So, despite my repeated naysaying it seems not only is US ragtrader The Gap definitely coming to Australia (their first store will open in Melbourne next month), but they may well be leading a serious onslaught of entrants into the Aussie market.
According to this hype-heavy piece, the list of fashion retailers eying off Aussie wallets now includes Banana Republic (a Gap brand), Forever 21 (from US), Topshop (UK), and Uniqlo (Japan). While I am still taking this talk with a big grain of salt, there is certainly a long tradition of follow the leader amongst multinationals.
This behaviour may reflect several underlying motivations. Rivals may be concerned about early movers locking up resources and this limiting the scope for late moves.
In the retail domain there are grounds for concern that early movers may secure prime store locations, although this is much more of an issue in groceries and fast food than in fashion. Indeed in fashion, it is more likely any early advantage comes from building stronger relations with landlords and property brokers as anchor tenants.
Unlike fastfood, the franchising model used is only likely to be rolled out at a country-level (i.e. companies are awarded the right to run all stores in a state or country, rather than companies that then sub-franchise to individuals store-by-store), so there is a less of a race to secure franchisees and/or build reputations.
Interestingly two of the most successful internationalisers H&M and Inditex (i.e. Zara) remain very tightlipped about any Aussie plans. Both firms are much less inclined to franchise (mainly because they control their value chains much more tightly than the others on this list). They’ll need a lot more convincing that Australia represents sufficient bang for their buck/Euro/krona. I suspect they still see Australia as small fry.
But I’m reluctant to say never anymore. The performance of their international rivals down under may well play out as the demonstration effect (that this is a market worth seeking) that is a further key aspect of following.
Fourteen months is a long time in international business. In March 2009, I quoted a senior figure at Swedish fast-fashion retailer H&M who said:
“We’ve never really opened in a country where they are in a different season. We are not in South America and although we have one shop in Egypt we are concentrated in Europe and North America, with some shops in Asia. The next destination is Russia… To go somewhere like Australia, it’s far away from our production offices”.
This week, her boss announced a reversal of this stance:
Hennes & Mauritz AB, Europe’s second- largest clothing retailer, is looking at opening its first store in the southern hemisphere to tap emerging-market growth and catch up with larger rival Inditex SA.
“Brazil and Argentina are very interesting,” Chief Executive Officer Karl-Johan Persson, 35, said in an interview at his Stockholm office, adding that he’s also looked at Australia. The company wants to enter the region at some point after making “sure we can handle it.”
Tellingly, it would seem that there has been some demonstration effect from the firm’s big rivals – Inditex and the Gap – expanding their operations into the lower hemisphere. H&M are concerned about missing the growth opportunities in this markets. International Business scholars need to pay close attention to such clustering of expansion behaviour within an industry, as a firm’s location choices (especially when market-seeking) are not independent of their competitors’.
Do I think we’ll be seeing H&M in Aussie shopping strips real soon? No, I can’t see that we are a major priority for these guys, or Inditex, and I remain unconvinced about the likely scale of Gap’s entry.
Australia will remain an under-internationalised retail sector for years to come.
Ooops, I’m a little later this year with my reflections on 2009 as a blogger (last year I managed to do it on New Years Day – oh well, better late than never).
I can tell you that I post exactly 100 times (but 42 of those were in the first 3 months), and that there were just over 14,300 visits to the site. January and December were the two busiest months, with about 2000 visits each. The busiest day was Dec 2 when this post got over 200 clicks.
The most popular posts from 2009 were:
#2 A juicy tale of international expansion (about Boost Juice)
and very strangely, one about toilets at #3 Toto, we’re not in Tokyo anymore…
The aforementioned Dec 2 post Why don’t more producers sell on-line? came in at #4 (and thus has the highest average visitors per day).
#5 confirms a retailing bias with Capabilities do matter (about Zara, Ikea & H&M)
And the post from 2008 asked is there Too much Wii in this Blue Ocean? still attracts loads of readers.
Thank you to all who have visited, commented, argued and critiqued. I relish the engagement and the challenge. Here’s to a great 2010…
Rumours abound that US clothing retailers, The Gap and Abercombie & Fitch, might be set to open stores down under. This sent me off to chat with an Honours student in our department who has spent the past six months exploring the international expansion patterns of various major retailers, including The Gap.
Here’s a little email interview I did with our newest retail expert Sakshi Banerjee:
André: How international is The Gap?
Sakshi: The Gap is actually not that international in comparison to its counterparts such as Zara (Inditex) and H&M. The focus of The Gap has always been its home market, the US. Though it has begun to internationalise, the majority of its sales (around 82%) are still generated within its home market. In comparison, H&M derives less than 10% of its sales from its home market and Inditex around 50%.
André: How many countries does The Gap operate in currently?
Sakshi: The firm has stores in six countries – The USA, Canada, The UK, Ireland, France & Japan. Here’s a link to their store (and brand) counts. They have recently started expanding by franchise, mainly in the Middle East where such an entry mode seems to be compulsory.
André: Why has it taken so long for them to get down here?
Sakshi: The reason for the lateness of their entrance in the Australian market can be attributed to a number of factors. There are organizational factors. The Gap’s high dependence on its home market and home region (NAFTA) have meant that they have been slow to expand outside their natural comfort zone. Country characteristics of Australia such as its geographic distance, being in the southern hemisphere (switched seasons) as well as its small consumer market have meant that Australia is not seen as high priority market to enter/expand to.
André: How likely do you think it is that they will indeed open down here?
Sakshi: The likeliness of them opening an actual store is very slim. The costs, the risk, and the pressure on their supply chain as well as the pressure on designers to produce alternative seasons’ clothes mean that the likelihood of them opening is very slim. And as for Abercombie and Fitch, their clothes are already being carried in certain stores in Australia, so there might not be that much to gain.
André: Do you think this would attract the other big fashion retailers to Australia too?
Sakshi: I do not believe that this will attract other major fashion retailers. Inditex has explicitly stated that it will not be coming to Australia and currently H&M is more focused on expanding their presence in the Asian markets.
André: Thanks Sakshi.
Anyone else got questions for Sakshi (or me)?
