U.S. Retailers Take Their Business Virtually All Around the World
The weak dollar makes the U.S. a good place to shop for foreign consumers and now those that don’t have the time or resources to jet over can buy from American retailers that are opening up their online operations to accept orders from parts around the globe.
According to The Wall Street Journal, Amazon.com, Bluefly.com, Neiman Marcus, Bergdorf Goodman, Saks Fifth Avenue, Blue Nile, Abercrombie & Fitch, Coach and Macy’s are currently shipping goods to markets outside the U.S. or moving in that direction.
A survey conducted by Forrester Research last year for Shop.org found 41 percent of retailers operate internationally. Of those without international operations, 23 percent planned to begin in 2007 and 38 percent planned to get started this year.
There are some challenges to serving customers in foreign markets, however, including taxes, import duties and shipping. According to the Journal, retailers sending product overseas will often calculate and collect the various levies based on the market. To offset shipping costs, some retailers are setting up distribution centers inside foreign markets.
“Everyone wants to jump on the ‘dollar-is-weak bandwagon,’ but it is fraught with challenges,” Sucharita Mulpuru, a Forrester Research analyst, told the Journal.
“It looks great in a PowerPoint presentation, but the execution is not so simple,” said Lauren Freedman, president of e-tailing Group.
Discussion Questions: Will the rush to attract shoppers from foreign markets lose its luster once the dollar rebounds or is this strategy solid regardless of exchange rates? Most of the retailers mentioned in the Journal article are large businesses that serve luxury consumers. Is selling to foreign consumers online something that makes sense for small retailers and those that sell products aimed for the lower economic end of the market, as well?
The economics of exchange rates and purchasing power parity are such that no matter how weak the dollar is presently, it will be a long time before goods that are considered moderately expensive in the US are not prohibitively expensive in the world’s fastest growing consumer markets. That said, the middle class in these economies are becoming more and more affluent, and are demonstrating a corresponding appetite for branded goods, which represents an opportunity.
Geographical factors can play a significant margin-reducing role, but retailers that are effectively able to source their products globally have a better chance here.
Of course quality may become an issue, but several retailers have successfully leased their branding on locally sourced goods by using strict quality control guidelines.
As I may have said (just once or twice) before, there is a significant opportunity but there are many provisos. In addition to the retail trying to identify and adapt to international rules and regulations, taxation, method of shipping etc, customers frequently have to pay duty when their parcel arrives. They don’t always know, expect or plan for this.
One problem which may not be one for luxury retailers is the frequent reluctance to accept non-American credit cards. This is a significant one to overcome but PayPal can sometimes provide a mutually acceptable solution.
Bottom line, though–whatever the exchange rate, there will always be people living outside the US who would like to purchase what you guys are selling.
Creating a global presence via the web is smart. The cost is much lower than building stores and therefore, when the value of the dollar does come back there will not be as much exposure to deal with. Makes cents!
All consumers like a bargain. And there are some bargains now available at U.S. retailers for mostly luxury goods for items such as designer items but not churned butter or frozen peas.
Today the weak dollar makes the prices of American luxury goods sans shipping and other fees appear to be bargains today. But time delays and transaction hassles might be counterproductive to that appeal. But if you are an overseas purchaser and want that special piece of jewelry from Tiffany’s at a special price, it might make for a good breakfast.
As the article points out, it is difficult to know, let alone meet, all of the regulatory and tax hurdles of foreign governments. Yes, there is a desire of foreigners to shop for goods at US prices. I see this every time a foreign business associates comes to Los Angeles.
Many goods in the US are cheaper than the same goods in Europe or Japan, regardless of the weak dollar. Add in the weak dollar and many items are bargains.
Selling and shipping overseas might not be good for every retailer, but those who find an effective way to manage foreign regulations and taxes can find a lucrative market awaits them.
You have to weigh the shipping and fees associated with international shipping against the cost of the good–it’s easy for a luxury item to absorb the additional costs because it’s still small compared to the overall price of the item. But if it costs $20 to ship a $10 item, those costs will probably be too high to balance out the weaker position of the dollar–a $20-equivalent item in another country is still a better deal than a $10 one here if it costs another $20 to ship it.
That said, for retailers that want to expand internationally but have been hesitant about it, this may be a good opportunity to test the waters without having to commit anything as big as a DC on foreign soil. It gives you an opportunity to see where the demand is, and helps you prioritize which markets to open next.
Every so often, a new profit opportunity appears on the horizon.
It’s a key measure of a retail management’s IQ: how quickly do they perceive a new opportunity and how quickly do they profit from it? Thousands of eBay sellers ship internationally. Any retailer serious about e-commerce can ship internationally without much trouble. Yes, there may be some new procedures, but if they’re labor intensive, you can surcharge those folks. After enough volume, you can contract with foreign outsourcers for overseas facilities or build your own.
Ignoring foreign customers is a key Sales Prevention strategy.
US Retailers who ship US labeled branded products outside the US need to thoroughly understand foreign labeling laws. Genetically Modified Organisms are pervasive in US products and therefore have to be labeled as containing GMO when sold in many foreign countries. Even ingredients that do not seem to contain GMO such as spices, might be sprayed with soybean oil to control dust in processing and therefore require a GMO warning on the label in the EU.