The European ecommerce opportunity

16 March 2016 | By Rob Brown

Europe is the logical first step for many British retailers looking to expand overseas – and proposed reforms could make it easier for them to succeed. 

Shopping online is now as British as obsessing about the weather, queuing or sunburn on the first day of summer. In fact, Britain is the world leader in ecommerce. According to eMarketer estimates, 14.4 per cent of UK retail sales were online last year, versus an average of 8.1 per cent across Asia Pacific, 7.1 per cent in Western Europe and 7 per cent in North America.

And research from Ipsos and PayPal in November 2015 suggests that the UK is already the world’s third most popular shopping destination for international shoppers, with more than 86 million consumers from 29 countries buying here over the past 12 months.

Yet for all the talk of a “worldwide web”, surprisingly few British companies have set up online operations abroad to capitalise on this overseas interest. Language and payment differences and logistical challenges tend to dampen ambitions.

This is also true when it comes to our closest neighbours in Europe, where the single market offers access to 500 million consumers, without the added burden of customs barriers. According to the European Commission (EC) more while than a third (34 per cent) of UK retailers have an online presence in the UK, only 7 per cent sell online elsewhere in the EU.

So why have so few British companies taken the plunge and set up a European online presence, when it seems a logical first step for retailers looking to sell internationally?

It’s not that they aren’t tempted by the €12.7trn economy on their doorstep. But for most, the muddle of different rules and regulations governing ecommerce and cross border deliveries in Europe makes expansion harder than it should be.

“We ship our products to more than 20 European countries,” says John Mewett, marketing and IT director for Screwfix, the plumbing and electrical goods retailer owned by London-based retail group Kingfisher. “Screwfix has a number of sites trading across Europe in multiple currencies.”

But he admits it has not been easy, arguing that legislative challenges “make it difficult for UK businesses to sell goods to the rest of Europe”. He continues: “Barriers to cross-border online activities include differences in VAT rules, e-commerce legislation and also parcel delivery policies between countries. The main challenges we had to overcome included the inconsistencies of regulation across borders.”

According to the EC, 49 per cent say they would “definitely” or “to some extent” increase cross border online sales if the same rules for ecommerce applied across the EU.

The push for a digital single market

“UK ecommerce is performing well, but when international opportunities are a strong driver for growth, physical as well as psychological barriers could cause that to plateau,” says Emma Collins, senior policy adviser at the CBI. “The obstacles need to come down to help growing businesses set up or sell virtually into other member states, as well as improving customer confidence when it comes to buying from other countries.”

But reform could be on its way, if not for VAT rules, at least for those governing consumer rights. And this is a big issue. The EC suggests 30 per cent of British consumers’ concerns about buying online from other EU countries relate to the non-delivery of goods or delivery of damaged or incorrect goods. Less than half feel confident buying goods online from other EU countries.

Under new proposals, such fears would be allayed by establishing a two-year guarantee period across the EU and the burden of proving goods were defective at the time of delivery will no longer fall with consumers, as it does currently in countries such as Italy.

“Businesses, especially the smallest ones, can grow across borders at less cost, with a common set of EU rules instead of a patchwork of national laws,” said vice president for the digital single market Andrus Ansip when the proposals were published in December, adding that the new rules would encourage more companies to broaden their horizons.

Under existing rules, the EC estimates that businesses face a cost of €9,000 to adapt to the national contract law of each new EU member state they wish to sell to. That means, if the proposed EU-wide rules were given the green light, a business could save up to €243,000 if it wishes to sell to all 27 other EU countries.

A positive response

Responding to the proposals, the British Retail Consortium, which has long campaigned for a common EU approach, praised the EC for “concentrating their firepower on making what exists already work better for business and consumers” rather than launching a new initiative.

“So long as the proposals make the leap from the page into concrete action, they will make a material and positive difference to our industry, allowing British retailers to offer even better service to their customers wherever in the EU they may be,” said BRC chief executive, Helen Dickinson.

This is echoed by Nir Debbi, co-founder of ecommerce consultancy Global-e: “Any proposition that helps reduce bureaucracy in multiple markets will create a much more positive environment for business, and help them to grow more quickly.”

“We welcome EU efforts to achieve a harmonised framework in which we can trade seamlessly across borders, enabling our customers to buy our goods, no matter where in Europe they might live, adds Mewetts. “However, legislators should avoid unnecessary red tape.”

Of course, even if the red tape governing online business in different European countries is cut by the proposed new rules, there are still set-up costs attached to entering a new market.

But the rewards of international expansion can be rich indeed. It has been crucial to the growth of online fashion retailer Asos, which is now valued at more than £2bn and operates across Europe and further afield. Farfetch, which provides an online outlet and a global audience for more than 280 boutique fashion labels, achieved a £1bn valuation last year thanks overseas growth. It runs French, Spanish, German and Portuguese websites, as well as operations in Russia and the Far East. 

And as Farfetch founder Jose Neves says the relatively small domestic markets of most European online businesses make expansion elsewhere in Europe a necessity if a company is ever going to achieve critical mass. “No serious company in Sweden or Holland is born wanting to serve only its domestic market. International expansion is crucial”.

And as European ecommerce grows by 18 per cent each year, British firms have both the consumer interest and the experience to succeed.