Ecommerce Revenue GrowthThrough Cross-border Sales

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1Retailer Daily, Q4 Online Retail Sales Climb 2%, 2/16/2010

WHI

2 Retailers break down shipping barriers to achieve profitable growth

Overview A decade ago, some retailers debated whether to build Web sites. Others were satisfied with brochure-ware designed to promote brick-and-mortar facilities. For many, e-commerce was simply too much work for what amounted to a “small opportunity” when compared to established sales channels. Today, that seemingly small opportunity has grown to $130 billion in the United States— and is growing at a faster rate than traditional sales outlets.1 Given this history, it may be surprising that many retailers are now having that same debate when it comes to international e-commerce. Customs regulations, import duties, complex shipping rules, foreign taxes and the lack of in-country services represent bona fide challenges. However, in the same way market leaders once cracked the code for domestic e-tailing, the business of international e-commerce and cross-border shipping is now poised for explosive growth. In 2010, words like complex, daunting and unfeasible are being replaced by easy, simple and rewarding. Three factors have contributed to this mindset shift: 1. A slowdown in the U.S. economy has spurred new ideas; 2. The demand for online shopping in overseas markets has reached critical mass; and 3. The emergence of new technologies and third-party services offer proven expertise. Once an all-or-nothing investment, Internet retailers can now gain entrée into world markets without the infrastructure, expense or corresponding risk. To be successful, however, organizations must ensure their e-commerce and shipping platforms can effectively deal with the nuances of cross-border sales. While the challenges are real, they are no different than the problems encountered in early days of e-commerce; and the rewards for those who act now can be just as great.

Reaching two billion prospective customers

Over much of the past decade, U.S.-based e-commerce grew at 20% to 30% per year due to increases in broadband access and consumer confidence.2 Recently, these growth curves flattened due to the economic downturn. Today, with a 10% compound annual growth rate (CAGR), U.S. online retail sales are forecast to reach $248.7 billion by 2014, according to research firm Forrester.3 At the other end of the spectrum, international e-commerce is on the upswing. Worldwide Internet usage has already surpassed 1.5 billion and is rapidly approaching the two billion mark.4 In many ways, global market conditions echo the U.S. conditions at the early part of this century. This includes:

! An increase in tech savvy consumers; ! An increase in Internet access; and ! Growing confidence in payment security and privacy.

The upside is enormous. Internet penetration rates, which measure the percent of populations with Internet access, are at only 50% in Europe and 17% in Asia; compared with 73% in North America. In some markets, such as Japan, online sales are expected to increase by as much as 40% annually.5 Retailers who ignore these trends face significant risks. Today, many organizations follow a “come what may” philosophy where they do not actively promote international sales, but are happy to serve anyone who arrives at their sites via the World Wide Web. The problem with this approach is two-fold: one is the obvious short-term loss of potential sales revenue. More importantly, however, are the long-term risks when the user experience and sales processes do not support international shipping. The end results—shopper confusion, surprise charges, delayed delivery, high costs and a hassle-filled returns process—could lead to permanent brand damage. Understanding the challenge International shipping is more complex than domestic package handling. Organizations that fail to address complexities upfront end up with a poor customer experience, low sales revenue and higher-than-expected costs. In order to avoid these problems, it is important to understand what makes international shipping intricate.

2 comScore, State of the U.S. Online Retail Economy, 2/11/2010

3 US Online Retail Forecast, 2009 to 2014, Forrester Research, March 2010

4 Plunkett Research, E-Commerce Industry Overview, 2009

5 Reuters, Asia’s shoppers go online as Internet barriers fall, 2/18/2009

3 Retailers break down shipping barriers to achieve profitable growth

1. Local laws and regulations. Each country has its own import and export laws. International shippers need to know in advance whether they can legally ship their goods to a customer in another country. While some items are prohibited nearly everywhere, such as currency, livestock and radioactive materials, each country has a long list of prohibited and restricted items.6

! Argentina prohibits furs, radios, televisions, phonographs and ready-made clothes. ! Australia prohibits goods produced wholly or partly in prisons or by convict labor. ! Brazil’s list includes canes and umbrellas. ! China prohibits walkie-talkies, wrist watches, cameras, bicycles and sewing machines. ! Fiji prohibits dyes and coloring materials. ! Iran does not allow games involving dice, musical instruments or brown sugar. ! Italy’s list includes bells, clocks, leather goods, playing cards and typewriter ribbons. ! Nepal prohibits cameras, cinnamon, photographic paper and watches. ! Pakistan requires that fountain pens and toys be mailed in insured parcels. ! Peru does not allow gloves, household linens or wooden utensils. ! Sri Lanka prohibits leather goods including handbags, volleyballs and footballs. ! United Arab Emirates does not allow pork products or imitation pearls. ! In Tanzania, Japanese shaving brushes are prohibited.

While this list recaps only a small fraction of the restrictions, it illustrates the variety and complexity of international import laws. On top of this, shippers must also contend with United States rules regarding cargo transported on passenger aircraft. For example, the 9/11 Commission Act of 2007, which requires the TSA to establish a system to screen 100% of goods, takes effect in August 2010. 2. Multiple carriers, multiple posts and potential for higher costs. Local postal administrators establish rules in each country that impact how shipments are addressed and prepared. In addition to customs forms, value limits and size limits, many countries do not follow the U.S. standard of street address, city, state and ZIP. Proper addressing helps ensure that parcels reach the intended recipient, but also sends a message that a retailer understands and values its customers’ business. Some retailers look to simplify shipping by engaging a single high-cost carrier who provides door-to-door service. In most cases, these unnecessary shipping expenses can make the overall cost too expensive. It is not unusual for ready-and-willing shoppers to bail out of shopping carts when shipping costs are revealed–especially when lower-cost shipping alternatives are readily available. Organizations that succeed will be the ones who can manage shipments across multiple carriers

and take advantage of reliable, efficient postal networks.

6 US Postal Service, International Mail Manual, Index of Countries and Localities

4 Retailers break down shipping barriers to achieve profitable growth

3. Duties and taxes. Retailers are all­too­familiar with managing tax rates across multiple states and jurisdictions. When it comes to international e­commerce, these challenges are multiplied. Organizations need to know the appropriate rates for taxes and duties by country, then calculate, collect, remit and manage these funds. Two factors add to the complexity:

Shipments must be coded using a HS (Harmonized System) number. These classification numbers are assigned to individual products and are used by customs authorities around the world for the application of duties and taxes. These numbers are typically six to 10 digits long. The first six digits are standardized worldwide, while additional numbers are used by some governments to further distinguish products in certain categories.

Shippers also need to confirm the country of origin for the goods being shipped. Regulations and fees are often based not on the location of your company or warehouse—but on the locale of the original manufacturer. Retailers who sell goods that were produced in countries around the world need to create a mechanism to identify, capture and communicate that information as part of their shipping documentation.

4. Returns and special handling. Companies that sell via the Internet understand the importance of a good returns process. However, international returns processing can be far more intricate. Procedures established for outgoing shipments must also be created in reverse. Establishing a process for documentation, cost­effective shipping and returns back to the U.S. is only part of the challenge. Organizations must also clawback the duties and taxes paid to foreign governments. 5. Maintaining a positive customer experience. In earlier days, customers might deal with bumps and glitches in the process because e­commerce was new and the added convenience a real benefit. Today, online shopping experiences have been enhanced—and expectations are high. To serve customers well and tap into the explosive growth in international e­commerce, organizations must communicate accurate information to customers at the point of sale and then deliver on their promises. Failure to manage these challenges will translate into customer dissatisfaction. At a minimum, retailers need to reassure shoppers that they can:

Handle payments in the currency preferred by the shopper; Correctly calculate shipping costs, taxes and duties in advance; Offer a clear, easy­to­understand process for returns and after­sales service; Provide accurate estimates of delivery dates; and Honor the price quotes provided with no hidden fees or surprises.

Fortunately, new technologies and services are making these requirements easier to manage.

5 Retailers break down shipping barriers to achieve profitable growth

Building expertise without building infrastructure Over the past few years, aggregators and systems integrators have introduced technologies that support international e­commerce. Given the vast revenue opportunities, even the largest retailers have opted to outsource key aspects of the shopping experience in order to deliver a world­class customer experience. E­commerce platform providers make it easy for retailers to automatically present and settle transactions in foreign currencies, handle international payments processing and simplify logistics. These aggregators and systems integrators have also collaborated with leaders in international shipping. The integration of third­party shopping carts and international shipping solutions enables retailers to fulfill orders by shipping goods to a centralized facility in the United States. That eliminates the need for cross­border infrastructure or up­front capital purchases—increasing efficiency and capabilities without risk or expense. Retailers should select international service providers who deliver end­to­end support, with scalability and the flexibility to lower costs and improve customer satisfaction at every step.

Retailer’s Checklist: Essential features and services for international shipping ! Up­front rating and pricing ! Buyer understands costs in advance ! Buyer pays duty/tax at time of purchase ! Customs forms filed automatically ! Commercial customs clearance ! Generates proper HS number ! Manages import/export compliance ! Merchant ships to domestic address

! Competitive shipping costs ! Optimized networks ! Wide Coverage ! Full track­and­trace capabilities ! Proof of delivery ! Returns processing ! Duty and tax reclamation ! Insurance services

Insider tips and best practices Once an organization has the capabilities to sell internationally, there are still decisions to be made. Choosing where to invest (and where to cut corners) can play a significant role in overall profitability and growth potential. Areas to consider include:

Product variety. Some organizations choose to offer international shoppers only a subset of their full product catalog. While simpler, it can send the wrong message. Even though sales may be concentrated in a limited number of SKUs, it is often the range and variety of products that attract buyers in the first place. Visitors can easily see what you offer to U.S. shoppers, and when they are redirected to a sitelet where only a fraction of these products are available, a second­class status becomes self­evident.

6 Retailers break down shipping barriers to achieve profitable growth

Nimbleness. Some retailers are thrilled when their international e­commerce sites are up and running, but fail to manage these properties the way they would their domestic stores. They test and measure a variety of offers domestically, but are content with a static checkout experience elsewhere. Market leaders do not assume that what works at home will work overseas. Test whether costs for duties should be included in the product value, shipping cost or charged separately. Determine if customers prefer speed or cost when it comes to shipping. Overall, retailers should experiment and identify what works best in each market.

Co­opetition. Technology firms and shipping services eliminate barriers to international e­commerce, but retailers still need to attract customers. The first step is to recognize the limitations of your brand. Some companies are well­known in the U.S. but are completely unknown in other countries. To reach new markets without breaking the bank, many look to portals, marketing alliances and cooperative databases—often with competitors— to attract attention.

Connecting with overseas buyers is now even easier Retailers looking to tap into the enormous growth potential of international e­commerce no longer need to navigate the complexities alone. New technologies and international shipping services have eliminated logistics barriers, so retailers can now concentrate their efforts on sales, marketing and merchandising. Organizations must choose their e­commerce and shipping solutions with care, however, if they are to achieve the levels of speed, scalability and flexibility essential for success. Market leaders will work with suppliers who understand the complexities of international e­commerce and shipping, and provide for seamless processes, market insight and well­executed customer experiences. Just as first­movers gained an important advantage when e­commerce took hold in the United States, the rewards for those organizations that establish themselves as leaders could be great. To learn more about Pitney Bowes and our line of e­commerce and international shipping solutions, visit www.pb.com.

©2011 Pitney Bowes Inc. All Rights Reserved.

Email us at bd-ecommerce@pb.comCall us at 855-PB ECOMMVisit us at pb.com/ecommerce