Unbeknownst to many, Europe leads the US in many E-Commerce metrics. Not only does it have more online shoppers but it also has a by far larger B2C market size. In addition, according to the E-commerce Foundation, Europe has the highest worldwide internet penetration, with 80.5 percent of the population using the internet. But don’t get too excited: There are indeed a lot of benefits and opportunities related to expanding your business into Europe, however, the road to success can be fairly bumpy. In this blog, we outline the major opportunities and challenges related to opening your E-Commerce business in Europe. We will also present our “success formula” which - if followed - dramatically increases your chances of success as shown by many of our reference clients.
BILLION $ MARKET
According to Amazon’s official 2016 sales data, Germany and the UK rank as Amazon’s second and third biggest markets measured in sales. In addition - in comparison to the US market - products sell on average for higher prices, there are a lower competition and fewer reviews per product. As shown in the graph below, the EU market is much bigger than US market measured in population, E-commerce markets size and active online shoppers (AOS). Albeit slight slower than the US, the EU shows a solid two-digit growth.
GROWING SHARE OF E-COMMERCE
While there is still a big difference between certain countries part of the European Union when it comes to measuring “E-Commerce Retail E-Commerce Sales as a Percent of Total Retail Sales”, there is a positive development in the five biggest EU markets: Germany, UK, France, Italy and Spain. The clear leader in that statistic is by far the UK followed by Germany and France.
AMAZON DOMINANT PLAYER
As it is the case in the United States, Amazon is also the clear market leader in many European countries. Unlike in China - where the market behemoths Alibaba, JD, and Taobao are the key players, Amazon is by far the dominant E-Commerce platform in Europe. In Germany, for example, Amazon has an approximate 13% market share of $70B USD E-commerce market in GER. Apple, the maker of iPhone and iPad barely makes the top 10.
While the overall trends are mostly positive, one needs to bear in mind the challenges that go along with operating an E-Commerce business in Europe (as a non-EU business). For example, in terms of e-shoppers, Europe is still far behind on North America. In Europe, approx. 40% of internet users shop online (~300m out of 740m), while in North America, it’s 60% of internet users (~200m out of 330m). Will this percentage grow in Europe’s favor? We don’t know obviously, we just know that Europe has a lot of growth potential, provided its governments can push through innovative legislations despite widespread by fears of privacy violations, cyber attacks, and terrorism (link).
As shown during the recent Brexit discussion many people even within the European Union don’t know what the European Union is. After the Brexit Vote, many Britons asked Google: "What Is The EU?". Not surprisingly then, most non-Europeans don’t know what it is either. So for the record, the European Union is a political and economic union of 28 member states. Its beginnings go back to the 1950’s when European leaders thought it was beneficial to cooperate economically and politically rather than to fight each other as they did during two world wars. Things have changed dramatically since, however, even though the EU is now one economic zone without any customs barriers, each country still has a word to say when it comes to taxation and economic policies. Furthermore, there are 24 official languages (and a number of semi-official ones such as Catalan, Basque, Welsh, etc.). Why does that matter of the average FBA-seller? Well, while selling a single product in the US involves only one language and one jurisdiction, selling products in Europe involves many languages and many jurisdictions. Be prepared!
STRICTER TAX AUTHORITIES
When Amazon sellers expand to the EU they most often pick the UK as their go-to destination. This is a good choice as the country is pro-business, not overly bureaucratic and communication-friendly (English). Having said that, the HMRC (“Her Majesty’s Revenue and Customs”), the UK tax authorities, has toughened up on Amazon sellers not paying VAT. Under UK law, Amazon is now required to disclose select seller account data if HMRC believes a seller may not be compliant. The UK government gave the HMRC new powers to identify non-VAT compliant, non-EU businesses and making Amazon liable for sellers. So before opening up a new Amazon account in the UK (or in any other EU country for that matter), you will have to have a valid VAT number. We believe that the HMRC setup process is simple and straightforward but if it still turns out to be too difficult, we’re here to help (link).
ADDITIONAL PAPERWORK AND ACCOUNTING SERVICES
Pay attention to these obligations: Once VAT registered the UK you need to quarterly file your VAT returns. In other words, the 20% VAT you charge your clients need to be passed on to the HMRC (the UK tax authorities). Some accounting softwares (e.g. Xero) can potentially make this process very easy but for most sellers, this is not a trivial task so we strongly recommend using a professional accounting firm. It becomes even trickier if you have chosen the PAN or MCI fulfillment option Amazon promotes. Once your products are stored in other countries, you immediately become obliged to file for VAT in these countries even if you don’t make a single sale! If this is too complicated for you feel free to sign up for one of our 15min free consulting sessions by filling in our contact form and we can help you with some basic questions. If you would like to go straight to an accounting specialist we recommend Bean Ninjas - a professional accounting firm and Xero Gold partner, helping in particular Amazon sellers.
Last but not least it’s worth remembering, it’s your own responsibility to keep your non-EU and EU business separate and to correctly calculate your VAT obligations to any EU-member state. Even if you work with an accountant the ultimate responsibility lies with you. If you don't’ comply with the regulations, you’re in for a nasty surprise. But if you play according to the rules, if you have chosen good products to sell and are lucky enough to not face overly harsh competition then selling as a FBA-seller in Europe can be a lot of fun!