The vast US market may be even more of a lure after Brexit. But where Joules, Primark and Missguided thrive, many others have failed.
The UK’s exit from the European Union – its biggest trading partner – has fired the starting gun on Boris Johnson’s trade negotiations with other countries.
Although the US imposed new tariffs on UK exports last year, president Donald Trump said in Davos last week that he hoped for a “tremendous” deal with the UK and its “wonderful new prime minister”. For fashion brands and retailers, this could bring fresh opportunities to crack the popular but tricky-to-navigate US.
The US clothing and footwear market was worth $370bn (£283bn) in 2019 – five times the size of the UK’s $69bn (£52.8bn), estimated market research provider Euromonitor.
Although growth may have slowed in recent years – Euromonitor reports the market grew by 2% in 2019 compared with 5% in 2016 and a further slowdown is anticipated over the next five years – the scale and perceived cultural similarity to the UK makes it a key destination for retailers hungry for international growth.
Nevertheless, the UK’s departure from the European Union – its biggest trading partner – could open the door to more favourable trading agreements with the US.
Many have tried to crack the US, with varying degrees of success. For every retailer that has thrived in the market – Joules, Primark and Asos are among those that have reported strong US growth in their most recent financial results – there are several that have failed.
You shouldn’t underestimate the importance of brand awareness in the US
UK retailer head of international
In October 2019, for example, retailer N Brown Group ceased its US operations, which it described as “unprofitable”. The US arm of LK Bennett filed for chapter 11 bankruptcy protection in April 2019, closely followed by Topshop’s US division filing for bankruptcy in May 2019, leading to the closure of all of its 11 stores as part of parent company Arcadia Group’s company voluntary arrangement.
The gigantic scale of the US is a double-edged sword for brands and retailers. On the one hand, sheer size of the market brings opportunities for growth and expansion, but on the other it raises complex issues around fulfilment, brand awareness and regional variation between consumers.
“While there are some regional variations, the UK is a pretty standardised market. The US is not,” explains Neil Saunders, managing director of analyst GlobalData. “It is, in reality, a lot of different markets with varying taste profiles and variations caused by weather and climate.”
”Each state has different trends and consumer demands, which means the clothing and footwear market in the US is extremely fragmented, making it extremely challenging for new brands to build a strong consumer awareness,” adds Nina Marston, beauty and fashion analyst at analyst Euromonitor.
Building brand awareness across vastly different cultures and geographies is a challenge, and each area requires a specific, localised approach. To mitigate this, Primark, for example, has 10 stores on the east coast to minimise regional divergence.
Another difference is the volume of space available, says Chana Baram, senior retail analyst at Mintel: “Unlike in the UK, where retailers face the challenges of very high business rates and rents, retail space across the Atlantic tends to be available at a lower cost.”
There is so much choice in the US market that retailers and brands need to be better than good to succeed
Neil Saunders, managing director of analyst GlobalData
She cautions, though, that retailers must be careful with their store strategies. Falling footfall in high-profile shopping centres makes them a risky location for a first store, for example.
Even Primark, which is now enjoying strong US growth, took time to perfect its approach to stores. In 2017 it reduced the size of three of its eight US stores, which John Bason, then chief financial officer, described as “fine tuning”.
Location, location, location
Location is crucial, and Primark’s strategy of opening in second-tier cities is one approach that has paid off.
“There are several areas and cities that a retailer can choose when looking to launch in the US,” says Baram. “For example, when Primark, first opened in the US, it chose Boston rather than New York. By doing so, it could test out the market in a lower-profile, lower-cost area.”
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Nevertheless, Saunders says it is risky to enter the hyper-competitive retail landscape through the store route: “Brands don’t stand out enough and so struggle to make stores work on a financial level.
“There is so much choice in the US market that retailers and brands need to be better than good to succeed: the blunt truth of the matter is that a lot of them aren’t up to this challenge.”
The head of international for one UK high street retailer, which recently closed its small number of stores in the US, but is looking to re-enter the market, tells Drapers that building brand awareness is key when entering the US, and will be more of an integral focus second time around.
“You shouldn’t underestimate the importance of brand awareness in the US,” he says. “We have to drive that point of difference and cut through with a niche proposition.”
Working with wholesale partners and focusing on ecommerce will be the starting point to build the brand presence, rather than investing in stores.
“When we enter the market, we plan to gain knowledge through our wholesale partners and ecommerce operations, before considering going into stores,” he says.
We’re in some towns in the US that I had never even heard of before
Varley co-founder, Lara Mead
Indeed the scale of the US encourages a focus on wholesale – piggybacking on existing retailers’ local knowledge and reputations to build brand awareness and get in front of new customers.
One brand opting for this approach is London-based women’s activewear label Varley. Co-founder Lara Mead explains that around 80% of the brand’s operations in the US are with wholesale partners, and stockists include Shopbop, Revolve, Neiman Marcus and Bloomingdale’s, as well as boutique gyms and fitness studios across the country.
She flags that wholesale has helped drive regional brand awareness: “We’re in some towns in the US that I had never even heard of before. In addition to the larger retailers, we are in a lot of boutique fitness studios.
”It’s almost like a standalone billboard for us as a brand when we appear in all these spaces. It’s probably our best, cheapest acquisition channel.”
Mead highlights trade shows, where buyers from across the US converge in one location, as a route for for smaller brands looking to secure stockists in the US: “We always pick up new accounts at trade shows,” she says. “It’s good to be part of them, but it’s important to choose the ones that are right for you throughout the year, because they are expensive.”
Within the wholesale market, the department store model remains a popular method of market entry for UK businesses. Reiss, Boden, AllSaints and Joules all sell via department stores including Nordstrom and Bergdorf Goodman in the country.
As with the UK market, US department stores face a challenging market.
Saunders explains: “The sector has been in decline since the late 1980s and is becoming far less relevant to US consumers and is losing [market] share. Moreover, most US department stores do an incredibly poor job with fashion: merchandising and ranging in stores are abysmal.”
Source: Photo from ferret111 on Flickr
While the market has experienced massive upheaval in recent years department stores remain a useful tool for international names seeking to build brand awareness in a competitive market.
The ecommerce market is also fertile for growth. Euromonitor reports that last year 25% of clothing and footwear purchases in the US were via ecommerce, and this expected to increase to 41% by 2024. In addition, it is predicted that in 2020, 50% of all digital purchases in the US will be made via mobile.
Euromonitor’s Marston believes this increase has forced those with existing presences in the US to alter their approach, to better cater to the ecommerce boom: “Brands looking to target consumers in the US need to develop strong digital communication and ecommerce capabilities while carefully strategising store locations and product offering.
“Because of consumers’ growing dependence on digital commerce many brands are having to scaling back their retail presence to strategically placed high-footfall locations and focus on developing their online presence and core product offering.”
Ecommerce has created opportunities for digital-native brands to tap into increasingly global consumer demands.
“With the internet and impact of social media, trends are now less distinct to specific markets and are instead more global,” observes Marston.
Manchester-based fast fashion brand Missguided is one such brand. Founder Nitin Passi says existing product and aesthetic already resonates with social media savvy US customers, making the market a natural focus.
“A lot of what we do in the UK translates to the US there without having to localise anything – for example, language, new payment methodologies.”
In 2018/19, US ecommerce accounted for around 20% of total sales at Missguided and is a focus for 2020 growth. This month, the brand opened its first office in Los Angeles, and in 2020 plans to invest at least 10 times more into the market than it has ever done before.
While Passi is confident the Missguided product will resonate with customers, the secret to success hinges on building brand awareness in a competitive market. The LA office will spearhead this push – working as a hub and brand showcase space to increase the number of projects with US influencers and celebrities.
Fulfilment in the US is another challenge: delivery across the vast geography creates additional costs for retailers.
However, Mintel’s Baram explains that delivery expectations are less immediate than in the UK: “Next-day deliveries are more or the less the norm [in the UK], with some retailers even offering same-day in certain cities, whereas in the US two-day deliveries are a premium option, with next-day only being recently introduced.”
Asos uses this to its advantage. It opened a logistics hub in the US in 2019 so it can offer next-day delivery in a market where it is not the norm. However, CEO Nick Beighton admitted to operational and compliance issues with some of its brand partners, which impacted on sales growth.
Other brands are able to fulfil orders from their existing UK or European facilities, without compromising on consumer experience. Missguided, for example, distributes all products from its Manchester hub, but has a facility in the US to process returns.
“We always compare ourselves to competitors in the market and we offer similar fulfilment,” says Passi. “Our shipping is quick and duty free, because our average order value is under $300 threshold for import duties.”
Nevertheless, trading between the two nations has become more difficult. On 18 October 2019, exports of some clothing and textile items from the UK to the US, including knitwear and suits, were hit with a 25% tariff.
Adam Mansell, CEO of the UK Fashion and Textile Association, says the levy has already impacted some brands’ hopes of cracking the market: “The additional tariffs […] is having a significant impact on companies and UKFT is aware of US brands actively choosing not to source from the UK as a result,” he says.
As Drapers revealed in November 2019, lifestyle retailer Joules has asked suppliers for discounts on spring 20 orders, to help it offset the tariff rises. While not all brands will be impacted, the increase will certainly raise the costs of operating in the US, making it even more challenging for those looking to expand.
Thanks to its scale and cultural similarities, the US will always be high on the list for UK brands looking to expand. As trade negotiations begin, British brands and retailers will hope the special relationship becomes even more lucrative.