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Global Report: Markets to watch

Overseas expansion is far from saturated, but risk-taking UK businesses will be looking at the markets to watch

Malaysia

The basics

GDP value of clothing market £588m
Currency Ringgit (formerly the Malaysian dollar)
Ecommerce Estimated size of online market is £130m and is estimated to grow to £280m by 2020. The clothing and footwear market is £12m online.
Manufacturing Fashion and textile manufacturing accounted for a 2.3% share of Malaysia’s exports of total manufactured goods
Export Malaysian textile and clothing exports are predicted to grow to £489bn annually by 2020
Major cities Kuala Lumpur, Johor Bahru, Kajang

Malaysians love foreign brands, so for retailers looking to expand into Southeast Asia, Malaysia could be a perfect place to start. In the past 15 years, the region has had an influx of British retailers, with Topshop, Debenhams
and Dorothy Perkins already familiar to Malaysian consumers.

Paul Bolton, director of product and strategy at multichannel expert IVIS Group, says: “There is a drive to have something different and more exclusive, and this means there is a demand for purchasing directly from brands in the UK who ship internationally, especially those with low cost or free delivery services.”

He adds that, traditionally, the route to market has been through a distributorship/franchise model. “The main distribution channels are boutiques or specialist shops, as Malaysians prefer to buy from these types of stores,” he says.

The region is not without its challenges though, and credit card fraud is high, both online and offline.

Finding domestic warehousing for single-pick fashion can also be a challenge, as most warehouse and distribution centres only provide services for palletised products in a more traditional warehouse environment rather than the more modern single-pick.

Retailers should also be aware of the volatility of the local currency. Jonathan De Mello, senior director at real estate adviser CBRE, says: “If [UK businesses] are paying in local currency and it depreciates, then they will have a major issue on their hands. Unstable currencies like the Malaysian ringgit could be issues they need to consider.”

Debenhams has two stores in the country. International director Francis McAuley says: “Anyone who is trading in the Middle East currently should be looking at Malaysia because the growth in [outbound] Middle Eastern tourism [to Malaysia] is a growing trend.”

THAILAND

The basics

GDP value of clothing market £4.2bn
Currency Thai baht
Ecommerce 43% are interested in buying fashion online, according to a Mastercard survey conducted in December 2012
Manufacturing 1 million people in textile and clothing manufacturing, making it the largest employer in Thailand’s manufacturing sector
Export Represents 71.3% of total GDP
Major cities Bangkok, Nonthaburi, Pak Kret

Thai consumers are already familiar with British brand names and with an abundance of shopping centre space up for grabs, retailers are looking towards Thailand to expand.

Working with local partners is the best route to market, either by expanding via wholesale, concessions or opening franchise stores. This will also help with any language barriers.

Monica Lewis, director of retail consultancy Pragma, says speaking to shopping centre owners and retail consultants will help with expansion. “Visiting fashion trade exhibitions is useful too,” she adds. “Every year in March, Thailand holds the Bangkok International Fashion Fair. It is a good learning ground for acquiring fashion trade intelligence.”

Bangkok is a prime location for retail. Familiar names include high-end labels such as Jimmy Choo and Burberry, as well as high street retailers including Wallis and Karen Millen.

The main challenge in Thailand is instability, with political unrest a worry for retailers and brands trying to make a move into the country.

The authoritarian regime can also be tough to tackle, with some restrictions on leases.

SOUTH KOREA

The basics

GDP value of clothing market £18.9bn
Currency South Korean won
Ecommerce Estimated size of the online clothing and footwear market was £3.1bn last year
Manufacturing The textile and clothing manufacturing industry employs about 174,000
Export Textile and clothing manufacturing exports totalled £7.6bn in 2009
Major cities Seoul, Busan, Incheon

New-found wealth, and the continuing rise of GDP despite the economic crisis making South Korea’s economy 15th in the world, has led to international brands and retailers such as H&M, Zara, Ted Baker and Uniqlo all setting up shop.

Previous trade restrictions and import taxes have been lifted following free trade agreements between the US and EU, making it easier for overseas retailers to break into the market.

UK retailers looking to expand into South Korea could be bowled over by the choice in location - the Korean retail landscape is sophisticated, with high-tech shopping malls in abundance.

Jonathan De Mello, senior director at real estate adviser CBRE, says cities such as Seoul have a competitive retail offering and so UK retailers must consider adjacencies when scouting for potential stores.

Finding suitable locations to open up stores can be challenging. Demand from both local and international retailers is very strong and supply is limited. Letting agent Cushman & Wakefield says on average it takes between six to 12 months to secure a suitable property.

“It’s very developed in terms of the presence of shopping malls,” De Mello says. “You’ve got the issue of intense competition where you have very built-up retail destinations.” However, he says rents are “easy to understand”
due to top-up turnover rents being popular in shopping centres.

Daniel Poppleton, international director of women’s lifestyle retailer Cath Kidston, which has 12 stores in South Korea, says the business has an exclusive distribution agreement with a partner and secures its presence through standalone stores and shop-in-shops in department stores.

“When you are considering appointing a partner to trade the brand in a new market you would be looking for evidence they have that level of knowledge and experience of introducing a new brand,” he says.

Launching online could prove a successful route to market. Zia Daniell Wigder, analyst at global research and advisory firm Forrester, says high broadband penetration helps drive online retail sales in the country, with ecommerce sales there greater than in Spain or Italy. “Although the ecommerce market in South Korea is smaller than in China, Japan, or Australia, it is increasingly on the radar of companies looking for opportunities outside of the big three Asia Pacific markets,” she adds.

INDONESIA

The basics

GDP value of clothing market £5.5bn
Currency Indonesian rupiah
Ecommerce Online clothing and footwear market is £2bn. Indonesia is 8th in the world in terms of internet users
Manufacturing Employs 1.3 million people
Export Textiles and garments exports rose 19.7% year on year to £7.9bn at the end of 2011
Major cities Jakarta, Surabaya, Bandung

Foreign investment is strongly encouraged by the Indonesian government, making the country an attractive prospect for UK retailers.

Paul Bolton, director of product and strategy at multichannel service and consultancy company IVIS Group, says: “The Indonesian government created a road map for developing the domestic fashion industry, which is expected to put the country at the centre of the fashion industry in Asia Pacific by 2018. The Ministry of Trade will establish an agency for franchise business, providing direct co-operation with major retailers and supporting export development.”

Debenhams, Next, Hugo Boss, Dorothy Perkins, Marks & Spencer, New Look and Warehouse are just
a few of the well-known names to have launched in Indonesia, with H&M set to launch this year.

“The Indonesian market has a very well-developed department store sector,” explains Debenhams international director Francis McAuley. He adds that because many Indonesian retailers already sell basic items, in its Indonesian stores the retailer focuses on more trend-led products such as Designers at Debenhams.

The most common way to enter the Indonesian retail market is via a partnership with a local partner (eg, wholesale) or via a franchise arrangement. 

Online marketplaces are also popular, and internet usage is high. A mobile site or app is a must for retailers and brands in Indonesia.

On acquiring space, retailers should be aware that units are normally in a shell condition with no ceiling and concrete floor. Tenants are responsible for their own fit-out, installation and utility fixtures within the rental unit.

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