We have sellers from all of the world using Splitly to optimize their listings, but the fact remains that the majority of Amazon seller’s in the world are making their money in the US on Amazon.com. Whilst this is still a great opportunity and a great place to get started as a seller, there are growing opportunities springing up across the world as Amazon expands.
The American consumers have truly embraced Amazon Prime – ordering everything from electronics to consumables on Amazon directly to their homes. This trend is now starting to take hold in other marketplaces too, particularly in certain parts of Europe and Asia. This opens up opportunities for sellers to become international players, and, the earlier you get in the lower the competition is.
I invited David De Souza, UK based Amazon expert and experienced accountant, to talk about the growing opportunities of selling in several marketplaces!
Is Amazon US Competition Getting Too Fierce?
When you first get started on Amazon, chances are like most sellers you begin in the United States. After all, it’s the biggest market and the best place to test new products.
For the Non-US Sellers out there, the U.S. Consumer Intelligence Research Partners, LLC (CIRP) estimates that there are over 50 million Prime members in the US spending on average about $1,100 per year.
As you can imagine, that means there is serious money to be made from selling in the U.S. Ultimately you’ll realize that as your business grows, you’ll run into the problem all advanced sellers face… saturation.
While the US is the biggest Amazon market, with so many sellers taking advantage of the opportunities available to make money through this platform, competition is fierce and saturation is happening faster and faster.
So, how can you combat the effects of saturation in the US market and keep your business growing? Expand into new markets of course!
The European market is proving to be a great place for sellers to expand their reach and increase their business growth.
In this post I’ll take you through why you should expand into new markets, which markets to expand into and some of the challenges you may face along the way.
Why Expand Into New Markets?
In each marketplace there is generally only a finite amount of customers you can market or sell a product to before your target market reaches saturation.
This generally leaves you with two options as a business owner:
- Expand your product range in the existing markets you sell in; or
- Find new markets to sell products in
There are two ways to do this, too. You can either launch your existing products into new markets, or you can launch new product ranges in new markets.
The best way to approach this is with some research. Selling internationally comes with lots of extra business admin as we will cover shortly. So it’s worthwhile ensuring that what ever product(s) you decide to sell overseas are going to be winners.
Each marketplace differs when it comes to demand for certain niches and products, so it’s definitely worth checking if any of your existing private label products can be sold in other marketplaces, or if you can find any opportunities that hold a lot of promise.
As an entrepreneur time is your most precious resource is time and I firmly advocate working smarter, not harder to grow your business!
This is why taking your existing winners and expanding them into new marketplaces can be one of the easiest ways to grow your target market and increase your profitability.
Take for example, the aromatherapy vaporizer market. The craze started in the US and was popularized by a select few brands that were the first to market the electronic aromatic vaporizers.
Soon after, the market expanded, several lesser known brand versions at better prices became available which quickly saturated the US market.
A quick search on Amazon will show an array of highly affordable aromatic vaporizers for home use:
Now, if we look at the data, this is a perfect niche market segment for certain parts of Europe where aromatherapy products are already in demand but widespread adoption of electric aromatic vaporizers has not yet happened.
According to the CBI which is an organization that promotes the expansion of exports to Europe, “the strongest European markets for aromatherapy are France, Germany, Austria and Switzerland, where aromatherapy is commonly practiced as medicine.”
Additionally, “according to industry sources, around 20% of essential oils imported into Europe are used in aromatherapy oils and cosmetics”
With the global market for essential oils estimated at US$5.51 billion (€4.9 billion) in 2014 and experts predicting this to grow to an expected reach of US$11.67 billion (€10.4 billion) in 2022, there is tremendous potential to tap into the aromatherapy market with the electric vaporizers as a niche product.
Of course, you would still need to do some research to see if your winning product has demand in your new market (this can be done through tools like Jungle Scout and by reading this article here).
Which Future Amazon Markets Should You Expand Into?
Now, let’s go over which markets are best to expand into as an Amazon seller.
The two biggest markets on Amazon are the United States and Europe. So if you are already selling in the United States, the next best market to tap into is in Europe.
“eMarketer online buyers, April 2017 estimates that there will be over 340 million online buyers in Europe by the year 2018.”
That market size is bigger than the US and with such a diverse range of buyers along with the relative infancy of the European Amazon market as compared to the US, this means that there are still plenty of niche opportunities available across ALL European marketplaces.
While there are several countries in Amazon’s European market, you can access one European Seller Central account for Europe to simplify your expansion setup and logistics. This does become more complicated in terms of business management, tax and legal setup – more on this in a moment.
The positives are that with just one account you can reach customers from across Europe (Amazon.co.uk, Amazon.fr, Amazon.de, Amazon.it, and Amazon.es), and manage all your sales, listings and inventory in one place.
Challenges Surrounding New Market Expansion
While there are many great opportunities to expand your reach and grow your buying audience, expanding into new countries does not come without its challenges.
Some of the common issues involved with expanding into foreign markets are as follows:
- Inventory Logistics Management
- Taxation & Legal Structure
- Foreign Currency Risk
There is also the added consideration of language and translation. Let’s take a look at all of the considerations in more detail.
Inventory Logistics Management
When sellers decide to expand into Europe, they need to make a decision as to which countries they want to store their inventory.
Similar to the U.S. with the concept of sales tax nexus, for every additional European country a non-resident seller stores inventory in, this triggers an obligation to register for Value Added Tax or “VAT”. This often results in added business compliance and administration costs.
Now you may be wondering if it makes a difference if you store all your inventory in one country or in every European country you sell in?
Where To Store My Inventory Abroad
The main reason why a seller would want to store their inventory in every European country that they sell in is that the Amazon algorithm tends to boost seller listings for sellers who store their inventory closer to the customer.
This is because it results in quicker shipping times and a better overall customer experience which can translate into increased sales.
The alternative to sellers storing their inventory in every European country is to store all the all their inventory in one European country.
For example a seller could store their inventory in UK Amazon warehouses and then list their products for sale on the other Amazon country platforms such as Germany, France, Spain or Italy and then when it sells Amazon will charge an additional fee to ship the product from the U.K. to customers in Europe.
Therefore, it is important for sellers to weigh up the added time and monetary compliance costs of storing their inventory closer to the customer versus storing their inventory in one European country and paying the extra fulfillment fees.
For a more detailed explanation on how this works, feel free to listen to The Ecommerce Guider Business Hacker Podcast episode which outlines when it is advisable to enroll into PAN European Fulfillment and store your inventory around Europe.
Taxation & Legal Structure
When deciding on how to expand into another country, sellers need to determine what the appropriate legal structure to trade under is.
When expanding internationally, a common misconception is that sellers need to incorporate a new company to trade under. Sellers DO NOT not need to always incorporate a new company when say expanding from selling in the U.S. into Europe.
While trading under a company legal structure in each country you operate in can be great from a legal liability perspective or a credibility perspective, this may not always be the most tax efficient means of expanding your business.
Sellers should be clear that due to the different nuances existing in international tax treaties between different countries, the legal structure you decide to operate under can result in a vastly different amount of profit you get to keep after tax.
International Ecommerce Business Structure: Example
For example, let’s say Jack has an existing Amazon business trading under a LLC in the U.S. and he only pays a hypothetical tax rate of 30% but in the U.K. the company tax rate is only 20%, It may make sense for Jack to open up a company in the UK and only pay tax on his profits at the U.K rate of 20%.
Similarly, let’s say Jack is selling on Amazon in the U.K. and he is trading under his U.K. company and now wants to expand into the U.S. It may make sense for Jack to trade in the U.S. under his UK Company and pay tax at a rate of 20% rather than opening up a U.S. company and paying tax at 30%.
While some of this may sound confusing, especially if you are not from an accounting or legal background, sellers should be aware that an investment in a little bit of accounting or legal advice can actually pay massive dividends in the long run and save you a lot of money.
All too often this advice can be viewed as an expense but really it should be viewed as an investment that can save you thousands of dollars in the long run.
Paying Tax Internationally
Tax, known as VAT “Value Added Tax” in Europe is what puts a lot of sellers off when thinking of expanding abroad. Although it’s very important, and you need to ensure you are set up correctly and pay your taxes in full and on time, it doesn’t have to be scary.
VAT isn’t too different to Sales Tax in the US, but you will be required to register once your inventory is stored and sold in a European country. There a a few intricate details, such as Import VAT (which you can claim back) and thresholds whereby you can store all of your inventory in one European country and sell across Europe, whilst still only paying VAT in the country your inventory is stored under the threshold. Once you reach the threshold in each country, you would then be required to register for and pay VAT in each respective country.
As an international business, you will want to invest in a professional service or accountant to help handle this for you. Make sure you check out Session #6 of the Million Dollar Case Study: Europe for a detailed explanation of how VAT works for Amazon sellers.
Even before deciding to go international with your business, it’s important to have the correct legal structures in place to protect you and your assets while also keeping your tax expenses to a minimum.
If you are selling on Amazon and have not yet amalgamated your business into a legal structure that protects you, this is the first thing you’ll want to do to simplify your international selling risks.
Running your business under a corporation (LLC in the US and Limited Company in the U.K.) will allow you to run your business as a separate entity from yourself.
In this way, any lawsuits or complaints filed will be against your company and not you personally which protects your personal assets. Additionally, you will probably pay less tax as the tax rate for corporations is lower than for individuals.
Finally, the most important part of operating your Amazon business as a corporation is the ability to increase your chance of being ungated in restricted product categories.
As an ungated Amazon seller, selling in restricted categories can be one of the easiest ways to find less saturated markets with pre-existing barriers to entry.
Due to the vast array of legal and taxation considerations that should be taken into account when choosing an appropriate legal structure we strongly recommend you speak to an expert in order to make sure you choose the best tailored solution for your circumstances.
Payment & Foreign Currency Risk
The last major issue you will have to deal with selling internationally is foreign currency exchange rates and how their impact on your profitability.
If you leave your payments to the mercy of the conversion rates provided by the different ecommerce platforms, they will eat into a lot of your profits.
Platforms like Amazon often offer conversion rates of up to 5% lower than the actual market exchange rates. Remember they are trying to run a business and make a profit too!
When you’re just starting out, you can probably ignore this, but at some point, when you begin to scale this is going to start costing you some serious money.
Think that 5% is not much? 5% on $1,000 is $50 lost every time you transact!
For a more detailed breakdown on the pros and cons of the different foreign currency solutions check out the Ecommerceguider blog post on understanding foreign currency solutions as an ecommerce seller.
The bottom line is that the US market is becoming more saturated with increasing competition and profit margins being squeezed.
There are still LOADS of opportunities to make money with Amazon but as time passes, sellers should start to think about broadening their horizons.
If you know how to do your research and arm yourself with the right information, you can find ever increasing product opportunities by expanding into other marketplaces like Europe.
It does come with more paperwork and legal obligations, but after all, that is the nature of the game for any growing business owner with high ambitions.
About the Author
David is the founder of Ecommerceguider.com and the Business Hacker Podcast, resources purpose built to help aspiring entrepreneurs start their first business and achieve freedom through financial independence.
For More Information…
If you’ve enjoyed this article and want to learn more ways to improve running your ecommerce business in both in the US and in Europe, then feel free to check the Ecommercguider blog or tune in to the Business Hacker Podcast where we hack the minds of successful Ecommerce entrepreneurs to discover the secrets of their success for your benefit including specific episodes that explore how to expand into overseas markets.
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