Top retailers enjoy the Retail Bulletin International Expansion Summit 2012
With domestic growth increasingly hard to come by there is a growing appetite for international expansion, but it should not be done half-heartedly because there are many obstacles that can trip up any unprepared retailers. By Glynn Davis
A packed audience heard at this innovative summit that planning and commitment can ensure great success in overseas markets for UK retailers. The summit was sponsored by GfK Retail and Technology.
Speaking at this week’s summit in London Therese Procter, personnel director within Retailing Services at Tesco, recommended companies assign their best people to new ventures and overseas activities: “Businesses who don’t put their A-team onto new areas are making a big mistake. You need to put your best people on the case.”
Use your best people overseas
Darren Gardner, director of new business and store formats for UK and Europe at The Carphone Warehouse, agrees: “Getting your A-team onboard is the key thing. There’s no point in having people that are not the best getting a new business to work.”
He cites the ability of the ‘best’ people to get the local managing directors and joint-venture partners to “think they came up with the good ideas when the business is moving in the right direction”.
This point highlights the fact there will inevitably be a centralised and a local team and that agreement needs to be made between both these parties when decisions are made. “Concede on a few things as it makes a big difference. Centralised and local teams can be squabbling over the smallest things and if you lose the locals then it takes a lot to get things back on track,” says Gardner.
The local team could comprise the retailer’s own employees, when operating company-owned stores, or a mixture of its people and those of its joint-venture partner when it has gone into a country with a local operator that will run the business under a franchise arrangement.
Which route to take overseas?
Most retailers operate a mix of both company-owned and franchise outlets depending on the specific markets they operate within. This is the case with Gail Anscomb, director of international at the Aurora Fashions-owned chain Coast, who says the former route is taken for markets that are close to the UK, and where the language is the same. And the latter route is chosen when there are legal difficulties, property issues, and HR obstacles to overcome in that particular market.
When considering the franchise route she says the key is to: “Be clear about the investment required, does the P&L stack-up, and do we understand the sales densities in those markets? Is there enough money in that market for two businesses to be involved?”
Nigel Darwin, managing director of international at New Look, says taking a partnership approach is about risk and reward. “You can’t do everything and we’ve a long list of countries we’d like to go to. So if there is long term potential in a country then we’d like to own it but if it’s a smaller opportunity or is more risky then we’ll likely do a partnership,” he says.
Alex Combe, head of franchise at French Connection, agrees and suggests that if it’s a country like China where there is the potential for growth into 150-200 stores then you might like to be more involved but if it is only one or two stores then having a straight franchise is probably the best option.
Preparation is the key
Dr Mark Abell, partner at Field Fisher Waterhouse, says that regardless of the approach taken when entering new countries there has to be some preparation that will ensure retailers are protected from potential headaches.
Firstly, he points to brand protection as being essential as it can be difficult to sort out if a problem occurs in another country. “It’s the main asset of retailers. People will kidnap your brand and try to sell it back. Two retailers have this problem in China at the moment. One has had its trademark stolen and another does not own its own brand – because they’d not prepared properly,” he explains.
Secondly, the tax situation also differs greatly from country to country and again planning is essential: “It’s all well and good making money but if it all goes to the tax man then it’s not efficient. Retailers need to be careful not to fall foul of [things including] double taxation. Make sure all the bases are covered before making the jump [into another country].”
Abell also highlights e-commerce as one of the “bones of contention” between retailers and their franchise partners because it has often been used to “get one over on their partners”. Launching online in a franchised country will inevitably involve taking sales away from the physical stores – to the detriment of the partner.
This is why Anscomb says that although Coast could today launch an e-commerce proposition in those countries where it has franchises, it has resisted. “We’ve a fantastic e-commerce business but we’re not doing this in the markets where we’ve partners. We want to work with our partners and so we need to work on this. We currently block online sales in those countries where we’ve franchise partners.”
Big opportunity for e-commerce abroad
Since it does not have overseas stores of any kind, partner issues have not held back the launch of e-commerce sites abroad from N Brown-owned JD Williams and its Simply Be brand. In 2009 it went into Germany and followed this up with a US entry the year later as Monica Procter, international manager at JD Williams, recognised international sales were “truly incremental”.
The beauty of launching online, rather than with stores, was apparent to Procter: “We could translate our winning UK formats overseas and leverage our UK assets – including products and website copy. Everything we have [online overseas] is taken from the domestic market.”
Bring in external expertise
However, she acknowledges that it was necessary to employ a consultant in Germany to help pre-launch as she suggests this “saves lots of costs down the line”. The site is also hosted on a third-party platform that caters with multi-currency functionality unlike the group’s UK platform.
In addition, outside expertise has also been brought in to handle activities including the call centre, credit bureau, data management, and the marketing initiatives involving paid search and SEO. Some of these same aspects also required third-parties to be brought in for the US business as some of the challenges are the same for all countries although the specifics can be very different.
Proctor highlights the key challenges with operating e-commerce business abroad as: language and cultural differences; not being able to sell certain brand overseas because of license agreements; managing stock forecasting; differences in sizes and fits in each country; the size and formats of the catalogues created in each country.
The other big issue – especially for fashion retailers – is handling returns overseas. Jon Murphy, senior account manager at OBAN Multilingual, the differences in countries can be enormous, with the typical number being 30% (as it is in the UK) but it can reach as high as 80% in Germany. There can therefore be “huge profit margin implications”.
Differences should not be an obstacle
This highlights how the major issue when expanding overseas is an acceptance of there being inevitable differences in each country and to plan ahead to reduce the level of potential problems.
Richard Wolf, director of international at Javelin Group, encountered such differences when a director of international at Marks & Spencer but believes none of these should be barriers to expanding overseas.
“There are differences in different countries but it is not beyond the wit of man to get around them. There are product bans and quotas in some countries but planning in advance is all that’s needed. The same applies online and in-store,” he suggests.
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