By Lee Lusardi Connor / Photography by Mindy Best
Let’s say you are a U.S. retailer.
A customer from overseas spots a sweater on your site that he likes. He clicks, enters some information, you send. Sounds simple.
If, however, you are a U.S. retailer who has tried to sell to overseas customers, you know that the concept of “simple” does not apply. Here are just a few items on the to-do list:
- Set up site to accept major credit card or other form of payment from a non-U.S. bank
- Convert currency
- Procure shipping at a price that does not deter the purchaser
- Account for all applicable duties and taxes
- Complete the paperwork for customs compliance
- Be on top of relevant U.S. and country-of-destination laws. (For example, if the sweater has buttons made of shell, you will need a special import/export license from the U.S. Fish & Wildlife Service.)
All of that effort is for one delivery to one overseas customer.
Now imagine you’re a retailer attempting to proactively make incursions in overseas markets. The complexity increases geometrically as you deal with translation issues, time zones, local culture and practices, and product import restrictions. You must also keep track of the federal list of Specifically Designated Nationals with whom U.S. companies are prohibited from dealing.
Add in the possibility of sudden disasters, whether natural (such as an Icelandic volcano that erupts, disrupting air shipping traffic) or manmade (a government coup). Now you know why, despite ever-growing global demand for U.S. brands, an estimated 40 percent of U.S. retailers are missing out on international consumers.
That’s where Borderfree comes in. “Simplicity is at the nexus of the role we play in our customers’ international business,” says CEO Michael DeSimone. “Retailers can plug into our technology platform, which gets smarter every day with every transaction it does, and offload all the complexity and risk.”
Borderfree’s offering is an idea that in retrospect seems, as DeSimone says, “tremendously obvious.”
But as with any game-changing innovation, the road to success was far from simple.
A PIVOT PAYS OFF
In boiled-down form, Borderfree works like this: If a shopper in Brazil clicks on Macys.com, Borderfree’s technology will identify the location of her IP address; convert the Macy’s checkout page into Portuguese and its prices into Brazilian reals; ensure that all import and export regulations will be observed; and include all shipping, tax and delivery charges in the quoted price of the item, so there are no surprises on delivery.
Borderfree is riding a huge trend — international ecommerce — which in turn is growing fast on the back of technology trends: better connectivity in developing markets; the rapid spread of mobile devices; and an increasing comfort level with ordering online.
Accordingly, the company’s growth has been fast. It had $13 million in revenue in 2010, which grew to more than $110 million in 2013. In March 2014, Borderfree went public and began trading on the NASDAQ with a market cap of more than $400 million at the time of the offering. Today it serves more than 170 U.S. retailers, including marquee names like Bergdorf Goodman, Neiman Marcus, Macy’s, Under Armour, Williams-Sonoma and J.Crew, in more than 100 countries and territories using 60 currencies. DeSimone says the company will be in more than 220 countries and territories by the end of 2015.
To get to this point, however, the company had to undergo a radical rethinking.
DeSimone, with a background in foreign exchange and across-the-board payments at Travelex and Citicorp, joined the company in 2005 as head of sales and marketing. (The company, founded as E4X in 1999, took the name FiftyOne in 2008 and the Borderfree name in 2013.) At the time, the business strategy focused on currency conversion.
“We’d go on sales calls and retailers would tell us, ‘I want to sell internationally and I want to use your product, but first I have to solve the issues of localization, payment types, fraud management, export control. Then I’ll call you’,” he recalls.
“But during 18 months of selling, no one ever got to that point. So I went to the board and said, ‘Look, we have a global opportunity if we can address this list of items that retailers gave us.’” The board of directors agreed to the pivot to a broader solution, and DeSimone signed on as CEO in 2007.
SHIPPING AND SALES
DeSimone and his team now faced both strategic and technological challenges to create a product that would get retailers from “I don’t sell internationally because it’s scary” to “This is a great opportunity and you guys make it easy.”
A key part of the company’s value proposition is in assuming a retailer’s risk. Take, for example, the thorny issue of shipping.
Borderfree makes most of its money by taking a percentage of each transaction, and it knows that shipping costs are the biggest obstacle to a customer’s decision to buy. “In the beginning, if a shipper told us it would cost $6 to transport a container of gum to Canada, we’d simply pass that information on to the retailer, and the consumer would decide yes or no,” DeSimone says. “We felt this system was expensive, we didn’t cover as many countries as we wanted to cover, and we didn’t have the ability to incent customers to buy more stuff.”
Borderfree decided it would expand its range of carriers and contract with them directly. Further, rather than simply relaying a carrier’s quote, it agreed to provide retailers with its own estimated shipping costs. This not only saved time for clients; it offloaded the risk of any miscalculations onto Borderfree.
Borderfree was betting it could make its forecasts accurate and also find or negotiate cheaper rates. This bold move led to a few missteps — and also to what has become one of DeSimone’s core business philosophies: Ask the next question.
To achieve its objective, Borderfree had to “tune the calculator,” as DeSimone puts it. That’s because, when Borderfree ships an item for the first time or works with a new retailer, the shipping cost may change based on various details the company’s algorithms have to consider. For example, the order may ship in one box, or three. Or the dimensions of the item may be misleading.
Say a customer orders a scarf, and the size given is 48 inches by 10 inches. Borderfree’s technology had to “learn” that a scarf is folded up and shipped in a much smaller box. “Until we knew that, we might have quoted … to a customer in Australia that the cost of shipping would be $120. The Australian is going to say ‘no,’ and we’ll lose the sale,” DeSimone says. “In the beginning, we had to guess at what the price would be.”
So when the company was deciding to assume the risk of calculating shipping costs, DeSimone asked how often they could expect to receive invoices from shippers. The answer: every day. The plan was to use information about whether Borderfree had underestimated or overestimated costs to make subsequent estimates more accurate.
“What I didn’t ask, though, was, ‘How old will that invoice be when we get it?’ Turns out, the answer was six weeks. So after six weeks we got our invoices under the new system and guess what? We were guessing really wrong,” DeSimone says with a laugh. “Now when we have to make a decision, I always advise my staff to ‘ask the next question.’
“Eight years later, we’ve shipped all kinds of things, and our calculator is very smart. We can ingest a catalog from [a new retail client] and make a good guess on what something will cost to ship because we’ve shipped lots of very similar things.”
CONSIDER THE CONSUMER
Experiments in shipping prices led the Borderfree team to another key insight, this one about consumer behavior.
“When we first started shipping with DHL, I had this idea: Hey, let’s run $19.95 flat rate international shipping for an entire month for select retailers,” DeSimone says. “We wanted to encourage people to place orders. We looked at the spreadsheet and said, this should work out fine.”
Up to that point, Borderfree had been focused more on B2B selling than on the psychology of B2C. “We assumed that people who appeared to only want to buy sweaters and shoes and handbags would order those items. But all of a sudden, at a flat rate of $19.95, they wanted to buy baby strollers and all kinds of large things — and we had no way to exclude them. The one that killed me was when we had to ship four go-karts to Saudi Arabia. We charged the consumer $19.95; it cost us about $4,000.”
The lesson learned? “Consumers won’t necessarily respond in a linear fashion to a promotion. They are very savvy and will arbitrage these types of opportunities.” Borderfree is now prepared with strategies to help itself and its clients manage the cost of promotions: exclusions for certain categories, surcharges, price increases that allow for free shipping and so on.
All of Borderfree’s experiences in customs, logistics, exporting, fraud management and so on go into a feedback loop that makes its technology increasingly accurate and seamless for its customers. This learning gives the company an advantage as more and more companies seek a piece of the ecommerce pie.
DeSimone says that so far his biggest competitors for retail business are “do nothing” and “do it ourselves.” There are, of course, sizable international third-party marketplaces, notably Amazon.com. DeSimone notes, however, that Amazon, as a retailer itself, poses the possibility of becoming a competitor to its retail clients. “And with Borderfree, you’re entering the arena at scale, with your brand front and center, not as a blue hyperlink on an Amazon page,” he says.
“In terms of a plug-and-play platform that does what we do, that doesn’t really exist,” he says. “But they’re coming in closer, I can feel it. In fact, UPS and FedEx each bought smaller [ecommerce] companies last year. We do feel competitive, though, because we are offering an optimized calculator and 15 different carriers.”
Borderfree is also working with the reality that the world is a messy and unpredictable place. The dollar’s recent strength has created a “headwind” for U.S. international sales, but the plummet in oil prices affected buying in oil-producing countries. Sanctions following the annexation of Crimea put the brakes on the red-hot growth of Russia’s ecommerce market.
DeSimone claims not to be fazed by operating in a climate of uncertainty. “Taking on a global challenge means, by definition, there will be a tremendous number of events you can’t control. It’s a fact of life,” he says. “But we also have a huge amount of built-in risk mitigation.
“For one thing, we are betting on long-term trends. The growth of international ecommerce will continue for at least the next 25 years. To think people are going to become more insular, less exposed to other countries, to turn from buying online back to only buying in physical stores? I don’t think that’s a bet you want to make.”
Second, DeSimone says the company is “expansive” in its thinking and as a result is diversifying. It is using the proceeds from its IPO to buy companies — for example, its recent purchase of DutyCalculator to expand its international data services offerings. It also launched a pilot program in 2013 with Alibaba’s Alipay ePass program that has unlocked the vast China market for Borderfree clients.
Borderfree is also seeking resiliency through variety. “If you have a single lane and something goes wrong with that lane, whether it’s currency, war, or volcanoes exploding, you’re at risk,” DeSimone points out.
As noted, the company is in the process of doubling the number of countries it can offer as markets for its U.S. clients. The bigger strategy, though, is the pursuit of top foreign-based retailers. The first iteration began with UK retailers such as The Dune Group and Austin Reed; Borderfree then plans to work with retailers on the European continent and in Asia. “We are in a global business, and I want our company to be global,” he says.
All of Borderfree’s moves are in pursuit of this overarching vision. “Ultimately, the idea of global ecommerce will go away, and will just be ecommerce; ecommerce versus physical retail will go away, and it will just be retail. Nobody will be making those differentiations. The customer won’t be worrying where a product was shipped from, just as they don’t worry about whether a product ships from an Amazon warehouse in Pennsylvania or New Jersey.”
And at the hub of all this activity, according to the vision, is Borderfree, expanding its platform to retailers and consumers in every corner of the globe, creating a seamless ecommerce experience from anywhere, to anywhere. “We want to transform the company so that it can sell to any country that can be legally shipped to, from anywhere in the world,” DeSimone says.
THE VIEW FROM 30,000 FEET
When a company is regularly breaking new ground, its leader needs the ability — and the time — to look over the horizon. How does DeSimone avoid being drawn into the weeds of the complex issues his company wrestles with?
“Well, I do get drawn in,” he says. “I find I jump in and out of the detail. You have to hire really, really good people, who can deal with not only the day-to-day but also one level up from that. But sometimes people feel they’re boxed into a situation, and you can jump in with a different perspective, give them a little bump.”
To free up space to think big-picture, DeSimone tries to “get out of my head, or out of my environment. I do meditate — though the problem with that is when you have a great idea, you have to stop meditating and write it down,” he says with a grin.
One of the best places to think, according to DeSimone, is a plane. “A few weeks ago I was flying back from Salt Lake City with a colleague, and he said, ‘What are you going to do on the flight?’ and I said, ‘I’m going to stare at the back of the seat in front of me.’ He laughed. But he happened to be sitting a few rows back from me and when we got off the plane he said, ‘You were serious!’
“I find that time works really well for me. I’m not trying to meditate, but I’m thinking expansively. I have a Samsung tablet on my lap and when I think of something, I write it down. And that’s it — just staring at the back of the seat in front of me.”
Sometimes, the key to solving complexity is as simple as that. CEO
Lee Lusardi Connor is a freelance writer based in Morris Plains, NJ. Contact us at firstname.lastname@example.org.
MICHAEL DESIMONE ON INNOVATION
“When our company made its big pivot, the numbers seemed like they would make sense. Of course, nobody knew for sure. But that’s what innovation is: ‘It seems like a good idea, let’s try it and see what happens,’ but don’t get too far over your surfboard.”
“If you’re going to fail, fail fast. We actually practice that. ‘Can I have $1 million?’ No, you can have $10,000, then come back and talk to me. Then we can iterate, iterate, iterate until you hit it.”
“In a way, innovation is a series of misfires. You start with an idea this wide and sort of scan back and forth until you find a narrow area where you really get traction. Then you pile in.”
Borderfree’s recent acquisitions and partnerships:
2013: Launched BoxHop, a parcel forwarding service that provides international customers with a shipping address in the U.S. so they can buy directly from American stores. Borderfree offers free repacking and a limited amount of free storage, along with negotiated low international shipping rates.
2013 – 2014: Secured partnerships with Visa and MasterCard to offer special promotions to customers in Southeast Asia.
2014: Partnered with Visa to offer special promotions to customers in the UAE, Saudi Arabia, Kuwait, Qatar and Bahrain and Jordan.
2014: Launched a pilot program with Alipay ePass, a Paypal-like service owned by China-based ecommerce giant Alibaba. Chinese consumers can use their Alipay accounts to easily make purchases from U.S. retailers.
2015: Acquired DutyCalculator, a provider of cloud-based global trade and customs compliance data services.
FUN FACTS ABOUT CROSS-BORDER COMMERCE
- Some 20-30 percent of traffic to U.S. ecommerce sites comes from an international IP address.
- Cross-border consumers bought $24 billion of goods from online U.S. retailers in 2014 alone.
- The number of internet consumers outside the U.S. will grow at a 17-percent compound annual rate between 2012 and 2017.
Sources: Borderfree; Forrester Research; International Data Corporation