It is the world’s largest retail market, but UK store chains struggle in the US. With international expansion a boardroom priority, Charlotte Hardie considers the traps retailers should avoid to succeed in America.
The United States of America: the land of opportunity, the ultimate consumer society… the graveyard of British retailers. Try as they might, Stateside success has eluded some of the biggest and most respected names in UK retail.
International expansion is fuelling boardroom discussions up and down the country, and the US is the Holy Grail. An estimated two thirds of its GDP comes from retail consumption, its annual retail market generates sales of about $3.8trn (£2.3trn), and yet the very idea of venturing across the pond strikes fear into many UK retailers’ hearts.
Laura Ashley, Marks & Spencer, WHSmith and HMV are among those that have come back with their tail between their legs. Who’s genuinely made it? No one. Ted Baker, Topshop and Boden are being well-received but all would readily admit they’re not the big players in the scheme of things. So why is it so tough to crack, and how can they stop merely dreaming about the American dream, and start living it?
Survival of the fittest
Retailers’ chances of mere survival depend on several factors. One primary problem that retailers grapple with is that the US’s 307-odd million residents live in their own bubble of consumerism. They may speak English, but they don’t buy like the British. Treating them like a British shopper will prove fatal. Claudio del Vecchio, chairman and chief executive of Brooks Brothers, says: “You need to try and become a US consumer before you sell them something.”
“You need to try and become a US consumer before you sell them something”
Claudio del Vecchio, Brooks Brothers
The temptation is to change the retail brand drastically in an attempt to suit US tastes. Boden launched its catalogue and online business in the US in 2002, and it is now the fastest growing part of its business, and on target to meet $160m (£97.9m) in sales this year. Chief executive Julian Granville says: “Every consultant will tell you: ‘It’s very complicated and you must do everything differently in the US that you do in the UK’, but if you need to change your business that much you haven’t really got a US business.”
Adapting, not transforming, the retail offer is the secret. Silvia Rindone, director in Deloitte’s retail consulting practice, says: “You need a certain amount of non-negotiable DNA.” She says a ratio of 60/40 or 70/30 core product to product specifically for the US market often works well - not least because core product helps to drive operational efficiency.
“We went in with a mantra that we didn’t want to change the brand. If your values change, you’re toast”
Julian Granville, Boden
Change it too much and the cost of the entire US project will start to rocket. “It’s about having a clear understanding of who they will sell to and what the offer will look like and bringing something to the table that is unique and new. It’s this proposition that few players are getting right,” she says. Boden’s ability to adapt while retaining the true essence of the brand has been instrumental in its success to date. “We went in with a mantra that we didn’t want to change the brand,” explains Granville. “If your values change, you’re toast,” he says.
To that end, how much should retailers play on the Britishness that is so popular with Americans? Granville says: “We’ve turned up the volume on it a bit, but turn it up too much and it can start to grate.” It’s a mistake to think that just because you’re British, the hordes will flock. Yes they like English connotations of heritage and properness, but in reality Americans are often insular. Granville cites one particular focus group that Boden ran in preparation for its US splash. The group was asked whether it knew the name ‘Johnnie Boden’ - the retailer’s founder. One person replied that they thought he was a gay Australian.
Last August, N Brown took its Simply Be website and catalogue brand to the US. Business development director Paul Kendrick - overseeing the launch - says it does promote the fact it is a major British fashion retailer to “add to the credibility of its offer and provide a sense of security for customers”. But he also stresses that the service and business model must be altered. “We translate our catalogues and our website into ‘American’,” says Kendrick. “Unless you do that, you start to lose out.”
Britishness aside, it is notoriously difficult for those retailers new to the market to even get noticed, let alone get people to shop with you. The US retail market is incredibly crowded and very few areas in the market are not served. Those in the direct market, for instance, should bear in mind that most Americans receive anything from 30 to 50 catalogues every single week.
Food for thought
Del Vecchio likens many a US retail launch to the opening of a restaurant. “It opens, there’s a natural curiosity, it’s full for the next few months, and then people drift away.” The US shopper is also far less loyal. “In Europe it’s generally understood that if you have good service, establish a good relationship with them, they’ll keep coming back. Americans are far more attracted by pricing and promotions,” adds del Vecchio. “To get that loyalty you have to establish a relationship with them at every touch point.”
The US demands a differentiated offer. N Brown is luckier than many. The plus-size market in the US is worth about $34bn (£21.8bn), and yet the Manchester-based retailer believes it hasn’t to date catered for younger, more fashionable plus-size shoppers. “If we’d gone in there with a ‘me too’ approach, I would have been less confident, but because I can’t see direct competitors, I look at that and I think there’s a real gap in the market,” says Kendrick.
To build its relationship with the US shopper, N Brown is seeking to catch people’s attention by methods other than traditional PR. Social media marketing is being adopted far faster in the US than it is here - Kendrick says it’s about 12 months ahead of the UK. Success in America depends on an ability to think ahead. N Brown is working extensively with online communities and bloggers to get them talking about the brand. “We’ve gone down this route more than traditional PR and marketing,” says Kendrick.
Ted Baker - already capturing the imaginations of US shoppers with its stores - used Twitter and bloggers for its US online launch. One innovation was a live marketing challenge, whereby eight US fashion bloggers were given 15 minutes to style models remotely using nothing but tweets.
The US does, though, hold some advantages over the UK when it comes to marketing tactics. Not only are Americans more receptive to cold mailshots, legislation works in retailers’ favour, too. In the States you can buy very targeted customer lists. “We can include, for example, someone’s dress size in the list selection model, and also include age,” says Kendrick.
The size of the US makes the task of planning a bricks-and-mortar launch daunting. James George at strategy consultancy OC&C says America’s scale has “profound implications on a number of key factors that you need to get right to make retail successful” - be that supply chain, or finding the right locations for this car-dependent population.
Picking the right part
Where do you start? Effectively the US is not one country, it’s more a collection of city States with their own identity and culture. The northeast coast has the highest retail spend per capita and its shoppers are the closest to the European way of thinking. The west coast has more of a Hispanic culture. “You need to make a choice,” says Rindone. “Who are you going to address in the marketplace?”
Mango got it right. The Spanish retailer started its US assault on the west coast rather than the east because they knew it appealed to that customer segment. From there, word spread. Interestingly, many international brands who are enjoying Stateside success have taken a softly-softly approach. Rindone says one approach that works well is to pick a region, choose a handful of large conurbations, launch a flagship for identity, but benefit from strong footfall with stores in shopping malls. After gaining a foothold, word can gradually spread from one region to another. Zara, which entered the US market in Manhattan in 1989, has successfully built a brand in this way. Despite a tough few years the Spanish retailer - without the help of advertising - now has 49 stores from Illinois to Florida.
If anyone ever needed convincing of the challenges, they need look no further than Tesco. It may have moved comparatively seamlessly into a host of international territories from Hungary to South Korea, but with its Fresh & Easy format on North America’s west coast, Tesco has met its match. Despite meticulous planning Tesco has been unlucky in that its launch states were hit particularly badly by the housing crash and economic decline, but as one of this country’s most operationally sophisticated retailers, it is nevertheless in unfamiliar territory.
Even for the handful of British retailers that are enjoying some success in this, the most challenging of international markets, complacency is a death knell. Moreover, scale does not equal success - WHSmith was in the country for 18 years, had more than 400 stores in airports and hotels, and still beat a retreat. As Granville says: “I don’t think we’ve cracked the US. It’s the fastest-growing part of our business, but we just haven’t screwed up yet.”
Will there ever be a UK retailer bold enough to say they have conquered America? They will have had to make a decent dent in those $3.8trn retail sales before they pluck up the courage.
- Laura Ashley Eventually accepted just $1 to offload its all-American headache in 1999, after bankers warned that financial support would end if its North American stores remained part of the group
- Dixons Paid £210m for Philadelphia-based Silo in 1987, but was unable to compete with larger rivals. By 1992 it was losing £22.4m and left the US after write-offs of more than £200m
- WHSmith After an 18-year presence with about 400 stores largely in hotels and airports, the retailer withdrew in 2003
- Marks & Spencer Bought Books Brothers for $750m and King’s supermarkets for £35m in 1988, and eventually backed out of the US by selling them for $225m and £66m in 2001 and 2006 respectively
- HMV Ventured into the States in 1990 with a store in Manhattan, but by 2000 it still only had 20 stores and had failed to make an impact. It shut its last remaining stores in 2004
- Monsoon In its second attempt at cracking North America, Monsoon will open five Accessorize stores in the US next year. However, its first attempt in 2001 barely got off the ground. It set up a venture with US clothing retailer Charming Shoppes, and opened about 10 Monsoon and Accessorize stores. The venture was wound up in 2003, in the aftermath of 9/11, when the US economy faltered