CROSS BORDER E-COMMERCE European Parliament Retail Market Roundtable 15 February 2016 JANINE TILLEMA FOUNDER & CEO PAULA S CHOICE EUROPE B.V. 1
Timeline Paula's Choice Europe 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YoY avg. growth: 45-50% 2015 growth: 90% EU25 1 website 1 language 1 currency 1 VAT number EU28 4 + 5 websites 10 languages 7 currencies 10 VAT numbers (+ 3 applications) Local teams or partners in 14 countries 2005 2013 2015 3 employees 13 employees 32 employees 2
Current footprint Paula s Choice Europe Based in Amersfoort, NL Shipping to all 28 EU Member States 11.500 orders/m 3.800 new customers/m 130.000 customers across EU 4 websites: Netherlands, Belgium (Dutch) UK (English) Germany, Austria (German) RoEU (English) Agency (commission) model for Germany Sub-distributors in 5 countries Resellers in 6 countries (plus Norway) Social presence: 13 accounts (10 languages / 85.000 followers) 7 accounts ( 7 languages / 3.500 followers) 7 channels ( 7 languages / 790 followers) 7 accounts ( 7 languages / 3.619 followers) Core countries NL+BE / UK / DE+AT Single brand sub distributors Local partners (single or multi-brand resellers) 3
Business realities in the EU Different cultures and languages: building trust is essential Requirements for successful cross border e-commerce: Local presence (address, phone number) Communication with customers in local language (CS and marketing) Relevant content Meet customer expectations Free shipping and returns? Cater for local preferences Country specific payment and shipping options Local online marketing (incl Adwords) Local quality/trust marks EXPECTED DELIVERY TIME ITALY/SPAIN UP TO 5 DAYS GERMANY 1-2 DAYS NETHERLANDS UK NEXT DAY NEXT/SAME DAY PREFERRED PAYMENT METHODS GERMANY INVOICE IN PARCEL AUSTRIA CREDIT CARD NETHERLANDS ONLINE BANKING EASTERN EUR. CASH ON DELIVERY 4
Current VAT administration Country Frequency Specifics How to file The Netherlands quarter for Netherlands and all EU countries under EU-VAT threshold digital The Netherlands ICP month special reporting for all 0% VAT exports to other EU countries digital United Kingdom quarter different quarterly cycle: Feb-Apr, May-Jul, Aug-Oct, Nov-Jan digital Germany month digital Austria quarter digital Spain quarter payment through Spanish VAT consultancy firm digital Sweden quarter paper Denmark half year paper Finland month reporting two months retrospective (f.ex. filing in November = VAT of September) digital Belgium quarter payment per month (2 prepayments based on previous quarter and third / final payment) paper This also has impact on systems and pan-eu promotions (only %, no absolutes) Applications for 3 more countries Considerable administrative burden Action announced in Digital Single Market Strategy (2015) 5
A Digital Single Market Strategy for Europe (May 2015) Additional aspects Definition unjustified Attention for position of SME s 6
To support and strengthen Digital Single Market Strategy Review branch specific regulations through digital lens : allow online/digital whenever possible Examples EU Cosmetics Regulation 1223/2009: Address must be stickered on each product (why not web address where full details can be found?) Paper folders must be included in each order with certain information in local language (why not online, always up-todate, reduces cost and waste?) Note: certain aspects of regulation are better served online/digital Attention for SME cross border expansion issues: agency law, employment law, competition law 7
Competition law aspects for SME s in practice SME s need local partners to be successful cross border Local partners invest in building the brand in their country/territory Under competition law: no exclusivity (passive sales must be allowed) Intra-brand competition on price Difficult to find partners for local markets, uncertain return on investment Cross border expansion would benefit if SME s could grant local (SME) partners exclusivity to a certain extent 8
Price differentiation in the market Big differences across EU: Purchasing Power (PP) Costs (labor costs, rental costs, tax etc.) In offline retail there are (accepted) price differences between the countries Drive in online retail to give consumers the best deal possible For SME s, online selling costs are location dependent PPS per capita One location (SME s) versus multi-location rather than online versus offline 9
Cross border competition matrix Selling to customers in country A OFFLINE SHOP est. in country A WEBSHOP est. in country A INTERNATIONAL WEBSHOP est. in country A INTERNATIONAL WEBSHOP est. in country B (same costs and PP as in A) INTERNATIONAL WEBSHOP est. in country C (lower costs and PP than in A) OFFLINE SHOP est. in country A same costs and PP same costs and PP same costs and PP lower costs and PP WEBSHOP est. in country A same costs and PP same costs and PP same costs and PP lower costs and PP INTERNATIONAL WEBSHOP est. in country A same costs and PP same costs and PP same costs and PP lower costs and PP INTERNATIONAL WEBSHOP est. in country B (same costs and PP as in A) INTERNATIONAL WEBSHOP est. in country C (lower costs and PP than in A) same costs and PP same costs and PP same costs and PP lower costs and PP lower costs and PP lower costs and PP lower costs and PP lower costs and PP No level playing field Potentially disruptive competition between countries with different cost and PP levels 10
Some observations Difficult for SME s to compete cross border in countries with lower cost level (competition) and lower PP (consumers) Variations in PP may lead to difference in brand position across EU Through local partners: some costs may be lower, maybe lower price level possible (more in line with local PP) Cross border race to the bottom? 11
Geo-blocking / Geo-redirect Geo-redirect to direct customers to the right website.nl: NL, BE EUR, Dutch, NL and BE VAT.de: DE, AT EUR, German, DE and AT VAT.co.uk: UK GBP, English, UK VAT eu.com: all EU countries EUR, English, NL VAT for below threshold countries, above threshold local VAT is applied Prices are the same across EU VAT differs per country (above threshold) Margins differ per country (shipping subsidy, non-euro currency exchange rates) When is geo-blocking considered to be unjustified? 12
Conclusion Digital Single Market Strategy is a major step forward for encouraging cross border e-commerce and unlocking SME potential Review and align branch specific regulations with the goals of Digital Strategy Attention for level playing field aspects Attention for SME cross border expansion issues: Competition law Commercial Agents Directive (86/653/EEC) Employment law 13
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