Hello everyone!
Another day, another blog!
In this blog, I wish to share my subjective view on international expansion for DTC brands. When your products are unique and you gradually gain demand for what you're selling, it's a signal for international expansion. While many blogs cover this topic, I aim to provide authentic insights based on my experiences, rather than adding to the academic discourse with redundant content.
Let's explore what I believe you should do for international expansion.
Key questions that need to be answered
Who is your ideal customer?
This is a crucial step for every DTC brand, as cultural influences significantly impact consumer behavior. Conduct comprehensive market research to understand how people make online purchases. For example, in many Asian countries, people prefer to buy from marketplaces due to trust issues with online stores and online payments. Therefore, selling on platforms like Shopee, Lazada, and TikTok might be necessary. Similarly, in the UK, US, or Australia, people also prefer online shopping, with Amazon and eBay being popular marketplaces. The key message here is to define your customer persona carefully.
How are the expected sales orders?
I believe this is one of the most crucial questions that you, as the business owner, need to answer yourself. You possess a deep understanding of your products and your target market better than anyone else. Consider creating a spreadsheet and visualizing the projected sales volume for the year. This information will significantly influence how you structure your logistics operations. From my experience working as a logistics consultant for a small US company, I've noticed that many DTC brands seeking expansion overlook this question. However, it's a simple yet crucial aspect that should not be underestimated.
How to fulfill the orders?
This is a critical decision that requires careful consideration. When it comes to this aspect, there are only two options: Local Fulfillment and Cross-Border Shipping.
Local Fulfillment
Sometimes referred to as "in-market" fulfillment, involves maintaining stock in the target market and being prepared to fulfill orders at any time. You'll need to send a sufficient quantity of stock to the target market and store it there. When orders are placed on your website, you or your 3PLs can begin fulfilling them locally. Why I have to highlight the word “sufficient”? Let me share a case from my experience. I worked with a DTC brand entering the US market from the EU. Their initial shipment consisted of just 80 units sent via sea freight. However, the landed cost turned out to be significantly higher than anticipated. After conducting a thorough analysis, I discovered that they hadn't sent enough stock for selling, even falling below the break-even point. This oversight resulted in higher costs for the first shipment.
Cross-Border Shipping
Cross-border shipping involves fulfilling orders outside of the target country. For instance, if you're based in Australia and receive orders (around 5-10 per month) from the US market, you'll need to ship each order individually via DHL or other carriers. When considering cross-border shipping, factors such as shipping costs, shipping terms, and surcharges are crucial.
Carriers like FedEx and DHL often impose surcharges, which may only be revealed at the end of the shipping process. In contrast, services like Sendle or AU Post may offer flat rates for international shipping.
Regarding shipping terms, there are two main options to consider: DDP and DDU. DDP (Delivery Duty Paid) means you cover the duties and taxes in the destination country. Most receivers prefer this option as it simplifies the process for them—they simply receive the parcel at their doorsteps. On the other hand, DDU (Delivery Duty Unpaid) means the receiver covers the duties and taxes. This option requires them to deal with customs authorities to settle the amount of duties and taxes before receiving the parcel, potentially leading to customer dissatisfaction and complicating the delivery process.
Simple Steps for the international expansion
Step 1: Visualize the forecast volume for the expected market.
This is simple but vital as you need to clarify how the market size would be to make informed decisions on the operation, whether local fulfillment or cross-border shipping. To gain better logistics rates, if local fulfillment, focus on last-mile domestically; if cross-border shipping, consider international shipping costs. Visualization should cover a quarter or a full year in Excel, month by month. Let's check the fulfillment cost sheet to see how I visualize the data for the DTC brand.
Step 2: Reach out to 3PLs/4PLs or International Shipping companies for quotations.
Don't be shy about getting such inquiries out to the market, as you are selling actively. Once you have done step 1, take that Excel sheet and deal with the logistics company. For local fulfillment companies, ask them to provide fulfillment costs and last mile domestically with a clear weight band. For cross-border shipping companies, provide them with:
- Order Forecast Volume
- Targeting Countries
- AOV (Average Order Value) – this is related to duties/taxes, as it has different Deminis or Thresholds in each country. It determines whether you have to pay duties/taxes or if the receiver does not.
- Order Dims – usually the dimensions of the outbox used to pack the order. Please optimize the box size as much as possible. Sometimes DTC brands think of sending very fancy big boxes, but this is not ideal for international shipping, as it will affect your logistic costs too much in terms of chargeable weight.
- Order Gross weight
What you need to ask them to provide back to you:
- Cost Sheet for both DDP or DDU (if possible, ask for both; if not, ask for DDP).
- Clear Explanation of the surcharges and which surcharges would be applied for your business if you are shipping internationally.
Step 3: Do your own cost analysis to make the decision.
After collecting quotations from all relevant parties, sit down and do your own cost analysis. Prepare the Excel file – actually, you can take it from Step 1 and add more columns on the cost of the operation (logistics cost) to consider whether you need to do local fulfillment or cross-border. In my experience, for most DTC brands, if the AOV is under $100 and the monthly volume is under 100 orders per month, the best approach is to cross-border ship every single order. But when the volume is 200-500, consider switching to local fulfillment.
Final Thought
Expansion is a natural progression for DTC brands aiming for sustainable growth. However, before making such significant decisions, thorough analysis and research are essential. The ideas and perspectives shared in this blog are based on my subjective opinion, offering unique insights you won't find elsewhere.
If you have any questions or thoughts, please feel free to share them in the comments.
See you in the next blog!