Preparation can help retailers avoid pitfalls when venturing overseas
International expansion too often comes onto the agenda to divert attention from weak domestic performance, but the best time to venture overseas is when the home market is performing strongly. By Glynn Davis
Ahead of speaking at The 2nd Retail Bulletin International Expansion Summit 2013 on March 26th, Richard Wolff, director of the international practice at Javelin Group, suggests this is by far the best time to go overseas because the business is likely to have both the necessary cash to invest and the confidence to embark on the challenge of setting up shop in new markets.
Regardless of timing, he suggests retailers must undertake intensive planning if they are to avoid the problems that have beset many merchants going overseas. “It’s terribly important and I encourage people to build a detailed scorecard to identify lead opportunities,” he says.
This scorecard should consider various factors such as: the likely acceptability of the product; local competition; cultural fit; how easy it is to do business; and the size of the target market (age, affluence...).
When a list of lead countries has been identified through the scorecard exercise, Wolff says it is “time for someone to explore them who knows the brand well” to assess in more detail the likely uptake of the product and brand.
When they return with their recommendations he suggests a steering group of stakeholders is formed, who can assess the conclusions and also take into account how the wider global multi-channel strategy will fit together.
The latter is increasingly important, according to Wolff: “If you build a relationship with a franchise partner they’ll want to know how the international e-commerce business will affect them.”
For each of the potential markets the retailer has to consider the different operating models that could be employed within them. In the Middle East the franchise model is prevalent as you cannot own stores whereas in other markets it is possible to wholly own the outlets.
Wolff cites fashion business Inditex as having the benefit of sufficient resource and a lot of international experience to enable it to own many of its stores around the world. But even this global operator has franchise stores in certain markets.
Franchise is a popular model to adopt and Wolff says the vital component is selecting a suitable franchise partner who will “share the vision” of the retailer in order that both parties can make a suitable profit.
He suggests the attributes to look for in a partner include: good financial resources; good local contacts and access to good retail units; and the ability to help build an accurate business plan that is not too over-optimistic on metrics such as sales per square metre.
Wolff says there is often a temptation to expect the same sales densities overseas, but they are often lower “because people will not have heard of you”. A strong marketing strategy is required, which if not properly planned can quickly derail the early financial expectations of any partnership.
Having successfully completed the due diligence on potential partners Wolff says the final question is – “could I work with these people?” With an affirmative, the next step would be to appoint a business manager from the retailer who will work closely with the general manager of the franchisee.
This will ensure that communication flows freely between the two parties, which is vitally important to ensuring a successful franchise partnership over the long term and will go a long way to helping avoid the pitfalls that have affected far too many retailers expanding overseas.
Learn from a top-quality speaker line up at the 2nd International Expansion Summit 26th March 2013 including George International, Bench, Costa Coffee, Hobbs, The Hamleys Group, Alliance Boots, Mothercare Group, Austin Reed, Icon Live, Codex Global, The Javelin Group, Field Fisher Waterhouse LLP, Ogone UK and Codex.The event is designed for UK retailers who are planning for and are developing an international growth strategy. Register now to secure your place.
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