It’s no surprise that the recent domestic market woes and saturation, has led to an increasing number of retailers waking up to the fact that growth, or even survival, may well necessitate expansion into new markets (with stronger or developing economies).
Those high profile retail international launches, followed by quieter (and costly!) exits are still cautionary tales for many within the industry. However the success in recent years of leading global retailers such as Wal-Mart, Carrefour, Tesco and Metro, is hard to ignore. Growth of 2.5 times faster than their respective domestic markets is a clear example of the rewards that embracing new global opportunities can bring.
Complexity without complication
Retail is always at its best when it’s simple. International retailing does inevitably bring some added levels of complexity, but it doesn’t have to be complicated. For the international customer, regardless of whether they make their purchase through a franchise, a company owned store or online, the customer experience should be consistently excellent and it has to be simple. Getting the supply chain completely aligned with the end to end customer experience is vital. Acquisition is a multi billion pound industry cost, great service however can deliver high customer retention for free.
Choose or be chosen
Assessing the right market entry has never been more important. Franchising offers scale and speed with relatively little capital investment, however wholly owned or joint-ventures offer greater financial return. Within the different business models themselves there are local considerations, for example 29 countries have franchise–specific laws
Our most forward thinking clients flex their business model to best suit the country and market opportunity. Emerging markets offer high rewards, but they also come with risks (economic, political and social stability), so not surprisingly for these countries, franchising is a popular choice. Immature markets though can also mean inexperience. Retailers have proudly told us how partners in embryonic regions ‘have approached us’, only to realise that ‘deep pockets’ don’t make up for a depth of experience.
Follow the crowd
All brands need to stand out from the crowd. When it comes to store locations however, you don’t want to be standing alone. A current UK retail client with a $1.5 billion turnover (half of which comes from overseas), undertook a recent review of their arguably successful business. They discovered that in the world’s top 500 shopping centres, incredibly, they weren’t in 350. By switching locations alone they have the potential to add hundreds of million dollars to their turnover.
The impact of the internet is providing many brands with the opportunity of ‘skating on the top’ of many international markets without truly developing serious customer penetration – this can still only be achieved through the creation of recognisable physical brand assets in local markets – yes shops! We know that even established brands in Europe that open a new store in a major centre actually see their on-line sales increase disproportionately in that catchment – it is really a question of well targeted and controlled investment to develop the customer experience across all channels profitably. The role of the store has changed dramatically in this respect – but it will remain a critical driver across all customer channels for the foreseeable future.
Making differences count
Although it’s a somewhat clichéd phrase, another lesson learnt by early international clients is, ‘think global, act local.’ Rolling out the same offer, pricing, marketing may make perfect sense for brand consistency and protection, but this has frequently led to commercial disaster. One size doesn’t fit all, quite literally (something else that needs localising !).
Our clients in the F&B sector have an unswerving focus on cultural differences and nuances at item level. The ability to flex their revenue models by country has been essential to their success. For example the average ‘dwell time’ in UK coffee shops is 20 minutes, yet in some southern European countries it’s 2 hours (clearly affecting table turns). With milk as a high production cost, in countries where lattes sell better than espressos, margin has to be sought elsewhere.
When opening stores in China, mirrors facing the front entrance, fluorescent lighting and doors aligned with one another, signal failure before the first customer crosses the threshold. The importance of feng shui shouldn’t be underestimated for this market. Ignore it at your peril if you wish to break into the enormous potential of China. What the then Chief Executive of Marks and Spencers referred to as, “some basic shopkeeping errors“, certainly kept the Shanghainese away. Domestic retailers may still dominate the Chinese market, but for the lucky few (although luck plays no part in it) they are now expanding into tier 2, 3 and 4 cities.
Advantages of being late
Potential customers can now be anywhere and shop at anytime. With technology, the world quite simply is a retailer’s oyster. Global, cross-border trade is forecast to rise to 20% of all online transactions within just 3 years. Ecommerce is a frequent first choice for our clients when testing a new market before investing in bricks and mortar. There has been much talk of ‘channels’ in recent years. The realisation has come late for many that the customer just sees a product offer and uses the shopping method that best suits them. The previously considered forward-thinking retailers who created ecommerce, international, wholesale, licensing divisions, using different partners with varying contractual agreements are now facing some substantial challenges. An online customer making a return in-store, isn’t interested in whether the store is franchised, they see the brand over the door and have high expectations. It’s causing a few headaches, which we are working through with our clients. Late comers to international retailing consequently have the enviable advantage of setting a ‘total retail’ approach from the start.
Ability versus capability
Whilst the dictionary definition is negligible, the difference between a solid track record and an unproven potential, can be huge for a business. So one of the most important questions to ask early on, is who is best placed to lead our brand overseas. Is it an existing executive who knows the brand well or a high calibre individual who knows the market and international retailing? The answer lies in a well balanced combination of the two.
At a local level, skilled and effective employees supported and developed by expatriates is a known route to long-term success. Growing economies with a well-trained (Chile only has 6 percent unemployment), well-educated (retail now employs 8 percent of India’s population) work-force are perfect examples of good overseas long-term expansion opportunities. Talent, if in high demand, also comes with challenges. A recent study of white collar Chinese workers reported a 20% annual staff turn over rate. Recognising this and addressing it, needs to be high on the list of priorities. Tesco to name one global retailer operating in the region, has done just that.
This old adage has never been so apt. One seasoned blue-chip international retail client recounts a time when they negotiated a highly favourable new franchise agreement during their early years of international expansion. So favourable were the terms to the retailer that a year later the venture failed, as the partner simply wasn’t making any money. Or when it dawned on another that their Far Eastern made product, was being shipped to a European warehouse, before being allocated back out to their Asian stores. Hindsight is a wonderful thing…
“Experience is the name everyone gives their mistakes”, so the answer to avoiding the mistakes, is to bring in the experience.