As a retailer’s primary market matures, two conversation threads begin to resonate in the boardroom. Do we introduce a new concept in a market we know well? Do we take a concept and corporate culture we know well and expand abroad? Or do we do both?
In 1993, having spend the better part of a year putting together The Gap’s Japan market entry plan I had opportunity to present to The Gap’s executive committee. Five minutes into the presentation, Mickey Drexler quietly rose and left the room — thus making it eloquently clear that The Gap would not be going to Japan that year. Had there been a discussion it would have only repeated the conversations taking place around these strategic choices at that time. Namely with thin resources, Gap Shoes still in test, Gap Body and Old Navy about to launch and a raft of other issues, was it the appropriate time to start Japan?
The companies and concepts change, but the conversations remain the same. What is the most efficient allocation or re-investment of a retailer’s cash flow once their core market matures?
Some retailers are noted for their strong belief that retail is a strictly local discipline. This belief holds that a retailer does best when it is completely attuned to the immediate needs of its immediate customers and crossing borders wreaks havoc on that ability. According to Keiko Hayashi, CEO of Lands End Japan and a veteran of a previous exploration of the Japan market by Victoria’s Secret, this is very much the point of view Limited Brands’ Chairman Leslie Wexner takes of crossing borders with retail concepts.
Other retailers operate under a belief that a strong brand can occupy similar mindspace, whether that brand and its values are delivered to retail customers in London or Tokyo. If one has a solid brand, strong corporate governance and culture and the will to succeed, retail opportunities are global.
There is ample evidence to support both viewpoints. The retail landscape is littered with retailers who have failed, sometimes more than once, to transplant their concepts. Japan is an exceptionally good market to look at due to real differences in how consumers evaluate and shop retail brands. Esprit failed in Japan. Sephora failed on entering the US and Japan, although the US business was ultimately turned around. Footlocker entered Japan twice, and failed twice. Giordano withdrew from Japan after its first entry.
Yet many other brands have prospered. Gap is now a US$600 million business in Japan. Major European brands, perhaps more familiar with the idea that crossing borders means change, have frequently done well. Apple Retail has been extremely successful.
Which point of view is the correct one? In fact, just as Gap did in the late 80′s and early 90′s, both need to be weighed against a particular retailer’s brand positioning, organizational strength and leadership preferences.
Equally important, it may be the case that there is more opportunity to be had in the core business, in which case discussion of diversification into other formats or markets may be premature. One of my favorite retail stories is that Arthur Blank and the Home Depot team, upon an initial survey of market potential for Home Depot in the US, came to the conclusion that there was a total market for the home improvement category killer of 35 stores. Any discussion of diversification at that point, geographic or otherwise, would have definitely proved premature. But that’s another conversation.