Understand the unique qualities of your business before venturing overseas
International expansion is on the agenda of a growing number of retailers but before taking such a major step it is vital they know their own business model and its unique aspects in order to successfully replicate it overseas. By Glynn Davis
Speaking at this week’s Retail Bulletin International Expansion Summit 2013 in London Alasdair Dunn, chief financial officer at The Hamleys Group, told delegates: “You need to know what makes your business tick, what’s your proposition, your USP, as you have to have this in order to grow it internationally.”
Franchise partners need to know your USP
This is especially important if choosing to go overseas via franchising, which is the route taken by Hamleys, as Dunn says “it’s the simplest and easiest way to expand at pace”. But for it to be successful the franchise partners need to clearly understand the core parts of the business before the model can be successfully replicated in other markets.
For Hamleys, training is a vital USP and so Dunn says the franchise model therefore involves “training the trainers” within its various franchise partners: “When a store opens up we’ll send people in to train them straight away. We’re selling them the benefits of doing the right thing.”
Recognising the unique components is also important to retailers that have to sell their proposition to potential franchise partners. Lee Braid, international franchise manager at M&Co, says: “For little known brands you have to sell your USP. A key question to delivering franchised stores is: what is the proposition to both the potential franchisees and customers?”
Selecting the right partner
M&Co was keen to work with a partner that would contribute a significant amount to running the stores. This was behind its decision in Dubai – where its first store opened – to partner with an established retailer running 150 outlets.
“We want to deliver our complete [product] range with a local partner that runs the stores on a day-to-day basis…and we don’t want to have to police them. We needed to have systems in place to train them and to then support them on an ongoing basis,” explains Dunn.
Richard Wolff, director of international Retail at Javelin Group, recommends the use of a scorecard when selecting a partner but most importantly among the criteria on the card is picking a company “you enjoy working with”. He adds: “Whether you like it or not you’ll spend hours talking to them. A divorce can be very time consuming and difficult to pull off.”
Preparation is vital
For John Scott, head of international business development at Debenhams, it is important to prepare for such an eventuality and he always looks for financial resources in a partner in case these need to be called on. “Always make sure there is something in place so that if there’s a divorce then you will be able to get your money out,” he says.
Among the things that cause the most potential problems with franchise arrangements, according to Scott, are weak brand propositions, which results in their being insufficient differentiation to existing businesses in the overseas market, and secondly poor retail estate selection.
“The single most important part of your strategy at the start is to get your location right. People say ‘let’s open a flagship that will not [necessarily] make money’ but then six months down the line the chairman will start to get jittery,” suggests Scott.
Developing e-commerce
The other big point of potential conflict is with the development of e-commerce capabilities in overseas markets. For franchise partners, who have built up a store presence in a certain market, to then be competing with the retailers’ own online store is bound to cause trouble.
Online represents a massive opportunity, if handled sensitively with franchise partners. Debenhams is waiting to see what its big franchise partners plan to do online and when they have decided upon the best multi-channel model for the Debenhams franchised businesses then Scott suggests “it could explode”.
Such is the potential of e-commerce globally that Olga Nazarkova, head of international retail and e-commerce at Mothercare Group, says: “We’ve seen a mindset change in how we choose franchisees. It’s absolutely vital they now do online and if they’ve not got expertise then we’ll hold their hand. In the new era when you launch in a market then it could be done online first and then stores are opened. It’s also a question of how many stores you will then need.”
On its journey to making its global franchise business more multi-channel Nazarkova says Mothercare realised that as it updated the e-commerce operations of two franchise partners that it was “very time consuming and lots of duplication”. It therefore decided that the business needed a standardised global e-commerce platform that could be localised in each country. This is now being rolled out around the world to its various partners.
Importance of fulfilment
Major considerations for operating overseas with online and multi-channel businesses include fulfilment. Returns are one part of this and Gracia Amico, director of e-commerce at Hobbs, highlights the point that for multi-channel businesses abroad a product bought from a UK site and shipped overseas cannot then be returned and re-sold in a local franchised store because the retailer has not paid the duty on such goods.
Returns are a particular pain, according to Matt Jeans, head of international e-commerce at Bench (Americana International Ltd), who says the experience with returned goods in Germany has been “very painful,” with three to four-times the level expected.
Although he says the company is looking at reducing this through better images and content as well as sizing on its website, the tendency for over-ordering is “underpinned by pay-by-invoice” that is the very widely recognised payment method in Germany.
Amico says accepting such a payment method creates “huge cash flow problems as well as increased returns” and although it does drive sales in the German market she says Hobbs might stay away from offering open invoice to its German-based customers.
Don’t underestimate payment alternatives
This is a risk, according to Matt Webb, business development manager for Ogone UK, who says the failure by many retailers to cater for local payment methods leads to lost sales: “You’ll put people off. You bring to them to your website but then if you don’t concentrate on payments you’ll lose customers – with cart abandonment.”
He cites a level of 60% of cross-border transactions not being completed because of inadequate payment options. “The UK is trailblazing [in e-commerce] but it has to go to the next step – with payments for local markets,” says Webb, who points to The Netherlands and Germany as having only 15% of transactions undertaken with credit cards.
Although he says the card schemes are spending large amounts on consolidating payment methods “there has been limited success in them changing customer behaviour because they will find methods they want to use and will not want methods imposed on them”.
If you are interested in speaking at our International Expansion Summit 2014, please email karenh@theretailbulletin.com
