In the harrowing early days of the COVID-19 pandemic, as border closures and supply-chain challenges disrupted the global economy, analysts began broaching a question that many thought had been settled long ago: Would globalization survive?
Nearly a year into the pandemic, the verdict is in. Globalization may be entering a new chapter, but the international exchange of goods and services, propelled by technological innovation, the growing impact of social networking, and the rising number of online shoppers, is not only here to stay, but is accelerating. The global digitalization of the 21st-century economy has been critical to the survival of many businesses navigating the world’s new normal — particularly for non-essential retailers and brands looking to offset the impact of physical store closures.
With the pandemic leading the world to a new reality, consumers worldwide shifted budgets from travel and leisure toward online shopping. Subsequently, the global e-commerce market saw massive growth. According to eMarketer, global retail sales in 2020 grew by more than 27% year over year, with a consistent rise in the number of online shoppers worldwide, reaching 2.28 billion. Cross-border e-commerce discretionary sales surged even higher since the spring, expediting an upward trajectory that continued through the recent holiday shopping season and culminated in an overall 36% global growth in 2020.
Similar to many other COVID-era trends, the growth of international e-commerce sales represents the acceleration of a pre-pandemic phenomenon. A 2019 Accenture analysis found that cross-border sales were growing at twice the rate of domestic e-commerce sales. Why has the pandemic boosted this trend? For customers now doing most of their shopping online, geographic considerations have become less relevant than factors like price competitiveness and product quality. Many people are also shifting away from big-box stores and marketplaces like Target and Amazon in favor of private brands. For retailers, selling to customers in other countries offers a way of countering declining foot traffic to physical stores and headwinds to domestic e-commerce spend, as shoppers exhibit less brand loyalty and curb expenses amid financial setbacks. With the decrease in brick-and-mortar sales and the crowded domestic e-commerce market, expanding to an international customer base has become key for retailers and brands looking to drive revenues.
Cross-border online trade is only set to become more important in the coming years. So how can sellers capitalize on the opportunities it presents? To achieve cross-border e-commerce success, retailers will need to invest in delivering international customers seamless experiences, while adapting to ever-evolving regulatory and market conditions.
Enhancing the Customer Journey
After years of steadily increasing e-commerce sales, consumers’ expectations for efficient, friction-free online experiences have been mounting — even more so after many months of relying on e-commerce during the pandemic. Delivery times and shipping rates, easy returns, the ability to shop in the customer’s currency with their preferred payment methods, guaranteed purchase cost, and the overall seamlessness of the digital experience have moved to the forefront of shoppers’ minds.
While many U.S. retailers are seeing international traffic, actually converting those visitors has proved more difficult. To capitalize on international traffic, the online experience must be localized for international audiences, taking into account their country’s currency, import regulations, and local shopping preferences.
If customers can’t pay with their local currency or preferred payment method, whether it’s an alternative e-payment or local debit card, or if they experience sticker shock stemming from shipping costs, they’re liable to abandon their carts. A Baymard Institute study found that not being able to see the total purchase cost up-front is among the leading culprits behind cart abandonment, which is why it’s always best to be forthcoming with shoppers about any fees and taxes they’ll have to pay, and provide them with a prepayment option for all duties and taxes at checkout.
To convert new customers and retain existing ones in an increasingly crowded and competitive cross-border market, online retailers must deliver the same choice, convenience, and care they show domestic customers — and that includes support for a wide variety of currencies and payment options, international shipping capabilities, and the final landed cost of the purchase presented at checkout. According to Global-e’s data, localizing the shopping experience generates an average 58% increase in conversion rates across global markets.
Navigating a Changing World
Although some things — like the importance of a satisfactory customer experience — never really change, the same can’t be said for the world in which cross-border sellers are operating. From pandemics to regulatory policy to technology, the past few years have brought ample reminders that the world is constantly changing, sometimes at a dizzying pace.
Case in point: the conclusion last month of the Brexit transition period, which brought the U.K. fully into its post-EU era. Retailers selling to U.K. customers face a new set of rules: As of January 1, U.K. consumers are now subject to the 20% local tax (VAT) on all cross-border purchases, ending the previous £15 (approximately $18) VAT exemption threshold, known as Low-Value Consignment Stock relief.
Moreover, the sales VAT on all imported consignments of goods not exceeding £135 (about $163) must now be collected by the seller at checkout (the point of sale) and not at the border. Goods above this value are also subject to customs duty, on top of the import VAT. This leaves many U.K. customers vulnerable to unexpected costs upon delivery.
With the U.K. leaving the EU, merchants selling to this market need to make sure they are registered for U.K. VAT, and are able to collect and submit the tax to local authorities. Making sure your business is fully aligned with the new regulations is crucial.
Moreover, sellers must provide their U.K. customers with the same seamless experience they’re used to when buying online domestically. U.S. retailers and brands selling to the U.K. are advised, therefore, to incorporate all duties and taxes into the product price, while communicating to their customers that no additional costs will be added at checkout or upon delivery. Incorporating all of these changes into the online experience will be essential for retailers to deliver U.K. customers the seamless experience they expect, maintain sales to this key market, and keep customer satisfaction high.
Similarly, brands must ensure they keep their fingers on the regulatory pulse in any other regions where they operate, to ensure smooth transitions to new regulatory regimes. With frequent global changes to regulations, as well as constantly evolving customer preferences, keeping a global e-commerce business up to date can be very challenging, and require extensive resources. To simplify compliance and operate seamlessly cross-border, while growing ROI, brands can partner with international e-commerce providers, who can manage all relevant processes and make sure sellers’ international offerings are in full accordance with local standards and regulations, as well as shoppers’ expectations.
Undoubtedly, big changes can come with a host of challenges. But businesses that can successfully and quickly adapt to major change ultimately grow their competitive advantage, and are best positioned to operate at a global scale. The global economic landscape is shifting, and contrary to what many speculated at the outset of the pandemic, in many ways it’s become an even more globalized landscape than before COVID-19. Retailers and brands that seize their opportunities today will not only be the ones to survive the months ahead, but will thrive in the years to come.
Matthew Merrilees is CEO, North America with Global-e.
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