A Swedish flip-flop

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.

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Mind the Gap – Australian style

This blog is becoming a little retail obsessed, but today’s announcement that US clothes vendor The Gap is indeed heading to Australia was hard to ignore (especially as I’ve dismissed the notion at least twice before).

I share the views expressed in the article that is a high risk move, and the Aussie customers will not be a pushover when it comes to pullovers etc.

While I personally find the Gap offferings very dull, I also struggle to see that they can make a network of 15 or so stores economically viable in a pretty well-developed, mature fashion market. I can’t see that customers will want to pay any price premiums for what are bog-standard tees and chinos. The firm has passed much of this risk onto the franchisee.

It should be a worrying signal to said franchisee that the firm only runs company-owned international operations in Canada (191 stores in total across the firm’s three brands), Japan (147), UK (138), France (40) and Ireland (3). Note that each of this is a pretty substantial commitment for the firm in terms of store numbers, and thus able to tap into some economies of scale (Ireland is presumably subsidised by the UK operations).

Gap’s head office leaves a whole range of much smaller (and typically developing country) markets to franchisees. The list is Argentina, Bahrain, Cyprus, Greece, India, Indonesia, Israel, Jordan, Kuwait, Malaysia, Pakistan, Philippines, Russia, Saudi Arabia, Singapore, South Korea, Thailand, Turkey and United Arab Emirates. There would seem to be a pretty big ‘gap’ between most of those locations and Australia…