What International Retailers Need to Know About Entering the US Market
European and Asian retailers view a US presence as the ultimate prize because we’re a top consumer market. But JLL president of retail brokerage Naveen Jaggi tells us there are a lot of differences in how we operate, which can make it tricky for these groups to enter the US. JLL is hosting a session on how to conduct business in the US at MAPIC, the retail conference at the Palais des Festivals in Cannes, France, Nov. 18-20, and Naveen gave us a sneak peek as part of Bisnow’s official media partnership with the conference.
Naveen (who’ll also moderate a Q&A with British iconic toy retailer Hamley’s) says there have been lots of opportunities lately for international companies to enter the US, backfilling space left by legacy retailers that went bankrupt during the recession. Primark, H&M, Zara, Uniqlo, Nitori, Muji and Super Dry have leapt to fill the vacuum, but they’re being very cautious about expanding because they’ve seen how a poorly executed US entry can be devastating to a retailer (like Tesco’s Fresh & Easy flop). Japanese retailer Uniqlo has already felt some pain—it opened 42 locations here, and took a $135M loss because of its lack of brand recognition in the US. It’s stopped expanding to focus on the countries where it’s doing better. Pictured, Naveen with his sons at the Sanford vs Arizona game two weeks ago. Akshay (middle) is a freshman there; his brother Sachin is a sophomore in high school.
The biggest difference between retailing in the US vs Europe and Asia, Naveen tells us, is that we have significantly more retail space per capita (22 SF per person, compared to 17 in the UK and 13 in Canada), with our demand spread out between urban and suburban markets. (No wonder 70% of the US economy is consumerism.) Many EMEA and APAC retailers target urban core retail when exploring entry here, as they’ve done in their home countries. (The typical foreign expansion strategy: Enter the US via a NYC store, followed by Boston or Washington, DC, for European retailers or San Francisco or Los Angeles for Asian groups. Once established, they move to Chicago, Dallas, Houston, Miami, Hawaii, Vegas, etc.) But Naveen says a multi-pronged approach is better.
First of all, just targeting urban cores is significantly more expensive, both in rents and in cost to refit older space. That limits the velocity of store openings a brand can do. Second, demand is higher than availability in core retail markets, which means retailers may have to wait years to get space. That’s true both for the urban powerhouses like New York’s Fifth Avenue or Michigan Avenue in Chicago, as well as the top malls across the country like Galleria Houston or Bal Harbour in Miami. Naveen recommends a patient five-year plan to enter those places.
One of the most important lessons cross-border retailers have to learn, Naveen tells us, is that a one-size-fits-all model doesn’t work in the US. They need to change building size and merchandising for each new location. NYC and San Fran flagships tend to be larger than in other cities, gateway market mall units are typically smaller, and suburban malls likely have smaller formats still. And while it’s obvious to US consumers that the fashion and culture that works in Florida won’t work in Chicago, a foreign retailer has to be very conscious about planning inventory and logistics accordingly.