Entering the US Retail Market.
Best practices for European retailers looking to establish a foothold in America.
For many UK retail brands, the most logical path to growth is to expand globally. Often, UK companies eye the US as the most obvious overseas opportunity. Yet, as George Bernard Shaw said, these are two nations “divided by a common language.” Entering the US marketplace can be fraught, with many successful UK brands committing multiple missteps as they try to establish a presence in a familiar but also foreign culture. Recently, though, several UK fashion and apparel brands have found success in the US. How responsible are new digital tools and technical changes for this success? Or have American consumers changed their attitudes toward brands from Europe?
To better understand this shift, Huge conducted a survey of US consumers in the last quarter of 2013.
- Why should UK brands expand into the US marketplace?
- What are the fundamental drivers of success in online retail in the US?
- How can a UK brand successfully build awareness in the US?
Digital technologies have made the US a more attractive target for retail expansion, allowing British companies to move into the market with less risk than a physical presence would entail. Facilitated by strong user experiences, passionate fans and an increasing appetite for British fashion, UK-based brands have the opportunity to substantially grow their businesses in the US. With many British brands facing an awareness challenge in the US, digital can provide cost-effective reach. The retailers that have laid the foundation for success in the US have built seamless, localized digital experiences and embraced their “British-ness” in their brand, messaging and aesthetics. The most successful brands have also benefited from their own existing digital marketing success in the UK and have been able to repeat it in the US.
Growing by going global.
UK retail companies expand overseas.
The UK is already the undisputed king of online retail in Europe. According to ecommerce Europe, an umbrella trade organization for European retail, the UK is home base for 300,000 of the continent’s online retailers, worth €96 billion. As the UK economy experiences slow but steady growth, researchers IMRG and Capgemini predict that online retailing in the UK will reach £87 billion in 2013, representing 12 percent year-on-year growth (IBT).
Yet in a highly saturated, mature retail market, many brands are looking to grow more aggressively by expanding internationally. While such a move comes with a formidable set of challenges, the rewards can be considerable, with potentially higher profitability than in the domestic business. Beyond Western Europe, the US has always represented the most obvious expansion market, albeit a competitive one. Markets such as China, India, Russia and Brazil are emerging as other potential sites for expansion.
Even though the US has historically been an extremely challenging country to conquer in retail, due to its size and diverse culture, times have changed and lessons have been learned. Technology has made the world smaller, and consumers are more globally conscious. Despite some well-publicized failures in the US (notably, Marks & Spencer’s flop with Brooks Brothers and Tesco’s disappointing foray with Fresh & Easy), there are also notable successes, such as Asos, Net-a-Porter, Topshop and Burberry. Even more recently, Hobbs teamed with Bloomingdale’s to launch a store-within-a-store concept after seeing significant growth in the US when it launched a localized version. Looking at these victories, this report focuses on best practices for e-commerce retail expansion into the US. The US is still the most desirable expansion market.
While China and India may represent significantly larger retail markets than the US, they also present bigger challenges, ranging from greater logistical complexity to unfamiliar regulatory environments to more complex content translation requirements. Even if the US may represent a smaller potential market than those countries, expanding into it is potentially more appealing given the common language, cultural similarities and embrace of e-commerce. Online retail, in particular, provides a relatively low-cost entry point into the US market.
The US can also be a challenge due to a highly competitive marketplace and maturity. As Tesco’s recent pullback from the US market has shown, deep pockets are not enough to succeed. After six years and a £1 billion investment, Tesco exited the US marketplace earlier in 2013.
For most major UK retailers looking to expand beyond Western Europe, the opportunity in the US justifies the risk if done smartly. British retailers agree: a recent survey by Barclays revealed the US remains the top target for international expansion. Despite the interest in the US market, UK retailers are less than sanguine about their chances of success. Nearly half (46 percent) say it is also “the hardest market in which to achieve commercial success.”
Technology and cultural changes facilitate international expansion.
There are several underlying factors enabling UK retailers to expand internationally in a landscape that looks much different than it did just a decade ago. The globalization of consumer culture has resulted in relatively similar desires and demand in sectors like fashion and home furnishings across countries. Social media has accelerated this trend, disseminating the latest trends instantaneously to a global audience.
Additionally, many British brands still retain a great deal of cachet to global consumers. British culture is now more visible and portable than ever before. British retailers have the opportunity to create awareness of their brands even before entering a market with a localized play.
But perhaps the single most important development propelling UK brands toward overseas expansion is the rise of digital technologies that have made it possible to move into international markets with- out the high cost of building a physical presence. Faced with this new opportunity to gain market share and learn at the local level, at a lower cost and risk, even smaller retailers like Matches are able to reach the luxury market in the US.
In fact, according to the Barclays survey, one-third of British retailers prefer the internet to other expansion channels, rising to 52 percent among those that had already expanded abroad. Just 13 percent of retailers in the survey reported that they planned to open physical stores. While wholesaling and franchising expansion models allow UK retailers to share costs, these options also require brands to share profits as well.
British retailers have a strong foundation for expanding in the United States.
British retailers know how to do e-commerce well.
UK retailers are already leaders in online commerce, outperforming much larger economies. In fact, the UK is only behind the US and China in online retail sales in business-to-consumer e-commerce sales in 2013 according to eMarketer. There are several reasons British brands excel, enabling them to expand more easily in other countries:
- Logistics: The UK’s smaller geography and modern infrastructure have helped retailers conquer local logistics. As a result next-day shipping and delivery is already commonplace.
- Geography: The country’s proximity to the rest of Western Europe means that most retailers al- ready have experience in expanding abroad, either through international shipping, localized web sites or a physical presence, making the leap to the US less daunting than it might otherwise have been.
- Competition: In a country with just 57 million online users, a retailer has to be exceptional to stand out among the competition. With a much smaller addressable market, UK retailers have to remain vigilant to serve changing user needs and innovation.
- Marketing: British fashion brands are already sophisticated online marketers, allowing them to expand their digital and social marketing globally.
- User-first design: British retailers like Asos and Next have a laser focus on creating seamless, user-first experiences that have paid off in increasing revenue. According to a recent report in Internet Retailer, conversion rates for products excluding travel rose 20 percent between 2011 and the beginning of 2013. Additionally, while average order size is decreasing in the UK, total sales are up, indicating UK customers are spending less but more frequently, putting pressure on retailers to build strong customer loyalty that rewards frequent visits.
- Consumer maturity: The sophistication of UK consumers matches that of US shoppers. UK consumers are already comfortable using plastic to pay online and are less concerned with fraud and online security risks than their continental EU counterparts.
- History of retail innovation: The UK has a long history of quickly adapting innovative retail ideas for local consumers. For instance, it was the first European country to popularize the concept of a self-service supermarket after World War II, an innovation that grew rapidly after rationing ￼ ended in the early 1950s.
British retail brands do face an awareness challenge.
In late 2013, Huge conducted a survey to understand US consumer awareness and perception of ￼global retailers. Not surprisingly, with its nearly 200 individual stores in the US, Sweden-based H&M is by far the best-known foreign retail brand, with nearly three-quarters of consumers aware of the brand, followed by Spain-based Zara at 31 percent. Considering UK-based Topshop has only four physical stores in the US (and is also sold through Nordstrom’s 42 stores), the brand still manages to achieve 20 percent awareness.
However, smaller, entirely digital entrants into the US, such as Asos or Boden, or those that have a small number of retail outlets, such as Jack Wills, need to invest more heavily in raising awareness. UK brands are already making that move. Asos announced late last year it intended to increase its country-specific marketing spend, investing more heavily in digital campaigns. Generating aware- ness via PR campaigns has also been effective in the US, particularly for brands such as Topshop and H&M.
British retailers have built dedicated fan bases in the US already.
The good news for many British niche brands is that they’re already well-regarded in the US. In the Huge survey of US consumers, respondents cited UK-based brands such as Topshop, Boohoo and Jack Wills as ascendant, among the top brands seen as “on [their] way up and [have] a lot going for [them].” Similarly, respondents saw Boden and Superdry as two British brands that are “on [their] way up and has a few things going for [them].” Retailers need to capitalize on the tastemakers al- ready enamored with a brand to act as ambassadors in new markets.
Case study: Asos wins fans with social media.
Asos has been particularly astute at using social media to market itself, provide customer service and build a loyal following outside of its home country. The company is highly active not just on Facebook and Twitter but also Instagram, Pinterest and Google+, amassing millions of followers across these channels. Tactically, Asos updates each channel about two or three times per day on average, including weekends. Additionally, rather than repurposing content from Facebook or Twitter on Instagram and Google+, the company shares original content on each platform.
Asos has also been successful at both proactive social media use (such as marketing and promotion) and reactive (such as addressing customer service issues).
Towards that end, Asos manages multiple Twitter accounts. Its primary account, @ASOS, has about 667,000 followers and is mainly used for product promotion, marketing messages, and responses to @ mentions from happy customers, building a loyal relationship with them. It also maintains a similar but separate account for men’s fashion at @ASOS_Menswear. For customer care inquiries, the brand has @ASOS_HeretoHelp, so addressing order issues and complaints are separate from its primary account.
The Asos Google+ account has over 2 million followers, up from 1.4 million about a year ago. Its Facebook presence now has 3.2 million “likes,” an increase of about 1 million in the past year. Its social media team addresses almost every customer post individually. On Pinterest, Asos maintains 26 boards, ranging in topics from “Prom” to “Nail Art” to “LOLs.” On Instagram, the company has amassed 1.7 million followers. Not surprisingly, the company is highly reliant on visual posts on all of its social media channels. It’s also very adept at experimenting with newer social media platforms, such as Snapchat and Vine.
Clearly, Asos knows how to strike a chord with its audience. Its two key tactics—listening to the customer and building a holistic presence across multiple social media platforms—has worked to increase sales. Bloomberg is now forecasting that the company may hit its £1 billion goal even earlier than the company predicted. Its content strategy is highly visual, extremely interactive and differentiated between multiple channels.
Best practices for entering the US market.
Research, research, research.
Despite a common language and consumers with similar shopping behaviors, the US and the UK are still very singular marketplaces in their own way. The US has a very different perception of private- label brands (usually seen as downmarket), workplace culture and set of social values. Yet there is also a great deal of admiration for British heritage and lifestyle brands.
Conducting extensive research and analysis on the US marketplace is crucial to success for British retailers. A deep understanding of the competitive landscape, consumer perception and corporate values are essential to forming a go-to-market strategy. But strong preplanning is no guarantee of success.
Tesco’s £1.2 billion loss in the US was surprising because it seemed like it had done everything right, from spending three years researching the market to hiring anthropologists and identifying gaps in the marketplace. While the company’s data suggested Americans wanted affordable fresh food, con- sumers’ attitudes toward ready-made meals and private-label brands were much different than their UK counterparts. Clearly, Tesco missed some critical indicators in its research. With high-profile failures like this, it’s not surprising other UK retailers may be skittish about entering the US market.
Develop brand awareness via paid and organic channels.
The US market is highly saturated with competitive brands and standing out is a challenge. Top- shop managed to break through. The company has strategically built greater brand awareness via a thoughtful, considered rollout supported by strong PR. The brand first entered the US in 2008, with its website tailored for US audiences, followed weeks later with the launch of a single flagship store in New York. The company also entered into an exclusive partnership with Nordstrom in 2012, creating shop-within-a-shop capsules for the brand in 42 stores. With physical stores now also in Chicago, Los Angeles and Las Vegas, the brand has assiduously avoided rapid expansion and instead has retained its aura of exclusivity, with an emphasis on its quirky, British sensibility.
As mentioned, British brands entering the US face an awareness challenge. Online sales may be lower risk in terms of logistics, but pose a higher risk from a marketing perspective, without a physical store to anchor a brand’s presence. Brands that have successfully built awareness have adopted a cross-channel approach, using a mix of paid and organic channels to build a fan base over time, and successfully reinforced their messages via social media and public relations. (See Asos case study above).
Apply localization heuristics.
Taking a page from heuristic evaluation methodologies and applying it to US expansion, specific UX requirements begin to emerge. Heuristic evaluations are usability examinations that help identify problems in the UI design. Format flexibility for currency, dates, times, addresses and phone numbers are necessary, for example. While launching a website for US consumers doesn’t incur massive translation costs, there may be the need to convert prices, sizing, weights, or heights, product descriptions and spelling for US shoppers.
Technology assumptions should be reviewed as well, since conventions for devices can clash be- tween the two countries, with different keyboard formats, printer standards or levels of embrace of mobile technologies. Additionally, expectations for user interactions may differ between the two countries. UK retailers need to consider the requirements necessary to build customer service across multiple time zones, dissimilar holiday calendars and differing vernacular for US customers.
Build an on-the-ground team.
Having a local team on the ground is critical to success in the US. Companies like Asos are opening local fulfillment centers in the US (in Asos’s case, in Ohio) and partnering with local delivery companies. Even before the fulfillment center was operating, Asos in a local marketing team in the US. The company quickly realized the value of having on-the-ground employees to lead digital marketing, CRM, advertising and editorial content and also to provide local insight to the global team based in London.
Celebrate “British-ness” with American consumers.
It’s important to note that many of the success stories are retailers who have emphasized their British heritage. For retailers expanding into the US, there are three potential branding strategies: enter with a new brand built from scratch (as Tesco’s did with Fresh & Easy), acquired (as Marks & Spencer did with Brooks Brothers) or maintain the original brand.
Retailers that have entered the US market with their brands intact, such as Topshop, Boden, Jack Wills and Superdry, have found success in the US. Topshop now predicts $1 billion in sales in the US in the next five years and plans to open 20 stores in addition to the current four. Catalog-turned-on- line retailer Boden reports that the US will overtake the UK as its largest market in a few years, with sales predicted to reach $300 million by 2017. Jack Wills, a preppy apparel retailer focused on the college market, has 16 stores in the US. And Superdry, which already has a presence in the US with both a website and retail stores, has announced it plans to spend £30 million on a global expansion.
All of these retailers have created highly differentiated brand positioning that resonates with US consumers. Rather than buy their way into the US marketplace, as Marks & Spencer tried with Brooks Brothers, they are strongly emphasizing their British heritage and exploiting a wave of Anglophilia in America amplified by recent events like the Olympics, royal wedding and royal birth. They are proudly capitalizing on the American appetite for all things British, with Jack Wills’s site proclaim- ing “Fabulously British” and Boden’s tagline “Great British Style.”
Clearly, the US represents an enticing opportunity for expansion. However, British retailers must tread carefully in order to crack this marketplace. While there have been some well-publicized failures, despite extremely well-funded investments, digital technologies create an opening for British fashion and lifestyle brands to enter the marketplace much more easily and less expensively than they have in the past.
The most successful entrants into the US have started small and built loyal followings over time. Careful, considered expansion into the US allows brands to acquire new insights into consumer preferences, smooth out logistical challenges, and test marketing messages.
US consumers are hungry for British style, though awareness of most British brands is still low. British retailers seeking to enter this market need to focus on awareness and customer acquisition, providing shoppers with the best possible digital experience. Building a loyal and vocal customer base is key to spreading word of mouth and scaling quickly in a fickle market. This means investing in paid media as well as amplifying the reach of organic channels such as social media.
Researching and understanding local nuances (in terms of heuristics, tone of voice and customer preferences) is also key to success in the US. Taking a lesson from the retailers who have entered the US most successfully, building a localized digital experience and embracing their British heritage have been critical to growth. The biggest successes in the US capitalize on their core strengths: authenticity, strong digital marketing strategies at home that can be expanded to the US and delivery of a seamless digital user experience.