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Expansion Strategies for Today’s Risk-Averse Retailers


While the United States continues to experience slow, yet steady economic growth, the future of the domestic retail industry remains unclear as businesses are forced to adapt to a world where consumers are more cost-conscious than ever before. Amidst this challenging climate, retailers must be smarter at understanding their customers, products and the experiences they offer.

Revisiting Brand and Revenue Expansion Strategies

Many retailers suffered during the recent economic downturns-including those with substantial brick-and-mortar operations, which can be easily undercut by discounters or companies selling exclusively online. And while physical stores will remain an important part of the overall strategy for many companies both today and in the future, businesses are increasingly risk-averse and interested in modified or alternate strategies.

For example, to reduce upfront costs and ongoing overhead, more retailers are turning to the “shop-in-shop” model, where space is leased within an existing store. This not only helps to reduce costs because of a smaller space, but it can help drive potential customers interested in similar products and companies to a new brand for the first time.

Other retailers who can offer some or all of their products at lower price points should look to invest more in these offerings, especially when considering an increase in physical retail space.

Another option to consider is targeting smaller or lower cost retail locations for additional expansion. While lower tier locations may drive less foot traffic and revenue, the lower rent will in some cases result in healthier margins despite reduced sales levels compared to higher traffic locations.

Still another option suitable for wholesale brands with strong department and chain store customer bases is the outlet store concept. With lower price points and higher volume, these locations can complement an existing spectrum of sales channels, while not competing directly with higher tier locations.

Today’s Digital World

Retailers in the US have been using technology for a long time. The challenge today is to continue to find ways to use technology to improve and customize the shopping experience for a brand’s most loyal consumers, while bringing new customers into the fold. For smaller and regional brands, increased e-commerce sales can also create challenges, including setting up a supply chain infrastructure capable of filling larger quantities of orders in a wider geographic area.

Social media has its own set of challenges and the brands that do social media best do more than just push out product information. They engage with consumers on a daily basis through interesting and relevant content, an endeavor that requires buy-in from senior management, dedicated staff, creativity, and the investment of time and resources.

While unusual, there are a few brands at the very high-end that have not been eager to cater to an online audience at all out of fear of brand dilution. Others share their brand story through an online presence, but do not encourage or even enable consumers to make a purchase online. While this strategy may work for a select group of brands, consumers across all income-levels are increasingly willing to purchase a wide range of products exclusively online, and retailers will also eventually have to adapt.

Recipe for a Healthy Expansion

What works well for one company will likely not work for another. However there a few best practices that retailers of all sizes should look to adopt if they have not already.

For example, understanding payment and cash management is vital. Retailers need to know in real-time the costs and risks associated with every component of their supply chain operation. This can become increasingly tricky as more of the supply chain is settled in global currencies, but working with a financial partner such as HSBC, retailers can set up real-time dashboards to understand exactly where their money is and its value in USD regardless of what currency it in which it’s held.

For companies with a presence in multiple countries, the one-size fits all marketing approach simply does not work. Working with a local creative and digital partner in each market can be the difference between a successful entrance into a new market, and a strategy that falls flat or even worse, creates a negative perception of your brand.

The market landscape has undoubtedly changed, but the basic principles of retail remain the same. Brands must identify potential customers, engage and ultimately complete a sale. The retailers best equipped to succeed will need to understand their products and margins, marketing strategy and core competencies. Only then will they retain the customers they have and reach the customers they really want.

Eric Fisch is the head of apparel and senior VP, middle market commercial banking at HSBC Bank USA, N.A. and is based in Los Angeles.

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