Two thirds of British retailers (66 per cent) expect their overseas sales to increase over the next five years and rank the MENA region fifth highest globally as their preferred future destination, according to research from Barclays.
The UAE (7.7 per cent) and Egypt (2.6 per cent) were listed as the most popular countries within the MENA region. Nearly a quarter (23 per cent) of retailers said Germany was their number one choice for overseas expansion in the next five years, closely followed by China and Australia. The MENA region matched the USA’s ranking as a key market for expansion. The results support recent announcements by Asda and Tesco which are stepping up expansion plans for their affordable fashion lines in the Middle East, in addition to WH Smith, a bookseller which has announced expansion plans across the GCC.
“Given the current success of large local and international retailers who have penetrated the MENA markets across the luxury fashion, and food and beverage categories, more global players, and specifically British retailers, are paying closer attention to the opportunities the region offers,” Rezwan Mirza, Head of Corporate Coverage, UAE and GCC, at Barclays said.
More than two thirds (68 percent) of British retailers currently generate at least some of their sales from outside the UK, however, the percentage of sales made abroad remains relatively small, with nearly 80 per cent of retailers generating less than a quarter of their turnover overseas. But, as trading conditions in the UK continue to be tough, the number of retailers looking overseas for growth is on the rise. 4.3 % of retailers mentioned that the UAE already ranked in their top three overseas markets, in terms of sales growth.
The US is the top overseas destination for British retailers with everyone from Tesco, via its fresh and easy brand to Burberry, which currently has more than 60 stores in the US, amongst the British names realising their American dream.
In the MENA region, a number of established British retail brands such as Debenhams, Waitrose and M&Co have already made their presence felt with prime locations in prominent cities across the Middle East, and further plans to expand across the region. In most instances, these retailers have leveraged domestic market knowledge by partnering with local players.
However, international expansion is no longer the preserve of retail giants. The borderless retail landscape created by e-commerce means it has never been easier for smaller British retailers to expand overseas swiftly without the associated overheads of opening physical stores. Of those retailers already generating sales abroad, 35 per cent are said to be from bricks and 65 per cent from clicks.
When asked how they plan to enter their chosen markets in future, online is the top choice with 62 per cent of retailers using a transactional website as the preferred method of entry. Just 18 per cent of retailers plan to open physical stores. A further 18 per cent are exploring a joint venture and 13 per cent a franchise partnership.
“The MENA region’s young and increasingly technology savvy demographics are favorable for e-commerce initiatives. Overseas retailers can utilize e-commerce platforms to test the local appetite for their brand without having to step foot in a country. Many of the industry’s past mistakes were made because overseas retailers didn’t give enough consideration to the dynamics of the local market, whether their products would have the same appeal abroad as they did at home, or whether they would need to be localised,” Rezwan Mirza said.
“However, there are structural limitations that could limit the near term growth of e-commerce ventures in the region, though longer term we would expect these issues to be mitigated as regional governments increasingly seek to leverage technology to promote economic activity.”
The countries least likely to see increasing numbers of British names on their high streets are Portugal, Ukraine, the Czech Republic and Latvia.
Asked about the general prospects of the British high street and consumer spending, retailers believe it will take at least another two years before we see a sustained recovery in consumer spending in the UK.