Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

{audio:0:03:37} When a customer chooses a partner to enable cross-border ecommerce, how do they go about making the right choice and who were your typical competitors?

{audio:0:05:38} The answer between 2019 and the beginning of 2021 is different to today; would you like me to talk about the past or the future?

{audio:0:05:59} Focus post the Borderfree and Flow acquisitions which saw many changes.

{audio:0:06:10} There are few options other than Global-e if you want an end to end white glove service, especially if you're on Shopify. It depends what is important to you. Brands told me the Flow technology was cool and sexy and heavy on micro services. Global-e was good at getting customers because they had tons of data from having many brands from many places in many industries, which allowed them to know what you should do at each price level and how to get the highest conversion from your product. None of our competitors had that.

{audio:0:07:30} Is eShopWorld their biggest competitor?

{audio:0:07:41} eShopWold is the only one but it's not relevant for Shopify brands.

{audio:0:07:43} Why would a non-Shopify brand choose eShopWorld over Global-e?

{audio:0:08:01} Not having enough context/knowledge. Large brands could have different demands or requirements which don't make sense for Global-e to invest in as they were not broad enough, and eShopWorld could have the time and capacity to build. I don't know of many brands who chose eShopWorld over Global-e.

{audio:0:08:51} We recently learned of a private competitor called FlavorCloud, do you know much about them?

{audio:0:09:21} Cross-border shipping made easy; it looks like they are mainly shipping. I have never heard of them, where are they from?

{audio:0:09:35} I think they are a US company.

{audio:0:09:38} Washington. Seven months ago I never heard their name, but that doesn't mean they weren't around; do they even have customers?

{audio:0:10:15} Why would a merchant switch from Global-e to eShopWorld or others?

{audio:0:10:42} Less than 2% of customers left us and I don't know any who moved to eShopWorld. Those who did leave were small and international wasn't big enough. I remember a small customer saying it was not worth it to pay so much only for Canada. A larger brand who were on Shopify left because they felt the checkout wasn't as on brand as they wanted, as they could only do limited customization, but told us when our embedded Shopify integration was more mature, they would talk to us again. Those who would talk to us about it would definitely leverage it to get better pricing, but it was always smaller companies such as Zonos who thought they were our competition who would be knocking on their door saying they could it better for them, but when we broke out all the services they got with Global-e, they chose to stay.

{audio:0:12:49} When a country becomes big enough for a certain merchant, they might choose to bring it in-house, is there a threshold and what do you think about that risk?

{audio:0:13:33} That definitely does happen but it's not that big of a risk, because brands are not interested in that level of commitment. You do see it with larger brands who open warehouses in different regions and want to ship from physical stores. The more flexibility Global-e can accommodate, the more successful it will be.

{audio:0:14:52} I didn't mean the brand would open local stores, I meant instead of using Global-e or eShopWorld, they would simply do it themselves.

{audio:0:15:14} They currently have zero risk when shipping internationally because Global-e takes care of all the fraud risk and logistics, so why would they take all the headache and probably pay higher costs, because Global-e does much more volume? They would have to separate their warehouse behind the scenes to know the packages going to this country use a different shipping account and shipping labels, and having different processes for different countries becomes very complicated.

{audio:0:16:16} Global-e has monthly or annual minimums for clients, which is obviously not a problem for Adidas but what about the smaller merchants?

{audio:0:17:15} It should be easy because the minimums are based on Google Analytics or whichever tool they use. They would see interest from international markets and the calculation is based on that. If they're not meeting their minimums, there's a bigger problem unrelated to Global-e.

{audio:0:18:13} If they do not meet their minimums, would Global-e kick them out?

{audio:0:18:25} It seldom happens because contracts are based on annual volume. If in February they didn't meet the minimum and paid extra, but in April they doubled the minimum, at the end of the year they would balance it out and even refund if needed. During the beginning of Covid, many brands were going through a rough time and we were very generous and waived the minimum fees. We worked closely with brands to ensure they felt supported.

{audio:0:19:27} What is the minimum level of international sales to make it attractive for a brand to work with Global-e?

{audio:0:19:50} For the full Global-e solution, $500,000 but it depends how much you think you will grow. Our minimum was $300,000 but I think it should be $500,000.

{audio:0:20:13} Could you explain what makes the multi local offering attractive to brands?

{audio:0:20:38} Having several warehouses in multiple regions allows them to reduce costs. If you have a local presence and are already bringing inventory into a country, you may also want to use it for online, but don't want a local website for each country. The goal is to have one store front and Global-e calculates the differences behind the scenes, between shipping intra EU versus international from the US or Hong Kong. An order could have items shipped from multiple locations but customers wouldn't know the difference; they would only see one price at the end which was the cost for everything.

{audio:0:22:13} Did Global-e think that was a great idea or were merchants asking for that?

{audio:0:22:30} Merchants are pushing for it because it is very complex, and in my opinion, the cross-border industry is heading towards being able to support a global presence. Items can be shipped from everywhere to everywhere with only a single store front.

{audio:0:22:59} Can we talk about how customers ramp up? Management has spoken about their net dollar retention rate being over 130%, which is a very impressive number. I assume that NDRR is so high because a customer may start in France and Germany, then add Spain, Italy and Portugal the following year, then Eastern Europe, no, tell me more?

{audio:0:23:44} I don't want to say no because that is more of a European strategy, but our recommended strategy in the US is to launch all countries simultaneously. The existing brands who start off with just a few I can count on my hands; most launch all countries. Growth comes from brands doing more social media marketing and word of mouth. Obviously, that is an average but big brands grew very quickly over the past two years. I doubt we will continue to see that growth rate in the next two years but it is possible. Huge brands such as SKIMS and Alo Yoga launched with all countries.

{audio:0:25:39} What would be a good or bad NDRR for Global-e four years from now?

{audio:0:25:56} NDRR is existing customers who've grown, excluding new business?

{audio:0:26:14} Only existing customers who grow.

{audio:0:26:18} Obviously, the economy is bad so less people are shopping, so they won't grow at the same rate they grew during last year or 2021.

{audio:0:26:47} In early December, management attended a conference by Raymond James, where they said large brands chose Global-e to reduce their complexity. Examples were VAT changing from 5% to 15% in one country and Brexit, how big is that opportunity for brands to use Global-e to reduce complexity rather than for entering new markets?

{audio:0:28:13} It depends on the size of the brand and the volume going through them. Brexit was a huge headache for UK brands who were happy Global-e dealt with it all. I thought they were talking more about Adidas who are working with Global-e in parallel to having a local presence. That positions Global-e as a way to solve your problems, but not many brands would want those solutions as it depends how complex their setup is.

{audio:0:29:34} Currently, the Shopify Markets solution is powered by Shopify alone, whereas Shopify Markets Pro is powered by Flow and there are ongoing trials. Management have spoken about this on calls saying Global-e will provide white glove solutions to the largest clients, is that a fair summary because it took time for us to figure this out by comparing multiple quotes?

{audio:0:30:26} No, I think you are correct.

{audio:0:30:29} The thinking from Shopify executives could change, but if you were to guess, will Shopify keep their very simple Shopify Markets solution, and let Flow or Global-e address everything more complex, or will they try to do it in-house at some point?

{audio:0:31:05} If you asked me three years ago, I would say they would learn everything and do it themselves, but now it's easier for them to use a partner and give them a cut. The product is continuously being improved with features, so I have a feeling they will remain in a partnership for a few more years at least, and not take it in-house.

{audio:0:32:15} Are you referring to Shopify Markets which is their most basic solution?

{audio:0:32:24} No, I meant Shopify Markets Pro, the Global-e Shopify white label. There is much more to get out of the product before Shopify think they can do it themselves.

{audio:0:32:48} You are not saying the product is bad, but you can add more features before they have learned everything and can do it themselves?

{audio:0:32:58} Yes, and I don't think they are there yet, nor are they ready to take on the responsibility of being merchant of record for all of these brands.

{audio:0:33:15} The whole concept of merchant of record is probably the biggest obstacle for Shopify to take this over even in future?

{audio:0:33:31} It's more of a liability than an obstacle.

{audio:0:33:55} How important is it that SMBs use Flow on Shopify as a white label solution?

{audio:0:34:48} Many small to medium brands want to explore going international without the high cost, so I think it's huge. As the partnership and product gets more mature, many best practices and default settings will be applied to these brands. That will help conversion rates because they won't have a dedicated customer success manager who optimizes their account for them. I have a feeling that will happen in future.

{audio:0:36:09} Shopify Markets launched in Q1 2022 and was adopted by 7% of merchants by Q3. That was for the basic solution but having this data point, what adoption can Shopify Markets Pro have, which is powered by Flow?

{audio:0:37:08} Shopify Markets consists of several capabilities wrapped up into a name. When they say adoption of 7%, it could mean they all show currencies at checkout, but it doesn't mean they've used all those capabilities. I would question which capabilities of the Shopify Markets that adoption rate is referring to. Was your second question about what I thought the adoption rate would be?

{audio:0:37:55} How quickly or slowly it would be and what the ultimate penetration is?

{audio:0:38:04} I cannot answer that because I don't know how simple turning on Shopify Markets Pro is. If it's a simply configuration setting in the back-end of Shopify with a few integration points, I would say it could be very high, but if it requires someone more technical to do the integration and a brand has to spend more time and money, it could be slightly slower. It must be easier than the full white glove solution which would make for a quick adoption rate.

{audio:0:39:10} If it was very easy to turn it on in your control panel, what do you think the ramp up and cadence in penetration could be?

{audio:0:39:48} By cadence, do you mean how often new business will come?

{audio:0:39:54} Yes, if you turn it on January 1, 2023, by the end of the year it will be 2%, by the end of 2024, 5%, and the end of 2025, 27%, that's what I mean by cadence.

{audio:0:40:21} The potential is huge but I cannot guess the number. It depends how much marketing is done to promote it within these brands, many of whom have never heard of markets or have never thought about international. It is about how many success managers in Shopify are working with these brands and how much they promote it. I don't know if they are incentivized more for promoting Shopify Markets than Shopify Markets Pro. If Shopify has said 7% have already adopted Shopify Market, you could assume Shopify Markets Pro will be at least that, if not more.

{audio:0:41:31} Shopify have their own solution, a white label solution with Flow, a white glove solution with Global-e and some merchants may do it in-house. What would be the future split of cross-border GMV across these four dimensions if you were to guess?

{audio:0:43:16} Looking at GMV, 60% would come from Global-e, 30% from white label Flow and 10% from the market. Fewer brands would use Global-e and many would use the white label because they are much smaller.

{audio:0:43:54} The acquisition of Borderfree was meant to aid demand generation, but why did Global-e need help from Borderfree, historically?

{audio:0:45:05} Borderfree felt as though they “owned the customers” because they had a directory of brands they were working with and promoted brands in their ecosystem. I think that helped whereas Global-e thought that customers belonged to the brands. We never did any cross-promotion so maybe they thought they could learn from them. If you're talking about top of the funnel demand generation, US brands know so much about international which is different to the culture of non-English speaking countries. Global-e have that knowledge and can help them support in those countries. That is where they were hoping to use Borderfree, who also have good brands and data.

{audio:0:47:57} Could Global-e achieve better demand generation for its clients over time?

{audio:0:48:12} There is hunger for it from the brand side so there is potential, but I don't think Global-e has cracked that code yet.

{audio:0:48:42} Do you think Global-e may choose to charge separately for this?

{audio:0:48:52} I do think they would charge an extra fee for doing this, eventually.

{audio:0:49:01} Would that be similar to a digital marketing agency business?

{audio:0:49:07} That makes sense because it's valuable for their clients. You can add so much value that it's not unreasonable for them to say you need to pay slightly more.

{audio:0:49:18} I don't know whether they will charge a flat fee or if we will get an extra cost on everything extra from the baseline they are able to bring, like they do in Israel. I don't how they will do it but it definitely won't be free.

{audio:0:49:49} What else should we ask you about Global-e or the industry in general? 

{audio:0:50:06} We talked about multi local which is super important. Let me look at your questions because there were some good ones. We talked about how customers choose a cross-border enabling partner. One of the main advantages is the data that Global-e sits on and is able to work with customers to ensure they're not losing money and are converting at the highest possible way in each market. They are also super customer-centric. When and if a customer would consider switching? Probably never. When would a customer enter a market; we talked about that. We talked about the minimum monthly payment. What is the share of customers who don't go over the minimum? Very low. Paying or quitting, they usually pay. I can think of one brand who was not constantly hitting their minimums, and it wasn't a seasonal brand. They decided it was no longer worth it so they quit, but they also didn't do anything else. Is there room for Global-e to increase its take rate? We didn't talk about that. Can it at least offset the payment processing fee in full? Are you asking because you think they are not offsetting the payment processing fee or because they said they weren't?

{audio:0:52:13} No, we were simply thinking about how payment processing works.

{audio:0:52:18} I don't think they are losing money there. We talked about multi local offering and NDR. Which markets might be more lucrative to operate in with Global-e versus their own? I think they have an advantage with many Middle Eastern countries. You asked me about in-house versus Global-e, and I didn't mention the shipping cost and that Global-e has a partnership with DHL and others to get the best rates. Global-e also has local payment methods in almost every country, and there is no way any one brand would ever have that offering. That is a huge benefit for Global-e because customers pay differently in different countries. In the US, credit card is number one, then PayPal, but in Europe they prefer bank transfers and credit cards are not big at all. South America has different payment methods so that is also a huge advantage. Also if we are talking about credit cards, do you know what a charge-back is?

{audio:0:54:23} The fact that the brand itself has no responsibility because Global-e is the merchant of record, so everything is on Global-e, and because their volume is so big, the charge-back ratio and cost is lower. Do you want to talk about the rationale of the Flow acquisition and how their solution is different?

{audio:0:55:08} The Flow acquisition was not for the customers; it was a strategic M&A. They were aware that Shopify and Flow were working on the white label solution, and this was a way to position Global-e as the full top to bottom partner for international e-commerce with Flow. It was a tough time but it was the right long-term decision. What can Flow achieve as a standalone solution within Global-e? There will be knowledge sharing between the two solutions. If something works well in the shipping or fraud processes, I think they will copy it. Very smart people are working on the Flow solution. What can Flow's partnership with Shopify achieve? Everything we talked about. There will be a lot of opportunity for smaller brands and those who don't want to sign a contract with Global-e, which is similar to their contract with Shopify. We spoke about the Borderfree M&A. I don't know if you saw in my bio, but I actually started in the company that eventually became Borderfree.

{audio:0:57:20} That acquisition is an interesting one. It was the right time and Global-e got a good price for it. They bought Borderfree for the customers and demand generation, versus Flow which was definitely for the technology. Their partnership with Shopify is the smartest thing Global-e did, otherwise I don't know where they would be today.

{audio:0:58:07} Where would they be if they didn't partner with Shopify?

{audio:0:58:13} I meant if Shopify hadn't chosen Global-e. 75% of US brands are on Shopify. I'm sure Global-e would have taken a different route or focused on other regions or e-commerce platforms, but the Shopify partnership definitely accelerated their growth.

{audio:0:59:07} When we asked you about this split of cross-border volume opportunity on the Shopify platform, you said 60% will come from Global-e, 30% from Flow and the rest in-house, but what percentage of GMV?

{audio:0:59:36} I don't think very high at all.

{audio:0:59:43} If 20% of GMV on Shopify is cross-border, is that currently mostly in-house?

{audio:0:59:59} Do you mean Shopify Markets in-house?

{audio:1:00:07} Shopify disclosed that 50% of their GMV comes from cross border.

{audio:1:00:15} I should be thinking about Canada as cross-border but I was thinking more about Europe. Perhaps those who are doing in-house will remain in-house because they already have a setup for it, or they might move to Shopify Markets Pro because they will get better rates and not have to change too much.

{audio:1:00:57} Is most of the USA to Canada business in-house or do they use Global-e?

{audio:1:01:05} The brands who use Global-e are using Canada with Global-e. When you say in-house, are those brands who use Shopify and work directly with DHL to ship?

{audio:1:01:34} Are you saying 20% of Shopify GMV is now in-house?

{audio:1:01:39} Today a certain percentage of cross-border commerce on Shopify is not serviced by Global-e Enterprise or Flow, which is still in the trial beta phase. That means whatever happens on Shopify must be serviced in-house because there is nothing else. The merchants who do it in-house need to figure out taxes and shipping and whether to accept Klarna in Europe. It is their problem and they use their own model. In the Q3 2021 call, Shopify management mentioned 28% of traffic is international, but only 17% of GMV was cross-border in 2020. 2020 numbers are old and may no longer be correct but the thing that stood out to us was that 17% of GMV was still cross-border. Someone must be figuring out how to accept payments, pay taxes and custom duties and handle shipping. 17% of the overall Shopify GMV in 2020 is still in the billions, and Flow was definitely not serving that market, nor did Shopify Markets exist then, so that was probably all done in-house?

{audio:1:04:14} I don't think it was done in-house as they could have been working with the Shopify checkout or different vendors for their cross-border shipping. I don't know they would take on everything themselves, it meant it passed through their checkout. Global-e, Flow and eShopWorld take hostage at checkout and you are routed to the Global-e checkout, which is why Shopify put a hold on it because they were not seeing all the money they should. I don't know what the percentage is but I'm sure as the solutions become more available and easier to integrate, more would go for the fuller solution.

{audio:1:05:19} We didn't speak at all about culture and the quality of management at Global-e, would you mind providing your take?

{audio:1:05:51} The founders are amazing visionaries. They have a lot of passion for this business, are very thoughtful about how they spend their money, and don't splurge. Everyone who works there is a hard worker; there's a culture of we're in this together, let's work together.

Global-e: Cross-Border E-commerce

Former VP at Global-e

inpractise.com/articles/global-e-vs-shopify

Executive Bio

Former VP at Global-e

Interview Transcript

Why would a merchant switch from Global-e to eShopWorld or others?

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