After turbulent times in the UK market, many high street retailers are looking overseas for growth opportunities. But international success is by no means guaranteed.
International fashion retailers such as Abercrombie & Fitch and Mexx may be experiencing varied fortunes in the UK market, but that is not stopping a host of British businesses, from Marks & Spencer to Topshop, ramping up their plans to expand overseas.
This week Marks & Spencer formed a joint venture with Greek franchisee Marinopoulos BV to open more stores in Greece and the Balkans. Arcadia-owned department store Bhs is venturing outside the UK after opening its first stores in India, and footwear retailer Office has said it is casting its eye across the Atlantic after forecasts of tough trading in the UK footwear sector. Office chief executive Brian McCluskey is looking for a partner to open standalone stores for the business and is already planning its US debut as part of a concession deal with Topshop, which will itself make its US debut with a store in New York this autumn.
But establishing a bricks-and-mortar retail presence is not the only strategy for breaking into overseas markets, with Next planning to expand its successful mail order business in the UK to the rest of Europe.
For many retailers, an international presence is a logical addition to a business’s growth strategy in the UK, while for others it is a way to drive sales and build a presence in new markets following difficult or stagnant trading at home.
But translating a business from theUK to another country can be unpredictable. US brand Abercrombie & Fitch, which launched in the UK market last year, has confounded critics that were sceptical of its choice of location on the corner of London’s Savile Row. With store sales set to top US$50 million (£25m) in the first year, the preppy casualwear brand has captured the imagination of UK shoppers with its nightclub-style flagship store and sexy branding.
In contrast, young fashion chain Mexx, owned by US clothing giant Liz Claiborne, is to close 61 retail outlets across the UK including its flagship store on London’s Oxford Street. The retailer has struggled to define a strong enough identity in the UK to compete with the likes of established players Zara, H&M and Topshop.
Marks & Spencer chief executive Stuart Rose has made it clear that international expansion is a major focus for the business over the next five years, with Rose saying it will be difficult to get much more organic growth from the UK chain. The company wants to more than double its sales from international stores in five years, and aims to increase the proportion of overseas business from 7% of total sales to as much as 20%.
M&S international director Carl Leaver says India, China and Russia are the markets with the biggest potential, adding that the company’s strategy is to increase its direct investment in international retailing. M&S currently has 14 stores in India with franchise partner Planet Retail, but Leaver says the business also aims to invest alongside a partner.
“Five years ago our default position would be a franchise operation, but now we want to invest,” he says. “But the decision of whether to open franchises, joint ventures or wholly owned stores depends on risk, how big the opportunity is, how culturally different the market is, as well as regulation. Some markets don’t allow you to do company-owned stores.
“We want a bigger share of the profit – if we invest alongside a partner we can share in the profit of the retail operation, rather than just supplying the product. Together we can grow faster.”
Leaver explains that most of the M&S clothing product sold abroad is identical to its UK ranges. “We do some specific products for different occasions or festivals, such as Ramadan and Diwali, as well as Asian-fit bras, but about 95% of all clothing is exactly the same,” he says. “That means we are leveraging the infrastructure that we already have.”
He adds that plans to ramp up expansion are not an attempt to protect the business from a predicted economic downturn in the UK, and says the decision to grow overseas was made before the current trading climate existed. Nor does he think that there is more pressure on a public company to develop international strategies to demonstrate growth potential for its shareholders. “It [overseas expansion] is a critical strategy in terms of driving growth,” says Leaver.
“There’s a compelling logic irrespective of what is happening in the UK. There are more than two billion people in India and China. It’s not all the same spending power as in the UK, but it is increasing every day. Of course, you don’t have to enter new markets to get growth – we want to double our presence in Greece and the Balkan states.
“Whether a company is listed or not, you want to maximise value. That’s what business is about,” he explains. “You could argue that being public means you’re more conscious of the risk of failure, or that if you own the business yourself you have more of an incentive to expand internationally.”
Upmarket fashion chain Reiss decided it had the potential to be a global brand relatively early on. The business has 48 standalone stores in the UK and Republic of Ireland as well as concessions in House of Fraser, Harvey Nichols, Selfridges and John Lewis, with a turnover of about £52 million. Despite its relatively small size, it already has 17 international stores including nine in the US and eight more in Sweden, Hong Kong, Malaysia and the UAE.
Another premium-level brand, Ted Baker, made its first retail foray abroad 12 years ago with a flagship store in New York, and has since grown the portfolio to eight standalone shops in the US, along with 17 franchise stores in the Middle East and Asia.
Sales from the US business rose 21% to US$9 billion, up from US$7.9m for the six months to August 11. Total licensing operations, which includes franchise stores, were worth £2.3m, up 8% from the previous year.
The fact that Ted Baker launched a wholesale operation side by side with its retail arm helped to establish the brand, according to brand communication director Craig Smith. “We went to the Magic trade show in Las Vegas and got a good response and a lot of support from some key indies,” he says. “In the US we went in at a higher price positioning than in the UK. It has worked and we’ve stayed there. The customer is a little older and affluent – there are not so many of the young 20-somethings.”
He adds that the key is to keep the handwriting universal. “We’ve kept the product very consistent and that has helped. The brand has a quirky sense of humour and a style that makes it stand out, which is what you need when you go abroad.”
Now young fashion chain Topshop, which opened a flagship store in Russia last year, is about to debut in New York, marking high street giant Arcadia’s first entry into the US market. Topshop is well known overseas, and its recent collaborations with supermodel Kate Moss have only helped to raise the business’s profile and cachet. Nevertheless, the company must guard against complacency.
Marshall Lester, chief executive of brand management consultancy ML Marketing, has been involved in helping brands including Diesel and Ben Sherman establish themselves outside their domestic market. He says: “One of the biggest mistakes retailers and brands make when going to another country is to think that just because their business and model works well at home they will get the same success simply by replicating it abroad.
“Every young woman in New York has probably heard of Topshop, but you can bet that Philip Green will still spend a significant amount of money promoting the business in the US when it launches there.
“You may have an extremely high profile in the UK, for example, but when you go to the US no one knows who you are. And why should they? You have to make a huge effort to promote your business.”