Paul Martin
Partner and UK Head of Retail
KPMG

"Many retailers have seen international expansion lead to disappointment because their approach has been too scattergun”

Paul Martin, Head of Retail, KPMG

Many privately-owned retailers have seen international expansion lead to disappointment because their approach has sometimes been too scattergun.

Either they have overreached themselves by targeting as many markets as possible. Or they have picked markets like Malta, Cyprus, Gibraltar and Hong Kong because of their cultural familiarity.

These are comparatively small markets, making it difficult to generate scale. Nor do you need to dig out an atlas to appreciate that Malta and Hong Kong are not exactly complementary picks from a logistics point of view.

You are more likely to thrive by applying a tighter geographical focus. Having a presence in a cluster of Scandinavian markets, for example, can deliver a significantly higher return. Or take Germany, Austria and Switzerland: together that is a market of over 100 million consumers.

“Best-in-class retailers often restrict themselves to a limited number of markets,” explains Paul Martin, Head of Retail, KPMG. “The mighty Amazon only trades in 11 online markets directly, investing where their money will deliver the biggest returns.1

Get in the know

But before you make any expansion decisions, arm yourself with knowledge. The insights and tips inside the KPMG Enterprise Going global guide make it a pretty good place to start. 

It will help you address three fundamental questions: “where?”, “why?” and “how?”.

“Most retail businesses have spent a disproportionate amount of time on the ‘where?’, even though it is the easiest question to answer,” argues Paul. “In fact, it’s understanding the ‘why?’ that is mission-critical.”

The quest for growth is what typically drives internationalisation. The UK retail market is large but saturated and British brands do appeal to a global audience. So far, so obvious. But what specifically is driving your decision to expand? And what is your plan for growth? For example, will you choose a franchise model?

Consider whether you want to trade as a UK business with some international operations, or be truly international. While the two things sound similar, they’re not. And the option that you go for has significant ramifications when you come to address “how?”.

This question has two components. The first concerns the business model. Will you expand via acquisition? Or will you enter a market in a joint venture? There may be significant advantages to the latter. However, success hinges on choosing the right partner, and due diligence will be critical. Another option is third-party ecommerce platforms like Amazon, or China’s Tmall.

The second issue when asking yourself “how?” revolves around the implications for your operating model. Will you run marketing campaigns, pricing strategies and product sourcing from HQ or from your overseas office? If you decide to run product sourcing centrally, for example, you must ensure you are still attuned to consumer tastes and habits local to your new overseas market. Did you know, for instance, that Chinese people will not wear black at a certain time of year due to its cultural association with death? 

"Consider whether you want to trade as a UK business with some international operations, or be truly international. While the two things sound similar, they’re not. And the option that you go for has significant ramifications when you come to address “how?”.

Paul Martin, Head of Retail, KPMG

Your supply chain: all at sea?

You also need to take into account what expansion means for your supply chain. Paul says: “I know of retailers who buy a product in China, put it on a boat to the UK, repackage it and then send it back out to China. Once you add product returns to the picture, that’s a lot of logistics. If your product spends 60-70 days in a variety of distribution centres and on board container ships, that’s not very clever. It ties up a lot of working capital.”

And finally there’s the ‘easy’ question: the “where?”. It might sound more straightforward but it still requires a lot of work. “When I’ve helped clients review potential markets, we’ve analysed around 70 different data points. That’s a mixture of macro- and micro-economic information, spanning everything from how easy it is doing business in the country to a breakdown of the competitors: number of stores, whether they have an online platform, price points, and so on.” Blindly firing a scattergun takes a lot less effort. But it would almost certainly lead to failure.

Key takeaways

  • Remember “less is more”. A targeted strategy focusing on the markets you understand and where the practicalities stack up is more likely to deliver.
  • Consider how your choices of international markets complement each other, and how they will work with your supply chain.
  • Make sure you strike the right balance between centralised decision-making and local autonomy. Too much centralisation can lead to mistakes around local tastes, habits and markets.

For more pointers on international retail expansion, download the KPMG Enterprise report Going global or get in touch with us.

Download our Going global report

(Required)
(Required)
(Required)
(Required)
(Required)
(Required)

By submitting your name and contact details, you consent to KPMG in the UK processing your data for the purpose of providing you access to this content.

We may also use this information to identify if our products and services are relevant for you unless you tell us not to here.

To learn more about how we respect and protect your personal data please see our online Privacy Policy.

If you would like to subscribe to receive tailored insights, event invitations and other benefits from KPMG in the UK please visit our preference centre.

Resources

Report

Retail Disruption: staying on Top

Expert insight to help you in the fight to remain competitive.

Read
Report

Robocalypse: Now?

Will intelligent technologies drive a retail robocalypse? Have you considered the impact on your business?

Read
Report

How Going Global can help insulate retailers from Brexit

How companies can boost their business by broadening their horizons.

Download