Business & Tax

Expanding into the European eCommerce Market: Pitfalls & Challenges

Successfully cracking the lucrative European market poses significant challenges not encountered in North America. Here are some of the biggest hurdles to consider if you’re eager to make Europe part of your eCommerce growth plan.

The European eCommerce market is growing exponentially and represents a huge opportunity for retailers all around the globe.

In fact, eCommerce is the fastest growing segment in retail across Europe. According to research firm Mintel, online retail sales in Europe will double by 2018 to 323 billion euros ($437.91 billion USD).

European countries make up a third of the top 15 global eCommerce markets in 2017, according to figures compiled by digital marketers GFluence. Germany, France, UK, Italy and Spain (in that order) made the list, which is led by the U.S. and China.

But successfully cracking the lucrative European market poses significant challenges not encountered in North America. There are 50 countries across the continent, each with its own language requirements, payment preferences, tax regulations, and compliance complexities.

Here are some of the biggest hurdles to consider if you’re eager to make Europe part of your eCommerce growth plan.

Currencies

Did you know there are a total 28 currencies currently in use throughout the European continent? Of course, the most common currency is the euro (used by 19 of the 28 European Union nations, along with five countries that are not part of the EU). The United Kingdom has kept with the pound sterling.

Wherever you’re based, your customers will prefer to use their local currency to make buying decisions and cart transactions. This means your eCommerce solution should be flexible enough to switch currencies on the fly, and enable cross-border purchases. Not offering your customers the option of transacting in their local currency guarantees that you will lose sales.

According to one large survey of 30,000 online consumers in Canada, the UK, Australia and Germany, 92 percent of consumers prefer to shop and purchase from sites that display local currency. A full 33 percent of these consumers would abandon their purchase if prices were only displayed in U.S. dollars.

You may be able to get away with using third-party plugins and other tools to accomplish the currency exchange and online transactions. However, installing and configuring these plugins seamlessly into your store will require some website development. Besides the technical issues, you’ll need to make sure these apps don’t pose any security or tax compliance issues for your business.

Payment Gateways

Along with accommodating for various currencies, picking the right payment gateways for your store is an extremely important consideration. Creating a frictionless checkout experience is a requirement for eCommerce success, whether your market is the American Midwest or Western Europe.

As with languages, payment options should be customized by country — what’s popular in Germany may not be in Italy. The Germans prefer to pay by invoice. In other words, eCommerce shoppers in Germany like to order online and pay afterwards. On the other hand, the preferred payment method in Italy is the CartaSi credit card, which controls some 40 percent of the market.

Some payment gateways cover parts of Europe, but not all of it. Most are localized for a particular country. You need to understand the market(s) that you’re serving, and match up the right payment gateway.

There are many factors to consider in selecting an appropriate payment solution, including popularity with European customers, ease of use and ease of installation, mobile compatibility, currency exchange, local currency display, security, tax compliance, and cost, just to name a few.

Languages

Another obvious factor to consider is the language. To effectively reach the majority of the European market, your site will need to offer English, German, and French versions at a minimum. However, you’ll probably want to add other major languages such as Italian, Spanish, and Swedish.

The EU doesn’t have a common language policy, and there are 24 official languages spoken across the continent. You may not be planning to serve every market in Europe where these various languages are spoken, but many customers will not even bother browsing your store if they can’t do it in their native language.

Also remember that translations are tricky. Ideally, you will consult with native speakers to make sure that everything reads as it should, and that there aren’t any idioms or metaphors lost in translation.

Last but certainly not least, you’ll want to consider which languages you should offer as part of your customer support. If your primary market is the United States, that’s a pretty simple solution; you would hire customer support agents who can speak native English and perhaps Spanish.

But if you’re trying to tackle the European market, be prepared to offer access to customer support in at least five major languages — or find an eCommerce solution that can enable that breadth of support.

Tax Compliance

Another huge consideration when selling to Europe is trying to keep up with its many tax regulations. In fact, tax compliance may be one of the trickiest hurdles you’ll need to overcome to successfully sell to the European market.

When dealing with any European country, you need to account for what’s known as the Value Added Tax (VAT). A host of factors goes into accounting for VAT, including the types and quantities of goods sold, where the business is based and who it’s selling to, and even the size of the company. Just as an example, books are “zero-rated” in the UK and Ireland, but have taxes elsewhere. In addition to the EU-wide VAT, there may be other local and national taxes, depending on where you’re selling.

Additionally, VAT and pricing work differently in Europe than what you might expect if you’re only familiar with the U.S. market. For stores selling in America, it’s customary for sales tax to be added after the sale; in Europe, people are used to the VAT being included in the prices shown to them. You might also want to consider charging different prices in different European countries, to account for the various VAT levels.

You’ll also need to ensure that your eCommerce store makes the proper tax declarations when you reach a threshold of revenue in certain countries. The threshold is different for each country. For example, in Germany, the tax declaration requirement starts at 100,000 euros, while it’s 35K euros in Italy, and £70,000 in the UK.

The considerations mentioned here are only scratching the surface of tax compliance in Europe. There are constant developments in tax law across the continent, including regulatory changes that can be expected as a result of Brexit.

Staying compliant with tax regulations in every market that you serve in Europe is a big but essential task. Just like the Internal Revenue Service in the U.S., tax authorities in Europe do not look kindly upon businesses that don’t follow the rules. Your company may end up liable for severe penalties if you fail to accurately record and submit VAT information.

Logistics

To be competitive in terms of shipping fees, your business will need to sign with the right third-party logistics provider (3PL) in Europe. However, many third-party logistics (3PL) providers are more accustomed to servicing B2B businesses and are challenged by the volume of orders, variety of products, and speed of delivery required by many direct-to-consumer eCommerce businesses.

These providers may also not have enough warehouses in the most ideal locations, depending on which markets you’re looking to enter and the speed of delivery you desire. The right ecommerce platform needs to be able to manage multiple stores with multiple warehouses and many thousands of SKUs.

Importing goods in the EU may also require that your eCommerce solution provider can act as your “merchant of record.” This is a legal designation that means your bank will hold you liable for processing the payments of your customers. Additional responsibilities include complying with the Payment Card Industry Data Security Standard or PCI DSS, collecting local taxes, and managing fraud.

Consumer Rights

As an eCommerce store selling to Europeans, you should have a very good familiarity with the consumer protection laws across the continent.

For example, under EU rules, if you purchase a product or service online, you have the right to cancel your order and return it within 14 days — for any reason whatsoever. Additionally, you have a legal guarantee of at least two years after buying the product to get it repaired or replaced free of charge if the product is faulty, or receive a full or partial refund if it cannot be fixed.

An important policy that business must be aware of when doing business in Europe is the General Data Protection Regulation (GDPR). GDPR puts stricter controls on businesses collecting personal data from residents of all European states, even when the operating business resides outside of Europe. There are numerous actions that must be taken in order to become compliant, such as evaluating the ways in which your business processes European consumer data and putting protocols in place to deal with consumer requests to delete data and data breaches. Some organizations have even chosen to appoint GDPR officers to ensure compliancy. Regulators will be able to impose fines for noncompliance of up to 4 percent of the company’s annual global turnover, or up to 20 million euros — whichever is higher.

Any eCommerce business will also need to comply another EU regulation known as the Cookie Law, which informs users about the information that is being collected about them online, and gives them the option to allow it or not. In many cases, you must ask the user for consent before the cookie is installed and begins recording data. However, there are some cookies that are exempt from this requirement, such as ones that identify the user for the duration of a session after he or she has logged in.

Content

Content marketing is huge when it comes to eCommerce — it’s one of the best ways to improve your search engine rankings, keep visitors coming back to your site, and turn browsers into buyers.

The challenge is that content (or other forms of marketing such as social media and paid advertising) that’s relevant to your American customers won’t necessarily resonate with your European customers. And a campaign that does really well in France may land like a dud in Spain. To be effective, marketing and content needs to be localized for your audience, both in terms of language and cultural expectations.

Even if you happen to have a big brand that transcends international barriers, you’ll still need to offer promotions that take into account local customs, holidays, and consumer behavior.

Don’t want to deal with the many complexities of localizing for currency, payment, language, and tax compliance?

Scalefast offers an ideal solution that will establish your eCommerce store in turnkey fashion. As your merchant of record, we ensure your business in complete compliance with every country you compete in. We’ll optimize your site for the preferred language, currency, and payment system. Our full-service eCommerce solution will get you established in the European market of your choice much quicker than you can do on your own.

Speak with one of our European sales specialists by contacting contact@scalefast.com.

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