Written by Christophe Pecoraro, Managing Director at PFS Europe
The rapid shift to eCommerce has presented an exciting opportunity for brands to access new customer bases and geographies across the globe. Today, 2.1 billion consumers around the world are turning to eCommerce to access the latest brands, and this is only expected to rise as we adjust to a new digital retail era. Despite growing “buy local” trends, consumers driven by price, value and experience, are prepared to look further afield in order to find the right brand and product. In fact, recent PFS research suggests that whilst carbon footprint reduction is seen as a strong fulfilment parameter by consumers, a net total of 57% still purchase products based on cost as the primary differentiator.
In many ways, the world is getting smaller – for the consumer at least. Rising customer expectations demand a frictionless and fast delivery experience no matter where the package is coming from. For brands wanting to take advantage of the lucrative markets on offer, getting a product to a customer when you have a single distribution centre fulfilling all orders can be a challenge. That’s not to mention the added complexities and supply chain friction brought on by Brexit and new EU VAT rules that came into force on the 1st of July 2021, which it’s estimated will cost SMEs in the UK £180m a year in extra red tape.
Albert Einstein said that in the middle of difficulty lies opportunity, and it is hard to argue with his genius. But being faced with so much uncertainty, how can retailers choose a path and take advantage of the cross-border opportunities on offer?
Now’s the time to strike
With 26% of European eCommerce sales in 2020 being cross-border, up from 24% in 2019 (23% in 2018) and 7 in 10 European online shoppers having made a purchase abroad, this is a strong and steadily growing opportunity for brands and retailers to capitalise on. Those that confine themselves within their own country’s borders are missing out on a huge potential market.
Despite its relatively small size, the UK is the third-largest market in terms of eCommerce sales behind the US and China. Looking beyond its own borders, close neighbours, Germany and France are in fifth and sixth place respectively. These countries offer a great launchpad for UK-based brands and retailers to expand into, to gain the experience they need to expand even wider. As cross-border spend increases and shoppers become even more comfortable, now really is the time to strike or risk playing catch up in the future.
Breaking down barriers
The barriers, which have unfortunately become harder since Brexit, must be overcome to enable successful cross-border sales and satisfy customer demand for fast, reliable and frictionless service.
Before July 2021, EU VAT applicable on the sales of goods online was dependent on the location of the goods at the time of purchase. Each country set its own separate VAT sales threshold – only charged once that sales threshold had been crossed. Now, all goods that move across EU borders will be subject to a new set of VAT rules known as the “one-stop shop” (OSS) registration; aimed at simplifying a seller’s VAT responsibilities.
All EU-based businesses will see a “one-size-fits-all” threshold of €10,000 applied. As soon as the €10,000 limit is crossed in a year, VAT will be charged at the destination country within the EU where your customers are located, rather than the location of the goods at the point of purchase.
If the company is based outside of the EU, such as the UK or USA, or for those shipping from several member states, no threshold will be set. As a seller, it’s crucial to determine where your customers are based from the point of sale and what VAT rate will be applicable if turnover exceeds the €10,000 limit.
The VAT obligation will be with the seller and not the marketplace – and the new OSS registration for all EU-based businesses will need to be organised by you, for your marketplace. For non-EU sellers that keep items and stock in an EU country, the OSS registration will be needed in one of the member states where stock is contained.
Building an omnichannel arsenal
Brands and retailers can lay the foundations for effective cross border commerce. The first step is cascading omnichannel throughout your operations. By looking to a multi-node fulfilment model, dispersing inventory across the UK and mainland Europe through multiple distribution points, which will speed up deliveries, build capacity and spread risk.
An advanced Distributed Order Management (DOM) system will ensure your order management system (OMS) can divert orders to the appropriate inventory pool, depending on a number of factors; from delivery address to product type.
During periods of peak season volume, additional fulfilment and distribution points with an effective DOM system to route orders can help to alleviate pressure and spread resources. What, and where inventory is placed will have a significant impact on your ability to keep orders moving to meet consumer demand. After all, it’s not just about capacity, the key is business continuity, during and beyond the pandemic.
Utilising existing spaces
As an alternative to setting up multiple distribution centres across regions, brands could also opt to utilise pop-up distribution centres (pop-up DCs) or micro-fulfilment centres, something often implemented for higher volume periods, such as a pre-Christmas peak or planned promotions throughout the year. These can be established in new locations, or, for brick-and-mortar retailers, inside existing high street stores to extract even more “bang for your buck” from each square foot of space.
Pop-up DCs can also be utilised to test new markets. These temporary operations are often much cheaper to set up and operate, while providing relief to your primary distribution centre. An effective DOM system will ensure orders are directed to the appropriate fulfilment point. For one major alcohol brand with customers in both the UK and Europe, the use of a UK pop-up DC meant that it was able to become fully operational in just two weeks, just in time for Black Friday and the Christmas peak season.
Considering local preferences
Whilst fulfilment and the successful delivery of goods should be an utmost priority when planning for cross-border growth, brands must not forget to consider local and regional preferences when shopping online. This is where seeking local knowledge and really understanding the market will set brands apart. Considerations need to be made around translatable websites, local payment offerings and ensuring customer service teams are available to support local languages. Enabling a seamless experience beyond delivery is essential for maintaining loyalty and often engaging with a flexible partner with first-hand local knowledge can be the most effective way of achieving this.
The opportunity for brands online and cross-border has never been greater, and retailers must act now to ensure they remain ahead of the game. The pace of change for retail has surged over recent years and those who can keep up and lead the way by expanding their customer base, will be the most profitable now, and in the future.