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IREU Top500 The Customer Report: 2018

IREU Top500 The Customer Report: 2018

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State of the market

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International expansion has continued to be a high priority for retailers in the past twelve months. Here we look at how and why international expansion has hit the headlines in 2015.

International strategies have been credited for huge growth for a number of retailers over the past year and predictions for the international market remain strong.

New figures from Forrester, published this June, said that in Europe alone cross-border online sales will pass the €40 billion (£28.5 billion) mark by 2018 up from €29 billion (£20.8 billion) this year. The report suggested that cross border sales already account for 16% of all Western European online retail sales with many buyers originating from less mature markets such as Italy and Spain. More than a quarter (28%) of European online retailers are expected to sell across borders by 2018.

The opportunity globally is even bigger and it’s something that retailers big and small want to be in on as they look to promote further growth in their businesses. In a survey by the Royal Mail in February this year nearly two thirds (65%) of retailers said that they planned to increase international sales over the next 12 months with more than 84% targeting countries they didn’t already trade in and US topping the target list for having the greatest opportunities thanks in part to the strength of its the dollar. The previous year had seen just over half (39%) cite increasing international sales as a target for their business.

           "There is much to play for since the retailers that have already expanded overseas are seeing good international trade on the whole."

Colin Saunders, international ecommerce specialist and previously part of the international teams for both House of Fraser and Tesco, says there is all to play for: “International is an enormous opportunity but it’s not necessarily an easy one and it takes retailers out of their comfort zone,” he says.

He believes that many retailers are still at the early stages of their international journey. “If we take real internationalisation as being a completely local website with local marketing etc as the end goal then I think you can look at the UK retail landscape and say that the majority of retailers have not gone there yet,” he says.

But retailers have it on the horizon and many are preparing themselves by ensuring their businesses and systems are in the best shape to handle international growth. Austin Reed Group for example has undergone a replatforming in recent months that will help support its international expansion – not only allowing it to merchandise products more effectively but also offer enhanced delivery options and provide the ability to purchase in multiple currencies.

Exactly how retailers enter new markets also continues once again to vary depending on the retailer – with some choosing marketplace strategies initially, others testing the market with websites, ensuring minimum investment and risk and others getting their brand known through a physical route first. This really is still dependent on the brand. Stationery group Paperchase launched its dedicated French language website in April. The launch could signal the rollout of further country specific websites for the brand as the retailer embraces a global multichannel strategy but it follows on from – rather than preludes – physical expansion. The company’s wholesale arm last year established its first presence in Staples stores in the US whilst concessions in retailers such as Galeries Lafayette in France, Karstadt in Germany and Arnotts in Republic of Ireland have seen the company’s international presence expand.

There is much to play for since the retailers that have already expanded overseas are seeing good international trade on the whole. Last summer fashion retailer White Stuff announced an almost doubling in profits – something it attributed largely to its increased online and international expansion. The company has adopted continued a three-pronged approach to international sales that includes both stores in Northern Europe, wholesaling and franchises within a German department store chain. The brand has said its concentration is on developing its brand, product, customer experience and service proposition in order to support both domestic and overseas growth.

Similarly in May 2015 SPAR International revealed that its overseas expansion was key to its success with entry into ten new territories, including five new countries in Asia, Africa and Eastern Europe as well as new regions in Russia and China where retail sales grew by 33% and 25% respectively.

Holland & Barrett, which also rebranded its group business to Holland & Barrett International earlier this year said in June 2015 that it had reported record turnover growth for its year ended September 2014 thanks in part to its international store base which comprises 300 owned and franchise store across Europe and in other overseas markets such as Singapore, Malta, Dubai and China.

And on a larger scale Marks and Spencer has also accelerated its expansion plans after announcing last year that it was to open 250 new international stores by 2016, more than half of which would be through franchise partners. The news included the announcement of 15 new franchise stores across Finland and Norway as well as a Finnish website this year. The first Nordic store opened in Helsinki in October.

Another fashion retailer which is expanding aggressively this year is New Look. The company’s chief executive Anders Kristiansen said in May that the £780 million takeover of his business by South African billionaire Christo Wiese and his investment vehicle provided the perfect stimulus for international expansion allowing it to speed up its growth in China.

Similarly H&M is also aggressively expanding with big pushes into China and the US where most of its 400 new stores will be targeted as well as launches into markets such as India, Peru (where it debuted in May 2015), South Africa and Taiwan and online store launches into Eastern Europe and Belgium, Switzerland and Portugal. Although it collaborates with franchising partners in some markets the retailer says that franchising is not generally part of the company’s expansion strategy preferring instead to run its stores itself.

Other retailers are earlier on in their international journey. In March furniture retailer DFS unveiled its vision of taking DFS from being, in the words of the company’s chief executive Ian Filby, “a great British business to a world class business”. The company’s current international portfolio stands at only four stores - three in the Republic of Ireland and a Netherlands store which opened in November 2014 but the company has said it sees significant opportunity to develop the DFS brand internationally.

At stationery retailer Ryman the international journey is about to begin with international expansion on the agenda for its brand for next year. Its fellow group brand Boux Avenue however already has an international presence in over fourteen countries despite being a newer concept. The company has established an international franchise team to expand the brand internationally and as of last December had nine international stores with United Arab Emirates one of the latest country debuts. Boss Theo Paphitis has said that current franchise partners have plans to open more than 65 stores in the next five years with further partnerships under negotiation.

Of course international has also hit the headlines for the wrong reasons too and there have been some stark reminders of the risk of international expansion over the past 12 months. Who’d have thought for example that expanding into Egypt some years before would have resulted in Mike Coupe, chief executive of Sainsbury’s, being sentenced to two years in jail in April after accusations of embezzlement. It took a further two months for Coupe, who wasn’t even employed by Sainsbury’s at the time of the dispute, to be acquitted but was a worrying reminder of the very real danger of going into foreign markets.

Meanwhile it was only two years ago in 2013 that fellow grocer Tesco exited the US after spending more than £1.2 billion but never actually making a profit there.

Indeed set-up costs can be huge for brands going into a new market. Electrical goods retailer AO.com made its international debut in Germany in October 2014. It chose to enter the market with an ambitious set-up that replicated its UK offering and included a substantial logistics offer but that still cost it in excess of £4 million – impacting its most recent profits announcement.

Whilst international is still very much on the agenda it seems 2015 has shown that retailers still need to also remember to balance the cost to a business.




 

Additional Information:

BREAKING CHINA

How retailers are looking to smash the Chinese market

China remains one of the hottest markets for international expansion in 2015 with many retailers targeting the market as they seek to exploit the potential there.

These include the likes of Burberry and New Look, the latter of which has plans to open more than 50 stores in China over the next year. At its most recent results announcement in June New Look revealed a strong performance in its first year of trading in China and continued rapid expansion. By March the company had 19 stores in the country but opened a further 11 in April and May to take the retailer to 30 stores operating across China and a further 30 planned by March next year.

Fellow fashion retailer H&M is another retailer that is expanding in China in particular with most of its current international expansion of 400 new stores planned for China and the US.

Similarly House of Fraser announced in April that it would expand across China with new stores launches including in Nanjung, Chongquing and Xuzhou beginning in 2016. The company was bought by Chinese conglomerate Sanpower last year.

But for all the rush to get into China too retailers are learning as well. Marks & Spencer, for example, has in the last twelve months reviewed its coverage in China, choosing instead to focus on Shanghai and close five of its smaller regional stores as well as announcing its intention to open flagship stores in Beijing and Guangzhou.

 
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ConnectedCommerce: International Report 2015

ConnectedCommerce: International Report 2015

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ConnectedCommerce: International Report 2015

ConnectedCommerce: International Report 2015

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