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Overseas expansion roundtable

Passport to profits: Drapers and Quantum Retail invited retailers to hear about M&S’s international plans.

There is little doubt that international expansion is at the top of the retail agenda. With a flat market at home, overseas territories and developing economies, where consumers are enjoying increased spending power, are an attractive prospect for UK fashion retailers and brands.

However, due to changing shopping habits fashion businesses already have to adapt their practices for multichannel retail at home, so entering the international arena brings added complexities and fresh demands.

With this in mind Drapers, in association with retail software supplier Quantum Retail, brought together leading fashion retailers from Arcadia, Ted Baker and Dune Group over a dinner on June 26, at Fortnum & Mason in London, to listen to a presentation by Marks & Spencer’s then international director Jan Heere.

Heere, who was one of chief executive Marc Bolland’s first big hires and was formerly managing director of Spanish fashion group Inditex for five years, has since stepped down from his post at M&S, but spoke to the attendees about how he built the company’s international business in the three years since taking on the role in 2011. Heere is now said to be contemplating a job in Europe.

With 455 stores across 54 territories, M&S has grown its retail space by 41% under Heere and has built a formidable global business. Having famously exited the international arena in 2001, the company had its work cut out, said Heere. “When Marc Bolland joined in 2010 he said we want to become an international multichannel retailer. And we obviously have to catch up with what a lot of our competitors have been doing much earlier and much faster. Zara, for instance, decided to go global in 1988.”

He said the first step was establishing an international team with varied retail experience in and across different international markets, with the ability to speak the languages necessary to operate.

“We also wanted to focus our strategy in the first three years in the northeast quadrant of the world because we felt that going into the southern hemisphere or the Americas would create too much complexity. Within that area we focused on India, China, Russia, the Middle East, and to a certain extent western Europe as well,” he explained.

However, expanding overseas isn’t just about bricks and mortar. Just as the UK consumer is now a multichannel shopper, so are those in other international markets. Joe McManus, vice president of sales at Quantum Retail, which counts New Look, Marks & Spencer and Sainsbury’s among its customers, said: “Today’s retailers are having to find new ways to address challenges when expanding internationally. These include understanding and balancing the needs of new customers with the retailer’s ability to place inventory where it will deliver the highest value across their organisation. Successful retailers are achieving this with advanced allocation and replenishment and expanded
omnichannel exposure.”

For M&S - which operates 10 international websites mainly in Europe under a .eu address that then localises to the given country - assessing the multichannel potential of a market is of utmost importance. “When we evaluate every country we look at the potential of the stores and of the website, and we rank all of the markets around the world depending on the potential in the different channels. That is how we have created our priority list and have decided where we will start investing first.”

With its vast and increasingly wealthy population, China is a top priority for many fashion retailers. M&S has 14 stores there and this year launched online on Tmall, essentially an online shopping centre and China’s largest etail platform with 500 million users. “It was important for us to start learning how to trade on a website in China and that is why we wanted to go onto Tmall,” said Heere. “We have learned you have to be on Tmall - that is the place to trade. We have taken the lessons from this launch, seen our traffic grow and believe that will be the way to develop online there.”

One of the key decisions to make when entering a new market is how to do it, both online and on the ground. The choices include directly operated, via a joint venture partnership, wholesale or through a franchise agreement. The latter has been implemented successfully by the likes of Debenhams, Mothercare and M&S.

M&S has a target of opening 250 international stores in the next three years, and Heere said he expects 60% of growth to come from the franchise part of the business. However, he told attendees M&S will still directly operate somemarkets. “We believe it is important that if we want to be a good franchiser then we know how to operate an international business. So places such as France, the Netherlands, Ireland and Belgium are direct ownership, but the growth will definitely come from franchise.”

The benefit of a franchise approach is it is less capital intensive, and the retailer benefits from a partner that understands local customs and consumers, and can navigate local bureaucracy. Conversely, when Heere directly operated the Russian market for Inditex, the national head office housed 80 accountants to service the country, more than at its main global headquarters in Spain. “That is a pressure we had as a business to have the right resource in place, which was heavy maintenance but very commercially rewarding.”

He also recommended close working practices with franchise partners, citing M&S’s strategy in Russia. “Today we see Russia with a lot of pressure because of the depreciation of the rouble and the situation in Ukraine, and obviously we have to work very closely with our partner to keep the growth going, to keep their margins sustainable. Otherwise they might lose interest in the brand.

“We now treat that market as our own market so we manage those franchise stores as if they were our own stores.” Of course, the challenge comes when retailers are faced with, and bound into, long-standing agreements. There are also operational hurdles in terms of logistics and managing product life cycles.

The key is overcoming the complexities in their system to best leverage their inventory investment and garner the highest returns. “Retailers need to make sure they have the right systems in place to accurately predict demand so that products are located where they will meet the retailer’s business objectives and generate the highest possible returns,” said McManus.

New Look head of commercial Steve Challes agreed UK businesses have a lot of work to do to ready themselves for international growth: “The biggest challenges are actually understanding customer tastes and expectations coupled with details such as size ratios - every market is quite simply different. Support areas such as logistics, finance, IT and HR then need to pragmatically deliver. Thorough research is key and we’re steadily building an experienced team within New Look and some key trusted third-party partners.”

Debenhams trading director Adam Rose asked whether it is important to vary clothes sizing by market. Heere explained that at Inditex the strategy was trends are the same everywhere, and although there were some particularities by market, flexibility is the most important factor.

For Challes, international expansion will remain a key fashion retailer story over the coming years.

“Good fashion retailers will always seek to grow internationally both via online and where possible with stores - it’s a natural ambition. Being able to say we’re from the UK with the inherent fashion credibility is a strong selling point, although we need to tailor that to local markets. Global operators such as Inditex and H&M are huge and successful and have shown what can be achieved over time - they have set a very high benchmark for others.”

The overriding message from the evening was that retailers need to fully assess the multichannel opportunities presented by the different markets, and ensure the teams and systems are in place internally before pushing the button to make it happen.

For more of Drapers’ global coverage, go to www.drapersonline.com/insight

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