How to Start an Ecommerce Business in Germany as a Foreigner

How to Start an Ecommerce Business in Germany as a Foreigner

Opening an e-commerce business in Germany has great potential—if you’re prepared to do it right. Out of a population of 80 million, 89% use the internet and 87% of the population shop online. Germany’s e-commerce market is the 5th largest in the world and the 2nd largest in Europe behind the UK. To plan how to start an e-commerce business in Germany successfully, interested entrepreneurs will need to be familiar with:

  • The characteristics of the German market and how to capitalise on them
  • Must-have paperwork for starting an e-commerce business in Germany

Thankfully, getting started isn’t as difficult as you might imagine.

The German E-commerce Market

The Products that Germans Buy Online

  • Clothes
  • Shoes
  • Books
  • Electronics

Capitalise on the Trend

To succeed as an e-retailer in Germany, offer products from one or more of these top categories and focus on carving out a specific niche to compete against the larger and more established retailers. For example, you could offer organic children’s clothing, streetwear shoes, how-to books or proprietary software.

According to the Nielsen Global Brand-Origin Survey (2016), 56% of Germans prefer to buy products that are made in Germany because it strengthens the domestic economy. If you want to win the hearts and euros of these online shoppers, consider manufacturing your product locally and investing in a Made in Germany certification or selling third-party German-made products.

German-Based Stores Are Preferred

While Amazon.de is by far the largest online retailer in Germany with €14 billion in revenue in 2020, more than half of the top-ranking e-commerce stores are companies that are based in Germany:

  1. Amazon.de – €14 billion (international)
  2. Otto.de – €4.6 billion (Hamburg)
  3. Zalando.de – €2 billion (Berlin)
  4. Mediamarkt.de – €1.5 billion (Ingolstadt)
  5. Lidl.de – €1 billion (Neckarsulm, Baden-Württemberg)
  6. Apple.com – €885 million (international)
  7. Saturn.de – €872 million (Ingolstadt)
  8. Ikea.com – €868 million (Sweden, now Netherlands)
  9. Notebooksbilliger.de – €825 million (Sarstedt)
  10. hm.com – €718 million (Sweden)

Capitalise on the Trend

These statistics echo the sentiment expressed in the previous point: Germans want to buy local. When you’re working out how to start an e-commerce business in Germany, consider investing in a physical address in Germany for your small business in Europe. A German address and contact number builds credibility and trust with shoppers and is needed for securing a .de domain—although some domain sites are willing to act as a proxy.

German Shoppers Shop in German

This should come as no surprise, but although 56% of Germans speak at least some English, Germans themselves browse the web in their mother tongue. Global retailers like Amazon and Apple localise their platforms to the native tongue in each country where they operate, and this has been a big part of their success.

Capitalise on the trend

If you want to sell to Germans, you will need to employ German translators and/or copywriters on the ground to communicate effectively with customers. While a word-for-word machine translation might get the message across, you’ll be up against carefully crafted native German content (complete with German keywords) that will push you down in search results and reduce the credibility of your brand.

Germans Like to Try Before They Buy

When they shop online, German customers like to receive and try out the goods and only keep and pay for the ones they like. It’s not uncommon to see a return rate of up to 70%. While they’re happy to try things on for size, Germans are not happy to pay for the return shipping—that cost must be covered by you.

Capitalise on the trend

While it may definitely seem more buyer-friendly than retailer-friendly, it’s important to go with the flow when it comes to easy and free returns. Ensure that you have sufficient inventory, warehouse space and number of employees to receive up to several thousand returns per day (depending on your business size) and have clear policies on the window of time for returns.

Buy Now, Pay Later

The payment methods preferred by Germans go hand in hand with the ‘try before you buy’ mentality. While credit cards are sometimes used, the most popular method of payment is the open invoice system, which you can arrange through your merchant services provider.

Germans also pay using local systems SOFORT banking and Giropay and a smaller percentage of online payment methods like PayPal and Stripe. All of these payment methods are compliant with the EU’s Payments Services Directive (PSD2).

Capitalise on the trend

In your secure global payment gateway, offer several different payment options to customers, including:

  • Credit or debit card
  • PayPal
  • Stripe
  • SOFORT Kredit
  • Giropay
  • SEPA Direct Debit
  • Open invoice

Prices Are Low

At the same time that costs for merchants are high (marketing and covering free returns are just two examples), customers expect low product prices. This leaves retailers with small profit margins and the need for a high turnover of goods.

Capitalise on the Trend

In a market that is saturated with foreign goods, finding a niche becomes even more important. If you can have products manufactured locally, this could cut your costs as well as increase German consumers’ motivation to buy. Offering excellent customer service is another way to entice customers while keeping your prices as high as you can—customers are more likely to accept higher prices if the customer service is exemplary.

Required Paperwork for Starting an e-Commerce Business in Germany

If, after reading about the German market, you feel that this would be the perfect opportunity for your business, there are several things you need to do to bring your plan to life:

  1. Consult with a German e-commerce lawyer. You will need to follow very precise steps in order to become registered as an online business. A German lawyer who specialises in e-commerce will be able to indicate the steps you will need to complete.
  2. Research the market and opportunities thoroughly. Most businesses fail due to a lack of demand for their products and failure to research the market thoroughly.
  3. Secure a physical German address. You will need a German address to get a .de domain and to receive product returns. The best cities for businesses in Germany are Berlin, Munich and Hamburg.
  4. Open a German business bank account. You will need a bank account to receive payments from customers. At a minimum, banks will ask for your photo ID and proof of address, plus documentation relating to your business.
  5. Purchase a .de domain. You can purchase a domain online with proof of your German address. City-based domains are also available but may limit your customer reach.
  6. Create a mobile-friendly e-commerce website. Many German customers shop on their phones and tablets, so make sure your site is optimised for mobile. Most e-commerce websites in Germany are built with WordPress and Woo-Commerce.
  7. Register for a European VAT-ID. VAT is an acronym for “value-added tax”—a consumer tax that is collected from the buyer and ultimately paid by the seller. The German tax rate is 19%. However, businesses that earn less than €100,00 aren’t required to charge this tax.
  8. Find a merchant services provider. For trading in Europe, you will need a merchant account provider that processes international cards and helps you calculate domestic and cross-border taxes. Your merchant services provider should also be PCI-DSS compliant and protect you against fraud and credit card chargebacks.
  9. Create policies that cover:
    1. General Data Protection Regulation/privacy policy. Once you have customers’ personal details on file (address, phone number, email, card details), you are classified as a data collector and are subject to the General Data Protection Regulation.
    2. Cookies policy. Businesses in the EU are required to place a cookie notice on their websites to gain customer consent for cookies.
  10. Market your web store. Now, get your e-commerce out there! Social media marketing, keyword SEO marketing and pay-per-click advertising will help your store to be found and even stand out among your competitors.

 

Now that we’ve explained how to start an e-commerce business in Germany, you can weigh up your options and decide whether this is the opportunity for you. The German market is full of potential for keen investors, and careful planning and adequate investment will give you an excellent chance of success.