(Still) Coming to America
Intense competition and an over-stored market aren’t stopping international retailers from coming to America: They’re still launching new concepts, setting up flagship stores and outlining entry strategies.
Uniqlo plans to open 10 new stores this fall, lifting the Japanese retailer’s total stateside store count to 17.
H&M, which already operates nearly 300 stores here, has announced plans to open a four-level, 63,000-sq.-ft. flagship inside the existing frame of the Herald Center in Manhattan by the end of next year. That comes on the heels of major expansion by the Swedish fast-fashion giant in the Big Apple, where two massive units are set to open on Fifth Avenue and in Times Square before the end of this year.
German discounter Lidl is rumored to be setting its sights on the United States, with a target of 100 East Coast stores by 2015.
Swiss-German lingerie retailer Triumph International made its U.S. debut in August with two Long Island, N.Y., stores; Icebreaker, a New Zealand-based performance apparel brand that opened in New York City in 2010, is adding units in Bethesda, Md., and Chicago this fall.
Then there’s the ongoing British invasion. Seemingly playing off the success of “Downton Abbey,” Americans’ infatuation with Kate Middleton and the upcoming 50th anniversary of the Beatles’ arrival, U.K. retailers continue to expand across the Atlantic. There’s Topshop, Asos, catalog retailer Boden, youth-oriented AllSaints, Jack Wills, SuperDry and Ted Baker — to name just a few.
Differences in purchasing power
“The U.S. is by far the largest retail market in the world,” says Chris Donnelly, global managing director of Accenture’s retail practice. “If you’re a successful retailer with a thriving concept in your home country, it’s a logical place to look for expansion. There are challenges, but it remains tempting. … There’s a trophy aspect to being successful in the U.S.”
Accenture’s Globalization Index finds that there were five new entries into the United States between July 15, 2012, and July 15, 2013 — the same number as entered the U.K., Brazil and Malaysia, and one behind Indonesia.
Most international retailers locate on either coast and sprinkle a few units in larger cities like Chicago and Dallas. What they come to understand rather quickly, says Bryan Gildenberg, chief knowledge officer at Kantar Retail, is that unlike other countries around the globe, “the U.S. is not one competitive retail environment. It’s a series of urban trading areas … that are quite different from one another. The U.S. is a continent masquerading as a country. We have massive disparity of purchasing power and massive geographic differences.”
No doubt those factors played a role in the troubles of Tesco’s Fresh & Easy Neighborhood Market, but Gildenberg cites other problems. “The challenge management ran into was that they built a store around what frustrated U.S. customers, but you can’t not be what people don’t want,” he says. “Double negatives don’t work in retail any more than they work in language.”
Matthias Queck, research director at Planet Retail, says Fresh & Easy may have been doomed from the outset because the concept misread the U.S. consumer.
“They tried to do too much,” he says. “They attempted to bring a completely new store concept to the market that was a hybrid of several different food concepts. There were some Trader Joe’s elements, along with a nod to Aldi and to Whole Foods. Globally, Tesco is a leader in convenience retailing, so they added convenience elements too.
“They took the best of all of these other businesses and put them into a new concept for the U.S., but it was simply too much for the consumer to understand,” he says. “What was it? It wasn’t a supermarket, it wasn’t a convenience store and it wasn’t a Trader Joe’s. Shoppers were confused.”
Adapting to U.S. culture
While Tesco’s U.S. foray is reported to have resulted in losses of $1.8 billion, it doesn’t appear to be souring other global retailers’ aspirations. Case in point: Uniqlo, a brand of Fast Retailing Co.
The company announced this summer that it was continuing U.S. expansion by opening 10 smaller format and mall stores in New York/New Jersey/Connecticut and Northern California. “Our goal is to continue to build brand awareness for new potential customers and greater loyalty from our fans, with more convenient access to our high-quality clothing and exceptional customer service,” says Larry Meyer, COO of Uniqlo’s U.S. business and Fast Retailing Group senior vice president.
The company opened its first three U.S. stores in 2005, but when things didn’t go as well as they’d hoped, management withdrew from those locations and opened a flagship store in New York’s SoHo neighborhood the following year.
“From 2006 to 2011 the company improved product quality, enhanced the functionality of our garments and sharpened our value proposition, making our offering unique in the marketplace,” Meyer says. “We’ve spent the better part of the decade learning the market, gaining confidence, studying the demands of the U.S. customer and understanding the best way to flow product.”
The recent back-to-school selling period indicates how Uniqlo has adapted to U.S. culture. “Back-to-school is a big business here, especially in August,” he says. “In other parts of the world school children wear uniforms and August is a big vacation month, so the timing of the demand and the reasons for buying are very different here.”
Fast Retailing Co.’s goal is to have a meaningful retail presence throughout the U.S. by 2020.
E-commerce is key
For global retailers looking to win over U.S. shoppers and build brand buzz without bricks-and-mortar stores, e-commerce is a must. H&M launched its U.S. e-commerce operation in late July following delays caused by “unexpected complexities.” Still, execs soldiered on, presumably tempted by predictions that the U.S. online apparel market has the potential to more than double in a decade, growing to $41 billion by 2017, according to Euromonitor International.
Other global retailers vying for a share of U.S. online apparel sales include the U.K.’s Asos and Spain’s Inditex, parent company of Zara. Logistics appears to be the biggest hurdle. Asos and Zara ship from Britain and Spain, respectively; H&M has set up regional hubs for its online business, which cost more on the front end but may pay dividends when shipping charges are tallied.
“E-commerce is moving swiftly toward same-day delivery, especially in the U.K. where retailers are trying delivery from a combination of stores and warehouses,” says Iconoculture global retail strategist Greg Hodge. “The days of waiting a week for something to arrive are slipping away. As shoppers’ expectations rise, so do the challenges for international retailers.”
Hodge cites the pricing hurdles that Zara and H&M must clear. “When you’re doing business in multiple countries and selling online, protecting gross margins and assuring prices online match up with prices in the stores is an undertaking,” he says.
Online-only fashion retailer Asos has had a U.S. web presence since 2010, providing free delivery and returns. Last month the company reported fourth-quarter sales (spanning June, July and August) were up 46 percent from the same period in 2012, that U.S. sales increased 57 percent year over year and that it may reach $1.6 billion in annual sales earlier than its initial goal.
“Asos’ business is expanding in the U.S.,” Hodge says. “With a team of merchants based in New York and thus the ability to make decisions locally, more growth is expected. The fact that their business is purely online boosts growth opportunities because — among other things — they don’t need to worry about matching store prices.”
Building brand recognition
P artnering with domestic retailers is a way to showcase product without investing in a physical store. It’s also a means of building brand recognition. Among the most high-profile partnerships is the store-within-a-store boutique inside 42 Nordstrom locations featuring Topshop and Topman.
Topshop, the U.K. chain owned by Philip Green’s Arcadia fashion group, operates a handful of freestanding U.S. stores, including a flagship in Manhattan. The Nordstrom partnership was a low-risk approach to testing the waters in other parts of the country; plans to expand stand-alone Topshop and Topman stores are in the works.
“There are a number of U.K. brands that have tried to make it on their own and it just didn’t work,” says Helen Mountney, managing partner for the U.K. and Ireland at Kurt Salmon. “Americans know and love and trust local retailers like Nordstrom, Bloomingdale’s, Walgreens and J.C. Penney, so exposing shoppers to an international brand [within] a venue they have confidence in can be a winning formula.”
In June 2012 Alliance Boots, owner of pharmacy chain Boots, sold a 45 percent stake to Walgreens for $6.7 billion — a deal which allowed both companies to extend their worldwide reach. The companies recently announced that the CEO of Boots’ health and beauty division will lead Walgreens’ “customer experience and daily living” operation — a move seen by some industry observers as a significant step toward the two firms consolidating into the world’s first global pharmacy chain.
“Boots has had international ventures previously with mixed success,” Mountney says. “The joint venture with Walgreens presents the opportunity in the U.S. to put Boots’ products on the shelves with labels such as No7. I’m convinced that for many global retailers there’s more of a chance for success in that environment than having their name over the door.”
Gildenberg points out that while partnerships work well conceptually, the difference between those that do well and those that don’t comes down to execution. “The host retailer has to embrace the guest retailer beyond a season or two,” he says. “If that’s not happening, the partnership falls apart.”
Suiting local tastes
T he U.K.’s Pret A Manger first entered the U.S. market via a partnership with McDonald’s Corp. in 2001. It was sold to private equity firm Bridgepoint in 2008, but it appears the company learned a thing or two about the best points of entry. Pret A Manger currently operates 36 locations in New York, eight in Chicago, seven in Washington, D.C., and two in Boston.
Experts say a key reason why the Pret A Manger concept of selling high-quality sandwiches and salads has succeeded is that it is willing to tailor products to the local market. A regional favorite like a wild crayfish and rocket sandwich might not fly on Broadway, but a Maryland spiced shrimp and spinach sandwich could be a winner with New Yorkers.
Experts have a number of additional suggestions that global companies with sights on the U.S. market would be wise to consider.
Mountney says that differentiation is a must. “There are plenty of great retail companies in the U.S.,” she says. “If a business does not truly have a differentiated offering, it won’t have staying power. There are plenty of examples … of great U.K. retailers that didn’t succeed in the States. One factor was that the concepts were not vastly different from the brands U.S. consumers were already familiar with.”
Donnelly says the global retailers who “win” here are those that have a powerful brand image and/or a standout operating model that is efficient and drives low cost. “Does the brand have dimension globally? If it’s easily recognized, then the chance that it will be sought after and embraced is greater. It’s harder for global companies that excel in supply chain and operations to have an instant win in the U.S. because the infrastructure is truly a cut above compared to many other countries.”
Hodge insists that international retailers need to find the right mix between delivering a differentiated collection of goods and carefully choosing the local markets in which they can win. “U.K. retailers who stay true to their unique persona are more likely to catch the eye of a U.S. consumer than the company that tries to overhaul their brand,” he says. “AllSaints is a great example: They have a hipster attitude and stand-out styling and that’s attractive to younger shoppers tired of the sea of sameness. I think it’s important to be true to your core.”
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