Posts Tagged ‘Gap’

Perhaps they’re Yanking our chain

February 24, 2010

Rumours continue to abound regarding the imminent arrival in Australia of a wave of US retailers.  This article names a long list of firms reportedly considering a down under arm, including:

The article raises some interesting examples of “success” by US retail firms/brands (e.g. Apple, Athlete’s Foot, Tiffany’s) and some duds (Starbucks, Disney).  I’m not yet convinced by the robustness of the arguments that entry into Australia will be easy, or that consumers are desperately awaiting these US firms.  There are some nice quotes here about why US firms need to be careful:

“US retailers need to really consider whether the product being offered is American-centric or appeals to a global audience.”

“If American retailers can offer something different to the market, they’ll be a winner.”

“An American retailer may not have a massively different product range to rivals such as Cotton On or Just Jeans, but if they have a brand name with a good amount of demand behind it, they’ll be able to sell and thrive.”

“They do need a brand power…But they also have other things, such as a geographical supply chain advantage, a strong Australian dollar and the ability to handle more retail virtually than at any time before.”

It is intriguing that a number of the brands are looking to enter via franchising (particularly the first four on the list).  There is the usual logic for doing this (shifts big chunk of the cost burden and risk on to others, and may allow local franchisees to adapt to local tastes).  There are BIG potential pitfalls too – misaligned processes, poorly supported brands and marketing, inadequate screening and nurturing of franchisees.

My expectation is that less than half of these firms will end up showing up in the shopping centres of Australia. Hype will always outweight reality. Nevertheless, my “melting barriers” analogy seems to be holding up.

I will return to the list again in a later post to explore some of the geographic angles of this (following on from Sakshi’s discussion of a couple of months back).

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Capabilities do matter

April 12, 2009

One of the biggest questions in international business research is the relationship between multinationality and performance. It is still pretty unclear whether expanding internationally improves a firm’s profitability (or returns to shareholders), and whether the extent of expansion makes a difference. Recent stories on some of the world’s three largest fashion retailers paints an challenging picture.

First up, The Wall-Street Journal tells us that Spanish giant Zara (or rather their parent Inditex) is significantly outpacing US rival Gap with 10% sales growth over the past year versus Gap’s 23% decline.

These numbers are pretty convincing. One noticeable difference between the two firms is their level of internationalisation. Zara operates in 73 countries. Gap is in 6. Could that be the explanation for the divergence in performance?

Well, the news on Swedish competitor H&M muddies the water considerably. They have also announced a 12% profit drop (although sales did grow). These guys operate in 29 countries. We are this left in a bit of a conundrum. Is it the number of countries driving the story?

gap-storeIt would seem there is a clearer story in the area of margins. Inditex’s gross margin is 56.8% versus Gap’s 37.5%. H&M is also at 56.8% (but it is dropping, while Zara stays stable). These figures tell us that it is firm capabilities that are probably making all the difference.

Inditex and H&M run very tight ships, with super lean supply chains. This allows them considerable leeway in terms of lower pricing. Gap is less efficient, and also more exposed to the damaged and increasingly thrifty US consumer market. It cannot absorb lower prices at the consumer end quite as well. Put simply, it also just doesn’t deliver as exciting or new a product as its two European rivals.

hm-store1Turning quickly to H&M it is notable that they are bearing the brunt of rising costs from Asia more than Inditex. Inditex owns a great deal more of its production facilities and thus is less prone to suppliers leaning on them in tough times (and/or passing on costs). This also means Inditex must continue growing so as to make production investments worth it.

What’s the upshot of all this? Trying to find a general multinationality-performance relationship seems rather futile once we note the huge variations in other equally substantial strategy choices and the execution thereof.

The curse of distance for Aussie shoppers

March 25, 2009

I was just reading a recent interview with the head of design for Swedish fast fashion retailer H&M that appeared in The Australian‘s glossy business magazine (The Deal – sorry can’t find online copy).  She (Margareta van den Bosch) reinforced the message that Australia is just too far and difficult for this very multinational player:

hm-logo“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”.

A former prime minister of Australia infamously bemoaned our position at “the arse end of the earth”.  It would seem fashion retailers share that few.  H&M is not the only notable absentee from our shores.  So too the Inditex stable (Zara, Bershka, Massimo Dutti etc), Topshop and The Gap have not bothered to take on the logistic nightmare of trying to deliver constantly up-to-date trends that would be out of whack with the rest of their markets.

As a result I spent today buying bras for my wife from H&M, pants and shirts from Zara and a jacket from Bershka.  A happy bonus from being in Paris…