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RS 44 RS February - March 2013 feature international There isn’t a prescribed formula for taking your business overseas. Every retailer is different and so are the markets they plan to enter. Here, Glynn Davis takes a look at the profits and pitfalls of internationalisation Regardless of whether they are multi-channel, pure-play, DIY, fast fashion, luxury goods, or retailers of flat-pack furniture there are very few businesses that are not at the very least plotting a move to push their brands into international markets. The potential riches are undoubtedly there but the downside is that it is not a straightforward exercise. History is littered with UK retailers that flopped when attempting to replicate their supposedly iron-clad models abroad. Tony Bryant, head of business development at K3 Retail, recommends retailers ‘go in light’ rather than taking a Big Bang approach: “You need to feel your way along as retailers cannot [typically] afford to do the whole infrastructure overseas. Be light in your infrastructure. The margin will initially be poor but this can be built-up as the brand and proposition New horizons builds. Once you’ve found out it is profitable, then you can build out.” This building out includes the fulfilment infrastructure, which represents a great challenge. Bryant says replenishment from the UK is the most obvious initial route for retailers operating either physical stores or an online-only operation. For the former this can include working with local delivery partners or non-competing retailers in each territory to replenish the stores. However, he says this is costly and so best suited to premium type goods where the margins are high. Agent Provocateur has taken this route in its six overseas markets, which Bryant says – for a £26 million turnover business – is a very expensive option. But “they’ve the advantage of high margin products” he adds. This might not be an option for fast fashion chains on tight margins, which is undoubtedly why Zara operates its own infrastructures in the majority of its overseas markets. Complex strategies Whichever fulfilment route is taken Dr Mark Abell, partner at law firm Field Fisher Waterhouse – a specialist in international strategies, says it will inevitably be much more complex than most retailers initially envisage. “There are some things you should not do, some you clearly should do, and others that need to be thought through. Retailers are often given a cookie-cutter approach to all the different markets, whereas each market is different,” he says.
The route taken by most retailers is to tie-up with local partners – often on a franchise basis. Abell says the structuring of such a venture is crucial if retailers are to get the maximum benefit out of their overseas forays. He recommends creating a subordinate equity partnership where the retailer takes a stake in the local business structure. Retailers must then ask various questions, such as: Do they give their partner various countries in each region and following that, how do they manage quality control? It is also inevitable that the legislation will be very different in each market. For instance, in some countries it is illegal to import cotton as they protect this part of their market, which will have serious ramifications for fashion retailers. “In Malaysia and Indonesia there are ethnic quota regimes, which means you have to have certain shareholders,” adds Abell. He prefers to develop the structure of the partnerships for multi-channel businesses because this gives retailers the flexibility to grow even if they start as a single channel proposition. Abell says there have been major issues caused by merchants creating an online operation that conflicts with the stores’ businesses run with their partners. Despite the challenges, such is the desire to venture overseas that Tania Oakey, marketing director of Cegid, says as much as 80 per cent of the potential new business it is hoping to win will be a result of its international capabilities. The luxury goods companies in particular are keen to enter new markets like Brazil and other emerging markets, which will benefit Cegid in the future because it provides localised solutions – for both fixed and mobile tills. This involves incorporating all the specific local components relevant to each market into each of its international implementations – including fiscal, legal, CRM, accounting and language requirements. As it seeks to broaden its offer it recently localised its software for use in Sweden and is set to open up in fast-growing markets like Brazil, Russia and Dubai, which retailers are finding increasingly attractive. “Brazil is a huge local market but it is very complicated with lots of localisation. We want to be one of the first to offer a localised PoS solution in that market. Our key strength is to help UK retailers go overseas. We helped Ted Baker go into Asia,” observes Oakey, who adds that the company recently won the business of Barbour as it seeks to expand abroad. While Cegid recognises the requirement for localised payment methods in retailers’ overseas stores, it is equally crucial to provide the relevant payment options on a merchant’s online store. Julian Wallis, head of sales for UK & Ireland at payments service provider Ogone, notes: “There are lots to consider when expanding overseas and the payments side is often left until the end.” UK retailers have long assumed that all countries accept credit cards, which is a serious mistake and proof that many businesses still fail to understand local markets. By offering some of the international feature more popular alternative local payment types like iDEAL in The Netherlands as well as other newer methods, Wallis says, retailers can see immediate increases of 25 per cent in transaction volumes. With a rapidly growing number of payment types around the world (Ogone has recently introduced onto its platform 10 new payment types for Brazil alone) the complexity and effort required to adopt them can mount as each will require contracts to be signed. “Retailers will be aware of acquirer contracts with Visa and MasterCard and it is the same with alternative payment types [around the world],” says Wallis, whose one-stop-shop payment platform Collect is Ogone’s answer for retailers. He also suggests it provides competitive transaction fees as the company has negotiated the rates on a collective basis leveraging its higher transaction volumes compared with single retailers. Not one to have problems with its volumes for driving a bargain with suppliers is Tesco. It is now of sufficient size and experience overseas that it has the benefit of being able to take the best innovations from different countries and to spread them around the world. New innovations Situl Thakrar, programme manager at Tesco, believes new innovations are not all fed from the UK outwards: “Other countries are empowered to trial things locally – sometimes with local IT partners – and to then share best practice [across the group]. Every market is very autonomous. China and South Korea are well advanced so technology innovations are going both ways.” He says the company typically looks to leverage its existing technology base – such as its online order engine – and combine this with some localisation (in terms of innovations) within each of its overseas markets. Very much at the other end of the scale is online furniture retailer Made.com, which although only a few years old has already opened up an operation in Paris. Ning Li, chief executive of the online-only Made.com, says the division in France has the same infrastructure as in the UK – except for the payments and language elements. But what is unusual is that its France customer services team is based in London as part of a total customer services team of 20. “Recruiting French people is easy in London. And with Germany and Italy you can always find ex-pats here in the capital too. It is very international. It would have been more difficult in France to get English speakers,” he adds. This suggests Li has already got his sights set on further international expansion once the French operation has bedded down, which is far from unusual in the sector. But it does highlight both how broad is the church of retailers that are branching out overseas for growth and how there are a great many different ways to execute an international strategy. RS February - March 2013 RS 45
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