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US retailing; a graveyard for international brands or the land of opportunity?

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Andrew McClelland International Specialist

Author: Andrew McClelland

 

It represents the world’s largest economy and most developed consumer market but many brands have struggled to get a foothold, or make a success, of trading into the US. Korean Airlines, Tesco’s Fresh & Easy and Marks & Spencer are examples of successful domestic brands that have exited the US market. There are, however, many examples of successful launches and operations. ASOS, H&M and Top Shop are examples of brands that have made a successful launch into the US fashion market.

 

Digital offers international merchants a lower cost vehicle for entering many global markets, enabling them to defer the capital expenditure requirements of setting up a local presence, stores and staff. However, even ‘dipping a toe’ into a market can have its pitfalls and the US is no different.

 

Online retail in the US is worth approximately $350bn and grew by 15% in 2015. It is expected that by 2020 over $60bn will be transacted via a smartphone and there are currently 158 million mobile device users, with an almost 50:50 split between tablet and smartphone as the device of choice for transactions. Easing ahead, smartphones are increasingly becoming the device of choice.

 

international sales into USA

 

45% of US online shoppers have purchased from foreign websites, offering a market worth $40.6bn in 2015. Price, brand and uniqueness are the main factors encouraging this behaviour. If a merchant sells branded product, then often the only differentiator will be price. Does this make expansion into new markets worthwhile?

 

With an obvious market size and opportunity, why wouldn’t trading into this burgeoning marketplace be successful? For a start, the country covers 3.5 million square miles, so any communications, particularly of physical product, are going to be a challenge. This scale also covers a wide range of cultures, with the East Coast being more European in outlook. Fewer than 50% of US citizens own a passport, resulting in a lower instance of international awareness. A merchant might have a strong presence in the domestic market but unless you are a global, perhaps luxury, brand often seen in celebrity press, then building your brand is going to be a challenge.

 

US consumers expect to be able to easily find key information on a retailer’s website, with over 50% having abandoned a purchase due to difficulties in this area. This information could include how to contact the brand, privacy policies, the payment types they accept (or don’t), delivery information and returns processes. 70% of potential purchasers look at the returns process before transacting and a similar number will drop out if they don’t feel a merchant values their time.

 

On the delivery front, services should reflect locally available options, including returns, timeframes and costs; there isn’t a premium or ‘good will’ for international merchants, the consumer is trading in a local market, even online.

 

US retail also has as strong tradition of vouchers or coupons where 93% of US consumers surveyed have redeemed at point of sale. This is also reflected in online trade with circa 50% of customers having used a voucher code during a transaction.

 

The US might be one country, but it is made up of 50 states, all of whom have a different identity, tax rules and legal requirements. For consumer B2C sales, there are very few rules set at the federal level, with privacy being one of the few. There are efforts to harmonise the rules via Universal Commercial Contracts, but these are guidelines that some states have adopted while others haven’t. California often adopts a different approach to other states and ensures that any brand that could sell to a Californian is covered by these rules.

 

There are over 12,000 jurisdictions for taxation, with differences between districts as well as states. Using a ZIP code to determine which tax region a particular sale registers in might not be accurate enough when it comes to an audit; for which international businesses are a particularly attractive target for authorities. Complexities in the system can be illustrated by a few examples; cycling gloves could attract tax whilst ski gloves don’t. Charging the correct amount of tax and duties at point of sale is an important aspect for any consumer. The “price I see is the price I pay” develops consumer confidence and encourages them to shop again.

 

It is very easy to highlight the ‘bad’ but there is no denying that the US retail market is an attractive opportunity for many international merchants. In short, merchants should:

  • understand that the US isn’t one homogenous market;
  • develop clear propositions that offer something different, but localise the basics;
  • ensure smartphones are part of the roadmap; and
  • be clear in communications with customers

Finally, don’t ignore the legal, tax and duty requirements - they can sink a commercial proposition before it’s even started.

 

To find out more about cross-border online retail in the USA - Download our free US Passport.

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