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Analysis: Why US retailers can't crack the UK market

As Banana Republic beats a retreat from the UK, Drapers examines why some US retailers struggle to gain traction in one of the most competitive retail markets in the world.

banana republic

banana republic

Gap’s Banana Republic is to close all eight of its UK stores (seven in London and one in Bath) by the end of its 2016 financial year, after eight years in the UK market.

Honor Strachan, lead analyst at Verdict Retail, said the retailer’s poor pricing and promotion strategy was to blame for its failure in the UK: “The brand failed to justify its premium price points, leaving consumers with little encouragement to shift their spend from rivals. Much like its sister brand [and parent company], Gap, frequent promotions on selected ranges such as knitwear or blanket discounts across the full offer have eroded respect for the original ticket price, with consumers holding off making a purchase until at least a 30% discount has been applied. This strategy does not work in the UK and is detrimental to margins if price cuts are reactionary, desperate and unplanned.”

Neil Saunders, chief executive of retail analyst Conlumino, who is based in the US, said the over-pricing problem was not exclusive to Banana Republic adding that many US retailer’s need to rethink their strategy.

“They have to make sure prices are aligned to the UK market rather than just changing dollar signs to pound signs as so many, including Banana Republic, are guilty of doing in the past. A lot of US retailers have been arrogant [with their pricing] but it hasn’t worked with UK shoppers. The prices at J Crew, for example, are ridiculous and the UK consumer will not bear that price point for high street product.”

He added that a unique offer is needed to crack the UK’s “sophisticated” retail market.

“The UK is a very crowded and competitive market. It is very advanced and among the best in the world. It is very difficult to crack unless you are an exceptionally good business with a unique offer. Not all but some US retailers are much more basic than their UK counterparts – they struggle as they are not used to the intensity of such a sophisticated market.”

Independent retail analyst Richard Hyman agreed: “The UK fashion market is the toughest in the world, so if you’re coming over here, you need to offer something different. A lot of retailers don’t understand that. Retailing isn’t a business that easily crosses borders. It’s all about brand relationships and retailers have to work very hard to build that relationship with their customer in their home market. When they go to a different country, they are back to square one and many aren’t willing to invest the time and resource needed to build the brand in new territories.”

Store location and size are also factors in making or breaking a retailer’s entry into the UK market, said Jonathan De Mello, head of retail consultancy at Harper Dennis Hobbs: “In the US the malls are so huge landlords give away the space for a much lower price than here in the UK. Some retailers don’t understand that it doesn’t work the same way here, so they still go for those big spaces and they aren’t getting the turnover to cover the costs.

”Keeping the brand quite tight location-wise is also important. Having a lack of ubiquity works well, as it keeps the product more premium and desirable.” 

De Mello highlighted Victoria’s Secret as one US retailer that has created demand for its product through heavy marketing and a select but strategic store rollout programme. 

As the UK moves into an uncertain post-Brexit world, competition on the high street is undoubtedly going to stiffen and the stormy retail waters will become more difficult to navigate for both domestic and international players. However, having a unique product at the right price, in the right-sized store and location will help those trying to break into and succeed in the one of the toughest and most competitive global retail markets.

Top tips for international retailers navigating the tricky waters of UK retail

  • Tailor your product Understand the UK customer and what they want in terms of fit and style
  • Store size and numbers Smaller store formats in fewer strategic locations is key
  • Get your prices right Premium prices for average product will not wash with UK shoppers

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