Expanding into the European eCommerce Market

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.

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This is an updated post that originally appeared in 2018.

The European eCommerce market is growing exponentially and represents a significant opportunity for retailers. In fact, eCommerce is the fastest-growing segment in retail across Europe. According to the Centre for Retail Research, combined eCommerce sales in Western Europe (UK, Germany, France, Netherlands, Italy, and Spain) were £152.20bn in 2015 and reached £347.65bn in 2021 (+128.4% growth).

But 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 for EU market expansion.

Currencies

paper and coin EU currencies sit on top of the EU flag
Merchants expanding into the EU should know there are more than two dozen currencies used across the continent.

Did you know there are 28 currencies currently in use throughout the European continent? The most common currency is the euro. It is used by 19 of the 28 European Union nations and five countries that are not part of the EU. 

Regardless of your location, your customers will prefer to use their local currency to make buying decisions and cart transactions. Your eCommerce solution should accommodate multiple currencies and payment methods. Not offering your customers the option of transacting in their local currency guarantees you will lose sales.

According to one survey, 76% of shoppers look for sites that price all products in their local currency. And 19% of shoppers across Canada, the UK, and the US cite the lack of payment options as the reason for abandoning digital carts.

You may get by using third-party plugins and other tools to accomplish currency exchanges and online transactions. However, installing and configuring plugins seamlessly 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.

Payment Gateways

Along with accommodating various currencies, picking the best payment gateways for your store is essential. Creating a frictionless checkout experience is a requirement for EU market expansion success.

As with languages, payment options should be customized by country. What’s popular in Germany may not be in Italy. For instance, eCommerce shoppers in Germany like to order online and pay afterward via invoice. On the other hand, the preferred payment method in Italy is the CartaSi credit card, which controls some 40% of the market.

Some payment gateways cover parts of Europe, but not all of it. Most are localized to a particular country. You need to understand the markets you serve, and match up the right payment gateway.

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

Languages

A word bubble containing multiple EU language greetings
Localizing your eCommerce site during expansion into the EU is essential.

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. Data from a survey of 8,709 consumers in 29 countries found that 76% prefer purchasing products with information in their own language, and 40% will never buy from websites in other languages.

Also, remember that translations are tricky. You will need to consult with native speakers to ensure 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 keeping up with its many tax regulations. In fact, tax compliance may be one of the trickiest hurdles you’ll need to overcome to sell to the European market successfully.

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, who it’s sold to, and even the company’s size. 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 you might expect if you’re only familiar with the US market. For stores selling in America, it’s customary for sales tax to be added after the sale. In Europe, people are used to merchants including VAT in the displayed prices. You might also 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 revenue threshold in certain countries. The threshold is different for each country. For example, the tax declaration requirement starts at 100,000 euros in Germany, while it’s 35K euros in Italy and £70,000 in the UK.

Brexit is another significant consideration for the EU market expansion. The United Kingdom’s exit from the European Union was made official in January 2020, but final agreements weren’t in effect until January 1, 2021. As a result of these negotiations, many eCommerce companies are faced with higher VAT charges, tariffs, and handling fees, as well as  complex export agreements. In many cases, these fees are passed directly onto consumers. However, eCommerce brands need to consider some kind of automation to avoid being buried in documentation.

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 merchants can expect due to Brexit.

Staying compliant with tax regulations in every market in Europe is a big but essential task. Similar to the Internal Revenue Service in the US, tax authorities in Europe do not look kindly upon businesses that don’t follow the rules. If you fail to record and submit VAT information accurately, your company may be liable for severe penalties.

Logistics

An airplane takes off over a port illustrating the importance of logistics when expanding into the EU
Expanding business in the EU requires extensive logistics networks.

To be competitive in terms of shipping fees, your business will need to sign with the right European third-party logistics provider (3PL). Many 3PLs are more accustomed to servicing B2B companies 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 ideal locations to meet order delivery timeline demands. 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 legal designation means your bank will hold you liable for processing your customers’ payments. 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 eyeing EU market expansion, you should be familiar 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. 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 businesses must be aware of when doing business in Europe is the General Data Protection Regulation (GDPR). GDPR tightens controls collection of personal data from residents of all European states, even when the operating business resides outside of Europe. Businesses must take numerous actions to become compliant, such as evaluating how 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 compliance. Regulators will impose fines for non-compliance 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 with another EU regulation known as the Cookie Law. This requirement informs users about the information collected online and gives them the option to allow it or opt out. In many cases, you must ask the user for consent before the cookie is installed and begins recording data. However, some cookies are exempt from this requirement, such as ones that identify the user for the duration of a session after they have logged in.

Content

Content marketing is key for eCommerce and EU market expansion.  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, you must localize marketing and content 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 consider 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 to establish your eCommerce store in turnkey fashion. As your merchant of record, we ensure your business is 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 faster and with fewer compliance headaches.

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