Consistency is key to international expansion
Whichever route retailers choose to take when embarking on international expansion strategies, the key is to ensure that the brand and the proposition are consistent across all the different markets.
This was the message that came through from a number of organisations presenting at the recent Retail Bulletin International Expansion Summit in London who have successfully opened operations overseas.
These include upmarket cycling brand Rapha that is very much an international business with only 25% of its sales derived from the UK. Emilio Foa, CFO at Rapha Racing, told delegates at the event: “For Rapha it is all about the brand. We’re spread across continents but we’re always consistent with the brand.”
Control over the brand is maintained by the fact Rapha products can only be bought direct from the company – from its website and physical stores (known as Clubhouses). “We’re 100% direct to consumer. We’ve full control over the brand and engagement with customers,” he said.
Challenge of keeping control
Keeping control is undoubtedly tougher when dealing with franchisees and joint-venture partners. But ensuring there is sufficient control to deliver a consistent experience for shoppers around the world is still a key objective for WH Smith.
Louis de Bourgoing, international director at WH Smith, said: “We’re in high footfall locations that are heavily shopped and so brand consistency is the key. We’ve rules to make it consistent and one of these is to have the stores built by the UK team. And we also have a way of coping with busy trade by having replenishment rules. This is vital at 24-hour stores in airports.”
This approach has clearly been beneficial because WH Smith successfully operates stores all around the world – from company-owned outlets in Australia and Singapore Airport, to joint-venture units in Oman, to franchised stores in the likes of India, Dubai and Saudi Arabia.
Localising the proposition
Alongside consistency of the brand there is still a need to localise the model. Bourgoing says great effort is made to ensure the book range, for instance, reflects domestic authors: “We don’t just want to sell souvenirs.”
Even with its strong brand ethos, Rapha recognises the need for adopting a dynamic model that enables its outlets to chime with the local market. This is incorporated into its Clubhouses.
Foa said: “We blend the global view with local nuances. We want to have a common tone and DNA but local differences. We’ve not got the same boxes and content cloned. It has to be Rapha – never in a shopping mall – but we want to be different and have local elements.”
Arguably, nowhere in the world is there a greater need to localise than in China. This is why the successful international operators in the market including Amazon have adapted their presence to the Chinese marketplace.
Christine Xu, senior business solutions manager at Webcertain, said part of the problem faced by retailers is down to their lack of understanding of the market. For instance, there is little knowledge about the language (over 80 are spoken in Chinese) and the sheer scale of the country (221 cities will have populations of more than one million people by 2025) takes people by surprise.
For starters, websites have to be adapted: “The internet landscape is very different. Websites are cluttered because Chinese people like busy, dazzling atmospheres and an assortment of choices. This represents prosperity. Amazon has adapted its site to the local market and there is lots more [product and information] on its Chinese website.”
Simplifying the complexity
Despite the complexity of the market, China remains attractive to UK retailers – especially when they are already receiving orders from Chinese customers on their UK websites.
Mark Batty, head of international development at Boden, said: “Even though it is clearly a huge market it is not for everyone because it is so competitive. We’re interested because we’re seeing organic demand. We’ve not got a localised site but we’re still getting demand, which is a sign that we need to be involved.”
Unlike some retailers Boden does not operate regional offices to support overseas markets. It instead runs things from a centralised operation in the UK. “The likes of Asos opened offices around the world but it added complexity and brands have been re-centralising their structures. The most important point is to be able to get your products to the customer – through payment methods and delivery. We therefore use a variety of partners around the world,” explained Batty.
Daniel Armstrong, business manager - UK & Ireland international growth at Waitrose, said the ideal model in China would be to have the same scenario it has in some other countries: supplying goods – via wholesalers – to both physical retailers and those selling online such as the marketplaces like Tmall. This sort of presence gives it “cut through” with customers and enables expansion in new markets to be done at lower cost, according to Armstrong.
Local partner selection is crucial
Which company a retailer partners with in these overseas territories is vital to the success of the initiative. Selecting the right partner is absolutely critical when it comes to franchising. Ali Aliev, franchising consultant, said: “You absolutely cannot afford to get the wrong people in and leave the right people out. Reputation, financial muscle, and local connections are firmly on the list [for a potential franchise partner]. Retailers are looking for the best fit for their organisation. These are the strong foundations [for growth].”
Johan Isacson, head of business area franchise at Lindex, said the selection of the partner is only the first part of the challenge though because there is the recruitment of people for the stores and then overseeing the opening and the first months of trading: “We’ll not just leave them. We keep visiting to secure the concept. If it’s wrong at the beginning then it’s very difficult to get it back.”
This was certainly the experience of Dutch retailer HEMA, which has built up a global presence and plans to hit the 100 store mark in 2018. It opened franchised stores in Belgium in 1984 and then three in Germany in 2002 and both countries did not work out and it bought out the franchisees.
Online driving physical decisions
It is only through persistence that the company has built up its international operations. Second time around it has been through company-owned stores rather than franchised, according to Emile Ruempol, director of expansion & development at HEMA, who said: “The big mistake we made was not to adjust to the local market. We now work out where the market has strong competitors in certain categories and adapt to this. We take out certain products [from the mix] and have different layouts.”
The store location strategy has also been refined and is now based around where HEMA has strong online demand. “When we re-launched in Germany we looked at the ecommerce hotspots, which were Cologne, Berlin, Hamburg. We did not have any stores there. Such locations are where we now open stores. We also see online sales increase [in those areas] when we open stores.”
Overseas growth opportunity
HEMA took the step to go overseas because it was dominating its home market and was looking for new avenues for growth. Moving into overseas markets can certainly drive up volumes, according to Lizzie Marshall, VP of supply chain innovations at Borderlinx, who said online retailers can boost sales by 10-15% on average by extending their product availability into the hands of international customers. Cross-border ecommerce is expected to have grown by 25% between 2015 and 2020, which equates to twice the rate of domestic ecommerce growth.
It’s clear that the opportunity for international expansion is there – potentially through the online channel initially – so long as retailers fully investigate the individual markets and look to work with partners that have the necessary local expertise.
Darren Williams, international retail director at T2 Tea, chaired the International Summit and is running the London Marathon for raise funds for the Target Ovarian Cancer charity. https://www.linkedin.com/in/darren-williams-b748253/
This organisation has just been selected as the chosen charity of The Retail Bulletin.
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