With any new market a retailer has to understand how the supply chain will evolve and differ from their usual operation.
It is unlikely that a retailer will be opening a large numbers of stores from the outset when moving into a new territory so it could be that they look at a relatively slow start in terms of volume. If this is the case then they will need to decide whether they will look into third party operations locally to handle their products and manage the physical supply chain until they have sufficient volume to justify an in-house operation. Alternatively, a retailer may choose to ship from their home market, which can add high shipping costs depending on the distance between the two markets. However, small volumes can be more expensive and it depends very much on the nature of the product and whether the home product is saleable in the chosen market.
Which questions should retailers ask themselves?
Is there enough demand for the product? What do the demand patterns look like, for example, when do the seasons start and end, what are promotional activities like? One of the key aspects in any new market is availability. This can lead to generally higher stock holding and that comes about because of a number of factors. Firstly, the retailer doesn’t understand the market well enough. Secondly, they are in a situation where their lead times and supply chain are generally longer, and they therefore need larger safety stock. Thirdly, in a new market they will want a higher service level to make sure they can retain new customers when they come in and not risk having empty shelves.
Invariably, when forecasting in a new market, a retailer will be carrying significantly higher safety stocks than they would be in normal home operations. This will bring with it additional costs, so they need to quickly calculate what these will be, how the costs of the additional stock will impact on their profitability and where this leads them in terms of their operating model.
One of the key aspects in any new market is availability. This can lead to generally higher stock holding and that comes about because of a number of factors.
Are there any differences in lead times for supply from manufacturers, any country laws and regulations or duties and border controls that could slow down supply? These will need to be factored in to their forecasting and inventory management. Footwear will need to have multiple size codes on them if being shipped from a home market and once a retailer gets to the store they need to have an understanding of the display practices and how best to display goods. Local customs can be very important. Examples include, countries like Egypt where the soles of shoes should not be displayed upwards, and in the US where men buy shirts not just based on collar sizes but arm lengths as well. Furthermore, it’s not just the product retailers need to think about but the brand name too – will this mean the same in another country or potentially cause offence?
Successful retail planning is key
There are a number of considerations that retailers have to factor in when thinking about entering a new market, especially internationally. Once they are able to answer the above questions, they can start the planning process correctly and be able to see what stock holding they will need in each location, understand the various costs that they will be incurring across the different supply chains and get their forecasting accurate enough to know if the new territory will be a reasonably efficient operation and a viable option for them. Retailers don’t want to be in a position where they are losing hundreds of thousands, if not millions because they had no structure in terms of their planning and management of their products when going into a new country. There are numerous stories where retailers have not done their research and the new supply chain has come at a heavy cost or they’ve simply not been able to enter the market at all.
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