Part 1 of the Retail TouchPoints Global Growth Report
Following the recent economic downturn, many U.S. retailers are struggling to make up for lost time and money. According to Deloitte Touche Tohmatsu’s Global Powers of Retailing 2011 report, however, there have been significant improvements within the retail sector during the last two years, due to increased job availability and pent-up consumer demand. Despite the promise of a recovered U.S. economy, retailers are investing in cross-channel strategies to drive income and are looking beyond the U.S., seeking global opportunity to expand brand exposure.
U.S. retailers are obtaining international awareness by implementing cross border trade (CBT) solutions to develop international web stores and open worldwide locations. As emerging markets continue to show promise and an increasing number of customers are shopping online and via mobile devices, more consumers from outside the U.S. are looking to purchase products from the U.S. But before a retail company plans to go international, it must determine which locations to invest in.
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“For retailers with home markets in the U.S. or Europe, global expansion is not an option — it is a necessity,” said Hana Ben-Shabat, Partner, A.T. Kearney. “Growth is stagnating or declining in the West and retailers will need to look to developing markets for growth. However, global expansion is hardly a ‘slam dunk.’ We have seen numerous retailers falter. The key is to study a market carefully, select the right partners, find local talent, and understand the long-term nature of entering a market. It is also important that retailers truly understand how fierce local competition can be.”
Target, Wal-Mart, Bloomingdale’s And Urban Outfitters Successfully Expand Abroad
Within the last two years, multiple retailers have opened international web stores and brick-and-mortar locations; and these stores have been well-received based on consumers’ purchase behavior.
Canada is an obvious international target for U.S.-based retailers looking to dip their toes in the water of global expansion. Target made its first foray into Canada early in 2011 when it purchased leaseholds for approximately 220 stores of the Canadian discount chain Zellers. By 2014, the retailer plans to open 100 to 150 stores around Canada, according to a press release.
Discount competitor Wal-Mart had already ventured into Canada in 1994, following the purchase of Woolco stores. Since the acquisition, Wal-Mart has opened 325 locations across the Canada. In fiscal year 2010, the company reported $405 billion in sales, and currently operates more than 4,300 locations including Wal-Mart supercenters, discount stores, Neighborhood Markets and Sam’s club warehouses. Outside the U.S. and Canada, Wal-Mart is active in 13 other markets, including Costa Rica, Guatemala, India, Japan, and Chile.
Other retailers also are actively opening locations in countries including India, the UK, Japan, and Italy.
Bloomingdale’s and Crate & Barrel both have invested in Dubai locations. Bloomingdale’s formulated a licensing arrangement in February 2010 with Al Tayer Group — a luxury store operator that also has worked with Bvlgari, Dolce & Gabbana and Jimmy Choo — to open a location at the Dubai Mall. The 440,000 square-foot facility features more than 1,000 shops including Forever 21, Bebe, GUESS?, and luxury retailers like Missoni and Oscar de la Renta. Crate & Barrel — also managed and operated by Al Tayer Group — opened its first international location at the Mall of the Emirates.
Although the Gap shut down 110 stores in the U.S. by the end of 2010, the retailer found a new brand audience throughout Europe. Between its two brand names — Gap and Banana Republic — the franchise now operates 178 company-owned franchised stores throughout the UK and France. The retailer also has opened 120 locations in Japan.
Abercrombie & Fitch and Urban Outfitters are two retailers that used the UK as a stepping-stone for international strategy. Abercrombie opened its first London store in 2007. Due to its success, the company financially committed to the store for another 10 years, and is planning to launch its first childrenswear store in the same area. Abercrombie & Fitch currently has locations in Japan, Italy, France and Denmark, and is planning to open new stores in Dublin, Brussels, Dusseldorf and Madrid.
Urban Outfitters made its international imprint by opening locations throughout the U.K. and Canada. The retailer that includes the Anthropologie and Free People lines, also opened locations throughout Ireland, Belgium, Germany, Scotland and Sweden. According to the company’s CEO, Glen Senk, during a 2010 earnings meeting, Urban Outfitters successfully made a more aggressive move overseas by developing an international web site and paying third-party providers for logistics and systems services, allowing shipping to Europe and Asia when customers shop via web, and hiring local experts for international operations.
Cross-Border Trade Solutions Help Retailers Go Global
Before a retailer plans to open global brick-and-mortar locations, developing an international eCommerce site is a logical first step in determining a company’s reputation and value in a country, according to Joanne Bethlahmy, Director of Retail and Consumer Goods Practice in the Cisco Business Solutions Group.
“Some retailers are using online to test where they might want to open stores,” Bethlahmy said. “The big retailers already have stores in different countries and are starting to go online. But it is also working the other way around, where there are some retailers who are creating an online presence in a country to test the waters to see if they should start opening stores there.”
Bloomingdale’s, J. Crew, Nordstrom and Macy’s are examples of retailers that have found success overseas by providing seamless international currency exchange and efficient shipping processes.
Kasey Lobaugh, Principal of Deloitte Consulting, noted that this strategy is an efficient and cost-effective way to determine a retailer’s international presence and growth potential.
“There are a series of retailers who are entering Canada online only first, and there’s another series of retailers who have gone aggressively with a store base,” Lobaugh said. “But it really has to do with, strategically, how we view the market, and what the risk tolerance is. Clearly, it’s a much lower risk to simply open up international shipping for the eCommerce site, but the prize is much smaller too. The store footprint into Canada or any other country is much more complex in the undertaking, but clearly you’re going for a much bigger prize.”
CBT solution providers including FiftyOne, GlobalCollect and Borderlinx allow retailers to synch eCommerce sites with international currency exchange rates without developing multiple international sites. According to the Cisco report titled The Global E-Commerce Gold Rush: How Retailers Can Find Riches Overseas, there are concerns about adopting CBT, including global shipping, tariffs, and risk of credit card fraud. Within the last six months, however, more retailers are observing increased international awareness after implementing the system. Crate & Barrel and Williams-Sonoma are two of the companies that have most recently successfully employed CBT.
“As recently as six months ago the vast majority of U.S. retailers would not ship outside the country,” Bethlahmy said. “You’re not going to unlock a lot of global revenue through one web site, so very recently we’ve seen the developments of very sophisticated third-party suppliers that can develop the expertise to enable CBT easily. This is most applicable to domestic retailers who have no intention of setting up separate country web sites. Rather, they have a domestic web site but want to open it up to the world.”
Bethlahmy further explained that in the coming years, the CBT market will continue to grow, allowing retailers to go global without investing in building actual locations.
Part 2 of the Retail TouchPoints Global Growth Report will appear in the July 14, 2011 newsletter.
