Can Retail weather the storm?
Wow, what a week for Retail... £1.5bn wiped off retail stock values, Maplin and Toys R Us in administration, Jones being offloaded less than 12months since being bought out of admin - losing all head office jobs and some stores in the process. Not to mention the numerous profit warnings already released in just the 9 weeks of 2018 we’ve had so far. Why not throw in a Siberian winter storm to cheer us up eh?!... thanks for that!
It’s safe to say the UK retail market is a challenging one. So where can we look for some brighter news? You’re likely to come across a common variable in any positive retail article – international expansion… Mulberry, White Stuff (“international sales soared by 41.9 per cent during the year, with the retail arm alone skyrocketing by 89 per cent.”), and SuperDry just a few examples.
With business rates rising & footfall falling in the UK, a weak pound not looking like it will get stronger anytime soon as we to-and-fro about the terms of Brexit, it doesn’t look like the situation at home will get better anytime soon.
So, is international expansion the answer to all the doom and gloom in British retail today!
For brands such as SuperDry - sold in 148 countries, a physical presence in 62 of these and a £1.2 billion turnover, it is easy to see the attraction!
Plus, in today’s omnichannel world, international expansion is easier than ever… translate your website and you’re good to go. Done!
I’ve supported a number of brands in the past 12 months with their international operations, and what appeared on the surface to be a relatively straightforward brief;
“What territories should we be in and why? Within said territories, what’s our best route to market?”
…transpired to be anything but!
In the words of every Head of International I’ve met:
“Opening stores is the easy bit. Building a sustainable, profitable operation - not so much!”
Pre-digital, there was a fairly well trodden path for UK retailers to follow when exploring overseas. Select territory, choose franchise and distribution partners who open and manage your stores or sell to the local department stores and regional sellers, et voila, you’ve conquered international retailing! (I may have simplified this ever so slightly, but I’m sure my international retail contacts will forgive me for the sake of getting my point across…). This did not come without headaches and financial costs, and franchise agreements weighted in favour of one party or another have been the cause of many a failed venture.
Chicken and Egg
Post-digital, we still have the afore-mentioned path well-worn, but we now have the online option. So what comes first, online or the stores?
- Online first: Retailers can go with a ‘soft launch’ and enter a market with relatively little capex to gauge interest. Regionalise your site, get creative on social media, and watch the sales come in! All well and good and sounds the obvious play, but what if it fails? Yes, you’ve saved money by not investing in costly stores, but what if those stores would have driven both online and physical sales?
David Walmsley, ex-Global Digital Director at M&S and Chief Customer Officer at HoF agrees:
"Online can be a great way of prospecting in a new territory. For instance, at M&S it became clear very early on that we had great prospects in the northern Chinese provinces. However, a store, even a really small store, will always give your business that sense of solidity and reality in your customers' eyes. So start online, but get that flag planted quickly."
- Stores first: Costly if you’re not already in situ. For retailers with a franchise or wholesale physical presence, a strong digital offering is throwing up other headaches. Who owns the online sale in said territory? If the retailer is paying for marketing and technology to gain and fulfil online orders, they have a right to keep 100% of that sale. Sounds logical, but what if a customer wants to return in store, to a franchise partner who has been told they get zip from online sales? Hardly an incentive for customer service. And how about the customer who browses in store, then buys online?
- Online Marketplaces: There is a 3rd option available to retailers: online marketplaces. Amazon, Tmall, Zalando, et al. - all offer a swift route to new markets. For some brands this is the future. Speedo has had huge success working with Amazon and Tmall, seeing them as a valuable partner and taking advantage of the billions that Amazon spends in R&D to target consumers.
Other brands have not enjoyed such a prosperous relationship with online marketplaces. Birkenstock for one, are currently in a legal battle over the control of counterfeit products that, it claims, Amazon are doing very little to nothing about. I won’t get into the Amazon friend or foe discussion, but The Nation provides a good read if you’re interested.
At the risk of getting splinters in my backside, it depends.
What we can say with a degree of confidence is it varies brand to brand and product to product. The one thing people agree on is it is a blend of both digital and physical – not unlike the domestic market.
Start with “why?”
It sounds like an obvious question: “Why do we want to be international or open new markets?”, but based on the conversations I’ve had, it would appear this is not always clear.
If the answer is “profit”, then the solution may not be to sink more cost into entering new markets that may or may not prove fruitful, it may be to grow your market share in an existing international market. I am engaged on an assignment currently with a UK fashion retailer who is enjoying a lot of success at home and abroad, but their rather enlightened CEO is saying,
“I want to know we are getting the absolute max from existing regions before I start planting flags.”
This makes sense. An increase of 10-20% in large markets such as Germany or the US could add a great deal more to the bottom line than opening three or four brand new territories.
Contrary to this, if the answer is to look more attractive to potential suitors in 12-18 months, then planting flags might well be the solution.
It’s safe to say that international expansion, planned and executed correctly, can help UK retailers through this unprecedented period of tough trading. Done poorly, and without strategic planning across all channels, it can be a very costly and damaging exercise, or worse!
Whereas an old school Head of International was the person with a little black book of contacts from Miami to Manilla, Buenos Aires to Brisbane, Peckham to Paris…. what is apparent today is that any international strategy has to be an international omnichannelstrategy. Stores (franchise or owned), websites, social, concessions, online marketplaces, all need to be a part of any retailer’s international strategy.
Philip Topham, interim Head of International at Monsoon Accessorise and former Head of International Franchise Operations at Debenhams made a great comment;
“We need to think like global retailers, rather than thinking like UK retailers with an international presence.”
I’d love to hear your thoughts and examples of the best and worst in international retail, and whether there is a right or wrong approach.
Interim Partners have supported a number of brands with their international operations. Whether a market analysis prior to developing your international “go to” market strategy or a diagnostic on your existing operations, our network of experienced interim retail execs can provide the support, intelligence and experience to maximise returns and grow your brand. Click here to read more.
Stuart Hogg is the Principal of Retail at Interim Partners