All Abroad: Retailers Head Overseas to Boost Growth

Global markets have been rattled recently by volatily brought on by the European debt crisis, but U.S. retailers are continuing to set their sights on opportunities for growth abroad.


Merchants such asMacy’s Bloomingdale’s chain are entering international markets for the first time. Others are accelerating expansion overseas, as in the Gap’scase, or testing the international waters via e-commerce sites, which is Nordstrom and J.C. Crew’s preferred route.

Not only are some retailers suffering from store saturation stateside, the recession has nudged the retail push into foreign markets, said Hana Ben-Shabat, a partner with A.T. Kearney, the global management-consulting firm.

“The recession has been a very big driver of that,” she said. “The majority of the retail sector in the U.S. has a very low growth rate compared with what you get in emerging markets.”

And although the economy has been improving, there is little indication that consumer spending will bounce back to 2006 or 2007 levels. This was reinforced by the latest batch of retail sales reports, which showed Americans are still spending cautiously.

“If you want to maintain a certain level of sales and year over year growth, you’ve got to look into other markets,” Ben-Shabat said.

What’s more, “retailers realize they have brand equity [overseas] and want to take advantage of that,” said Gil Harrison, founder and chairman of Financo, the boutique investment firm.

To that end, American chains are forging foreign markets organically by opening company-owned stores, or venturing overseas via licensing deals and joint-venture partnerships.

China and India alone represent “huge” growth opportunity for American retailers, Harrison said. Those countries, with a burgeoning more-affluent, middle-class population, have been on retailers’ radar for the last few years, and are among the so called “BRIC” countries — Brazil, China, India and Russia — ripe for growth.

But retailers are also penetrating other markets, thinking about their businesses over the longer term, and testing the waters slowly to mitigate the risks.

A Middle Eastern Opportunity

Bloomingdale’s first international store bowed in Dubai, United Arab Emirates, in February, just a few short months after a debt crisis began in that country.

New Bloomingdale's store in Dubai
Source: Bloomingdale's
New Bloomingdale's store in Dubai

The store is part of a licensing arrangement with Al Tayer Group, a United Arab Emirates-based operator of luxury stores and brands, including Bvlgari, Dolce & Gabbana and Jimmy Choo.

Housed in the enormous Dubai Mall, the 200,000-square-foot store is designed with some of Bloomingdale’s signature touches, such as its iconic black-and-white checkerboard floor, but Arabic design influences are also sprinkled throughout the store.

Terry Lundgren, chief executive officer of Macy’s, is bullish on the retailer’s first overseas foray. During the company’s annual shareholders meeting in May, he said the store is already contributing to Macy’s corporate earnings.

"We are already talking about the potential to expand in other neighboring countries in the Middle East," with the Bloomingdale's brand and Al Tayer Insignia as a partner, Lundgren said, during the meeting.

Europe and China also are on Macy's radar.

For Gap , the target is China and Italy. The company will debut of the Gap brand in China, and both the Gap and Banana Republic brands in Italy.

The retailer currently operates 178 company-owned and franchised stores in Europe, including the U.K. and France, in addition to 120 units in Japan. And its international expansion will eclipse domestic growth this year. Most of the 65 Gap stores to open in 2010 will be overseas. By contrast, the retailer will close 110 U.S. stores.

Taste for American Brands

The Chinese and Europeans tend to embrace classically American brands abroad, which typically command a higher price in foreign markets than at home, said Christine Chen, a specialty retail analyst with Needham & Company.

“Look at the success of Nike, Levis and McDonald’s abroad,” she said.

Until recently, the strength of the Euro was drawing an influx of European tourists to the U.S., which has also fed a healthy appetite for American retail brands overseas, Chen said.


Unlike the Gap and many other U.S. chains, Urban Outfittersis tapping overseas markets although it still has significant growth opportunities domestically, Chen said. The retailer, which operates 15 of its namesake stores in Europe, recently introduced Anthropologie, its upscale, bohemian spin-off brand, to the European market with two stores in London's hip Chelsea neighborhood, including one in the city's favorite shopping district on King’s Road. The retailer is now eyeing Paris for additional store growth.

The company also debuted this year with the intent of using it to gauge the international appetite for the brand, according to company executives.

Anthropologie is a natural for the European market, Chen said. “In Europe there is a very fashion-oriented customer, and Anthropologie tends to be a fashion leader,” she said.

“It also benefits them because they can see what’s working in Europe a year earlier, and a year later, see if it will work here. We’re still behind. The Europeans were wearing skinny jeans way before we were.”

The company expects its international operations could become 50 percent of its business over time, CEO Glen Senk said in a conference call last month.

Testing the Waters Online

Other merchants also are using Web sites to test overseas markets before investing in brick-and-mortar stores. It “is a safe way to test a market,” Ben-Shabat said.

Nordstrom tiptoed into international waters with an e-commerce site last November, and encouraged by the results, has expanded.

“We launched this capability with 30 countries, have since added six more, and are hopeful we can continue building on this capability to reach more of our customers around the world,” said Colin Johnson, a Nordstrom spokesman.

The retailer has the ability to ship to different countries, and recently started offering international shoppers the option to make purchases in their preferred currency.

The merchandise selection largely mirrors the mix on Nordstrom’s U.S. Web site, Johnson said.

But that can sometimes be a risky strategy as American-style retailing doesn’t necessarily resonate in foreign markets. Wal-Mart Stores, the biggest U.S. retailer overseas, with $29.6 billion in international sales and a presence in 15 foreign countries, can attest to that. The retailer pulled out of South Korea and Germany in 2006.

For one, Wal-Mart’s supercenter format didn’t fly in Germany.

“They didn’t invest time in studying the German market,” Ben-Shabat said. “The German consumer doesn’t care about [huge] variety and choice. They are used to an edited assortment.”

To minimize risk, some U.S. merchants form joint venture partnerships, acquire chains and then retain local management, or set up exploratory offices to feel out potential overseas markets.

U.S. retailers need to evaluate a foreign country’s spending per capita, as well as “how your product fits into that consumer market, what segments you’re going to target, the ease of entering the market for foreign retailers, and the cost of real estate,” Ben-Shabat said.

Chen agreed. Merchants would be wise to “take into account local idiosyncrasies, and demographics, such as sizing considerations,” as well as cultural preferences, all “without straying for their core brand,” she said.

In Asia, for example, “Certain colors mean certain things. Red is viewed as prosperous, while white is a funeral color,” she said. “You have to be careful about [knowing] these nuances.”

More from Consumer Nation:

Questions? Comments? Email us at