Summit Report: expanding overseas needs localised infrastructures and propositions
Marks & Spencer is overhauling its international supply chain to increase the level of goods it ships directly into the local markets, which will help it push its overseas sales above the present 10% of total group turnover. By Glynn Davis
This move is indicative of the changes taking place in the UK retail industry as merchants continue to seek out opportunities abroad. Delegates at the recent Retail Bulletin International Expansion Summit 2014 in London this week heard from Jeremy Cobbold, head of logistics for international retail at M&S, how the company had for many years relied on a UK-centric supply chain.
Its 2,000 suppliers shipped goods into its regular domestic warehouses before being dispatched into overseas markets via UK-located international depots. “Only one per cent of stock was delivered direct into the [overseas] markets and head office had no control over the [stock] catalogue, which was wholly down to the local teams. This meant high supply chain costs,” he explains.
Delivering direct into overseas markets
In 2013 it began a journey with the ultimate aim of having 80% of stock delivered directly into overseas markets and 90% of the catalogue controlled centrally in the UK, which Cobbold says will result in the lowest supply chain costs.
To this end M&S has introduced four hub locations in Turkey, Sri Lanka, Malaysia and China as – well as 26 regional distribution centres – which means volume can be split over more routes, hence greater flexibility. And the company has moved from managing supply via Excel spreadsheets to instead using SAP software.
This set up is also benefiting the development of its international online business. “We launched in Shanghai with T-Mall and we can fulfil from our Chinese ‘stockpot’. We’ve only got stores in Shanghai and this new arrangement helps us get brand reach beyond this city. Online has also showed where we might develop new stores,” says Cobbold.
Go online to test markets
Murray Lambell, director of international trade at eBay, agrees that online is a great way to test markets – for not only opening physical stores but also creating localised websites, “You need to look at where your search traffic is coming from. Asos saw Australia was strong and so it opened up there. This can determine where you go. You’d be surprised how much traffic is coming from overseas.”
Gerald Dawson, finance & operations director at Weird Fish Clothing, says retailers need simply look at the names of the visitors to their UK site to determine the international nature and specific sources of their traffic.
A way to test the water in overseas markets is to sell through a marketplace such as eBay and Amazon or T-Mall in China, according to Lambell, who says: “It’s a low cost, low risk way to find out what sells. You get the product out, see what sells, and then you can localise your and finally move more aggressively into the markets.”
Localisation is essential
Localisation is an important aspect, especially for clothing brands says Barry Wyse, former multi-channel director at The White Company: “If you are fashion-led then you’ll have to localise for local tastes. However, if you’re a lifestyle brand then there are fewer reasons to adapt to local markets.”
Dawson believes changing the offer to the local market is essential for success: “You can’t localise enough. The differences can be nuanced in the different markets. Keep at it until you’re not seen as an overseas retailer.”
Retailers must also recognise that local market differences also encompass less glamorous things such as delivery rules and customs regulations. Jonathan Matchett, operations director at wnDirect – that handles much of Asos’ international deliveries – says duty payments and customs will be very specific to each market and retailers have to adapt their businesses to deal with these in each territory.
“Retailers need to manage the customs regulations. There are changing regulations in key markets such as Russia. Many express couriers pulled out of this market when the new regulations came in January,” says Matchett.
Tailoring physical stores
These factors are less of an issue for retailers that only operate physical stores abroad, which is the case with House of Fraser. However, it has fully recognised the need to localise its physical store offer to the local market when it opened a prestigious flagship store in Abu Dhabi with local partner Retail Arabia International.
Jim McWilliams, retail director at Retail Arabia International, says it was very important as the UK retailer’s first overseas store that it involved “taking a traditional format and making it appropriate to the local customers”.
The store design was suited to local tastes and the brands sold are a combination of House of Fraser regulars and locally-strong brands that appealed to Arabs shoppers who account for 50 per cent of the customer base. To cap things off McWilliams says the store has been branded ‘House of Fraser Abu Dhabi’ to give its customers a feeling of it being their store.
Choose best route to market
Dr Mark Abell, partner at Bird & Bird, says the starting point of any overseas ventures must be to structure the business for each market. Where company-owned stores are not the most suitable route then he says retailers could consider an alternative to the regular franchising option with subordinated equity agreements giving flexibility for both the retailer and their overseas partners.
Louis de Bourgoing, international director at WH Smith, says his company uses a combination of company-owned stores, joint-ventures and franchised stored for its overseas ventures. Whichever route it takes he says the regular strategy is to open Travel stores, which is what WH Smith is renowned for around the world.
These typically cover 100 sq m versus the 300-400 sq m for a regular high street unit and are predominantly located in airports. As well as opening up in new countries – to add to the 18 territories where WH Smith is currently represented – the company is expanding in existing markets, which includes adding new formats.
These are extensions of categories in which WH Smith is experienced and at present they include toy shop Zoodle, souvenir shop ‘Memories of…’, stationery format Funky Pigeon, and electronic accessories and gift shop Gadgetshop. In addition, cafes are also being incorporated into some of the overseas Travel stores.
Consider emerging markets first
Fashion accessories brand Parfois is also expanding around the globe but unlike most retailers it has taken the unusual route of first entering emerging markets where as a small player it has faced less competition and being able to quickly gain a meaningful presence. It is only now moving into the likes of Germany, Italy and the UK – where it is currently selling into Debenhams and looking for further partners.
Filipe Correia, expansion director of Parfois, says: “There are lower operational costs and brand awareness comes faster. But you need strong partners when you go into these markets.”
