Brands are setting sail for more lucrative markets overseas, where local consumers have a taste for British fashion.
The UK’s economic woes have led to stuttering sales that are at best flat for many, leading to home-grown businesses setting their sights on more buoyant markets in continental Europe or the US, and even further afield to the booming economies of the Far East and the emerging BRIC (Brazil, Russia, India and China) markets.
This much was confirmed by our survey, which found that 79.1% of the brands polled sell internationally, and derive an average 31.7% of their sales from overseas markets. When we asked what proportion of their business they expect to come from international sales in the next five years, the figure shows a steady increase to 39.8%, indicating global expansion will dominate brands’ growth strategies in the years to come.
Russell Downing, sales and marketing director at women’s footwear brand French Sole, certainly thinks so.
“We’ve definitely started to see bigger growth internationally.
I’m not anticipating I’m going to start to see whacking double-digit growth over the course of this year in the UK domestic market, and that’s both from an own-brand store, but also from a wholesale perspective. Where I’m seeing the growth and where I’m putting my attention to is internationally,” he says.
French Sole has already appointed distributors in Russia and Australia, and will open its second franchise store in the Philippines in April. It is also close to appointing distribution and franchise partners in China.
Downing explains: “Because we do flat shoes and ballet flats, they are fairly seasonal. You’re not going to wear ballet flats in the winter when it’s chucking it down with snow. So to grow our business we need to look at the markets where you can wear our product all year round. And that again is where you look at the tropics - you look at Asia, the Far East and Pacific regions where there will be year-round demand for our product.”
Continental Europe is top across all sectors in terms of selling overseas, with 96.8% of the brands polled already selling there, with Asia second at 64.5%, and the US third at 54.8%. The situation changes when we asked respondents where is the potential for most growth, as Asia ranks highest among 77.4% of brands, no doubt bolstered by the presence of China.
Honor Westnedge, senior retail analyst at market research firm Verdict Research, forecasts further growth in Asia, as well as in the Middle East and Eastern Europe. “Eastern European consumers are becoming more Westernised now in the way they shop, and they now do it more regularly and expect more newness. So we expect more brands to be heading over there.”
She adds that the Netherlands is “quite strong” and the US market has been a success for a number of UK brands. “Certainly mid-market brands do quite well over there, because typically the US is very value or very premium. They don’t have a lot of fast fashion in the mid-market like we do, such as Arcadia and Aurora Fashions, so we find our mid-market to premium brands do very well over there,” says Westnedge.
There are, of course, many ways to enter overseas markets, from licensing agreements, to going in on the ground with directly owned stores, online or via a franchise partner, but all of these options are highly market specific.
“Brands can go through licensing partnerships and franchises in those markets where they have less knowledge and where they’re not sure what the customer wants. But in markets where they understand the customer and shopping requirements and it’s logistically easy to open standalone stores, then brands will start to remove their wholesale operations in favour of standalone stores,” says Westnedge.
And this is exactly what menswear brand Lyle & Scott has done in the Russian market, where it currently runs a wholesale operation but now plans to open its own stores. Creative director Richard Martin explains the decision to enter that market via wholesale: “It is about getting market intelligence through from partners and understanding who your customer is, what they expect, understanding pricing architecture, understanding the position in the market, which then affects how you price that product, how you market it and the distribution.
For us, wholesale has enabled us to learn what the market expects from the brand.”
Martin explains that Lyle & Scott’s wholesale accounts in the Russian market are “niche positional accounts”.
He says: “The brand is positioned very well there, so now we felt the time was right, certainly over the next two
to three years, to roll out our own retail there because I think we’ve hit the ceiling there in terms of wholesale.”
Over the next two years, Lyle & Scott will also open stores across Southeast Asia, in markets such asIndonesia, the Philippines and Thailand.
Young fashion brand Merc is also present in overseas markets, with two thirds of its sales coming from international markets. Andy Tompsett, the head of UK for Merc, says: “We’re doing a lot more in countries like Russia. We’ve partnered with Lamoda and Wildberries in Russia, two of the biggest etail players in that market, and we’re working with our partners there to see if we can mirror the Merc website in Russian. We’re constantly looking East rather than West.”
Similarly, Hugo Boss is eyeing the newly wealthy markets of the developing countries. “We just opened a subsidiary in Russia six months ago and at the moment we work with a franchise partner. However, this year we will open our first stores in Moscow. Brazil is also getting more important,” says Bernd Hake, UK managing director of Hugo Boss. “The BRIC countries are definitely our focus. Brazil, India, China and Russia are definitely markets that we want to be present in at an early stage.”
However, for many brands the path to international greatness remains fraught with challenges - 25.9% cite local product requirements and sizing, and 22.2% name local competition as barriers to doing so, while a much larger 48.1% find a route to market an uphill struggle. And that’s just the first step; brands will then have to overcome linguistic barriers and learn the logistical requirements of any new market in order to establish a supply chain.
Merc began selling into the Indonesian market through department store Galeries Lafayette in Jakarta this month, and will open further accounts in Thailand this year. However, Tompsett agrees that establishing
a route to market is a challenge: “We’re in conversations with [Hong Kong department store] Lane Crawford, but there are a few people we know there, so that helps.
Really one of the main challenges is establishing trust. It is knowing the right people, partner or player to work with.”
‘International expansion comes with a unique set of challenges’
Acknowledged all over the world, fashion is at the forefront of everything that is great about Britain. And the retailers and brands behind both famous and emerging labels plan to keep it that way - they are often ahead of their foreign rivals in expanding their operations all over the world.
As the figures in our report show, in spite of or even because of flat or no growth at home, retailers and brands have ambitious plans for international expansion. While almost all sell into Europe already, Asia is firmly on the agenda, although there is also a focus on both the US and further expansion into continental Europe. Slow growth at home also explains why they expect to generate a higher proportion of their sales abroad over the next five years.
Of course, international expansion comes with a unique set of challenges, such as language, regulation, culture and incompatible systems and working practices. The winners are those who look for as much consistency as possible so they can manage their risks and go to market as quickly as possible, but still remain agile in order to manage local variations and fast-changing markets.
- Tony Bryant, Head of business development, K3 Retail