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A PIECE OF AMERICA

INTERNATIONAL LANDLORDS WANT MORE U.S. CHAINS TO OPEN IN THEIR COUNTRIES

By Curt Hazlett

Pua Seck Guan does not hesitate when asked which American retailers he would most like to see in the 16 malls CapitaLand Retail owns in Singapore. “Brands like Abercrombie & Fitch,” he said. And how many Abercrombie stores would he like to have? Again, no hesitation: “I would be happy to have one in each mall,” he said.

Pua, CEO of CapitaLand Retail, is far from alone in this hunger for the trendy American clothing retailer. Developers throughout Asia, Europe and the Middle East would love to lure top-shelf names like Abercrombie, and their desire does not stop there. Consumers the world over are clamoring for the hottest brands, and, as it happens, many of those brands are American. Banana Republic, Gap and Victoria’s Secret top developers’ wish lists again and again, but there is plenty of interest in middle-market retailers and, in some cases, even department stores. “Retail demand has increased dramatically, and there are more and more people banging on retailers’ doors,” said Richard Talbot, president of Toronto-based Talbot Consultants International, which has advised developers in the Middle East, Europe and Asia.

So far, though, the lust has been unrequited. U.S. retailers have for the most part been cautious about moving into overseas markets, and although there are signs that some are growing bolder — as evidenced by Abercrombie’s July announcement that it plans to sharply expand its European presence — most are holding back.

And that has frustrated overseas developers. “A lot of developers in emerging markets think they have a location or a business opportunity that warrants a U.S. retailer’s attention, and they lament the fact that they can’t seem to interest them,” said Morgan Parker, president of the Taubman Asia unit of Taubman Centers. “Often it isn’t because of any deficiency in the project, but rather because it is just one project, and to go to a market like Russia or Turkey or India and just look at one project is often very difficult.”

There are other explanations for the reluctance to go global, Parker and others involved in leasing agree. To begin with, American retailers have felt little need to search for such opportunities, given the growth at home in recent years. “We generally find most U.S. retailers have as much as they need within the U.S.,” said Talbot. “That makes sense — you want to look after your own backyard before you go off into other areas.”

Many are put off by the challenges of doing business in a new and often confusing market. Unless a retailer plans on going it alone, a reliable licensee, franchisee or local partner must be found, and the logistics of supply must be addressed. Moreover, “when a retailer arrives in a new market it needs to have enough critical mass to create the economies of scale needed for a viable offshore business,” Parker said.

Fear can be a powerful inhibitor, as the saying goes. Wal-Mart’s failure in Germany and South Korea, for instance, was a reminder of how treacherous international retailing can be.“There are a lot of differences between operating in North America and Europe, and certainly in Asia and Latin America,” said Jacques Sinke, director of international retail for Netherlands-based Bouwfonds MAB, which is currently leasing two dozen projects in Europe. “For international retailers, it is not easy to be successful in Europe. It is a competitive market with a lot of good retailers, so it isn’t as if everybody is waiting for you. You have to conquer your spot.”

The hunger for U.S. brands is on display at industry conferences such as ICSC’s Spring Convention in Las Vegas. There, international developers made their case this year to retail representatives, in hopes of forming a perfect marriage. Often it was hard work. “You really have to get the parties to the table,” said David Sierens, president of Mill Creek, Wash.-based Marketing International, which represented CapitaLand Retail; the United Arab Emirates’ Aldar Properties; and Russia’s Macromir at the conference. “You have to bring the retailer together with the developer, and we did that in dozens of cases at the Spring Convention.“It’s very challenging,” he said. “One of the things that really needs to happen is that the retailer needs to understand the demographics and geography to get around the concept of going to a different place.”

Some large developers prefer to concentrate on retailers that have already committed to building an international presence. “They [the retailers] really need to know that they want to go into Europe,” said Jasper Klapwijk, general manager for strategy and marketing at Netherlands-based ING Real Estate. “I, as the developer, find myself not in the position to convince them to come to the region. If they decide to come, I am in a good position to convince them that I know what’s going on. They need to decide that they want to spread their risk to other regions or that they have a proven concept in the U.S. and want to expand it.”

The job is much tougher for smaller developers, especially in emerging markets. “It’s incredibly difficult for them,” said Klapwijk. “With local developers, the retailer has to trust them that in the end they can deliver the product.”

Talbot agrees. And some developers, he says, are hindered by a lack of solid market research. “Some of them take an ‘If you build it, they will come’ approach,” Talbot said. “All it takes is somebody with a little moxie to build a competing mall, and suddenly there’s a big sucking sound. So you’ve got to pick the right one.”

The likelihood of successfully wooing a top retailer often hinges on the scale of the opportunity being offered, says Taubman’s Parker. “If a developer or group of developers can articulate to a U.S. retailer a rollout which would see them opening perhaps a dozen stores at a particular time, all of which made sense individually, they have a more compelling opportunity to offer,” he said.

Bouwfonds’ Sinke, who visits the U.S. two or three times a year, said: “It’s not only about knowing who you want, but about making perfect matches. It has to do with presenting enough opportunities. It’s not that easy to present the three, four or even 10 locations that are required to really make an impression.”

From his vantage in Asia, Parker says he believes that the two most sought-after U.S. retailers are Abercrombie and Victoria’s Secret. “The lingerie business in Asia is just starting now, and I hear Asia consumers and retailers always mentioning those names,” he said. Gap and Banana Republic, too, are just now entering Asia. “They are in Japan and now, under a licensing agreement, in Singapore,” Parker said. “But they are still not in places like Hong Kong or China.”

Coming off the success of its store on London’s Savile Row, Abercrombie has hired New York City-based PBS Real Estate to scout out additional locations in the U.K. and mainland Europe, specifically Italy, France, Germany and Spain, as well as Denmark and Sweden. Abercrombie also has plans for Japan, where it will open a flagship in 2009.

Most industry observers say this trickle of leading U.S. retailers into international markets will grow, particularly when the retail market back home softens. “A few years back not many U.S. or European companies had a lot of will to expand in Asia or Singapore,” said CapitaLand Retail’s Pua. “They had very strong business back home and less motivation to be overseas. But in the last two years, the Asian economies, whether Singapore or China, have been doing very well. That has prompted quite a number of retailers to look at their strategies.”

Sierens points to the United Arab Emirates as a market he believes is too good to pass up. “The UAE is enormously wealthy, and shopping there is more than a thing to do — it’s a national sport,” he said. The reluctance of American companies to enter a market like that can be frustrating, Sierens says. But “what’s really frustrating is that I wish I were a retailer. If I were, I’d have a store in Macau, a store in St. Petersburg and a store in Abu Dhabi. That would be my chain, and I’d do fabulously.”