Overseas sales keep UK afloat

Where domes­tic retail sales are stag­nat­ing, it is easy to see why UK retail­ers are look­ing to for­eign shores to boost growth. But what does this trend mean for the future of our local high streets? Tech­nol­o­gy is play­ing a cen­tral role in dri­ving devel­op­ment for­ward on both fronts.

Lux­u­ry firms are per­haps the UK’s most suc­cess­ful retail export, cap­i­tal­is­ing on the val­ue of their brands to sup­ple­ment slow domes­tic sales with growth abroad. In itself, this is noth­ing new. The cross-fer­til­i­sa­tion of retail brands across region­al mar­kets has also brought us many now-famil­iar UK high street names, such as Gap from the Unit­ed States, H&M from Swe­den and Zara from Spain.

The dif­fer­ence today is that, while ana­lysts pre­dict vir­tu­al­ly flat UK retail sales growth in spite of the usu­al Christ­mas boost, many more UK retail­ers are see­ing marked­ly increased demand in over­seas mar­kets which they can­not afford to ignore. Burberry’s lat­est sales fig­ures, for exam­ple, grew by 21 per cent in the last quar­ter of 2011, large­ly dri­ven by a £210-mil­lion (36 per cent) sales boost in the Asia-Pacif­ic region. In con­trast, its sales in Europe were up by 20 per cent to £160 mil­lion.

Daniel Lucht, research direc­tor for retail ana­lyst Research­Farm, said the lure of inter­na­tion­al­i­sa­tion was due to the impact of “a very aus­tere eco­nom­ic out­look for 2012”. This, in turn, has had the effect of gen­er­at­ing a huge move away from debt-financed busi­ness growth. “Cash flow is going to be a big issue,” says Mr Lucht. “For both retail­ers and con­sumers, it will be about not what they want, but what they can afford.” He adds that the pres­ence of essen­tial infra­struc­ture com­po­nents, like com­mu­ni­ca­tion net­works and roads, is often a pre­req­ui­site for suc­cess­ful expan­sion, mak­ing coun­tries like India chal­leng­ing for over­seas entrants, despite its rapid­ly expand­ing mid­dle class.

“Most UK fash­ion and cloth­ing retail­ers have piled into the Mid­dle East,” says Richard Fitz­patrick, direc­tor of Retailmap, a spe­cial­ist retail analy­sis and com­peti­tor mon­i­tor­ing com­pa­ny. “But that is because of a num­ber of large entre­pre­neur­ial firms who build and own their own retail prop­er­ties.” The pres­ence of two or three very strong joint ven­ture or fran­chise trad­ing part­ners, such as Alshaya, Al Fut­taim and Al Tay­er, who pro­vide the UK retail­ers with a com­plete turn-key solu­tion logis­tics, ware­hous­ing and access to the biggest shop­ping malls have helped add the region to the UK’s list of inter­na­tion­al des­ti­na­tions, along­side Asia.

Less than half the UK’s retail spend­ing is now on the high street and this fig­ure is falling

Mr Fitz­patrick adds that high-end lux­u­ry brands have done well in the Mid­dle East, Asia and also Rus­sia because a grow­ing pro­por­tion of their mid­dle class­es and super-rich are con­spic­u­ous in their con­sump­tion. But he says: “The val­ue and bud­get seg­ment is also prob­a­bly one of the best UK exports, with the likes of Pri­mark already start­ing to take Europe by storm. This is where we also see Tesco, George @ Asda, Sainsbury’s TUI, Mata­lan and even New Look expand­ing.”

Across 50 UK cloth­ing and footwear retail­ers, sur­veyed by Retailmap in 2011 each trad­ed in an aver­age of 11 sep­a­rate coun­tries and had an aver­age of six out­lets per coun­try. Some retail­ers had a much wider glob­al expo­sure. Top­shop, for exam­ple, is in 29 coun­tries, yet even this UK high street fash­ion stal­wart only aver­ages five out­lets per coun­try. By com­par­i­son, Tesco oper­ates in nine coun­tries but it has an aver­age of 250 stores per coun­try in each of the gro­cery and own-brand cloth­ing brand mar­kets it oper­ates in. “It is lit­tle sur­prise that in cen­tral Europe, Tesco’s F+F cloth­ing brand is one of the mar­ket-share lead­ers,” says Mr Fitz­patrick.

“A UK high street chain with 200 or 300 stores is look­ing for greater economies of scale and effi­cien­cies than any small joint ven­ture or fran­chise invest- ment can deliv­er,” he says. “H&M, for exam­ple, does 25 per cent of its busi­ness in Ger­many alone.” To put Topshop’s glob­al pres­ence into per­spec­tive against the weak domes­tic mar­ket, its own­er Sir Philip Green revealed recent­ly that it was look­ing to close 250 to 260 stores from its 2,500-strong UK estate over the next three years. This will pave the way for ambi­tions to expand the Top­shop brand fur­ther over­seas.

The con­se­quences of such strate­gies do not bode well for the UK high street. The government’s recent retail review by TV retail guru, Mary Por­tas, found less than half the UK’s retail spend­ing is now on the high street and that this fig­ure is falling. But the lure of over­seas prof­its need not nec­es­sar­i­ly sound its death knell. Tech­nol­o­gy can help span the miles between head office and the flag­ship store on the oth­er side of the world, or auto­mate finance report­ing and admin­is­tra­tion with coun­try-spe­cif­ic soft­ware rules. But it is the explo­sion in inter­net shop­ping, and its rel­a­tive­ly low­er oper­at­ing costs and high­er mar­gins that have real­ly been fuelling not only inter­na­tion­al UK retail ambi­tions, but also domes­tic ones too.

But, in some cas­es, UK retail­ers like Next are switch­ing their inter­na­tion­al expan­sion plans away from open­ing lots of new over­seas stores to set­ting up for­eign lan­guage and inter­na­tion­al cur­ren­cy online shops.

Per­haps, if eCom­merce was as mature a decade ago, the cau­tion­ary tale of Marks & Spencer’s expe­ri­ence would not have seen it uncer­e­mo­ni­ous­ly pull out of its first for­ay into France, where it had oper­at­ed 18 stores. Unde­terred, it re-launched there last Octo­ber, but with its first inter­na­tion­al trans­ac­tion­al web­site, which the retail­er said was part of its bricks-and-clicks glob­al approach, pre­ced­ing the open­ing of a flag­ship Paris store a few weeks lat­er. Suc­cess is, in fact, by no means assured abroad or even at home, in stores or online. Just think of the ill-fat­ed Car­phone Ware­house and Best Buy joint ven­ture. The US elec­tron­ics retail­er last year ceased trad­ing through 11 Best Buy UK stores, at the cost of some 1,100 jobs.

Sig­nif­i­cant­ly, ser­vices span­ning mul­ti­ple chan­nels, such as click and col­lect or reserve in-store and deliv­er to home, are becom­ing more pop­u­lar in the UK where inter­net trade body, Inter­ac­tive Media Retail Group (IMRG) record­ed a sig­nif­i­cant rise in the per­cent­age of click-and-col­lect online sales in the third retail quar­ter of 2011. Account­ing for 10.4 per cent of all UK eCom­merce sales in the peri­od, this merg­ing of retail sales chan­nels becomes all the more impor­tant in prospec­tive for­eign mar­kets that also have a high­er pro­por­tion of dig­i­tal natives with mul­ti­chan­nel expec­ta­tions.

Adam Stew­art, mar­ket­ing direc­tor of Rakuten’s Play.com, pre­dicts: “In the year ahead, cut­ting-edge mobile devices, world­wide mobile and broad­band pen­e­tra­tion, and inno­v­a­tive social shop­ping ser­vices will open up glob­al mar­kets, pro­vid­ing huge growth oppor­tu­ni­ties for mer­chants large and small, and unpar­al­leled con­sumer choice.” Play.com, one of the UK’s largest inter­net retail­ers, was recent­ly acquired by Rakuten the “Ama­zon of Japan” for £25 mil­lion. The ques­tion is though, will UK retail­ers be able to keep up?

Take Japan, the world’s most dig­i­tal­ly advanced nation, for exam­ple. Accord­ing to IDTechEx research, 47 mil­lion Japan­ese adopt­ed smart­phones with tap-and-go pay­ments func­tion­al­i­ty in three years, mak­ing its adop­tion of mobile pay­ments tech­nol­o­gy one of the fastest roll outs of elec­tron­ic prod- ucts in his­to­ry. Super-fast broad­band speeds and 4G enable in-store order- ing direct from a customer’s smart­phone, along with localised, tar­get­ed pro­mo­tion­al offers and the wide­spread use of Quick Response (QR) codes.

The influ­ence of the tech-savvy mul­ti­chan­nel con­sumer and UK retail expe­ri­ence in more advanced mul­ti­chan­nel mar­kets is already mak­ing its pres­ence felt on our local high streets. Women’s fash­ion com­pa­ny Oasis is equip­ping staff with iPads to boost ser­vice lev­els and assist­ed sales, as well as reduce lost sales from out-of-stocks, for exam­ple. Ish Patel, strate­gic devel­op­ment direc­tor at Oasis’ par­ent Auro­ra Fash­ions Group, points out that fast smart­phone adop­tion is paving the way for mobile or mCom­merce to help blend tra­di­tion­al phys­i­cal and emerg­ing online chan­nels.

In this way, lessons learnt from going glob­al may also help UK retail­ers bet­ter mind what is at home, despite the fact they may be strate­gi­cal­ly focused on dis­tant shores.

Where domestic retail sales are stagnating, it is easy to see why UK retailers are looking to foreign shores to boost growth. But what does this trend mean for the future of our local high streets? Technology is playing a central role in driving development forward on both fronts.