By John Jannarone
In fashion retailing, the most important overseas expansion is done without leaving home.
With the U.S. market nearing saturation, many specialty retailers have turned abroad for their next source of growth. The likes of Coach, Abercrombie & Fitch, and Tiffany have been quick to open stores internationally. Each generated hundreds of millions of dollars in annual sales from overseas within a few years.
That has left some investors impatient with those that travel more slowly. Take Limited Brands, owner of lingerie icon Victoria's Secret and personal-care retailer Bath & Body Works. Both divisions have strong domestic sales momentum, although with more than 1,000 stores in North America, further expansion is tough. Yet the two divisions have opened fewer than 30 stores internationally between them, mostly small, duty-free shops. Victoria's Secret doesn't have any regular locations overseas, though it plans to open a flagship store in London next year.
In some cases, a retailer's brand can thrive in a country long before it opens stores there. As Paul Lejuez of Nomura points out, retailers with products bearing their own names enjoy an advantage over others: "walking billboards," or customers who wear their brands.
In the case of Victoria's Secret, such brand recognition extends as far as China, where the company may not have a significant presence for years. Frank Yao, chief executive of SmithStreetSolutions, a Shanghai consultancy, says there are 14,000 items listed under "Victoria's Secret" for sale on Taobao, China's version of eBay. That is more than for H&M, which has dozens of stores in China. And on Sina Weibo, a site similar to Twitter, Victoria's Secret has 20,000 mentions, compared with 16,000 for China veteran Ralph Lauren.
So what is Victoria's Secret waiting for? As other retailers have learned, international expansion isn't always smooth sailing. Gap, for instance, generated consistently higher sales at stores open more than a year at international locations through the 1990s, only to swing to declines for most of the 2000s. Simple differences between countries can present enormous stumbling blocks. For example, as J.P. Morgan's Brian Tunick points out, apparel retailers in Asia have frequently struggled to adjust to smaller body sizes.
Taking it more slowly reduces the odds of a misstep, while enabling the brand to get even stronger. The company already enjoys a higher percentage of online sales than practically any apparel retailer. It televises its annual fashion show around the world.
With the hardest prep work already done, Limited's overseas performance won't disappoint—when the curtain finally rises.