New Rules Make Foreign Goods Cheaper Online
A change in trade rules is making it cheaper and easier for American consumers to buy overseas goods online, heartening merchants abroad but threatening stiffer competition for U.S. retailers.Since about a month ago, the government has allowed Americans to import up to $800 at a time of most foreign goods without having to pay import duties or tax. That’s quadruple the previous exemption of $200.The change, part of a bill signed into law earlier this year to overhaul the U.S. Customs and Border Protection agency, is good news for online shoppers and package-delivery companies but presents another challenge to traditional retailers struggling to cope with e-commerce.
Until the new rules took effect March 10, duties averaged 33% on the top 50 products brought into the U.S. when purchases exceeded $200, according to United Parcel Service Inc. MMUPSMM On a $201 purchase of costume jewelry, U.S. customs would collect a duty of 110%, more than doubling the price.Now, those duties are zero, providing the price totals less than $800.As a result, UPS, FedEx Corp. MMFDXMM and Deutsche Post AG’s DHL say they are bracing for a flood of new packages.The higher threshold for duties “is going to open up more opportunities for vendors around the world to sell” in the U.S., said Ralph Carter, managing director, legal, trade and international affairs at FedEx Express.
Since the change, U.S. orders for Paris-based Melijoe.com’s luxury children’s clothing have jumped about 27%, says Romain de La Rivière, chief financial officer of the 3-year-old company. Its brands, which include Little Marc Jacobs, Junior Gaultier and Kenzo Kids, are hard, and sometimes impossible, to find in U.S. stores. American shoppers currently account for 20% of Melijoe’s sales, up from 15% before the new rules took effect. Mr. de La Rivière says he expects that figure to grow.
“The U.S. is definitely a strategic market for us,” he says. Globally, the company’s orders average more than $200.
While cross-border shopping still accounts for just a fraction of total global e-commerce spending, it is growing quickly—at a rate of more than 25% annually. Globally, the company’s orders average more than $200.
Until recently, “retail has always been local or national. There were very few retail brands 10 or 15 years ago that ever left their local geography,” says Alan Gershenhorn, chief commercial officer of UPS. It was expensive and risky to build stores abroad, especially without name recognition.
By 2020, however, about 943 million people world-wide are expected to buy online from abroad, spending an estimated $994 billion—nearly quadruple the sum 309 million such people spent in 2013, according to a study by Accenture MMACNMM and AliResearch, an arm of e-commerce company Alibaba. Already, 5 4% of U.S. online shoppers have made a purchase overseas, according to a survey by comScore and UPS, as consumers increasingly shop on their phones and look for unique products.The new duty rules largely eliminate one of the big headaches for those shopping abroad online: unexpected fees or delays.
As a result, U.S. orders for U.K.-based OmologatoWatches.com’s nearly $400 auto-racing-inspired watches have picked up, says Shami Kalra, owner of the year-old company. Until recently, “customers were hesitant in the Americas, because they were wondering how much they would have to pay when [their watch] arrived,” he adds.The change makes international returns easier too. Consumers still prefer to touch and try on clothing before making a final decision on their purchases, but paying duties both ways was pricey.
Will Green, owner of U.K.-based WillsLondon.com, says he is now working to pattern his online specialty shoe store after U.S.-based Zappos, allowing shoppers to buy several sizes and send back any that don’t fit without charge. The company’s shoes, which are free of leather and other animal products, average $105 a pair, so an order of just two pairs would have fallen under U.S. duties.“Now you can find your size, shop away and we know we’re not going to get that hit on margins,” he adds.
For U.S. retailers, however, breaking down such barriers means more competition. “It’s definitely a concern” as more domestic retailers also look to sell abroad, says John Haber, chief executive of Spend Management Experts, a supply-chain consulting firm. “If it’s going to be easier for other retailers to import to the U.S. and get away without paying duties and taxes, I think it’s definitely a pain point.”Write to Laura Stevens at email@example.com