Successfully cracking the lucrative European market poses significant challenges not encountered in North America. Here are some of the biggest hurdles to consider for brands eager to make the European ecommerce market part of their growth plans.
The European ecommerce market is growing exponentially and represents a significant opportunity for retailers all around the globe.
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).
While the potential makes European expansion seem logical, breaking into these markets is not without complexities. For example, there are 50 countries across the continent, each with its own language requirements, payment preferences, tax regulations, and compliance requirements.
There are 28 currencies currently in use throughout the European continent. The most common currency is the euro (used by 19 of the 28 European Union nations and five countries that are not part of the EU).
Regardless of location, customers will prefer to use their local currency to make buying decisions and cart transactions. A brand’s ecommerce solution should be flexible enough to switch currencies quickly and enable cross-border purchases. Brands that do not offer customers the option of transacting in their local currency risk losing sales and turning off potential customers.
According to one survey, 76% of shoppers look for sites that price all products in their home 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.
Brands can get by using third-party plugins and other tools to accomplish currency exchanges and online transactions. However, installing and configuring these plugins seamlessly into an online store requires some website development. Besides the technical issues, brands must ensure that the apps do not pose any security violations or tax compliance issues.
Along with accommodating various currencies, choosing the best payment gateways for an online store is essential. Creating a frictionless checkout experience is a requirement for ecommerce success, whether the market is the American Midwest or Western Europe.
As with languages, payment options should be customised by country — payment options that are 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 localised to a particular country. Brands need to understand the markets they serve, 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 installation, mobile compatibility, currency exchange, local currency display, security, tax compliance, and cost.
Another factor in European ecommerce market expansion to consider is the language. To effectively reach the majority of the European market, sites will need to offer English, German, and French versions at a minimum. However, brands will likely want to add other major languages such as Italian, Spanish and Swedish.
The EU does not have a common language policy, and there are 24 official languages spoken across the continent. Brands may not plan to serve every market in Europe, but many customers will not even bother browsing a store if they cannot do so 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. Brands will need to consult with native speakers to ensure that all copy reads as it should and that there are not any idioms or metaphors that could inadvertently offend or cause confusion.
Last but certainly not least, Brands will want to consider which languages to offer as part of their customer support. If the primary market is the United States, that’s a pretty simple solution; a brand would hire customer support agents who can speak native English and perhaps Spanish.
But brands tackling the European ecommerce market should offer customer support in at least five major languages — or find an ecommerce solution that can provide that breadth of support.
Another significant consideration when selling to Europe is keeping up with its many tax regulations. In fact, tax compliance may be one of the trickiest hurdles brands need to overcome to sell to the European ecommerce market successfully.
When doing business in European countries, brands need to account for what is known as the Value Added Tax (VAT). A host of factors goes into accounting for VAT. Factors include the types and quantities of goods sold, business location, the company’s size and more. In addition to the EU-wide VAT, there may be other local and national taxes, depending on the local market.
Additionally, VAT and pricing work differently in Europe than the US market. For stores selling in America, it is customary for sales tax to be added after the sale. However, in Europe, shoppers are used to merchants including VAT in the displayed prices. Brands might also consider charging different prices in different European countries to account for the various VAT levels.
Brands also need to ensure that they make the proper tax declarations when reaching 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 is 35K euros in Italy and £70,000 in the UK.
Brexit is another significant consideration for the European ecommerce market. The United Kingdom’s exit from the European Union was official in January 2020. But final agreements were not in effect until January 1, 2021. As a result of these negotiations, many ecommerce companies face higher VAT, 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 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 an essential task. Similar to the Internal Revenue Service in the US, European tax authorities do not look kindly upon non-compliant businesses. If a brand fails to record and submit VAT information accurately, the company may be liable for severe penalties.
To be competitive, businesses will need to sign agreements with the right third-party logistics provider (3PL) in Europe. However, many 3PL providers specialise in B2B businesses. This means they may not be able to accommodate the volume of orders, variety of products and speed of delivery brands require.
These providers may also not have enough warehouses in ideal locations. Each brand has its own requirements depending on which markets brands are looking to enter and the speed of delivery brands 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 an ecommerce solution provider can act as a “merchant of record.” This is a legal designation that means the bank will hold the brand liable for processing customers’ payments. Additional responsibilities include complying with the Payment Card Industry Data Security Standard or PCI DSS, collecting local taxes and managing fraud.
As a DTC store selling into the European ecommerce market, brands should be intimately familiar with the consumer protection laws.
For example, when a customer purchases a product or service online, they have the right to cancel the order and return it within 14 days. Additionally, if product is faulty, customers have at least two years post-purchase to get it repaired or replaced free of charge. Alternately, customers receive a full or partial refund if the product is irreparable.
An important policy that businesses must be aware of is the General Data Protection Regulation (GDPR). GDPR tightly controls the collection of personal data from residents of all European states. These regulations even when the operating business is located outside of Europe. Businesses must take prescribed actions to become compliant, such as evaluating how the business processes European consumer data. Businesses must also put protocols in place to comply with consumer requests to delete data and data breaches. Some organisations 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 protection informs users about the information collected online and gives them the option to allow it or opt out. In many cases, brands must obtain consent before installing the cookie and collecting data. However, some cookies are exempt, including those that identify users for the duration of a session after login.
Content marketing is a key component in successful ecommerce. It is one of the best ways to improve search engine rankings, increase loyalty and turn browsers into buyers.
The challenge is that content or advertising that is relevant to American customers will not necessarily resonate with European customers. And a campaign that does really well in France may land like a dud in Spain. To be effective, brands should localise marketing and content for the audience, both in terms of language and cultural expectations.
Even big brands that transcend international barriers still need to offer promotions that consider local customs, holidays and consumer behaviour.
With so much at stake, expanding into the European ecommerce market should be a deliberate, thoughtful undertaking.
Launching and managing expansion into Europe and beyond is complex. ESW offers turnkey solutions to reduce complexity and accelerate speed-to-market. Contact us today to talk about which options are right for your brand.