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Choosing the right time and the right place

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Many retailers simply plot their expansion by following the pattern of established markets but as our analysis shows that isn’t always the best route. 

With all the hype and high profile focus on international strategies – you are after all reading a report dedicated to international expansion – it would be easy to think it’s a must do item on all retailers’ agendas.

And for many it is. But it also has to be well thought out. Richard Aquilina, Blue Inc’s head of international franchising and director of RLA Consultants - where he has worked on international expansion strategies for the likes of Boux Avenue and Aftershock – says: “International development is not a quick fix or a quick way of earning a buck it has to be an integral part of the strategy for growing the brand,” he says.

Andrew McClelland, managing director of Mirador Digital, says retailers should press the go button on expansion at the right time. “Timing wise it’s about having a degree of patience and understanding and doing the research and groundwork to make sure you have the resources available,” he says.

       "International development is not a quick or a quick way of earning a buck"

 

Retailers then need to decide on the route they take. “Is it a few tweaks of a website or is it a major investment?” asks McClelland.

The first method could be enough to test a new market. “It could be that a company is already getting doorstop orders where people are ordering and they are fulfilling from the UK website. Alternatively you can make a simple change in some of the ad words to drive traffic to the site which can indicate if there is latent demand to fill,” he says.

Colin Saunders, international ecommerce specialist and part of the international teams for both House of Fraser and Tesco, says retailers can get clues from a number of methods such as looking at tax free shopping receipts as well as onsite traffic and mobile phone penetration before starting small scale testing. “In terms of what the proposition looks like you don’t necessarily need to put yourself through all the pain of creating a full localised site. You can look at existing marketing resources to start doing very simple campaigns to these different regions - be it email campaigns or something else – so you can start testing where there is a market without necessarily having to have local stock and a complete localised proposition,” says Saunders.

Others prefer the franchising route however. “Much of it is dictated by where a company sits as a business and whether they have the resources to consider other modes of entry other than franchising,” says Aquilina.

Expanding internationally has to be a considered decision because of the many variables and the need to balance domestic expansion with global.

Senior ecommerce director Michel Koch, previously of both Maplin and Marks and Spencer, says retailers have to ensure they are ready. “Sort out your local business before you expand internationally unless you believe you have more opportunity in the international market than in the local market,” he says.

This is the case with some of the retailers profiled in our case study section. “It’s part of our strategy but most of our resources are still directed to the UK because margins are initially stronger in the home market,” says Animal international sales director David Abramson.

It’s a similar story at moto and action sports retailer FreestyleXtreme: “We have three main priorities in our growth strategy –marketplaces, conversion rate optimisation and international expansion, in that order. If our marketplace strategy was as mature as our international strategy you could flip those two around,” says Shaun Loughlin, managing director of FreestyleXtreme.

Even retail giants such as John Lewis are cautious of the risks of international expansion and getting the balance of attention right. Speculation has long followed the retailer about its international plans but managing director Andy Street said last October said that the company’s focus was on dealing with “tremendous change” in the UK market rather than any attempt to go for world domination. Instead he said store expansion would concentrate on the “hot” UK market. “There’s no way we will take our eye off the ball – over my dead body,” he said at the time.

The retailer is concentrating on a partnership approach with shop in shops in the likes of Korea, Singapore and the Philippines and plans to be in 15 countries in the next five years.

It’s a view that Karen Millen, which now trades in 63 countries around the globe, shares. “Despite our on-going focus on international growth we remain very conscious that global success will only flow from a strong and profitable business in our domestic market so we continue to invest heavily in building desirability in the UK with both directional advertising campaigns and PR as well as global showcase stores like our Flagship three storey location between Harrods and Harvey Nicholls in Knightsbridge,” says Simon Gaffey, international business development director at Karen Millen.

Many retailers such as Karen Millen and Crocs are going deeper into existing markets rather than necessarily looking for additional new ones. “International growth remains as important today as it ever has been however the focus is probably shifting organically away from expansion into new markets and into deeper penetration of existing markets coupled with optimising our existing estate and developing the online channel particularly in the franchise territories,” says Gaffey.

Of course when considering where to push their business overseas it can be natural for retailers to simply follow the competition and hit the biggest or most obvious markets. For some brands such a strategy works well enough, despite the increased competition upon entry. But look closely at your brand and you will likely see variations from the norm.

Moto and action sports retailer FreestyleXtreme for example, which is featured in the spotlight case study section of this report, is launching into Finland currently because of high demand in the area despite it being a relatively small country in comparison to its other markets. “Scandinavia has some of our best markets in terms of spend per capita so we’re quite excited about Finland despite the small size of the country,” says Loughlin.

The retailer’s biggest international market is France followed, on a per capita basis by Switzerland. “In France the standard of the local competition is quite poor, the brands tend to have weak distribution within the market in terms of bricks and mortar and the action sports scene is huge,” says Loughlin. “In Switzerland the spend is big and they love action sports. Local retailers are very expensive so we have the upper hand in terms of price as well,” he says.

Fellow action retailer Animal looks to the markets where its surf orientated customers are or where there is a particular affinity to the brand – this means countries such as Maldives, which would rarely be even on the radar for many retailers -- are particularly strong. “The Maldives may sound an obscure market but there is a surf culture there, it’s easy to send products to and it gives us exposure to the Indian market,” says Animal international director David Abramson.

And Blue Inc we learned earlier launched a Russian website this year simply because of the volume of sales it saw from the market via its UK site. “Your website can give you lots of information and indications which markets to move to,” says Aquilina. “And then there are other certain markets like the Middle East which give you credibility as an international brand,” he says.

The clues that retailers can gain from established business going through their existing sites means that in theory there should be less international casualties now since retailers go into markets better armed with how their brand is performing these days. “The casualties have driven home the need for brands to really look at markets and make sure that it is a market that they believe their brand will work in,” says Aquilina.

Retailers also have to be set for unanticipated demand too. Koch, tells of M&S’ surprise when children’s school uniforms – for which there is little need outside of the UK market – took off internationally. “Childrenswear didn’t work in France because the competition was too high. But uniforms were perceived as ceremony clothing and were relatively cheap for occasion dressing. Sometimes you get surprises like that which are good.”

At Big Red Group CEO Richard O’Connor says one of the most successful international markets for his business is Australia. “They seem to be very comfortable buying from the UK, we appear very competitive over there and our broad range is also very attractive. Supply and breadth is quite limited and Australian consumers can sometimes struggle to track down the more obscure or tail items that form a significant part of our offering,” says O’Connor.

But sometimes retailers just want to couple demand in a market with a partner they can trust. This spring Bathstore.com for example, which was sold in a management buyout last year, began its international expansion with the opening of a franchise store in Doha in the Middle East – one of a number of franchises planned for the region after the company signed an agreement with Qatari businessman Yousif Al Khater.

Meanwhile John Lewis’ choice of 15 countries in the next five years will depend on a combination of a number of factors according to John Lewis’ head of international development Katie Jordan. “Which markets we go for is not just a case of picking the countries where we have the strongest sales through johnlewis.com. We need a partner which has the customer base to ensure the success of John Lewis products, as well as the density we need to make an impact in a particular country,” she says.

Choosing the right time and the right place to expand internationally means, like Marks and Spencer’s reassessment of the Chinese market mentioned earlier, that retailers also have to understand when they may have pushed international expansion too far. At its last results presentation last November triathlon retailer Wiggle’s chief executive Stefan Barden cited strong growth in Europe for his brand as a result of international expansion but also admitted the company had overstretched itself overseas. The admission saw the company reduce the number of countries to which it delivered from 120 to 70 with a focus on 21 key markets as the company reprioritised its international ambitions.

There is certainly much to consider when expanding into new markets. “Do it for the right reasons and make sure you understand those reasons,” says McClelland.
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