There is no one-size-fits-all rule for making this decision, nor is there a one-size-fits-all way of answering this question. This is because eCommerce logistics depend on a number of factors that an entrepreneur who decides to sell online and internationalise must constantly take into account. And this is all the more true if they want to do so in the US: a large, distant market with different rules from those in Italy.
Simplifying, we could say that to decide whether to open a warehouse in the US one must first “do the math”, because if it is true that this tool could be exploited from the point of view of marketing – proximity, lower costs, etc. – it is also true that you have to take into account several investments when making such a choice.
Go Global Ecommerce has helped many brands take this step – from Blauer USA to Refrigiwear, from Chiara Boni to Il Gufo, from MotoGP to Barilla. Therefore, we know what steps to take – but above all what questions to ask – before opening a warehouse in the US.
First of all, three fundamental questions must be answered.
1. Can I divide up my stock? That is, do I have enough products to serve all markets with an adequate portfolio? This is the starting point, before any other analysis. If you are thinking of splitting the stock, choosing only some of the products because there are not enough of them, be careful: you are making a mistake. The product range is a key aspect not only for eCommerce revenue, but also for the brand image.
2. Do I have a subsidiary in the United States to carry out these activities? Or do I have a partner such as Go Global Ecommerce who can take care of the logistics and the associated business? A warehouse is an “economic nexus” – i.e. it is considered to be a “physical presence” of a foreign company within a given state and, for this reason, it is subject to the taxation of that state. This is why you need a US subsidiary or, alternatively, if your company has no plans to open one, you should find a Merchant of Record partner – such as Go Global Ecommerce – and work with them.
3. What is the average value of my order? Up to $800 there are no customs duties required, and this is quite important. For an average well below $800, bringing stock into the US would cost extra across the board because the company would pay import duties. In the case of an average well above $800, there are two options: we can choose between a less than positive customer experience – with customs paid by the end customer – or we can foresee an extra cost for the brand with a DTP (duties and taxes paid) shipment – this is equivalent to the import cost in the case of stock on American soil.
After thinking about these three preliminary considerations, the next step is to define a breakeven threshold based on the volume of orders. In other words, we have to divide the fixed and variable costs and see what happens with different order volumes. To compare the same situation, let’s consider the same type of customer experience: same shipping time and costs and no duties to pay.
On the fixed cost side, the investment will mainly be on US soil: we have a new warehouse, which has much higher costs than all other locations (or almost). In addition, we have to pay import duties on the stock. Speaking of variable costs, in addition to pick/pack operations, we have to consider an investment for each order from abroad to equal the price of domestic shipping with a worldwide express courier (remember we are considering the same customer experience). With all these costs, we can easily model our figures according to the number of orders. Up to a certain threshold, the fixed US cost will weigh too heavily. Beyond this threshold, however, the savings with domestic shipping costs will repay the fixed investment.
Is this enough? Not yet. The next step is to work out with the marketer what the projected volumes are for the period in question. Above or below the threshold?
Now, having considered all these variables, you can make your decision.