Ten ways to grow your business overseas

Running a profitable retail business on home turf is no longer enough. With UK growth hard to find, retailers’ chances of long-term success hinge on their ability to trade in markets across the globe. Having some form of international strategy is not a nice-to-have, it’s a necessity.

As Karen Millen managing director Steve Price says: “Most retailers’ strategy at the moment is to have a strong online presence and to grow internationally. It seems to be almost a strapline for retail.”

Every retailer needs to understand the international possibilities open to their brand, says Deloitte consulting director for retail Silvia Rindone – and that applies just as much to those who don’t feel ready to move abroad just yet. Setting up shop in a new market is a mammoth task. It can take years to research and for those that are serious about long-term global growth, careful preparation and a steady approach cannot be compromised.

Sainsbury’s, for one, has had a team of staff scoping out the market in China for over a year. So what are the key considerations for retailers that want to maximise their chances of succeeding in this risky, complex, costly, yet increasingly essential exercise?

Research carefully

A rigorous level of due diligence is an unavoidable part of the international expansion process. Retailers need to know exactly where their brand will fit, where they want to be located, and what they can expect from the market.

There’s no substitute for first-hand information, but research doesn’t just mean visiting a country and talking to the relevant people. All sorts of factors can give an indication of where and when your brand might work: airport stores and online trading can, for instance, provide an idea of which nationality’s habits and tastes respond to your offer. With global events like the Olympics and the Queen’s diamond jubilee coming up in 2012, it could be a perfect opportunity to test how tourists from different countries take to a brand.

Plan your first move carefully

Launching online is a useful way to dip a toe in international waters, and it’s a strategy that many retailers are using to test the lie of the international land. PricewaterhouseCoopers chief retail adviser Christine Cross says it’s a good idea to consider trading online first – it’s low risk, low cost and has few barriers to entry. It gives you control over the brand and means you can test a market before investing heavily.

It might also be wise to focus on one country at first, Cross says. It can be hard to make logistics work unless you get fairly heavy penetration in one country, so it could be an idea to focus on one at first and expand further once that’s working. Price says Karen Millen learnt the most in its first three years in Germany, from 2000 to 2003. “We learnt that instead of dotting stores around and going for organic growth, it’s important you’re clear about the route to market,” he says.

What might help get the timing of your expansion right is knowing exactly what you want from your foray into international territories. A clear idea of what you want to achieve will help determine the best route to market.

Choose your markets wisely

It’s a rare brand that works everywhere – retailers that expand successfully will do so because they pick their targets judiciously and work to make their offer suit them.

Warehouse managing director Meg Lustman advises not only researching market conditions, but finding out about your core shopper in that market too. “Make sure there’s a fit between what you offer and what consumers in that market want. Look at what she’s like – what she spends, how important clothing is to her.”

Tailoring your offer to the individual markets you’re moving into is vital. Tesco, for instance, uses information including Clubcard data to adapt its model to consumers in different parts of the world.

Approach each market differently

Every market adds complexity. There are retailers that have got it absolutely right in one market but missed the mark in another, as with Tesco’s success in China and comparative difficulty in the US. While a global strategy is needed, each market needs a new approach.

Market entry can follow a number of possible routes, including franchises, standalone stores, concessions or online trading. Each has its advantages – franchises have lower upfront capital requirements and allow you to learn from local traders, for instance – and their disadvantages – they also lessen the amount of control you have over how the brand is presented.

Price says a concession approach worked for Karen Millen in France, allowing the retailer to build up brand equity in Galeries Lafayette department stores without having to find the capital required for stores. Once the company had developed its knowledge of the market, and learnt from its three years as a concession retailer, it started opening stores and now has 17 across the country. Overall, it gets more than half its sales from international markets and has a presence in 40 countries.

Price says Karen Millen uses a long list of different factors to decide the best approach. It looks at the potential financial scale of the market, how similar it is to the UK and consequently how easy it is to do business there, and how many stores could potentially be opened. The presence of competitors’ brands, the economic conditions in the country and population density, and where the catchment areas are based are all other factors that will determine the best route to market.

Each country is then labelled a primary, secondary or tertiary market, with a primary market being similar to the UK and having a large financial scale, and the strategy is decided based on that.

Time it sensibly

Choosing the right time and place will be unique to each retailer, but there are some general rules to follow. Now, for instance, may not be the best time to investigate certain parts of the Middle East. But for those interested in long-term strategic growth in Brazil, Russia, India or China – the fast-growing BRIC countries – it may soon be time to move.

“There’s a window of opportunity when you need to get your foot in the door in India and China,” says Rindone. “Otherwise the markets will become too sophisticated and crowded, and establishing a position will become difficult.”

Many of the factors determining the right time are individual – some retailers will expand internationally because they’ve done as much as they can in the UK, while some will still have work to do at home. “We have clients that still have growth opportunities in the UK but still think it’s the right time to go abroad,” says Rindone. “It’s not just big retailers looking at it now, but the middle segment, and that’s interesting.”

Get the product right

When it comes to product, balance is crucial. Stocking the same products all over the world might sound efficient on paper, but it risks overlooking local tastes. One answer is to allocate a certain number of products to every store and allow local management teams to choose the rest – an approach that H&M takes.

Listening to local managers will help avoid the kind of errors Marks & Spencer, for instance, made in its first Shanghai store. It faced shortages of the smaller-sized clothes that Chinese consumers demanded, and the then chairman Sir Stuart Rose admitted it made “basic shopkeeping” mistakes in the store, although it has since turned things around and has opened more stores in China.

Keep things simple

The business of international retailing is so inherently complex that it’s important retailers keep things simple within the organisation, says Sue Grist, retail director
at business consultancy Egremont Group. A rule-based operation can be copied across the world and makes success less dependent on head office interventions.

Two leading international retailers, H&M and Inditex, keep things simple by maintaining a vertical structure, owning assets from the beginning to the end of the retailing process. Owning every stage – from manufacture to shopfit – means they can keep processes consistent throughout different markets.

If the core processes are simple, it means flexibility is easier to achieve, as the quirks of each market can be more easily assimilated into the brand.

Don’t be afraid to make mistakes

It’s impossible to avoid mistakes when attempting success in foreign markets. No matter what approach you take, there’s one factor that’s crucial to maintain and that’s an ability to adapt and learn. “You need to be prepared to learn lessons, make mistakes, lose money,” says Lustman. “Just because you’re successful at home doesn’t mean you will be in a foreign market. You need to be prepared to change.”

Remain committed

“Stick to your strategy, pick the right property and stay in the right locations,” says Price. “Some stores take 18 months to two years to mature.”

International retailing isn’t a game for those interested in short-term wins. While the returns can be impressive, it takes years of hard work to get there. Some retailers might eventually call it a day and bow out – Halfords exited from the European market last year – but  for those who stick with it, international retailing generally requires a lot of effort and investment before results are seen.

Be flexible

One problem UK retailers often face, says Lustman, is a lack of flexibility, largely borne out of the uniqueness of our home market. It’s a trait the most successful international retailers have managed to avoid, she says. “The UK is such an expensive market, we end up being very controlling and managing everything to the smallest detail,” she says. “UK retailers can find it difficult to travel as a result.”

How does this flexibility translate into practice? Research will help ascertain whether a brand will work in a market, but each country needs its own unique offer if the proposition is to work. H&M has its own method to achieve this. It employs one Swedish manager in each market to act as its brand ambassador. He or she knows what the brand wants and how it works, but employs a team of local managers who can bring market knowledge.