Introduction: Tapping Post-Crisis Opportunities

For retailers and brands, selling into international markets is a sizeable and fast-growing opportunity. In the wake of the coronavirus crisis, retailers and brands must tap growth opportunities wherever they lie—and for many companies, that will mean looking outside of their domestic markets. Already, we are seeing evidence of surging crisis-driven demand for cross-border shopping, and we expect one lasting effect of the crisis will be a permanent uplift in e-commerce’s share of retail sales.

In this report, we outline how retailers can create a cross-border e-commerce business that delivers higher conversion rates, higher average order values, and greater shopper loyalty—all of which translate into higher customer lifetime value.

To provide structural guidance, we introduce our START framework for cross-border Internet retailing. The framework is designed to help retailers and brands identify and assess the essential elements of excellence in cross-border retailing through “Strategy and expertise,” “Tailoring the online experience,” “Achieving operational excellence” and “Resourcing and scaling effectively”—yielding a “Total brand experience.”

We outline the options for retailers, namely building a cross-border operation in-house or working with an outside, end-to-end cross-border service provider. These service providers typically manage online and offline implementation, including translation and localized pricing, payments, shipping, and returns.

To give quantitative industry insight, we surveyed 100 large retailers and brands that sell in international markets, and feature key insights from that survey throughout this report.

Coronavirus Crisis Is Driving Up Online Demand

The coronavirus crisis is driving up demand for cross-border purchasing, creating new opportunities for brands and retailers. Just as the lockdown resulted in domestic demand dwindling for many US brands and retailers, cross-border e-commerce demand surged, according to data from cross-border e-commerce service provider eShopWorld.

The data, representing year-over-year volume growth for brands using eShopWorld’s service for the period May 1–14, 2020, show the following:

• Surging demand has come from consumers in mature economies: The top growth markets have not been the kind of developing countries that are conventionally viewed as growth opportunities, such as the BRIC economies (Brazil, Russia, India and China). Strong consumer demand in markets such as Canada, Ireland, Israel and New Zealand are likely being supported by a more limited choice of domestic e-commerce retailers.
• By category, health and beauty and clothing and footwear have led growth during lockdowns, as consumers have sought out alternative channels for apparel. Supporting this finding, Coresight Research’s US consumer surveys have recorded seven in 10 consumers routinely making more purchases online, and over one-third of this group have been buying apparel more through e-commerce.

Over the period May 1–14, eShopWorld clients saw 109% total growth year over year in order volumes, accelerating from 77% year over year in April.

 

We see future growth in cross-border e-commerce being supported by a number of factors, with the coronavirus crisis likely to boost supply and solidify demand:

On the supply side, we expect:

• Capacity to be boosted by a growing number of major brands looking to bypass traditional retail channels and sell directly to consumers.
• Legacy Western retailers and brands to look for opportunities to leverage brand equity in faster-growing markets.
• Retailers and brands seeking to recoup sales that have been lost due to lower growth in the wake of the coronavirus crisis, and retailers and brands looking for opportunities to clear excess inventory in international markets. Even if overseas markets are similarly impacted by the pandemic, a larger pool of potential shoppers implies opportunities for higher revenues.
• The incremental maturation of e-commerce in some markets to prompt domestic online retailers to explore opportunities for growth elsewhere.

On the demand side, we see:

• Cross-border growth being supported by the overall expansion in online retail sales. We expect demand for online shopping over in-store shopping to be boosted by the coronavirus pandemic as shoppers turn to e-commerce in greater numbers and, more frequently, non-domestic retailers and brands enjoy a more level playing field with domestic competitors than they would in a brick-and-mortar retail environment, where barriers to entry are greater.
• Consumers in developing markets attracted by the abundance of choice and price competitiveness online.
• E-commerce maturity in Western markets creating greater shopper comfort with online shopping in general, which should translate into a greater willingness to buy across borders.

Overcoming Challenges To Offer a Total Brand Experience and Increase Customer Lifetime Value

To convert consumer demand into sales, build shopper loyalty, and drive repeat purchases, retailers and brands selling across borders must be ready to provide a “domestic-equivalent” e-commerce experience to international customers. For these shoppers, that experience begins online, but extends to the offline experience—including delivery and returns.

Delivering this experience means navigating complexity. Retailers and brands must be equipped to price locally and adjust for duties and taxes; offer payment options that are not just familiar to shoppers, but which are tailored to optimize conversion; have strong relationships with appropriate carriers for shipping and to facilitate potentially costly returns; and consider whether they can process returns locally in major markets to expedite refunds.

Below, we show how retailers and brands can create domestic-equivalent experiences at various stages in the shopper journey.

 

Total Brand Experience through Cross-Border Excellence

The choices and priorities facing retailers and brands can be numerous and baffling. To provide structural guidance, we created the START framework to help brands and retailers ensure they consider the essential requirements for excellence in cross-border e-commerce.

At the heart of the framework is the concept of “Total brand experience.” We define this as an offering that serves local demands, from checkout to returns, in a seamless and brand-enhancing way. Total brand experience emphasizes that retailers should look to build long-term customer loyalty for customer lifetime value instead of short-term gains.

 

Retailers Rate the Importance of Consistent Brand Experience 8.6 out of 10

To provide industry context for this report, we surveyed 100 large retailers and brands that sell to international markets. The results validate the importance of a total brand experience. We asked respondents how much importance they attached to offering a consistent brand experience in non-domestic markets: On a scale of 1–10 (representing low to high importance), the average response was 8.6. Retailers and brands clearly attach very high importance to the brand experience.

What Are the Pain Points of Cross-Border Retailing?

While retailers and brands may see the value in the total brand experience, they encounter many barriers to achieving excellence in cross-border retailing. To understand more fully where these barriers rank, we surveyed retailers and brands about the challenges they perceive in cross-border retailing.

In the chart below, we map survey responses to the four quadrants of our START framework.

• Over one-third of respondents said that planning an overall strategy is a barrier, and 31% reported that a lack of expertise in multiple markets is holding them back.
• Operational factors tended to be the most widely perceived barriers, with close to half of respondents saying compliance with local laws and regulations is a barrier, and 41% identifying managing import tariffs and taxes as barriers.
• More easily implemented e-commerce fundamentals—namely, providing an overall localized website or app—was the lowest-ranked barrier.

 

The Pathway to Cross-Border Excellence: Should Retailers Build In-House?

When going international, retailers and brands can do it themselves, team up with a local partner or collaborate with specialized cross-border e-commerce service providers. Companies that do it themselves end up working with a network of standalone service providers to support areas such as payments, taxes and logistics. 

In a post-crisis context, many retailers and brands will be looking to limit major investments and reduce fixed costs. Working with third-party cross-border service providers typically involves lower upfront costs and a greater emphasis on variable costs than fixed costs compared to an in-house operation.

In addition, partnering with third-party cross-border service providers can allow retailers and brands to roll out to new markets faster than building operations in-house. For those retailers and brands seeking to move quickly to capture post-crisis demand wherever it proves strongest, working with third-party service providers is likely to prove more appealing than setting up cross-border operations in-house.

Figure 5. Cross-Border E-Commerce Development: In-House vs. Service Provider

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Source: Coresight Research

Choosing a Cross-Border Service Provider

Cross-border service providers offer end-to-end services, localizing online pricing, and checkout, which typically includes calculating import duties and taxes; becoming the merchant of record, and processing transactions; and managing international shipping, delivery, and returns.

Retailers and brands face a choice of cross-border e-commerce service providers. These companies may serve clients of different sizes and have varying scaling capabilities; provide differing levels of advisory services (or none at all); have varying degrees of on-the-ground presence and local expertise; and may localize websites in different ways, or to varying extents, across a number of metrics.

Retailers and brands looking for a cross-border service provider can refer to the below checklist of key questions to consider, including the basics of the service provider itself, whether it is profitable, the technology it uses, and the service levels it offers.

Company

What You Need To Know	Questions To Ask a Service Provider
Undertake due diligence on potential service partners, especially regarding scale, growth and profitability.	How much is the company investing in research and development each year? Is the company profitable?
Consider the size of previous clients to assess whether the service provider can manage your scale and to see where you will fit in, as one of the largest or smallest.	To get an idea of scale, what is the company’s total annual gross merchandise volume (GMV)?
Review the service provider’s account-management offering (looking at the ratio of account managers to clients) to be sure the company is adequately resourced to support clients.	What is the company’s account rep-to-customer ratio?
Consider more granular metrics—such as staff turnover and employment practices—to gauge the smooth running of operations and the ability to cope with peak demand.	What are the employment practices and turnover rates in your hubs? How do you ensure the hubs can cope with peak demand?

Solution Pricing and Costs

What You Need To Know	Questions To Ask a Service Provider
Weigh service provider pricing models. Many work on a revenue-share model, taking a percentage of each sale, while others charge a flat fee per sale.	Do you charge a flat fee or take a percentage for each transaction?
Get clarity on invoicing to fully understand charges.	What are typical items that will appear on invoices?
Consider the cost of integration.	What is the cost of integration/implementation?

Technology, Scalability and Security

What You Need To Know	Questions To Ask a Service Provider
Service providers’ technical capabilities can vary significantly. Retailers and brands should consider “up-time” in the preceding 12 months, as well as maximum transactions per hour—especially important for peak periods such as Black Friday.	What are the maximum transactions that can be processed per hour?
Does the service provider have a security incident response plan?	What is your security incident response plan?
Does the service provider have isolated servers, or if one checkout goes down, do all of them?	Do you have isolated server environments for each retailer?

Local Knowledge and Expertise

What You Need To Know	Questions To Ask a Service Provider
At the outset, retailers and brands must identify which markets would be best suited for a cross-border operation.	Can you help identify which new markets would be most valuable?
Selling successfully in international markets requires local knowledge and expertise in areas such as marketing, communications, payments and delivery.	What is your local experience, history in the local market and what are examples of how the market differs? How can you support successful localization?
Develop an understanding of local laws and regulations, customs, duties and taxes; and, develop an awareness of local demands and nuances in areas such as marketing, communications, payments, and delivery.	What are the challenges selling into the market? Assess whether the responses reflect a solid understanding of the local market conditions.
Consider the breadth of a service provider’s consulting or advisory offerings in areas such as global strategy, logistics and operations.	Do you offer consulting and advisory services based on in-depth knowledge and an on-the-ground presence?

Compliance and Privacy

What You Need To Know	Questions To Ask a Service Provider
One reason retailers and brands turn to cross-border service providers is to help them navigate the complexity of local regulations and laws. Retailers and brands must ensure service providers can navigate often complex national privacy laws and, if selling in the EU, that they are GDPR-compliant.	Are you GDPR compliant? Are you compliant with the 300+ privacy policies worldwide?
For taxes and duties, retailers and brands will be looking to service providers to ensure the product catalog is tagged with accurate Harmonized Commodity Description and Coding System numbers (HS code), a standardized system to classify products and which customs authorities use set taxes and import duties. HS code accuracy is not just about compliance, but about reducing unexpected additional cost to shoppers if products are not properly categorized.	What do you do to ensure HS codes are accurate? What is your rate of additional cost due to incorrect HS coding?

Local Marketing and Shopper Acquisition

What You Need To Know	Questions To Ask a Service Provider
Cultivate demand and sustain brand equity in international markets just as you would at home. Online, this can include branded content on the retailer’s own site, integration with social channels in the local market and search engine advertising.	How can you help generate local demand? What are your social media marketing capabilities?

 

Providing Localized Shopping Experience

What You Need To Know	Questions To Ask a Service Provider
Localizing the website means not only translating text, currency, marketing and communication to the local language, but also ensuring it is culturally relevant. Localizing the checkout experience may also mean more than just local payment options.	Does the checkout feel as integrated and intuitive to international shoppers as it does to domestic shoppers?
Countries have different address formats: Offer a local address form in each country.	Are you able to localize every element of checkout—including language, address formatting, address auto-complete and lookup—and remove unnecessary clutter?

Localizing Pricing, Taxes and Duties

What You Need To Know	Questions To Ask a Service Provider
Localized pricing means presenting the price to the shopper in local currency and including all additional costs, such as import duties and taxes, so the shopper is not surprised at checkout.	Does the company provide consultation on pricing strategy?
There are two primary ways to build a localized price: In-country prices are set specifically for each country at price points tailored to the market, with duties or taxes included. This allows retailers and brands with physical stores to match local in-store pricing. Local sales or other taxes can be either embedded into the cost or added at checkout. The retailer or brand can apply a specific exchange rate to the domestic merchandise price and use that to calculate import duties and taxes. Some service providers convert prices at exchange rates favorable to them—meaning higher prices for shoppers. Some also provide options that allow shoppers to opt out of paying duties in advance, so they pay on delivery.	Does the retailer or brand have flexibility in how they present prices in each market?

Payment Methods and Fraud Detection

What You Need To Know	Questions To Ask a Service Provider
Payment preferences vary meaningfully between countries. Retailers must not only offer a range of payment types, but they must also tailor them to maximize conversion.	How do you select payment options to maximize conversion rates?
Refunds are an important part of the customer experience, and the payment methods you choose need to be able to support your refund policy.	How do the payment methods you offer support a good refund experience for the shopper?
Cross-border service providers typically serve as the merchant of record, taking on the risk of fraudulent transactions. But the risk to retailers is not only in the potential fraud, but also in the actions taken to try to minimize fraud in international markets. In some markets, a large number of cross-border orders can be unnecessarily declined due to perceived fraud risk, meaning retailers and brands can be throwing away sales and destroying customer loyalty. According to industry sources, up to half of legitimate cross-border transactions can be declined in some markets.	What is your strategy to minimize incorrectly declined transactions?
Consider factors such as what algorithms service providers use to detect fraud, and whether those could lead to legitimate transactions being declined. Ask if the local provider uses local acquirers (payment providers) to minimize unnecessary rejections.	Are you deploying advanced tools, such as machine learning, to minimize declined transactions?

Shipping and Logistics

What You Need To Know	Questions To Ask a Service Provider
Service providers can provide hub or hubless logistics models. With a hub model orders are fulfilled from the service provider’s hub. With a hubless model, orders are collected from the client’s distribution centers for immediate dispatch, reducing the time in transit.	Do you offer a hubless model so you can collect orders from the retailer or brand’s warehouse?
Ideally, the service provider will offer a choice of local carriers at checkout that will provide the shortest delivery time, lowest cost and best service. However, some service providers have preferred shipping firms—and in some cases are owned by these firms and channel orders through them. Some service providers select the most appropriate shipper for each country, with no influence from commercial ties.	Do you have any ties or affiliations with specific shippers?

Returns and Refunds

What You Need To Know	Questions To Ask a Service Provider
Look for online portals and shipping options that build the brand while also managing cost. Consumers expect estimated delivery dates, shipping notifications and tracking portals.	How can you help us make returns easy for shoppers?
Local hubs can mean faster return processing, which gives shoppers refunds faster.	Do you use local hubs to expedite returns and offer faster refunds to shoppers?
Retailers also need to ensure they are able to claim back duties and taxes from local authorities, as they will have to refund these amounts to the customer. Many service providers can provide this service.	Can you manage the process of claiming back taxes and duties for returns?

Customer Data/Lifetime Value

What You Need To Know	Questions To Ask a Service Provider
Retailers and brands may fear that a third party ends up in control of potentially valuable data and owns the relationship with the customer, which limits the ability to re-market, build loyalty and maximize customer lifetime value. Some service providers may even use customer data in their own marketing efforts, so the retailer should be pointed in asking how data will be handled.	Who owns the customer data?
In our survey of large retailers and brands, we asked respondents how important maintaining ownership of all customer data and customer relationships was when using vendors or service partners for cross-border e-commerce services: Respondents were asked to select from a scale of 1-10 (representing low to high importance) and the average response was 8.6, confirming the high importance companies attach to owning the relationship, including its data.	How much access will we have to our customer data?
Consider how cross-border operations can integrate with the core domestic business in areas such as shopper transaction history and loyalty programs. Some service providers will provide fuller integration than others.	What integration do you offer with core business operations—for example, loyalty programs or customer transaction history?

Customer Service

What You Need To Know	Questions To Ask a Service Provider
Consider how to provide local customer service, online and on the phone.	Do you provide full customer support—i.e., at the product level, and not just on shipping or returns?
Some cross-border service companies provide full customer support on behalf of their retailer and brand clients, with local language responses to questions about products or services, but some provide local language support for order status and payment only and forward other customer inquiries to the brand to resolve.	Do you offer local language customer support?

 

Scope for Strategic Assistance

The 100 retailers and brands we surveyed told us that third-party service providers primarily help with operational implementation, in technical areas such as technology, logistics and compliance; few said that the service providers assist with strategy or provide advisory services.

See the top survey responses, ranked from 1 (most cited) to 5 (least cited).

 

We found a mismatch between what service providers are doing and where retailers and brands need help. When we asked respondents if they could improve one thing about their service provider, two of the most common responses were “local market expertise” and “strategic guidance and advisory services.” In a list of 10 options provided to respondents, these two options ranked third and fourth, respectively—behind only shipping and logistics services and payment services, and ahead of marketing, returns, website experience and account management.

Retailers and brands want more insight and strategic guidance from cross-border e-commerce service providers—but few get it.

 

Profiling eShopWorld

eShopWorld is a major provider of operational and strategic cross-border e-commerce services to enterprise-sized clients. The company offers an end-to-end cross-border service that manages pricing, duties and taxes, a local checkout experience, payments, shipping, returns and refunds. It offers international advisory services (including growth planning) and in-market customer acquisition. Existing clients include major brands and retailers such as Calvin Klein, Estée Lauder, MaxMara, NIKE and Victoria’s Secret.  

eShopWorld says its platform services six of the world’s top 10 apparel or cosmetics brands, and it has added dozens of leading brands across the EU, the UK and the US in the past 12 months.

eShopWorld differentiates itself as being a strategic partner with extensive local knowledge of global markets. It uses its local relationships with partners such as payment service providers to drive down transactions incorrectly identified as potentially fraudulent; selecting payment options by market to optimize conversion rates; and identifying the best local delivery partners.  

eShopWorld has offices in New York, Dublin, London, Milan, Amsterdam, and Singapore, as well as 50 local hubs that can be used as local return centers. It positions itself as being “carrier-agnostic.”

The company promises a “premium branded customer experience.” This means: 

• Retailer and brand clients enjoy a fully branded checkout and post-checkout proposition: The checkout, tracking and returns portals are fully retailer branded and customizable.
• Retailer and brand clients own the shopper data generated by international transactions, with eShopWorld providing real-time data insights and data dashboards. eShopWorld management points to its data analytics offering as a differentiator as global brands seek to direct product to higher-demand, higher-margin markets.

For omnichannel retailers, eShopWorld can offer integration with ship-from-store and return-to-store. Omnichannel customers also have the option of localizing online pricing to match local in-store pricing.

eShopWorld was ranked #1 in Deloitte’s Fast 50 Fastest Growing Tech Firms in 2015, 2016 and again in 2017 and is a winner of Deloitte’s Best Managed Companies in 2020. It was awarded Technology Exporter of the Year in 2016 and 2017 at the Export Industry Awards. It was awarded Digital Technology Company of the Year 2017 at the Software Industry Awards. eShopWorld was ranked #2 in the International E-Commerce Services category in Internet Retailer’s Leading Vendors to the Top 1000 E-Retailers report in 2020.

In 2019, eShopWorld saw global turnover increase by more than one-third to €543.6 million ($614 million, using exchange rates as of June 8, 2020), which the company said was supported by continuing investment in its e-commerce platform. eShopWorld reported that operating profit more than tripled to €6 million ($6.8 million) in 2019. The company said an annual investment of approximately €20 million ($23 million) enhanced its scalability and provided greater scope to accommodate enterprise-sized clients, including with data analytics and marketing services. Headcount at eShopWorld increased by 109 to 369 in 2019, and the company expects to reach 450 by year-end 2021.

As discussed earlier, eShopWorld management noted a surge in sales from the coronavirus crisis in 2020. In May, the company reported that platform sales since March had consistently exceeded the peak months of 2019 Black Friday, with multiple markets recording year-over-year sales increases of 200% or more in May 2020. eShopWorld pointed to the May run-rate, equating to €1 billion of sales annually, or a doubling of volumes for global brands using its platform.

 

Key Insights and Outlook

The opportunity in cross-border e-commerce will appeal especially to retailers and brands that enjoy strong brand equity in a number of markets, including legacy retailers looking for new revenue opportunities and major brands pivoting to direct-to-consumer channels.

The coronavirus crisis has prompted cross-border shopping to spike, and it looks likely to fuel demand over the coming period. In a post-crisis landscape, retailers and brands must look for growth opportunities wherever they lie.

Coming out of the coronavirus crisis, many retailers and brands will be looking to limit major investments and reduce fixed costs. Partnering with third-party cross-border service providers can allow retailers and brands to roll out to new markets faster than undertaking operations in-house. In addition, working with service providers typically involves lower upfront costs and a greater emphasis on variable costs than fixed costs, versus an in-house operation—potentially making this a more appealing prospect for companies looking to tap international demand.

Moving into international markets can be complex and time-consuming. A crucial decision retailers and brands must make is whether to manage international e-commerce operations in-house or work with a service provider. Service providers can help companies scale quickly, but retailers may perceive a potential loss of ownership of the customer experience. Service providers offer differing levels of flexibility and control over the experience—and of ownership of customer data.

Retailers and brands face a choice of cross-border e-commerce service providers. These companies’ offerings differ by the size of clients they service, the kind of advisory services they provide, their on-the-ground presence and local expertise, and the extent to which they tailor local websites across several metrics.

Whichever path they choose, retailers and brands selling across borders must stand ready to provide domestic-equivalent e-commerce experiences to international customers.

Our START framework for cross-border retailing guides retailers to ensure they consider the key requirements for excellence in cross-border retailing. At the heart of the framework is the concept of “total brand experience”—a cross-border offering that serves local demands, from checkout to returns, in a seamless and brand-enhancing way.