How to go bust in apparel retailing – 4: The wrong move abroad
For really awful advice, it’s hard to beat a consultant gibbering about setting up shop overseas.
Here’s the fourth certain route to bankruptcy in a recession:
4.Focus on international growth
They can’t possibly mean this. Your core business at home – where, whatever the problems – you and your customers at least understand each other – is slowing down. Margins are under threat and these people seriously think you should focus on setting up shop thousands of miles away you haven’t got the faintest idea about? They probably mean ‘focus’ in its consultantese meaning (that is: just sort of think about it a bit) rather than putting all your attention onto the subject.
So let’s quote the nonsense in its entirety:
“Retailers and brands will look for new growth opportunities in Eastern Europe, South America and Asia. With the already saturated U.S. and Western European markets also bearing the brunt of the financial crisis, emerging economies provide an immense opportunity for growth. A strong brand identity will be critical to international success as stronger brands will be able to leverage their brand strength for international expansion using alliances and franchise arrangements. However, retailers without a strong brand identity will fail, as they will struggle to make an impact, given the aspirational nature of emerging markets.”
It IS possible to compress more wrong-headed thinking into one paragraph: wait till we get to these people’s ideas on sustainability. But it’s difficult. Let’s go through the main points:
“Retailers and brands will look for new growth opportunities in Eastern Europe, South America and Asia”. In a recession? Which in Eastern Europe right now is making what’s going on in Western Europe and the US look like a China-style boom. A year ago these places were growing fast it’s true. But they’re not now – and for any struggling retailer, setting up shop in Russia or Brazil is just about the fastest way of going bust you can think of. True, H&M and Gap are opening in Moscow this spring: but they’ve been planning that move for years. Meanwhile, other Western retailers are pulling out of Russia faster than anyone’s left the place
since the Nazis invaded in 1941.
“The already saturated U.S. and Western European markets”. Cobblers. Clothing is about the most fragmented form of retailing anywhere. It’s practically unknown for any clothes retailer to have over 10% of his local market. In fact there are just two clothes retailers in any major Western economy with 10% or more of the local market: Wal-Mart in the US and Marks & Spencer in the UK. Where are they putting most of their development money? Into their home market. And not surprisingly: the 1.1 billion people of India support a total clothing market that’s smaller than London or New York. In 2007, the growth in the US clothing market was worth more than the entire Indian clothing market. If the two largest clothes retailers don’t think their domestic market is saturated, why should anyone else?
“Retailers without a strong brand identity will fail”. More cobblers. A brand is a relationship with consumers. Successful retailers create a relationship with the consumers in their own country – and that relationship can’t easily be exported. The largest Western clothing retailer in China is Etam: hardly a super-brand in France, its home country, though modestly liked. When it’s successful in China (which isn’t always), it’s not because of what the brand stands for in France: it’s because of proper clothes retailing skills – like getting the designs, colours and sizing right for the Chinese market, finding the right partners, being tough in negotiations and getting the boring retail logistics right. When it gets those things right, it could be called Purple Gorilla and still succeed. Strong retail brands may well fail, because the brand can easily get bigger than the real business of delivering what the customer wants. Hong Kong’s Dickson Concepts failed in Shanghai (which most of us thought was practically Hong Kong’s twin city), because its ideas didn’t gel with what the Shanghainese wanted – though it’s finding London and even Leeds more fertile grounds for its brands. Marks & Spencer are struggling in Shanghai precisely because they’re a strong brand (and one that’s very successful for a niche market in Hong Kong) – and tweaking it to work in Shanghai is proving hard and costly. For M&S, the cost and effort are sensible investments at present: but for anyone much smaller, a recession is the worst possible time to be throwing cost and management time at a foreign speculation that might never prove profitable.
Moving a retail chain to a foreign country isn’t just risky: in recent years it’s been a guaranteed money loser. Gap, Wal-Mart and M&S have all pulled out of Germany. C&A have pulled out of Britain. Benetton have trimmed back their overseas operations. Wal-Mart, the world’s biggest clothing retailer, has pulled out of Korea (so much for the hokery about all these Asians gagging for Western shops). And, though the past three or four years threw up a number of retailers (like Gap) finding low-risk ways of moving into new markets through franchise specialists, that route too started proving risky in December and January.
Moving abroad is likely, over the next few decades, to be essential for any ambitious retailer. But the time to organise it is when things are going well. A recession is the time retailers ought to reduce ego-boosting overseas ventures that kill profits – and steel themselves for trimming back some marginal foreign expansions that are looking a bit dicey right now.
If you can’t make money at home, you’re almost certain to lose a lot more abroad. Going global is a boom-era strategy.