Heads up retailers: if you want to win at e-commerce like U.K. fashion e-tailer Asos—which generates 40 percent of its online sales internationally—you may want to give cross-border shipping a tad more attention.
In 2015, the cross-border e-commerce market was worth $300 billion, roughly 15 percent of overall e-commerce, according to a new report by DHL. And that market is expected to grow by roughly 25 percent every year at least until 2020, outpacing domestic e-commerce by double.
By 2020, cross-border e-commerce will be worth $900 billion, accounting for 22 percent of the global e-commerce market, and $1 of every $5 spent on e-commerce will come from cross-border transactions.
“This growth momentum yields unrivaled opportunity for retailers and manufacturers,” according to DHL. “Even beyond 2020, all evidence shows that demand for products from abroad is not going to recede.”
How retailers can capitalize on the cross-border opportunity
With demand for shorter delivery times and increasing cost pressures, it would seem that more companies will opt for localized fulfillment as e-commerce giants like Amazon and Alibaba do. But having SKUs sitting in inventory all over the place—especially if its slow turning—could be more costly than shipping a share of those orders cross-border.
“In order to fulfill consumers’ wishes for faster delivery, many e-tailers offer premium international shipping options to their customers, e.g., for a surcharge,” the report noted. “This is testimony that cross-border is not a passing phase or trend, but rather a significant staple in the e-commerce market that requires premium shipping.”
Electronics and fashion are the main categories of products consumers want to purchase from abroad. Across the U.S., U.K., China, India, Brazil and Russia, the share of consumers purchasing apparel was higher than in any other category. Consumers living in mature markets opt for cross-border e-commerce for broader selection and those living in less mature markets do it for higher quality.
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For retailers not yet into the cross-border e-commerce market, they’re likely missing out on an almost immediate 10 percent boost to sales, according to the report. But potential growth from cross-border sales has no limit for the retailer that positions itself well.
High value transactions (those over $200) are where retailers need to focus for their cross-border efforts. Those transactions already represent between 10 percent and 20 percent of all cross-border transactions for a market valued at $30 billion.
“This represents a higher share of high-basket-value sales than in any domestic e-commerce market,” according to DHL. “Converting such high-profit opportunities should be a priority for e-tailers and can justify—or even require—the use of premium shipping options.”
What are premium shipping options?
Standard, or deferred shipping, won’t be what helps retailers benefit from cross-border shipping growth. Consumers aren’t interested in companies postponing the shipment of their goods for three to five days until there’s more room on the airplane or until the airplane is adequately full.
With premium shipping, processing in the warehouse is expedited and then carriers are selected to meet the promised delivery.
Many cross-border purchases are linked to occasions, like Christmas or birthdays, and are therefore time-sensitive. In these cases, consumers will be willing to spend more to get their goods on time.
“For those smaller retailers and manufacturers occasionally receiving overseas demand and having no experience in international shipping, a premium door-to-door shipping solution is not only the most simple way to satisfy customers, but also a twofold driver for growth,” DHL said. For one, it lets the retailer uncover and take advantage of untapped pockets of demand growth, and it also enforces all-important customer loyalty.
DHL’s report, which surveyed 1,800 e-tailers around the world, found that retailers and manufacturers offering a premium shipping solution grow 1.6 times as fast as retailers that aren’t.
Watch out for manufacturers
One thing an already stressed retail market may want to watch out for is the rise of the manufacturer, thanks to this potential for growth and the trend toward skipping the middleman.
“Manufacturers who sell directly to consumers are the rising stars of cross-border selling,” DHL noted. “They are on the fastest growth path of all surveyed e-tailer types and report growth 1.3 times as fast as the average e-tailer types who responded to our survey.”
Seventy-six percent of manufacturers said they expect the cross-border share of their business will increase further, so expect many more to be selling goods through their own web shops.
“If they offer a unique product or an aspirational brand, chances are that they can tap into latent demand from foreign consumers or create it easily,” according to DHL. “Retailers will need to find a distinct value proposition in order to compete with the increasing international direct-to-consumer sales of manufacturers.”
What’s it going to take to tap into the sales growth potential?
In order to compete, or simply benefit from more of this coming growth, retailers will need to eliminate consumers’ reservations related to logistics, trust, price and experience. They will have to use a shipper that’s reliable enough to deliver on what’s been promised to the consumer, and prices will have to be transparent too.
“As far as price goes, 15 percent of consumers think that shopping from an e-tailer abroad is basically more expensive,” according to DHL. “However providing price transparency for international consumers, which means stating the fully landed costs including potential surcharges for shipping and customs taxes, serves as a good first step in addressing this hurdle.”
There are five key things retailers need to become “international champions,” according to DHL: clarity on their specific cross-border opportunity, an understanding of local tastes and rules, a way to let the world shop like locals, warehousing and fulfillment with the best company fit, and they will need to use delivery choices as a tool for conversion.
“With long delivery times as the one thing that is probably keeping both buyers and sellers awake at night, premium shipping is the necessary gold standard in some product categories. In medium- to high-priced fashion, for instance, it is common for e-tailers to only offer time-definite shipping,” according to DHL. “Their margin easily pays for the extra cost, especially when it comes to cross-border, in which average order values can be significantly higher than domestic ones.”