing out on a potentially great vacation enjoying the tactile satisfaction of shopping, is the replacement of instant with delayed gratification while you wait for your bargain to arrive.
Discussion questions: Given the weak dollar, should U.S. retailers be aggressively targeting overseas shoppers through their e-commerce platforms? If so, how can they further capitalize on the opportunity and make the online buying process easier for foreign consumers? Or are the costs and complications not worth the effort?
[Author’s commentary] As a U.K.-based shopper who tries to buy from American retailers – and have my purchases shipped to American addresses – I have been frequently frustrated by a refusal to accept non-American credit card details and billing address. When my son wanted clothes from Abercrombie & Fitch last year while I was in New York, he used his American grandmother’s card to buy them, had them shipped to his American aunt and then had me carry them back to London for him. Just a little bit long-winded. When A&F opened in London soon afterwards, they prevented access to the American website – partly because they made so much more by charging pounds rather than dollars? And had shorter distances to ship? Perhaps Pricerunner’s recent evidence of demand will begin to convince a few more retailers that they are missing an opportunity.
Given the weak dollar, U.S. retailers definitely should be targeting overseas shoppers through their e-commerce platforms. This is smart business. Do it right.
For a great look at the enthusiasm of U.K. shoppers, check out Dani Garvelli’s travelogue in The Scotsman chronicling her bargain-hunting trip to Manhattan – Fairytale of New York
She headed straight for Macy’s and Bloomies to take advantage of the 11% sales tax refund for those with a tourist’s passport. After making the rounds to those and other stores, including Wal-Mart, she figures she saved £119.79 ($248.46) on the £1,217.64 spent. But the catch is the £145 tax-free limit on goods brought back home. Bottom line: after airfare, hotel and other amenities, you’ve gotta “shop till you drop” to save enough money to make it worthwhile. But I doubt if many tourists do the math.
The opportunity is significant. However, while just about every foreign manufacturer and retailer has been champions at doing business in the US, the same has not been true for US marketers–we’ve been far less a champion at it. That’s not to say that the big, bigger, and very big haven’t been successful.
Foreign markets have been far less welcoming than the US market. From my view, just because the opportunity is there, doesn’t mean that US marketer can do it right. Or, in fact even have the slightest idea how to go about it. Consumers in these markets might be welcoming, however, their governments have not and do not seem likely to be. There is as great a challenge here as there is opportunity. Just because consumers want the products doesn’t mean that their governments and regulators won’t place serious obstacles in the path of US retailers capitalizing on a short term gain.
Europeans are ripe to be promoted by fine American retailers. Did you notice that Saks’ comp was up close to 11% in October, despite a warm, early fall? Every other luxury retailer struggled in comparison. Nordstrom’s was actually down a few points.
Europeans are ripe for promotion by American retailers. But just looking at it as an e-commerce opportunity misses the point. Saks flag ship store on 5th Avenue in Manhattan was up 20% in October. New York City’s hotels, restaurants, and theaters are filled with European bargain hunters. The smart move for retailers who are enjoying this windfall is to stimulate online transactions after they return home.
For those retailers with a good story for Europeans, Canadians and Middle Easterners, it’s time to tell it. Link your promotions with travel if you can. Drive them to your physical stores when they visit the US. Then convert them to online customers after they shop.
It is not only the weak dollar but the high VAT taxes in Europe that drive people to shop in the US. The VAT tax in the United Kingdom is 17.5%. Since this tax is added throughout the supply chain the cost of paperwork takes its true cost even higher.
Many people feel that the maximum sales tax is 10% after which people start evading. The higher tax rates and positive exchange rates can only increase interest in buying from the US. No matter what Warren Buffet says, nobody with a bank account of less than 10 million dollars wants to pay taxes.
The currency difference may make it profitable to do business in Europe right now but David is right: do it right. Unless committed to long term sales in Europe, short term profits are not worth it. Right now consumers outside the US are frustrated because they can not order from the US even if they are willing to pay the shipping and customs prices. If consumers are able to purchase goods for a short time and find that choice revoked when the currency difference changes, they will be come even more frustrated and disillusioned with US retailers.
There is huge potential for selling products in other countries. Many retailers have opened outlets in those countries. Consumers in those countries would also like the opportunity to purchase goods online. The market is global. Those retailers figuring out how to do business online and offline in an integrated, profitable manner have a huge potential market base.
There is great opportunity in web-driven international sales, but it’s not easy to execute, especially in higher volumes.
#1) Pay method & currencies, as mentioned by others, are tough to manage. Credit card fraud is hard enough to manage in the US, but it’s difficult to get bill-to, ship-to address matches outside the US, so fraud risks go up substantially.
PayPal and Google Wallet are two good methods to solve the fraud problem since they both act as escrow accounts and they deal with the conversion rates. The trick is having a web site that can deal with these pay methods and the manual processes that still exist.
#2) Shipping a 4 lb package to the UK for instance, with a 5-7 business day delivery costs about $50.
#3) Duties and taxes must be calculated by country using harmonized codes. US Customs is not terribly user friendly and the processes become very manual. It depends on what you’re selling, but for apparel, you can count on another $50.
#4) Returns–Are a problem. Customs doesn’t care. It has to go through the same process on the way back as the way there and it’s not quick. Add up all the extra costs plus shipping and you’re often better off having the customer keep the goods and writing it off.
#5) Customer service–Business hours in London are sleeping hours in the US. If you’re not running a full service 24/7 call center, its tough for international customers to do business with you.
Nonetheless, those that crack the code on these five areas can enjoy the benefit of increased foreign demand driven by the cheap dollar.
There is clearly an opportunity to market to and serve the European customer BUT it should only done after the right processes and support mechanisms are in place.
Companies often mistakenly think that the only difference in this customer base is that they are “just further away.” That “just further away” can cost you profits and a whole lot more. Do you have the appropriate customer service support in place? Do you have a returns and exchanges process to support the international customers? Are the goods being shipped to the customer covered under warranty? So often, manufacturers have a different subsidiary in Europe that offers different products and considers the products from the US as gray goods and not covered under warranty.
Sometimes the easy money isn’t always as easy it appears.
Like all business decisions, only if you can make money. Shipping from the United States to Europe is not cheap; then there is customs processing. The other issue is, will the product work in Europe? Europe’s electricity is different than we use in the United States.
Fashion is a good example, but sellers need to provide European measurements and sizes to be successful. Any online retailer with high return rate might not want to expand, due the return costs.
One of eBay’s great advantages: they encourage international sales by making the procedures as easy as possible, using PayPal and easy shipping cost links. Many American retailers don’t want the credit card payment security headaches and the Customs paperwork. They’re losing additional sales and margins from an audience that’s not likely to return the merchandise. Given Wal-Mart’s low margins, their decision not to ship internationally might be sensible, but many retailers, especially in apparel, have great margins.
I would suspect that what is going on in the UK is similar to what is happening in Canada. Now that the Canadian dollar is at parity, there is a big marketing push concerning it. Buffalo area stores are taking out ads on Canadian radio and television and conversely, Canadian stores are adjusting their prices accordingly to keep shoppers in the country. Curiously though, Canadian online retailers haven’t really done anything to curb cross-border online shopping. Many of the big US online stores have protocols for Canadian buyers. As for the UK, I see shipping charges as being the largest hurdle in growth but with the greenback slipping as it is, it may still be worth for British consumers.
E-commerce platforms and governmental processes are strange, albeit sometimes productive, bed partners. American retailers should, of course, aggressively pursue foreign consumers and work to make online buying easier for those consumers to buy U.S. goods online while still being profitable for suppliers. But when the growing consumers’ interests, based on the lower value of the dollar, meet with the vested interests of both foreign governments as well as U.S. retailers needs we have a complicated buying process.
Nonetheless, if new cooperative arrangements can be innovated among the various players, this new foreign demand represents a big opportunity for U.S. firms. However, if the inherent roadblocks cannot be further reduced so consumers don’t have to “sweat the program,” the costs and complications will likely constrain this potential opportunity.
Yes, this is an advantage for eBay. But one of the main reasons is that many small eBay sellers will falsify customs forms and mark the item as a gift. A company like Wal-Mart cannot do that.
Buying American is not as enticing for them once they have to pay the additional taxes.