6 Expert Strategies for Expansion in Amazon Europe

Ready to conquer Amazon Europe?

This guide will share insider tips on excelling within a year in the EU marketplace. We'll draw on insights made when a top-3 US ball pump brand hit the top-3 in EU and UK markets within 12 months. Learn valuable strategies for leveraging the less competitive European scene reminiscent of Amazon US in 2018-19. 

Now’s the time to seize the opportunity and become a European market leader.

1. Know the Key Differences Between the US and EU Marketplaces

Ecommerce sellers targeting international markets must understand the key differences between the US and EU. These differences can significantly impact business operations, marketing strategies, and legal compliance. Below are some of the main distinctions.

Regulatory Environment

The regulatory environment in the US is generally less stringent than in the EU. The focus is often on fostering innovation and business growth with fewer regulatory hurdles.

In contrast, Europe has a more rigorous regulatory framework regarding consumer protection, data privacy, and product safety. The General Data Protection Regulation (GDPR) is a prime example, of imposing strict data privacy rules.

For instance, a US-based ecommerce site might collect and use customer data with relatively minimal restrictions. An EU-based site must comply with GDPR, requiring explicit consent from users and ensuring data protection measures.

According to a survey by TrustArc, only 27% of US companies were fully compliant with GDPR as of 2020, highlighting the complexity and effort required to meet EU standards.

Product Labeling Requirements

The EU enforces strict labeling regulations, which include restrictions on specific ingredients, mandated font sizes, CE markings, approval numbers, and numerous other standards.

Additionally, you may need to conduct various product tests to ensure compliance before selling your products. This can seem daunting, but understanding and navigating these requirements is crucial for successful expansion.

For more on ensuring compliance and efficiency in international trade, check out our guide on mastering HS codes.

Taxation

Import Value Added Tax (VAT) is a tax imposed on goods brought into EU countries from non-EU countries. It is typically charged at the same rate as the domestic VAT in the destination country. The US, however, does not have an import VAT. Instead, it has a sales tax system, where tax is applied to goods and services at the state level.

How Import VAT in the EU Works

• Importers must pay VAT at the point of entry based on the value of the goods, including shipping and insurance costs. 
• Businesses registered for VAT can often reclaim this import VAT on their VAT return.

For example, a seller imports €10,000 worth of electronics into Germany. If the German VAT rate is 19%, the importer must pay €1,900 as import VAT. The business can sometimes reclaim this fee if it is VAT-registered in Germany.

EU VAT Registration and Schemes

After importing goods, sellers need to handle VAT through registration, and in the EU, they have two schemes available:

• Standard Rate: The Standard Rate VAT scheme requires businesses to charge VAT on their sales, pay VAT on their purchases, and regularly file VAT returns. The VAT charged on sales is offset by the VAT paid on purchases. Imagine a business selling furniture in France. It charges 20% VAT on its sales. For a sale of €1,000, the VAT charged is €200. If the business also pays €100 VAT on supplies, it pays the difference (€200 - €100 = €100) to the tax authorities.
• Flat Rate (UK only): This scheme simplifies VAT reporting by allowing businesses to pay a fixed percentage of their turnover as VAT, rather than calculating VAT on every transaction. This scheme is available only in the UK and is designed for small businesses. For instance, a small consulting firm in the UK with a turnover of £50,000 charges 20% VAT on its services (£10,000 VAT). If the flat rate for consulting is 14%, the firm pays 14% of £50,000 (£7,000) to HMRC, keeping the difference (£10,000 - £7,000 = £3,000) to cover VAT on purchases.

Most EU countries only offer the Standard Rate with varying VAT rates. It may be smart to be VAT registered in the EU countries where you plan on storing, moving, or selling goods. You can fulfill orders to other EU countries from one location, but exceeding distance selling thresholds will require VAT registration in those countries.

How the US Sales Tax System Works

• Import duties may be applied at the federal level on certain goods entering the US, but there is no VAT equivalent.
• Sales tax is collected at the point of sale to the end consumer and varies by state and sometimes by locality within states.
• Businesses must collect and remit sales tax if they have a tax nexus (sufficient physical or economic presence) in the state.

Suppose a business imports electronics into California with a value of $10,000. There is no federal import VAT. When the business sells these electronics to consumers, it must collect the California state sales tax of 7.25%, plus any applicable local sales taxes.

Key Differences

• Tax Point: In the EU, import VAT is paid at the border when goods enter the country. In the US, there is no import VAT; instead, sales tax is applied at the point of sale to the consumer.
• Reclamation: EU businesses can often reclaim import VAT if they are VAT-registered. In the US, businesses do not reclaim sales tax but collect and remit it from consumers.
• Rates and Application: EU VAT rates vary by country but are generally consistent within the country for all imports. US sales tax rates vary widely by state and locality, and there is no federal VAT.

Overall, understanding these differences is crucial for businesses venturing into Amazon's global selling to ensure compliance and optimize tax management.

Competition

The Amazon EU marketplaces have 1.16 million active sellers while the US has 2.5 million, indicating higher competition in the US despite similar market sizes.

Entering the US market is now more challenging and time-consuming than breaking into the EU. This difference in competition levels means that the European market offers a significant opportunity for growth with less resistance.

Amazon Fulfillment Options

Amazon offers different fulfillment options in the US and Europe, catering to specific logistical needs and regulatory environments in the region. Here’s a brief overview of how these options differ:

US Fulfillment Options

Fulfillment by Amazon (FBA) allows sellers to store their products in Amazon's Fulfillment Centers (FCs). Amazon handles storage, packaging, shipping, customer service, and returns.

European Fulfillment Options

Amazon’s European fulfillment options are more complex due to multiple countries, languages, and regulatory requirements. The primary options are:

• Multi-Country Inventory (MCI): Best for sellers who want to strategically place inventory in specific countries to ensure faster local delivery and potentially lower shipping costs. Orders in Germany, France, and Italy are fulfilled locally, reducing shipping times and costs.
• European Fulfillment Network (EFN): Ideal for sellers looking for a simplified inventory management approach that can reach all EU markets from a single location, albeit with higher cross-border shipping costs. Imagine a seller stores all inventory in a UK fulfillment center. When a customer in Germany places an order, Amazon ships the product from the UK to Germany.
• Pan-European FBA: Suited for sellers aiming for the fastest delivery times and lowest shipping costs across Europe, while being prepared to handle the complexities of VAT registration and compliance in multiple countries. A seller sends products to a warehouse in Germany, Amazon then distributes these products to FCs in France, Italy, Spain, and other European countries based on demand patterns, ensuring quick local deliveries.

On average, sellers who use Pan-European FBA see a 30% increase in sales. Understanding these options and choosing the right one for your business is critical for successful expansion.

2. Research Potential Markets for Amazon EU Expansion

Spend a good amount of time researching potential markets for expansion. Data shows Germany, Italy, and the UK as lucrative opportunities. In these regions alone, projected revenue was $60,000 to $80,000.

Despite the limited market potential in France and Spain, including these countries in an expansion strategy proves beneficial.

After calculating the benefits, selling in these countries through the Pan-European FBA program would significantly reduce Amazon fees and help manage inventory more efficiently across multiple countries.

3. Establish a Legal Entity and Compliance

There was a need to establish an EU legal entity from a legal perspective.

Expanding through a US LLC could delay VAT acquisition and Amazon verifications for up to five months. Varying certification requirements were encountered for products like ball pumps and baby bassinets. While ball pump certifications were simple, baby bassinets required eight certificates, each costing $6,000.

Thorough research was conducted to ensure products met all EU distribution standards. Different EU product certification rules and marks are entirely different from those in the US.

In addition to that, we went beyond our duties to assist our clients. We physically visited numerous retail stores to double-check our research and ensure that all products complied with EU distribution standards.

4. Logistics and Global Considerations

Initiate logistics and ecommerce operations by sourcing a reliable third-party (3P) warehouse provider and forwarders.

Interviews with 40 warehouse providers meant confidence when selecting the most cost-efficient partners. It's important to note that Amazon Europe logistics require more transparency than the US. Bypassing laws and tariffs are challenging.

English is not native to most EU countries. Translating your product listings is crucial to reach a wider audience. Thorough research was conducted to understand how people in different regions search for things online.

For example, in Europe, people are more likely to search for a “soccer ball” instead of “basketball.” Search queries can vary between countries as well. For instance, “football pump” was a popular search term in the EU, while in the US, it was “ball pump.”

Don’t just translate the words in your product listings; translate other components, such as images and supplementary information. These considerations can help you sell more.

5. Include Amazon UK in Your European Expansion Plan

Expanding your ecommerce business to include Amazon UK can be lucrative, offering access to a large and diverse market. Here’s a guide on how to successfully integrate Amazon UK into your European expansion strategy:

‍1. Understand the Market‍

• Research Consumer Behavior: Analyze shopping trends, consumer preferences, and popular product categories in the UK. Research shows that UK consumers value sustainability and unique designs. Tailor your product listings to highlight eco-friendly materials and exclusive styles.
• ‍Competitor Analysis: Identify key competitors and study their strategies, pricing, and customer reviews.

2. Set Up Your Amazon Seller Central UK Account

• Register: If you’re already selling on Amazon in another European country, you can use the same account to expand to Amazon UK. Simply add the UK marketplace through your Seller Central account.
• Compliance: Ensure you comply with UK regulations, including product safety standards and labeling requirements.

For instance, a German electronics seller can expand to Amazon UK by adding the UK marketplace in Seller Central and ensuring all electronic products meet UK safety certifications.

3. Optimize Listings for the UK Market

• Language and Localization: Adapt your product titles, descriptions, and keywords to British English. Use local measurements (e.g., centimetres instead of inches) and currency (GBP).
• Tailor Marketing Messages: Highlight features and benefits that resonate with UK consumers.

If you’re selling fitness equipment, emphasize terms like “home gym” and “workout from home,” which gained popularity during the pandemic.

4. Manage Inventory and Fulfillment

• Utilize FBA: Take advantage of Amazon FBA service to handle storage, shipping, and customer service in the UK.
• ‍Consider Pan-European FBA: This allows you to store inventory closer to your customers across Europe, including the UK, optimizing delivery times and costs. A French beauty brand can use Pan-European FBA to distribute products efficiently across Europe, including the UK, ensuring quick delivery and lower shipping costs.

5. Handle VAT and Import Duties

• VAT Registration: Register for UK VAT and understand the local tax regulations. The UK has specific rules post-Brexit that you need to comply with.
• Import Duties: Be aware of import duties and tariffs applicable to goods entering the UK. Consider these costs when pricing your products.

For instance, an Italian fashion retailer should register for UK VAT and factor in potential customs duties when shipping products from Italy to the UK.

6. Implement Effective Marketing Strategies

• Amazon Advertising: Amazon ads and top advertising tools like PixelMe and PPC Entourage increase visibility in the UK market.
• Promotions and Deals: Run special promotions, lightning deals, and discounts tailored to UK events and holidays (e.g., Black Friday, Prime Day, and Boxing Day).

For example, a Spanish electronics company can create targeted ad campaigns for Amazon UK, emphasizing deals during major UK shopping events like Prime Day and Black Friday.

7. Provide Excellent Customer Service

• Localize Customer Support: Offer customer service in British English and understand UK consumer protection laws.
• Return Policies: Ensure your return policies comply with UK regulations and are clearly communicated to customers. A Dutch kitchenware seller can set up a UK-based customer service team to handle inquiries and returns efficiently, enhancing customer satisfaction.

8. Monitor Performance and Adjust Strategies

• Analyze Metrics: Regularly review sales data, customer feedback, and advertising performance to identify areas for improvement.
• Adjust Pricing and Inventory: Stay competitive by adjusting pricing based on market trends and managing inventory levels to avoid stockouts.

An Austrian sports gear company can use Amazon analytics tools like Manage By Stats to track sales performance in the UK and adjust their strategy to meet customer demand.

In summary, by following these steps and tailoring your approach to the UK market, you can leverage Amazon’s extensive reach and robust logistics infrastructure to succeed in expanding.

6. Implement a Holistic Approach to Going Global

There are three main ways to start expanding to Europe, including managing ecommerce operations: doing it yourself, utilizing a third-party (3P) service, or partnering with an expert.

If you decide to take the do-it-yourself approach, you should expect a longer timeline of 9 months to launch your product on Amazon EU/UK.

Although you will have complete control over the process, it will require significant time and resources. Moreover, you will need a firm grasp of the EU market, which could be challenging if you are not based in Europe.

A 3P service can streamline the process, reducing the timeline to approximately 4 months. While you won’t need to invest as much as the other two methods, money is required upfront. While some 3P services may offer market insights, they do not guarantee funding and require upfront payments.

Partnering with an expert, you can launch your business in the European market within three months, which is the quickest timeline possible. This option requires the least financial investment, so it's perfect to minimise costs.