This is an excerpt from Ragtrader's September edition. For more strategic fashion business insights like this, subscribe here.
In under four years, Australian swimwear retailer Seafolly has managed to generate close to 10% of total sales from just six US-based brick-and-mortar stores.
“Most of those stores we actually opened in between the May of 2015 and 2016. So they have all pretty much gone like-for-like except for Hawaii, which will go like-for-like in August of this year,” Seafolly general manager retail Jade Summer-Hayes says.
The brand has been operating within the US for the past nine years, solely as a wholesale operation, before opening its first physical location in Newport Beach in October 2013.
While the brand has enjoyed a lucrative tenure so far, Summer-Hayes says the setup process has been a steep learning curve. She believes the most important factor is entry proposition.
“There are two ways you can enter a market. You can go for those big flagship stores, which are big on rent and a little bit of a guarantee you are going to get concentrated footfall. Or you can start positioning yourself as a particular lifestyle brand and look at going into more of those centres. Particularly around California and Florida, where there are these types of strip, semi-malls.”
Summer-Hayes says a particular struggle is the difference in leasing operations between the two countries.
“What's really different in the US is that you don’t pay your tenancy representative. Almost 99.9% of the time they are paid by the landlord.
“In Australia, that becomes a fee that you have depending on who you use, whether it's a big property king like CBRE or whether you use a smaller boutique property specialist.
“In America, that fee is actually paid by the landlord, so all your deal-makers, while they represent you, fundamentally they are getting their commission from the landlords.
“It was really hard for us to wrap our head around how you get a deal which feels like the tenancy representative is actually working for you and not the centre.
“I think that is why you make sure there is a really great synergy with your tenancy representative, that they really understand your brand and understand your strategy.
“That way they are not just putting a million different properties in front of you and really urging you to be in every single one of them.”
Employment terms are also a challenge for foreign retail entrants, buoyed by differences in trading hours.
“The biggest challenge for us in terms of operating costs will be labour. In America they trade anywhere between 11 to 13 hours a day, every day a week," Summer-Hayes says.
While the minimum wage is lower in the US, Summer-Hayes says these extended hours result in a higher overall investment. This extends to product pricing, with currency playing a role in front-end costings.
“Pricing has also become a more recent challenge that we are investigating, particularly around impact to conversion. An average set in Australia is $AU155, that same set in America would be $US170.
“It certainly is challenging, particularly when our first customers were ex-pats. They were used to an Australian price point so when they came overseas they couldn't really understand why it was higher.”
That is not to say a return on investment has been insignificant. Summer-Hayes predicts that with the current growth trajectory, there could be further funding in market growth.
“We have no distribution centre, so everything from a stock point of view comes directly from our Hong Kong centre, which also services the rest of the world.
“At this point the business hasn't been big enough to justify a distribution centre or a headquarters but a time will definitely come in the not too distant future.”
This will be integral to a changing pattern to product drops.
“With our ranges, we have four: summer one to four. Normally, summer one and two would be sold in the southern hemisphere first. Then that same range would be sold in the northern hemisphere six months later, due to seasonal changes.
“Aged product would then become the new product for the international market. “Whereas most fashion brands launch in the northern hemisphere and then follow in the southern hemisphere.
“That changed only recently. We are still going through that during this ranging period. But now we are actually called one world, where a product is dropping internationally or anywhere in Australia at the same time.”
Summer-Hayes says further investment in ground support will also leverage back-end innovation.
“Basically our support system is one regional sales manager. She went over to open our Newport store and was the store manager for roughly 18 months before we put the next store in. But everything reports back to global HQ in Australia.
“So there are certainly some challenges around times zones, you get around two to three hours a day where you can communicate, otherwise you lose another 24 hours.”
For Australian lingerie label Honey Birdette, this is also a challenge as it develops a foothold in the UK market. CEO Eloise Monaghan knows all too well the challenges of international expansion.
“It's not easy. We probably underestimated the amount of work and the amount of resourcing and manpower that was required. Even just setting up banks was extremely hard.
“My advice to anybody opening up in a new territory, and do this to begin with, put in your strongest country manager.
“Don't think just because it is three stores you are only going to need a light area manager over there.
“You need your strongest person over there, you need customer service over there, you need someone running operations over there.”
The brand initiated plans to crack the UK market in 2016, and has now opened three stores, two within London, one in Leeds and another with a lease soon to be signed.
“If you travel to the UK you don't want it to be for just one store, you want to be going over for at least three or four,” Monaghan says.
The US and UK now make up to 20% of online sales annually.
“At the moment I'd say online is better than the three stores combined,” she says.
Monaghan fervently believes that ensuring teams are operating at the same level of involvement within the business is key to international development.
“We ensure our UK and Australian teams are in constant contact. We've changed our morning meeting times from Monday at 11 am, once we have got our facts and figures and product recaps out, to 4 pm on Monday.
“That's not to the benefit of the Australian business because we like to know which way we are heading for the week but we've found that it allows the UK to feel involved.”
Much like Seafolly, leasing presented more than one challenge to Honey Birdette, as cost, speed and red tape proved to be vastly different from the Australian market.
“Landlords, I was over there a lot and did a lot of presentations to them. This was to get them familiar with the brand, as the UK market is one of the most fashionable in the world.
“It was about presenting a brand that they needed and wanted to have in their high streets. So I'd say the cost of build is enormous, you have land tax on top of that which is enormous too.
“Getting to know builders and the way they operate is completely different from Australia in terms of, not only costs but how they operate. In terms of timeline, we tend to flip properties quite quickly here.
“We can do one in between nine to 16 days, in London, they want to take a lead time of five to eight weeks.
“That could also be due to the property on the high street needing to go through a town planning process and so on. So it definitely doesn't move as quickly as it does in Australia, that being said if you tap one of the most lucrative markets in the world it is exceptional.”
Monaghan also says rental costs are higher in the market.
“If the rent here was $AU20, over there it would be £GBP 20. Factor in that exchange rate and you're certainly up.”
Reflecting on the brand's first store opening, she says it is wise to seek the advice of professionals operating in the international retail space, to avoid unnecessary costs should things go wrong.
“We found that we took an Australian shop-fit to London and I think that was the wrong thing to do," Monaghan notes as an example.
“We should have really consulted with a local firm to make it feel more English.
“That is what we have done since. We consulted with a group called 20/20 over there and really, once again, this was Honey Birdette growing up and that's big a part of it all.”