By Tristan Rogers, CEO of Concrete
Global expansion continues to be a hot subject for retail boardrooms and PR teams, with highly publicised moves from the likes of Topshop, Primark and H&M all expanding into new territories. However, whilst international expansion can be a profitable and strategic move for established retailers with translatable brands, it can also put a huge strain on the supply chain if not managed carefully.
Avoiding strain on the supply chain
For large brands like Marks & Spencer, Next or George, the introduction of significant international demand represents a radical change for the business, and the timing of this activity could put undue strain on the existing supply chain.
For example, if a brand hits on a best-seller that is being distributed through a large wholesale player in an overseas market, the unexpected spike in sales can outperform the supply chain, leaving the difficult decision of which markets or stores should suffer stock shortage. Failure to plan ahead for eventualities like these can be expensive short and long-term.
As such, before putting an international strategy in place, it’s vital to make sure all parts of the supply chain are pressure-tested for different quantity and time-to market-scenarios – and to communicate these upper limits to all markets in advance.
Enabling international expansion AND efficiency
As a first step, it is important to establish the current level of demand in any given market. For any retailer, servicing demand inefficiently is preferable to spending money on an efficient supply chain that is servicing a market where there is no demand.
Once established, new markets quickly need to move to a ‘push’ model of product supply, which means that that HQ will need a regular and accurate account of which products are selling and where. Just as with UK stores, this data is the lifeblood of knowing what works, and that in turn can drive your supply into the market. Typically, however, most retail brands tend to lack the granular visibility and timeliness of overseas market data, which means that they are not in a position to drive profitable product selection and to service market demand effectively.
Using technology to support growth overseas
Retailers are slowly waking up to the benefits of using enterprise collaboration processes and social business process management to create a more collaborative environment by providing the right information to the right people at the right time. With this kind of information, retailers can invest in the supply chains that are located within the markets they know for sure are working.
In order to achieve this goal, however, retailers will need to re-evaluate their internal processes, not only to help their teams work together more effectively, but also to get better data back from the market more quickly. This approach not only creates visibility of what is going on across the entire business, but also drives global performance and sales as a result, since retailers will be able to adjust their supply and distribution channels with much greater confidence.
Despite these benefits, overseas expansion is not the preferred strategy for all retailers. Next, for example, avoids serious international expansion, preferring to focus its efforts on maximising UK sales, whereas Zara has pursued international expansion with gusto. As a result, Zara has reaped the benefits of trading in a global market, whereas Next has become a UK specialist. Mothercare, as another example, would perhaps be in a very different place if it were not for its successful international endeavours.
Other companies seem to be in a period of transition. Companies like Marks & Spencer and Gap, and now George and F&F, have begun to invest more of their time and resources to create a sustainable international growth strategy. Companies like these know that the cost of global sourcing for a global market is a cost worth paying for long-term success, since the rewards on offer can be significant. The trick, however, is to make sure that your trading data is always to hand and your head office teams have a means of working easily together and in response to that data, which is not a virtue often found in retail businesses.