Keeping It Real for Cross-Border Online Shoppers
E-commerce between the U.S. and Canada didn't end with the decline of the prescription drug trade. Americans have been purchasing other products from the other side of the border -- notably, CDs and DVDs, clothing and accessories. For those who want to tap the cross-border market, there are legal, pricing and shipping concerns. Learning the ins and outs is important for successful cross-border e-commerce.
Jan 14, 2010 5:00 AM PT
Everybody loves an online deal. When it comes to cross-border shopping, though, not every online transaction turns out to work to your advantage.
Shipping fees, customs delays and a fluctuating dollar can sometimes turn a great deal into a so-so one -- or even a losing proposition.
Cross-border online sales have gone through a number of cycles. At one time, prescription drug purchases on the part of U.S. consumers accounted for huge revenues from online sales activity, this no longer holds true. At its peak, sales were more than US$1 billion annually, according to the FDA, with Americans buying more than 2 million packages of prescription drugs a year from foreign sources.
Now, the pharmaceutical door between Canada and the U.S. has been closed, Javad Heydary, chairman and managing director of Heydary Hamilton, told the E-Commerce Times.
"After reaching the height of activity between 2000 and 2005, online purchases of prescription drugs from Canada have pretty much been shot down," he said. "Almost every government has clamped down on companies selling prescribed medication outside their jurisdiction."
The Movers and the Shakers
Despite the decline of the online prescription drug trade, cross-border e-commerce remains strong, said Zia Daniell Wigder, senior analyst with Forrester Research. "Within the U.S., one-quarter of the population orders online from retailers outside the country," she told the E-Commerce Times.
International shipping is becoming an increasingly popular strategy for online retailers to tap into global consumer demand, according to a 2009 report by Wigder. However, there is little consistency in shipping options offered by online retailers. In addition, mid-sized companies (those with revenues between $1 million and $30 million) are most likely to offer shipping to Canada and other destinations.
Canada is considered the first market for international shipping from the U.S., since it represents a strategic step into international sales. Also, with 80 percent of Canadians living within 60 miles of the U.S. border and one-third of the population concentrated in the nation's three largest cities, successful fulfillment and prompt delivery times do not tend to be an issue.
There is also "good movement" in smaller electronics (e.g., digital cameras, GPS devices), Johnny Dick, vice president of business development for Wishabi, told the E-Commerce Times. "The growth in shoe sales is unreal -- people buy a lot of shoes online. And sales for baby items are becoming massive."
The Stumbling Blocks
While the consumer spirit appears to be willing, the online cross-border shopping experience can have its perils and pitfalls, Dick said. "Getting things across the border can sometimes turn into a mess. You might see a great digital camera and find out the merchant doesn't ship outside the country. Then there are all the hidden fees, such as duties and [cross-border] shipping charges, that they never [mention]. Everyone has a different formula for calculating shipping and border fees, and charges can vary a lot depending on how you ship product -- whether it's UPS or USPS."
A number of non-shipping costs associated with shipments to Canada need to be taken into account, according to the Forrester report.
"Fees add up when shipping to Canada and beyond," Wigder said. Other barriers include the high cost of returns and credit-card fraud risk.
International shipping options expand a merchant's addressable markets, yet the final cost of goods sold is inevitably higher than the cost to domestic customers, and delivery times are slower.
"Even a first step into the Canadian market requires mastering a series of import duties and taxes that can contribute substantially to the final amount charged to the customer," Wigder said.
For example, charges for goods shipped to Canada can include taxes (goods and services tax charged on product value, shipping and duty plus provincial sales tax); duty (the amount due to the Canada Border Services Agency); brokerage fees (the fee charged by mail carriers to clear customs); disbursement (UPS or FedEx fees for prepaying duty and taxes); and conversion (currency exchange rate fee charged by credit card companies).
"These fees can add up and almost double the price of lower-cast items," Wigder noted.
Beyond the border issues and fees, delays in shipping can be caused by any number of oversights along the way, simply because there are multiple points of failure.
"If you're ordering from a merchant in your own country, it's relatively easy -- the product goes to a warehouse and gets delivered by a postal service or courier," Dick said. "Once something gets to the border, the product gets handed off to customs and then has to go through all sorts of transition points. There are a lot of opportunities to drop the baton."
Good online retailers are those that have developed local relationships with the right partners, Wigder noted. "There are people that can expedite the process for you, as well as services such as Borderfree that can provide landed costs and make it easier to ship products internationally."
Even something as simple as descriptions on labels can hold up a shipment for days, she added. "All too often, people are nonspecific in their product description. For example, if it's shoes, label it as 'shoes.' If you use something vague like 'apparel,' it might be flagged for inspection, because different apparel items might be subject to various duties. Bigger merchants know this stuff and label their products to ensure they move faster."
Keeping It Above Board
Despite the challenges, cross-border shopping is showing "huge increases," said Wishabi's Dick. More importantly, the biggest growth is with companies whose Web sites "show everything up front. That's how merchants are encouraging more and better e-commerce. The big thing for consumers is always trust and transparency."
As far as encouraging online sales, it is essential to instill some "great policies" -- whether it's free shipping or easier processing on returns, Dick advised. "All other things being equal, consumers will go with the merchant with a trusted brand that offers the best customer service."
Another must is transparency.
"Show your consumers what the final landed costs are going to be," said Dick. "That will help them make up their minds and get a sense of the real value of what they are purchasing. It's really a matter of making it easier to encourage consumers to spend online."
Consumers also like choice, noted Forrester's Wigder.
"In talking to consumers, when given the choice between paying landed costs up front or at a later date, everyone chose the latter," she pointed out.
"The onus is on the retailer to provide the information needed for them to make a choice," Wigder stressed. "Merchants must ensure they are positioned to manage the multiple issues surrounding international shipping or risk jeopardizing their brand in international markets."