Some of you may have seen that eBags recently decided to shut down its UK operations. For the past few years, online retailers have been looking towards Europe as an opportunity for strategic growth. This move by eBags definitely raises some questions. I had the privilege to catch up with eBags Co-Founder and SVP Peter Cobb (and also a Shop.org Board member) to get his take on why eBags made this decision and what he thinks it means for other online retailers.
Scott: What was eBags’ initial plan for success when you launched in the UK a few years ago?
Peter: Our plan was to form a beachhead for the EU (we chose Cambridge, UK), establish the UK business, then roll out to the 400M potential customers in continental EU. We would roll out to the rest of the EU with the team of ten we had in the UK. We got the UK part up and it was actually working quite well (125 brands, 10,000 bags all drop-shipped directly from the brands).
Scott: Can you give me a general overview of why eBags decided to shut down its UK operations and put a hold on EU expansion?
Peter: It’s a complicated question and answer. It would have required a few more years for the UK business to be profitable, which was acceptable during the pre-meltdown days, but the environment has changed and there is much more uncertainty. eBags probably is experiencing what a lot of companies are going through right now. Taking a look at each area as an entity and determining whether to keep it based on its ROI. The issue was whether we wanted to spend the internal Denver resources on IT, customer care, translations, financial reporting, web design, etc. for each country we rolled out to or whether there was more upside in focusing on solidifying the strength and market share of the eBags USA business with those same resources (a common dilemma within companies). As you know, our business model is drop-ship and we have 550 brands and 42,000 products on eBags USA so we feel that our model is superior, especially during these times when other retailers are slashing inventory.
Scott: What lessons did eBags learn from this experience?
Peter: In reality, entering a new country makes it a startup business and it takes several years to become profitable. One reason is that the sales have to scale to cover the fixed costs. Also, entering a new country a site has to generate visitors and unless a brand already has high awareness, the fastest way is through keyword search. As you probably know, expensive keyword search is ok when it is 15-25% of the sales mix but when you start out in a geographic area with minimal traffic and no email list, keywords tend to be 80% of your marketing spend and sales. Tough to justify during these difficult times. Every retailer looking at the EU will face this (unless it is Amazon, eBay, Walmart, etc. who might have instant awareness).
Scott: Do you think other online retailers can be successful in Europe and do you have any plans for resuming eBags’ EU expansion?
Peter: Time will tell, but our feeling is that it is doubtful that other bag retailers will have much success in the EU over the next few years and we will be able to re-visit the EU when blue skies return and some of our competitors have vacated the category.
Scott: Retailers are usually willing to share their successes, but some of the best lessons are drawn from setbacks or when things don’t go as planned. On behalf of the entire Shop.org community, I want to thank you for being so forthright and sharing this very helpful information. I strongly encourage other people to reply to this blog with additional insights they may have about online retail international expansion in today’s economy.