Global market expansion as a strategic project is constantly evolving. What are the latest trends in terms of country mix, location, and digital disruption?
Despite significant political and economic uncertainty, retailers continue to cross borders into new markets and pursue a global market expansion strategy. However, significant industry and macroeconomic challenges remain for retailers, forcing brands to proceed with caution on their expansion course. While what questions to ask and what choices are best always depends on your particular expansion focus, country mix, location, and digitalisation are factors to take into consideration.
A More Balanced Country Mix
Challenging political situations as well as recent economic slowdown in growth markets have forced retailers to rethink their expansion plans. After several years of mainly focusing on emerging retail markets, especially in Asian countries, international retailers now tend to more strongly target tried-and-tested locations again. The overall goal is to achieve a more balanced mix of growing and established markets in their country portfolio.
A balanced country mix in your global market expansion serves as a basis for benefitting from market growth in emerging countries, while at the same time managing potential risks and profiting from stable traditional retail strongholds.
Location, Location, Location
Having decided on a new market to enter, the next choice is finding the most appropriate cities for your brand. Is your objective to start the expansion in the leading cities of this new market as a gateway, to then move forward to other major towns? Or do you aim at covering a whole city first instead of immediately expanding all across a new country? What the best strategy for your own brand is will depend on the underlying drivers of expansion, and on the existing opportunities and barriers in particular.
More generally, retail stores in the most prominent cities remain a strategic opportunity to attract consumers, build brand loyalty and generate sales. Cities to consider for global market expansion can be categorised into gateway, major mature, and growth locations.
Gateway cities are considered to be city magnets for retail globally with the ‘greatest appeal’, so called top tier locations. They are usually characterised by limited qualitative retail space, being a mature market and facing a high demand. They are preferred options for international retailers to open flagship stores or showrooms which often have high occupancy costs. In this case, turnover is considered of less importance than brand awareness.
Of course also ‘normal’ own stores can be opened in these locations, but need very careful planning and controlling cost-wise. These cities are considered to be the forefront of international retailing and have a strong position supporting the whole range of retail such as online, wholesale, own store and franchise. Typical gateway cities are London, Hong Kong, Paris, New York, Tokyo .
Major mature cities on the other hand are established locations, offering wider surroundings. They can be targeted in a second step after the gateway cities offering fewer point of sales potential. Increasingly, these major mature cities are also used to open flagship stores. Like gateway cities, quality retail space is often limited. Examples include Boston, Toronto, Sydney, or Barcelona, to name just a few.
Growth cities, on the other hand, can by described as dynamic, and still showing strong growth potential. They are usually situated within a growing economy and have a wealthy consumer base with strong purchasing power and a growing middle-class.
But at the same time, most growth cities also come with a certain level of risk attached. Risks may include political instabilities, lacking market transparency or governmental regulations that in many cases require the cooperation with local distributors or establishing a franchise system. Dubai, Jeddah, Shanghai, or Moscow are good examples for the group of growth cities.
Does Technological Disruption Influence Global Market Expansion?
Although e-commerce keeps growing and growing, physical stores are expected to remain an important part of the customers’ shopping experience. A unification between the ‘old’ traditional world of retail and the virtual ‘new’ world offers new possibilities for global market expansion though.
Technology continues to be a disruptive influence on retail, allowing brands to enter and evaluate markets more easily, as well as being more innovative in their targeting of customers. When Topshop decided to expand to China, they didn’t open stores in a first instance, but started online in cooperation with the number one e-commerce boutique ShangPin.
The brand’s official launch was accompanied by an important mobile experience at one of the largest shopping centers in Beijing, The Place, where a Topshop pop-up store was created. The shoppers who participated in the two day event could virtually ‘try on’ and purchase products using QR codes. This event was also used to feed Topshop’s social media platforms. Only years later, at the beginning of 2018, Topshop announced the opening of their first brick and mortar store in China for the end of this year.
Technological disruption can also be a chance for retailers to expand to second tier locations, where footfall tends to be lower. Technology has breathed new life into retail by making innovative store formats possible, such as showrooms. Showrooms are a type of store with an inviting environment, where consumers can make an appointment first, get a personalised styling experience and place an order to get the products shipped home. As less staff is needed, costs for personnel and logistics are lower, which in turn frees up funds that allow retailers to expand to more premium locations.
For 2018, international brands are facing a dynamic but at the same time uncertain retail landscape. For many retailers, several attractive markets all over the world still remain untapped. Considering expansion to the right spaces for your brand will provide great opportunities for successful and long term growth. But every brand has to develop their own detailed expansion model based on its concrete needs and objectives. And of course as global retail expansion is not without risk, smart and comprehensive market research will help brands and retailers avoid failure.
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About the Author:
Isabell Guidastri has worked with brands on their local and global market expansion strategies, including many well-known retail and branding powerhouses. She supports brands in their expansion and helps them find their footing in new markets. Traditional wholesale in Germany, brand distribution Europe and South America, or franchise in Turkey are just a few of her recent virtual project travels. You can best reach her via email or read more of her work here.