By Tim Koshinsky, VP Solutions, OLR Retail
The world of fashion retail is getting smaller, but it’s also becoming more complex. By this I mean the number of organizations expanding internationally is increasing – and the case for overseas growth is more compelling than ever – but each retailer is treading a different path on its voyage to going global.
For fashion houses wanting to extend their footprint into new territories, this creates a situation in which there’s no set route for international expansion, therefore it can be difficult to know which growth model to pursue.
Even more fundamentally, it can leave retailers drawing a blank over which markets to prioritise, before they even think about how best to get there. A multitude of factors influence this decision, many of which are outside their control, which is why understanding each region’s economy and culture is critical to evaluating its commerce potential.
China is an interesting example of this. Economically, a rise in shadow banking debt has slowed down the economy. However, this means commodity prices have fallen, the government is looking for new growth sources, and consumer spending is still rising – all positive signs for retailers.
But before fashion organizations launch into China, there are a huge number of challenges to overcome. Currency, legislation, taxation, cost structures, buying habits, and payment and invoicing preferences are just some of the fundamental differences that make local knowledge a core part of any international expansion strategy. In some ways, trading abroad means starting from the basics of retailing all over again.
One critical difference, though, is that fashion retailers still have to view entry into a new territory as part of their wider activity. For instance, exchange rates will impact the bottom line profit each region generates for your business centrally; a wider geography creates greater complexity when allocating inventory across distribution channels; and an increased number of orders to fulfil – and returns to assimilate – places greater strain on operational resources.
Even if last mile delivery is carried out locally by a regional team, there will still be head office associates who need to manage activity internationally to protect the organization’s profit margin. And with all these complications comes one crucial further consideration: risk.
The issue of risk is the point where markets and models merge. To this end, many fashion retailers are launching wholesale and franchise operations in a bid for growth, as licensing products through these channels ensures they do not bear the risks of store operations in new markets.
By working with an experienced partner, retailers can draw on expert local knowledge and connections, while establishing common retail practices across their global business.
It is vital, though, that the franchise model is managed correctly in order to drive profit and minimise operational disruption. Often retailers turn to implementation partners to leverage the capabilities of their existing systems, and to take care of new merchandising, order management and financial planning requirements generated by geographical growth.
Ultimately, while no expansion comes without risk, seeking the support of implementation partners with international expertise an effective way to ensure the success of a wholesale and franchise model. And the best thing about this approach is that, while an implementation partner is focused on delivering end-to-end performance, fashion retailers are left free to concentrate on building brand awareness among their new customer base.