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Building For International Retail Expansion

11 Feb 2010 - Building For International Retail Expansion

Building For International Retail Expansion

By Tristan Rogers, CEO, Concrete

International Vision

In recent times many UK retailers have quietly enjoyed significant success with the adoption of franchise strategies - and in some cases licence strategies - to break international markets in Eastern Europe and the Middle East. This low risk route to market has huge appeal, especially to those organisations that have previously experienced a major financial loss with wholly owned retail outlets overseas.

With a growing number of companies overseas now specialising in hosting franchise shops for retailers, the UK market has had an easy, low risk and immediately profitable route to new markets. Combining an upfront franchise fee with revenue share delivers shareholder value and organisations have a fast track route to a global market.

Fragmented Approach

However, franchising also has some major drawbacks: most notably a lack of control and poor visibility over actual performance in each local market.

One of the major problems for UK retailers is that they have all, without exception, created completely separate international operations: every key retail activity from the provision of point of sale material to customer marketing is totally distinct from the more sophisticated processes used within the UK market.

Having separate international operations and none of the detailed information resources available, poses problems when trying to ensure successful brand roll out. Having disparate operations also prohibits successful communication of local market knowledge. The organisation as a whole has no insight into customer behaviour or marketing efficiency and cannot truly understand market potential in each country or region.

Basic tasks such as the creation and delivery of in-store merchandise are typically handled in a rather ad hoc fashion under the franchise model, resulting in franchisees often bypassing recommended suppliers to use cheaper local alternatives that fail to reflect the quality standards of the retailer.

For merchandise "Open to Buy" process, retailers cannot mirror the transparent procurement processes in the UK when dealing with multiple franchise operations, especially those organisations running other brand's franchises. It is essential to block franchise's direct access to the wholesale operators, since this represents valuable retail intellectual property.

Rather than allowing each franchise to place orders direct with the wholesalers, the retailers have to undertake complex and time consuming stock allocation processes that reflect local needs in each market. Opting, in the main, for a push model that imposes stock types and volumes on each franchise may retain intellectual property but it is adding cost to the international retail model and, with a lack of point of sale information, the forecast process lacks the accuracy achieved within the UK.

Imposing Control

If international expansion is to be a success, retailers need to impose control over the franchise model, improve the consistency of procurement, whilst driving down costs and critically, attain the market insight required to support longer term strategies for wholly owned retail outlets.

It is important that this process is secure: using web-based Enterprise Marketing Management software doesn't risk passing sensitive stock, customer and merchandising information around the world via unreliable and insecure methods such as disks. And critically, this technology can transform the way in which marketing collateral and information is disseminated across the franchise base and allows international brand consistency.

Via a portal, each franchise operation can download marketing literature and order store d├ęcor such as mannequins and racking from approved international suppliers. In addition to ensuring quality and consistency, franchises gain access to the same volume discounts already negotiated for UK stores, a fact that is boosting franchise adoption of the technology.

Once in place, this portal can be expanded to deliver customer marketing, supporting franchise expansion. It can also be used to provide a slick, secure interface between the franchise companies and the wholesale network, enabling franchises to "piggy back" of UK procurement cycles. This drives down operational costs significantly whilst keeping tight control over the identity of the supply chain and supporting the use of local point of sale information to drive far more effective forecasting.

Platform for Expansion

By offering franchises this platform for improving their business effectiveness, UK retailers have access to far more detailed information about customers, sales, and the impact of marketing campaigns and seasonal change on the sales mix.

The franchise model serves its purpose, enabling retailers to enjoy the benefits of relatively low risk international expansion. But with the UK market so unstable, as shareholder demands increase for greater expansion and higher profitability in each and every market, retailers may have little choice but to move towards wholly owned strategies.

Without imposing control over the franchise network today, UK retailers will struggle to evolve to the next stage of international expansion.

Source: FreshBusinessThinkingcom - http://www.freshbusinessthinking.com/

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