The saturation of the UK market means looking overseas is often the only growth option for retailers today
Hardly a week goes by without Drapers reporting on the international expansion of a UK brand or retailer. And, after a chat with Pentland Brands chief executive Andy Rubin, it’s easy to see why.
“The GDP of the BRIC countries (Brazil, Russia, India and China) has quadrupled in the last nine years. There will be a billion new middle-class consumers in the next 10 years in emerging countries and the Asian middle class will account for 50% of global consumption by 2030 compared with 25% today,” he says, before firing more figures at me. “China’s retail market will be bigger than the US in five years, and by 2025 emerging markets will have more upper-middle-class households than developed countries.”
The facts speak for themselves, but as Rubin points out, it’s not as simple as jumping on a plane and setting up shop in São Paulo. “One of the challenges of expanding internationally is resources. You need people on the ground, you need a strategy in place,” he says. “Every country and consumer is different. If you think you can take your UK model abroad [without adapting to local demands], then it could end in tears.”
Honor Westnedge, senior retail analyst at Verdict Research, suggests investigating the online route to test the waters: “Soft launching online is an effective way of gaining traction in a new market and testing [the feasibility of] a store. Moreover, distribution and logistics can be difficult to get right so this also needs to be considered when entering new [BRIC] markets, ensuring the expansion is cost-effective.”
Interestingly, a market report by Drapers last month found that, of the 329 retailers polled, 87.7% of those who trade internationally do so via the web. But online isn’t always the best option, particularly for value players and their low-price/high-volume models. “The likes of Primark expand via stores. M&Co will enter the Gulf with Liwa Trading Enterprises operating its stores, so it’s important for retailers who don’t have local knowledge to expand via partnerships, licensing and franchises,” says Westnedge. “But retailers must [protect] their brand identity by partnering with an appropriate business and have strict control over stock and shopfits.”
It’s a sentiment shared by Sanjay Sharma, commercial director at premium chain Reiss, who was promoted last month with the challenge of growing sales to £250m through international expansion. “You’ve got to have a strong identity,” he says. Sharma believes there are growth opportunities for Reiss in most markets and will build on the success of its Bloomingdale’s concessions to grow in the US.
“We’re opening another 14 Bloomingdale’s concessions across 2012 and, if successful, we’d look to open more standalones,” he says, adding that Reiss’s Western Europe footprint is still “insignificant”. “We’re looking to work with major department stores there. In the Middle East, we have a successful franchise business with the potential to triple in the next four years.”
With an increasingly saturated UK market, where competition is for market share rather than bricks-and-mortar growth, international expansion looks like a no-brainer. Just do your homework first. And give Andy Rubin a call, although I can’t promise he’ll pick up.