Overseas expansion needs to be taken seriously by more retailers
Despite the obvious benefits that overseas expansion can provide, far too many UK retailers are not taking it sufficiently seriously, which places them in a much weaker position than proven successful international retailers from abroad that are much more positive about such activities.
Speaking at The Retail Bulletin International Expansion 2016 conference in London Lee Braid, international franchise manager at M&Co, suggested: “Too many UK retailers still see international as a nice to have. It’s not a mindset that our international competitors share – Zara has a completely different mindset. All retailers have to adapt to this. Regardless of the model – company-owned stores, joint-ventures or franchising – it’s about the mindset of international expansion that you have to have in order to give yourself a chance of being successful.”
Changing mindset around international
Edward Donald, omni-channel and e-commerce retail consultant at the UKTI, revealed that only one in five British companies export whereas in Germany and France it is one in four and he finds that even those that do venture overseas tend to suffer from their “enthusiasm waning” after four to six years and they then abandon their international businesses.
He suggests retailers need to work out how to get beyond this initial period and to build something for the long-term. Braid reckons that for M&Co a more sustainable, profitable overseas business could be built from it adapting its franchise model.
Adapting franchise model
He says the plan is to switch from the traditional set-up of charging franchise partners the cost of the goods plus a franchise fee to instead operating a royalties-based model whereby there are greater incentives in place for growth from both parties: “That’s what Zara would do. It’s a more positive model.” He is also looking at flexing the model further to take into account the increasing importance of e-commerce.
Cheryl Clifford, head of international at Hobbs, is also an advocate of using franchising for international expansion and although she says it has got tougher there still remains lots of opportunities. “The majority of markets are quickly becoming sophisticated. There is no low hanging fruit anymore. It has become more difficult but no less desirable and achievable,” she says.
Learn from franchise partners
Clifford says franchisees have become much more sophisticated and retailers need to be gaining expertise from them rather than the other way around. Such is the level of emphasis placed on the quality of the partners by M&Co that in distant territories Braid says the company will go into markets based on where the quality franchise partners operate rather than stipulating that they want to move into a specific country.
Hamley’s is also enjoying great success from its overseas franchised operation. Helen Barnish, head of international at Hamley’s, agrees that the partner selection process is absolutely vital to success: “We’ll develop a five-year financial model so we can see what the returns look like and then decide on the [franchise] fees. We’ll do due diligence on the potential partners using the likes of Kroll.”
She told delegates that Hamley’s has a target of 150 stores by 2018 – up from 76 at present in 22 markets – and that in each of these stores there will be a strict adherence to the Hamley’s way of doing things, based around: store design, in-store theatre and the company’s specific way of selling.
Consistency globally
To ensure this works Barnish says there has to be absolute consistency internationally and this is delivered through the company’s trading manual, which she says: “Shows franchisees exactly how to replicate the UK model and is updated three times per year. We also do mystery shops and have an intranet so they can print off Point-of-Sale materials and access the training programme.”
The best way to ensure consistency is to operate your own stores of course, rather than franchise, and this is the route Australia-based retailer T2 Tea has taken with its expansion into the UK and US.
People are essential to the brand
Darren Williams, international retail director at T2 Tea, says a key part of delivering the brand consistency is to recruit the right people: “People are the touch-point of your brand. Retailers risk the roll-out of their international businesses by compromising on recruiting people that they wouldn’t appoint in their home markets. We’ve worked hard on finding the right people.”
He is also keen to create a strong Northern Hemisphere team, with the UK and US management teams working with some cohesion. There are also significant benefits to be had from the seasonal differences between the Southern and Northern hemisphere stores as the learning from one market can be fed into the marketing and range stocking in the other because the seasons and timings of some events like Mother’s Day are very different.
Williams is very specific about where he is placing the initial T2 stores – in the UK it is within London and in New York’ it is Manhattan – because poor locations could be fatal. This is a very different scenario to that facing online-only brands expanding overseas.
Online allows quick expansion
Maddy Turley, former head of international at Wiggle, says: “If you are opening stores then they need to be well placed but if you’re a small [online] brand like Wiggle then we can try things quickly such as simply starting to ship products to a new country.”
However, she adds that the real strength in a market comes from offering a localised website – including language and local payment options. “You’re ambition should be to fully localise so you can be number one in a market,” says Turley, highlighting how the popular Ideal payment option was added to the Netherlands site and it quickly helped attract a lot of new customers to the site.
Wiggle had a particularly interesting time when it began trading in China and had to adapt much of its offer to suit the local market. This no doubt included recognising that it is very much a cash-based society, according to Siôn Roberts, EVP of global retail at Glory Global Solutions, who says retailers have to be aware that there is so much hype around the area of payments – such as NFC, watches, and Apple Pay – that it can easily be forgotten that 85% of transactions still involve cash.
Don’t forget the usage of cash in developing markets
“There might be a cashless society one day but the technology such as iPhones and NFC have a [high] cost in a lot of developing countries and so the price of enabling the technology for payments is just too prohibitive so cash is used,” explains Roberts.
While such technologies can help to deliver a frictionless customer experience care has to be taken that they do not simply add complexity to the business. This is something that the expanding discounters Aldi and Lidl are very aware of and always push for simplicity in their businesses.
Daniel Lucht, global research director at Research Farm, says: “They remove complexity and get the products right and then expect the rest to follow. The tighter their product range then the leaner the supply chain and the smaller the selling space requirement.” This mindset is applied in each of the countries in which they both expand. There is nothing that they would adopt if it deviates from their ulterior motive of leadership on price.
