Asia Pacific retailers are increasingly embracing overseas expansion, accounting for nearly one-third of new entrants in the region. Between 2014 and 2017, the proportion of new APAC retailers increased from 17% to 30%. Besides F&B operators, mid-range fashion and beauty brands are the most active players in the region, followed by luxury retailers, according to CBRE’s “Rise of APAC Retailers 2018” report.
Global gateway cities Hong Kong, Tokyo, Singapore and Sydney are among the preferred APAC destinations for brands looking to boost their profile. APAC retailers are using this regional expansion as a brand-building exercise, offering homegrown retailers greater visibility across different markets.
“APAC retailers are driven by potential revenue growth and the pursuit of greater brand awareness,” says Tim Starling, Director of Retail, Advisory & Transaction Services, Australia. “This brand-building is underpinning regional growth in a diverse and dynamic Asia Pacific retail sector.”
More than two-thirds of new APAC retail entrants originate from Australia, Korea and Japan. Japanese and Korean brands continue to leverage their strong cultural influence across the region to enter new markets, while Australian retailers are increasingly adopting more U.S. and European-focussed expansion strategies than in previous cycles.
Starling notes that Australian markets such as Sydney and Melbourne continue to be a magnet for APAC retailers given the strong underlying fundamentals of these two cities, following solid population growth and increases in domestic spending along with steadily rising household incomes.
“More recently, the influx of inbound tourist arrivals in Australia has emerged as a new long-term driver of retail trade growth, with Chinese visitor numbers expanding by double-digits over the past seven years,” says Starling.
Starling adds, “The rise of wholesale and internet sales means retailers now better understand new markets, making the move into these markets easier to understand and less risky. This, coupled with the development of consumer analytics, means APAC retailers are positioned to confidently break new ground.”
Over half of APAC retailers entering new markets only have a presence in one or two countries, indicating that homegrown brands are still at the early stages of expansion. APAC’s highly competitive retail landscape presents a challenge for new-to-market retailers, underscoring the need for a robust regional strategy.
FIGURE 3: ASIA PACIFIC NEW RETAILER ENTRANTS BY COUNTRY OF ORIGIN, 2014-2017
Remarks: Excludes new entrants from the F&B sector
Source: CBRE Research, September 2018
After analysing 600 openings by Asia Pacific retailers in the region, CBRE identified the following insights for developing a successful expansion strategy:
Understand local market practice and consumer needs
Given the wide cultural diversity within APAC, retailers should be aware of the tax and business structures, foreign direct investment (FDI) regulations and consumer trends that apply to each market.
Lack of market transparency in licensing processes is a key challenge for retailers, creating operational uncertainty, significant delays and extra costs.
Determine the right market entry strategy
Direct operation is the recommended entry path for APAC retailers seeking full control over their business; but heavy upfront costs are a potential drawback.
Franchising, with its lower upfront costs, allows retailers to leverage the market knowledge of local operators. However, any partnership dispute could result in business disruption or brand damage.
E-commerce offers a cost-effective option for retailers looking to enter a new market. Viable strategies include setting up an online, market-specific store, or partnering with a leading e-commerce platform.
Match real estate assets to business goals
Retailers looking to maximise their brand exposure should consider establishing flagship stores in prime retail locations or iconic properties.
If footfall is the main priority, retailers should look at options in shopping centres, department stores and high street shops.
Pop-up stores allow retailers to test their business potential in a new market and offer innovative retail experiences without investing too much upfront.
Develop strong relationships with brokers, landlords and developers
New-to-market retailers can leverage the expertise of local brokers to craft comprehensive market entry strategies.
APAC retailers should build relationships with landlords to secure prime retail space and negotiate better lease terms.
“Whether they are establishing flagship stores in gateway cities or testing the waters in emerging markets, APAC brands are increasingly adopting a savvier approach to regional expansion,” notes Liz Hung, Associate Director of Asia Pacific Research.
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