Practical Ecommerce

How to Expand to the U.K. Market

Editor’s Note: We welcome James Hyde as our newest contributor. He’s a U.K.-based shipping and fulfillment expert with Six Works, a fulfillment firm. Hyde’s first article, below, explains money-saving strategies for U.S.-based merchants to sell to U.K. consumers.

While the U.S. online retail market is undoubtedly huge — standing at $198 billion in 2011 according to Centre for Retail Research, an analysis firm — many U.S. stores fail to explore the European market, short of sending the odd order via airmail. In fact, European online sales reached 201 billion Euros ($264 billion) in 2011 — a third more than the U.S. — and are growing by 12 to 14 percent per year.

Why the United Kingdom?

The explosion in European online sales is heavily concentrated, with 72 percent of all sales coming from just three countries: U.K., Germany and France. The U.K. alone represents $78 billion of the total, or nearly 30 percent of the entire European market. While most of the younger generation in Europe can speak and read English, many residents there cannot, which is why selling to the U.K. is the most logical step for American stores looking to expand internationally. You could see a meaningful boost in sales, while being in easy reach of mainland Europe once established in the U.K.

SEO for the U.K.

Your U.S. website will appear in search results from the U.K., but Google now places a lot of weight to the location of the search, with U.S. pages much less likely to appear — and almost entirely excluded from Google Shopping results.

U.K. consumers are also likely to be put off by seeing prices shown in U.S. dollars, as it makes it difficult to compare. Moreover, many consumers assume that shipping will either be very slow, or very expensive.

The first step, then, is to offer a U.K. version of your website. If you have an advanced ecommerce platform, this can be done by setting up regional variations, where the currency and certain pages — such as shipping information — are swapped automatically depending on the user’s IP address. The other, perhaps better, solution is to create a duplicate store hosted on a “.co.uk” domain, where the content is tailored to the U.K. market.

Target Geographically

Google AdWords allows you to target locations — such as the U.K. — with specific campaigns. When composing your pay-per-click ads, however, remember there are differences between American English and British English. So pays to research the spelling and meaning of your keywords.

Shipping and Fulfillment for the U.K.

For U.S. merchants, shipping to the U.K. is more expensive than shipping domestically. While some U.K. customers will be willing to pay more, many will not. You may have to settle for less profit initially.

Utilizing a U.K.-based fulfillment company can drastically reduce your costs and remove the headache of international shipping. Rather than sending each item by air, you can send — via sea freight — a large box or pallet to be held in a U.K. fulfillment house, which will send orders to the U.K. and Europe on your behalf.

To use a fulfillment company in the U.K., you don’t have to be shipping large volumes. The savings in postage will likely pay for the other costs involved, assuming you ship at least a few orders per day. And, importantly, you’ll be able to get goods to the customer much faster. The fulfillment company I work for in the U.K. currently has several U.S.-based clients that ship just 50 to 100 orders per month.

A good U.K.-based fulfillment company can also handle your returns, as well as U.K.-based customer service issues.

How Much Stock to Send?

Holding stock in two countries — the U.K. and U.S. — can pose a few issues. But they can be quickly overcome. A good fulfillment company will provide real time inventory reporting, to track stock levels and create automated stock alerts.

The cost of land in the U.K. is several times higher than the U.S. Storage costs in the U.K., therefore, are 2 to 3 times higher than in the U.S. So if your products are large, you’ll need to carefully weigh the savings from shipping a large pallet of stock versus the additional storage costs this might generate — especially if you are just starting.

Import Taxes

If you are sending to the U.K. single items with a sales amount more than £15, the customer will pay value added tax — or “VAT,” currently 20 percent — and a variable “duty” tax on the item’s value. This is another reason U.K.-based consumers will be skeptical of buying from a U.S. storefront. By shipping to a fulfillment center, you avoid the customer being charged. You will still have to pay VAT and duty upon the consignment, but they will be based on the wholesale price. And remember, too, that if you’re selling a product that is already available internationally, it may be cheaper to purchase it from a U.K. distributor or manufacturer.

Once goods are in the U.K., there are no trade barriers or taxes within the European Union, which includes all of Europe minus a few countries — such as Switzerland and Norway, which are not part of the EU.

James Hyde

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Comments ( 3 )

  1. Richard Stubbings January 26, 2012 Reply

    An interesting article. I feel you have missed a few points.

    Firstly the low value item exemption for import VAT is being removed. Within a few months ALL imports will have a 20% VAT charge applied, not just those over £15. Most carriers also charge an admin fee which is in the region of £10, so it will get very expensive for individual customers to order from abroad. Thus repeat sales will be unlikely.

    Further if sales in the UK exceed £72,000 you will have to register for VAT in the UK and charge 20% on top of all prices. If you do not plan for this at the start then it will come as a big shop to the business when your prices have to go up by 20%.

    An advantage in using a UK fulfilment centre which you did not mention is the time difference. The customer service will be operating at the same time as the customers, and speak with the same language and accent, always an advantage. Not that I am suggesting anything is wrong with an American accent, it is simply the better feeling customers have if they think they are dealing with a local.

    Finally, no retailer should consider selling into the EU without looking into the Distance Selling Regulations. For example, if you sell anything to a German customer and they decide they do not like it, and it was more than 40 Euros, then you have to not only accept the return and refund in full, not charge a re-stocking fee, but also refund postage BOTH WAYS. A very expensive lesson if you have not budgeted for this.

  2. James Hyde March 14, 2012 Reply

    Thanks Richard for picking up on those points. I believe the Low Value Consignment Relief (LVCR) is only being completely removed for items shipped from the Channel Islands where companies like Play and Amazon are exploiting this loophole. This is happening from 1st April 2012, but the limit from the US to Europe is likely to remain at £15.

    Worth noting though, that duty is normally applied on the combined item and postage charge though (e.g. the complete invoice total).

  3. Michael Fay May 23, 2014 Reply

    James,
    Good article, and a little late based on the article date, but I have a question never the less:

    I am a US based business, but I am considering having a UK based company manufacture and fulfill our product. Product will be sold onine via the web to Spain, France, Netherlands and Germany. My question is this: By using a UK company to perform both the manufacturing and fulfillment, aren’t we exempt from the VAT tax on manufacturing orders?