In the first of a six-part series on business best practice, we examine why the importance of expanding into overseas markets has never been greater.
The economic downturn has led to many UK retailers and brands experiencing a slowdown in sales and profits in their homeland. To make up for this significant challenge to growth, retailers are increasingly developing global expansion strategies, either in Europe, the US or further afield in countries such as China.
It’s proving to be a successful formula; many fashion retailers and brands, such as Burberry and Pentland Group, are experiencing strong demand for their products overseas, and international sales are rocketing. In fact, more retailers are placing greater emphasis on their overseas presence by appointing international directors, launching country-specific websites and opening stores as the importance of international revenue grows.
Strategies vary from retailer to retailer.
There is a range of different ways to enter a new market, from licences and franchises to wholesale and standalone stores. That’s not forgetting online, which has rapidly changed the way retailers develop their international expansion plans. Instead of opening stores, retailers can dip their toes into a market by checking what demand there is through offering ecommerce.
However, launching internationally can be fraught with challenges, and even major retailers have been struck with problems. So if you’re a retailer or brand that has only ever known how to operate in the UK, how do you establish yourself abroad? What opportunities and challenges should retailers consider? International expansion is at the top of the agenda for many businesses, but at the same time, money is tight. So what approach should fashion retailers take to international expansion to ensure it is as smooth and profitable as possible?
Head of US operations at retail property firm CWM
Launching a standalone store is the most risky [method of expansion] in terms of capital outlay, but the most profitable route if done correctly.
Flagship stores in the super-prime areas of Manhattan, for example, can generate enough income to drive expansion across the rest of the country.
But it means competing with the locals. In the US, landlords generally favour a domestic retailer over a similar international business, while rental deposits can be vastly inflated for international retailers. Then there are the differences in lease terms.
It’s best to educate yourself on key terms, phrases and market norms.
Finding the right location is also vital. Prime stores are generating larger sales than ever. For example, in New York City’s SoHo, retailers capitalise on domestic tourists, international tourists and local shoppers. But this boom in prime retail has created mini areas of cool retail that are much more affordable, such as Nolita, also in Manhattan.
Finally, get a great team on every aspect of the process. We go beyond finding real-estate locations and help bring together specialists from PR, lawyers, accountants, construction experts and architects.
Chief executive of trade show Panorama Berlin
I see great potential for British brands to expand in Europe, especially Germany, due to the authentic appeal of their heritage, while high street brands can specifically appeal to younger consumers. Their image is positive, due to the quality and history of British fashion, but awareness of individual brands often doesn’t exist in the desired market.
The first step is for brands to present themselves in person to the markets they want to enter at a trade show, such as Panorama Berlin. After all, this is a people’s business. On a budget, businesses can make a presentation of their products and their history to the decision makers - the buyers and the agents - who can then help take the brand to the next level: the consumers. It’s an opportunity for a brand to convince the stores to stock its products.
Brands also need to get to know the markets they want to expand into and trade shows help with identifying competitors and their clients. The first-hand knowledge gained can be key to international success.
International director at shirt retailer TM Lewin
After researching the market you’re looking to launch into, the most important thing is your [franchise] partner. Most franchise agreements are 10-year contracts; it’s kind of like a marriage - easy to get into and difficult to get out of. [Therefore] it’s sensible to meet up with that partner a lot.
One of the biggest challenges, yet biggest opportunities, is offering ecommerce in a market you’ve already got a franchise in. There needs to be a way to share online revenues from that market with your partner who has helped build awareness for you in that territory.
You have to recognise the value a franchisee brings. There’s also an opportunity to work with that partner on a multichannel business, which is hugely exciting.
As well as franchises and wholly owned stores, we have concessions in [Australian department store group] Myer. We opened them after a positive experience with House of Fraser in the UK. The brand worked in that environment and Australia is a department store-driven market.
We started with a concession in Myer and then opened our own store. The ideal way would have been opening stores first, but doing it this way did us no disservice; by having the concessions we got validation and feedback on the way the brand was perceived before opening stores of our own.
Global brand director at young fashion brand Ben Sherman
Always understand what your long-term objective is for entering a new market, such as brand awareness, growth within that market
and so on.
There are other factors to consider, such as the economy - how stable is it and what are its long-term growth prospects? Are there any barriers to entry, such as local legislation, or import duties? Is your collection suitable for that market? You can gauge brand awareness by the number of visits to your website from that market.
You should visit the market a number of times to speak to retailers and understand how they operate.
Speak to more than one set of professional advisers, such as property advisers and lawyers, to ensure a balanced overview as to market rents, lease incentives and tax implications.
The key to opening a store in an unfamiliar market is to identify a strong local partner that can handle day-to-day challenges.
We opened two new stores in Malaysia with a franchisee. To ensure everything ran smoothly we sent over key people from the UK business to oversee the openings, ensuring consistent brand standards were met. We continue to work with them on a day-to-day basis.
Our products are distributed from the UK but it is possible to have distribution centres globally. If you have strong store managers you can work with third-party service providers until you are confident within that new market and can invest in your own office or distribution centre.
Head of brand licensing and brand distribution director at JD Sports Fashion
I strongly advise retailers looking to expand overseas to make contact with their local UK Trade and Investment office and attend a few of their events. You will learn a great deal about various regions and markets.
But the most important point for any business before even visiting a market is to register its intellectual property.
Take South Korea, where we entered into a licence agreement with a partner. It’s one of the markets where ensuring your intellectual property is protected before entering into a discussion with a partner is paramount, as it’s a prolific market for ‘trademark squatting’.
It’s also vital to find the right licence partner. This can only be done by visiting them to help build the trust you’ll need before passing them your brand.
The most important thing is that you need to commit, [with] regular visits and a willingness to learn about the new market.
Time, distance and investing in travelling to your selected market before, during and after the agreement is under way will be required.
The advice given by Lord Charles Powell [chairman of luxury group LVMH], who has been doing business in Asia for more than 40 years, was that you will need to visit your partner about five times before they begin to take you seriously. In my experience, this is about right.
Research, refine, decide, act, commit and stick in there.
Being honest about the capabilities of your business is the best tactic. Overcommitting and underdelivering will result in an unhappy relationship.
Chief executive of premium etailer My-Wardrobe
If you launch overseas, have a good understanding of what the value would be to your [prospective] consumers and have a good understanding of how your business is perceived. Look at that market’s profile and do the numbers.
Always listen to your customers. In Sweden, we had a website in Swedish and English but our customers felt our brand was more credible in our native language, as the translation wasn’t good enough, so we reverted back to just English.
Etailers don’t have to open distribution centres overseas. We still ship from the UK. Distribution is very fast and we can deliver orders to anywhere in less than two days, so there’s no need to open distribution centres outside of the UK.
How you set up your brand overseas can vary. My-Wardrobe has been built on fashion PR in the UK; this works in some destinations but not in others. It’s a key driver in the US but not in the Middle East. It’s a different culture over there, so you have to adapt to local needs.
What you are and what you mean to people can differ across countries. For example, we don’t sell US brands very well to our US customers. In Australia, they love Scandinavian brands, as they can’t find them anywhere else.
Have people on the ground who understand your business and who can translate that value.