As e-commerce activity continues to expand across the globe, the appeal of cross-border trade is also rising. For those considering entry into the expansive and potentially highly rewarding US market in particular, many questions arise regarding the many opportunities and uncertainties surrounding this move.
Selling into the US market involves many factors and variables, such as implications for tax responsibilities, expectations for customer service, cost-effective fulfilment options and more. Sellers who carefully craft their strategies and construct a detailed plan before entering this massive market are more likely to achieve stronger success.
However, research on cross-border trade can produce outdated or inaccurate information – or results filled with more opinions than facts. To obtain objective and up-to-date insights, we put several of the most commonly asked questions on this topic to the Department of International Trade (DIT). The DIT works to secure UK and global prosperity by bringing together policy, promotion and financial expertise to break down barriers to trade and investment and help businesses succeed.
Here are what they had to say:
What makes the US a lucrative market for UK sellers?
Given the large population (328.2 million) within the US, reaching even a small share of this market can be substantial. Its population tends to be diverse, affluent and sophisticated, typically with high levels of discretionary spending and conspicuous consumption. Compared to other international markets, the retail environment is culturally similar to the UK, with good consumer awareness of and appreciation for UK products and relative ease of doing business. Its established trade relations with Canada and Mexico within the highly integrated North American supply chain also can ease trading from or into those neighbouring markets.
According to Dana Dickerson, North America Head of Sector for Consumer Goods (Food & Drink and Retail), US retail sales were on a steady upward trajectory prior to the COVID-19 outbreak. The National Retail Federation (based in the US) reported that retail sales were up 3.7% in 2019 and it had predicted continued growth for 2020 (in the range of 3.5% to 4.1%). During 2020, the US saw significant growth of e-commerce – consumer online spending was worth $860 billion (up 44% YoY). More than 21% of US retail sales occurred online in 2020.
As the pandemic continues to influence consumers’ shopping behaviours, many buyers are being forced to abandon prior hesitations and shift the way they shop, resulting in increased online shopping and new opportunities for the digital experience. For retailers, this is a time to explore new capabilities and test consumers’ appetite for new ways to shop. Trend drivers tend to be early adopters who reside in major metropolitan regions.
What should sellers consider when expanding to the US?
Dickerson says to think of the US as 50 different markets, as significant cultural and consumer differences exist across states.
Regions within the US with the most attractive consumer bases may also be the most competitive. To achieve success in a highly competitive market, products must be highly ground-breaking, disruptive and/or significantly more attractive than those of incumbent competitors. Competition should be researched, and e-commerce can be a great way to solicit direct feedback on product USPs via reviews.
Additionally, with so many sales being made on mobiles, businesses should ensure their sites are friendly to mobile traffic.
Sellers should also research and plan to address the following factors:
- Tax structures: Duties may apply on qualifying UK origin goods and may be reduced in the future with a UK-US trade agreement.
- Regulations: These can include intellectual property, data and consumer protection regulations, product formulations, labelling and registrations.
- Logistics and distribution: Customers have high expectations for free, rapid and guaranteed delivery (e.g., Amazon Prime). Ideally, product is cleared into a third-party logistics provider (3PL) and fulfilled from a central point in the market.
- Pricing: Incorporate longer-term omnichannel strategy into decisions. Ensure goods are priced high enough to allow for margins for future sales into other channels (e.g., brick-and-mortar retail), but not so high as to alienate consumers. Cross-border exporting can also lead to additional costs for customers. Consider the total price your end consumer will pay, including duty, shipping, and local taxes, compare this against competitor offers and price accordingly.
- Customer service: Determine how to best serve customers based on local time zones, and how returns, exchanges and package theft will be managed.
- Product visibility: Significant marketing investment is typically required to bring customer attention to your products. Ensure product images, titles and descriptions are attractive, optimised and tailored to market (e.g., wording in US English). Social media marketing and engagement with reviews have significant influencing potential.
Are consumer expectations the same for both regions or are there nuances?
In terms of customer service, consumer expectations in the US are similar to those in the UK. US consumers typically have high expectations for delivery times, but that will vary across cities and states, as the US is a much larger region. However, as US fulfilment capability grows, expectations are increasing. US consumers have high expectations for free shipping — 90% of US shoppers choose free delivery and 70% of orders are expedited.
Expectations are also high for price-value ratio, given the breadth of competition, and for free returns.
Consumers also have an increased interested in provenance and companies’ inherent values/authenticity following the BLM movement and the impact of COVID-19 on local businesses.
What are good channels/marketplaces to start out with?
According to Judith McElhinney, eCommerce Specialist from DIT’s E-Exporting Programme, an obvious marketplace to start with is Amazon, the biggest marketplace in the US that captures half of all US e-commerce sales and over 5% of total US retail. There are over 95 million Amazon Prime members, with an average spend of $1.4K on the platform each year.
On the B2B side, Faire is a US-based platform that connects brands with more than 100,000 local and independent retailers across North America, who are actively looking for new stock offerings. Buyers on Faire are especially keen on brands that are hand-crafted, design-led, sustainable or not available on mass-market channels. This is a great platform to expose your brand to a large volume of independent buyers in just a few clicks, and they work across various categories including Food & Drink, Beauty & Wellness, Fashion, Jewellery, Beauty, Home Décor, Kids & Baby and Pets.
Various category-specific marketplaces also offer excellent opportunities to the right sellers — from Wayfair for homeware to Newegg for IT and tech-related goods.
Do any verticals do particularly well when expanding to the US?
Athleisure, sporting goods, wellness and lifestyle products, beauty and body care, home and leisure, gifting, sustainable and ethical products, luxury goods, toys and games have performed well. Online food and drink sales are growing significantly, and the grocery retail industry is increasing customer fulfilment capacity with the likes of Ocado developing customer fulfilment centres (CFCs) for Kroger in the US.
Are there any operational challenges to consider?
UK companies will need to set up a merchant account (like a line of credit) or alternatives allowing them to process credit card payments.
To sell on marketplaces, you will generally want to clear your stock into the US upfront so you can meet delivery expectations. McElhinney points out that most marketplaces will not act as your importer of record, so you will need to source this service separately and you will be responsible for ensuring the imported goods comply with local laws and regulations, filing a completed duty entry and associated documents and paying the assessed import duties and applicable taxes.
How can brands deal with fulfilment when customer expectations for fast delivery are high?
Engage a 3PL to have product cleared in market, utilise selling software to automate processes and manage customer expectations upfront.
What are the tax implications of selling to the US?
According to Dickerson, The Marketplace Fairness Act grants US states the authority to compel online and catalogue retailers (“remote sellers”), no matter their location, to collect sales tax at the time of a transaction – exactly like local retailers are required to do. Two scenarios apply to international sellers:
- You are an international seller with no physical presence in the US. In this scenario, you may have to deal with customs and import taxes, and you may have to collect or remit sales tax, depending on the location and amount of sales you make.
- You are an international seller who warehouses products in the US such as in an FBA warehouse. If you sell on Fulfilment by Amazon or have established any other type of sales tax nexus in the United States, such as a store, an office, a satellite branch or a warehouse where you store inventory, then you must comply with the sales tax laws of the state where you have nexus. You must collect applicable state and local sales tax from your customers.
Sales tax is charged at different rates depending on which state the company has nexus in. These sales tax rates varied across states, ranging from 4% to 10.75%. According to the Tax Foundation, 45 states collect state-wide sales taxes, and 38 states collect local sales taxes. The five states with the highest average combined state-local sales tax rates are Louisiana (10.02%), Tennessee (9.46%), Arkansas (9.41%), Washington (9.18%), and Alabama (9.10%). The five states with the lowest average combined rates are Alaska (1.76%), Hawaii (4.35%), Wisconsin (5.42%), Wyoming (5.46 %) and Maine (5.5%).
Want to learn more?
If you’d like to learn more about expanding to the US, you can read ChannelAdvisor’s eBook, How to Effectively Sell to US Consumers, or view this on-demand webinar for more information. Or visit the Department of International Trade website.