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How to keep UK-US relations strong in uncertain times

The special relationship between the UK and the US has been tested before, but what does the current instability mean for the future of retail? Drapers’ resident American, Christina Simone, reports

Winston Churchill’s mother, Jennie Jerome, was born in a three-storey brick brownstone in Cobble Hill, Brooklyn, in 1854, down the block from where I used to live. As Churchill had an American socialite mother and a British lord, Randolph Churchill, for a father, it was fitting that he coined the now much-used phrase “special relationship” during a post-war speech in 1946, in reference to the international accord between the US and the UK.

Seventy years later, that relationship is in question. After the Brexit vote, the swearing-in of a new prime minister in the UK and the election of Donald Trump as president, the political environments and economies of the UK and the US – two of the most advanced in the world – feel unstable, and cracks are beginning to appear.

Political volatility is mostly to blame. The uncertainty surrounding both the American regime change – President Trump’s intention of higher import taxes, renegotiations on trade agreements – and the outcome of Brexit – Theresa May’s imminent placement of article 50 and the impending single market threat – is hovering over our heads, keeping us on the edge of our (mostly foreign-manufactured) seats. But what does this mean for businesses on both sides of the pond?

The US has always been a goal for ambitious British retailers, despite being notoriously difficult to break into. Primark and Topshop are among those expanding into the US as part of long-term business strategies, while Manchester-based etailer Boohoo last month completed a $20m (£16m) purchase of the intellectual property rights and customer databases of US etailer Nasty Gal.

US retailers in the UK, however, have hit a low point. Since 2014, Abercrombie & Fitch, American Apparel and Forever 21 have been closing UK stores and Gap-owned Banana Republic can no longer be found on the British high street.

US retailers have struggled to compete with their fast fashion European counterparts

Philip Benton, Euromonitor International

The Office for National Statistics reveals that the US is the one country from which the UK earns the most trade. Exports to the US, at £96bn, are higher than imports from the US at £59bn, so there is still obvious interest for British goods in the US but not, perhaps, vice versa.

“The footprint of UK retailers in the US remains small, but is on the up, in direct contrast to the approach taken by US retailers in the UK,” confirms Philip Benton, senior research analyst at Euromonitor International. “US retailers have struggled to compete with their fast fashion European counterparts.”

For some fashion retailers in the UK, this shift brings with it optimism. The image of President Trump hand in hand with Theresa May at the White House made some of us cringe but, for others, it was inspirational.

“We truly believe the relationship will grow stronger,” says Cory Baker, chief operating officer of US firm Marquee Brands, which owns British menswear brand Ben Sherman. “The US and the UK have always enjoyed a ‘special relationship’, and one that has become part of national pride for both countries.

“Early signs show a mutual admiration between our new national leaders and the affinity that both the American and British people have for each other. Our commonalities across culture and fashion will only further strengthen over time.”

Whatever happens in the future, patience will be a virtue.

“The US has been, and always will be, a potentially huge market. The issue is how best to address that market for sustainable growth,” say Ian Maclean, managing director of the British knitwear brand John Smedley, which has five stockists in the US, including luxury department store chains Bergdorf Goodman and Barneys New York.

He continues: “In the longer term, we are interested to see how our government can negotiate a trade agreement that is beneficial for British textile exports. If they can do this, we would like to deepen our relationship with the US market by opening our own retail store there.”

This notion of wait and see is becoming the norm, creating challenges for those advising UK companies looking to open in the US.

“I’m not very optimistic that trade between the US and Europe will be smoother in the coming years than it has been in the past,” says Michael Sloan, managing director of business consultancy MJS Advisors. “With no multilateral trade agreements on the roadmap, we are looking at unilateral ones, and that makes the landscape very confusing for people trying to do a complex business.”

As an industry, we cannot be naive about the situation at hand. There are bound to be more curveballs thrown, putting pressure on new entrants to either market.

Sloan says: “When brands have very good and intriguing USPs, there will be a way to trade their products. All other brands will have a real challenge competing with local hero brands.”

As it becomes more expensive for UK retailers to expand into the US as a result of the weakening of sterling against the dollar, one way to test the waters is by setting up concessions or starting online.

Benton explains: “Topshop has opted to build its presence in the US through partnerships with Nordstrom as a concession to avoid the costly real estate negotiations. It also acts as a trial for the brand. We may see more UK retailers choose to expand online initially to test the UK market before setting up a permanent presence in the form of a bricks-and-mortar store.”

The US will continue to be a significant market for the UK

Nir Debbi, Global-e

Offering tips to brands hoping to expand online in the US is Nir Debbi, the co-founder and CMO of cross-border solutions provider Global-e.

“If you get shipping pricing and services right, and you have US currencies, that’s 80% of what you need to do to be successful,” he says. “I think exports into the US is going to rise. The drop in the pound has already pushed sales up; they’ve increased into double digits within the last six months.

If the current position of the pound continues, I think it will make British retailers very competitive and more popular in the US. And the US will continue to be a significant market for the UK. It looks like the Brexit decision will contribute to it but, overall, it will have a positive effect for British retailers selling in the US.”

Retailers and brands understand the uncertainty and the issues they may face.

“It’s unpredictable, but we’re aware of the volatility in the market,” says Dean Cooper, commercial director of Wacoal Europe. For the lingerie and swimwear business, the US is a growing market. “We’ve put robust processes in place in order to futureproof our business,” says Cooper. “We’ll be agile and react to any changes as they come, but we’re pushing forward.” 

The Drapers Verdict

Support and understanding is a solid foundation for a long-term relationship, from retailer to customers to country-to-country pacts. As with anything “special” and worth having, however, there are bound to be rough patches and compromises and sacrifices made along the way.

With the US a huge source of investment for the UK, it is in the interests of both sides to secure trade deals that appease both countries. Fashion retailers in the UK have a mostly positive but pragmatic outlook on this current, slightly unstable, state of play. However, for the time being, ecommerce and concessions might be the most sensible way to expand into the US.

While uncertainty hovers over us globally, the basic framework between the UK and the US is built on respect and common interests. These mutual feelings and ties will hopefully strengthen an economic relationship that will, in turn, thrive.

 

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