The reduced consumer spending that is expected in the run up to Brexit is spurring many retailers to expand overseas. What can we learn from retailers’ expansion during the credit crunch?
Ted Baker and Primark came out on top during the last recession as both fashion retailers expanded overseas. Their success proved that reduced consumer spending power does not close all growth avenues.
Retailers that thrived during the credit crunch identified opportunities to extend their reach through international expansion.
In many instances it was a case of following the money and testing where there was demand.
International outlets for selected retailers
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Ted Baker is case in point. The quirky fashion retailer was trading through just five outlets outside the UK in early 2008, but expanded to more than 180 stores and concessions by early 2014 spanning Europe, the Middle East, Asia, Africa and Australia.
Despite what seems like an aggressive opening programme, Ted Baker did take a measured approach.
For instance, it generally entered markets through concessions rather than standalone stores as a way to test demand.
It also used local partners to operate stores in some countries – although the challenge there was to retain control over its brand message.
Primark is another great example. When the recession hit in 2008 it had a well-established business in the UK, Republic of Ireland and Spain, but it then went on to ramp up its international presence as its value proposition resonated with cash-strapped consumers across Europe.
By 2014 the fashion retailer had entered the Netherlands, Belgium, Austria, France, with its international network more than doubling to 120 outlets over the five years to 2014/15.
It was not just opening new stores – the company also invested in advanced distribution facilities in Spain and Germany.
While the Middle East and Asia proved to be fertile ground for British retailers – particularly as these were regions that emerged relatively unscathed from the financial crisis – a survey undertaken by Retail Week in 2013 showed that mainland Europe was still the preferred destination for many retailers.
The reasons behind this were two-fold: proximity to the UK and the developed nature of many European retail markets. These are likely to remain attractive factors even when the UK eventually separates from the EU.
If there was a common factor behind many of the retailers that did well overseas it was that their brand conveyed a level of ‘Britishness’ that appealed to international shoppers.
Brands such as Topshop, Burberry, Hamleys, Jack Wills, Boden and Cath Kidston were able to bring something unique to overseas markets and this was reflected in their international growth.
Other success stories came from those that combined international store openings with investment in dedicated international websites, a strategy pursued by retailers including Debenhams, Topshop and Hobbs.
Meanwhile, British pureplays also experienced significant growth after the recession, some capitalising on the sharp fall in the value of the pound from late 2008.
International sales at cycling etailers Wiggle and Chain Reaction Cycles, for example, soared from 2009 as they had no difficulties undercutting local competitors due to the weakness of sterling.
Having said that, both etailers did also invest in international fulfilment.
Flying the flag
While there are many instances of British retailers successfully flying the flag abroad, there were also a number of UK retailers that reduced their international exposure as problems in the domestic market commanded their full attention.
Even before the accounting scandal erupted at Tesco in 2014, the grocer was already reducing its exposure in international markets where it was unable to battle for market leadership.
Tesco exited Japan in 2012 and confirmed the following year that it would leave the US, where it had made a high profile launch with its new ‘Fresh & Easy’ fascia in 2007.
Calls from investors to dispose of this lossmaking business had been mounting as the grocer reported its first fall in annual profits for 20 years in the year to April 2013.
As it turned out, this would only be the start of its troubles.
DIY retailer Kingfisher, which operated in one of the worst affected sectors as the property market ground to a halt, is another retailer that underwent some retrenchment. It sold its Taiwanese business to its joint venture partner in 2007, while it disposed its Castorama stores in Italy in 2008.
China also proved to be problematic. Despite a restructuring in 2009, the business continued to be a distraction and Kingfisher would eventually sell a majority stake in the business to a Chinese investor in 2014.
Despite international setbacks for some, British representation abroad has grown dramatically since the start of the previous recession.
With valuable international experience now under their belts, retailers could again turn to international expansion as a way to counter the effects of a potential downturn in the UK.
The analysis was compiled by Retail Week Prospect, an intelligence service offering insight and analysis on the UK’s retailers.