Will global retailers reach beyond U.S. coasts?

 —  Article by JLL Staff Reporter
Image credit: Shutterstock
Image credit: Shutterstock

The next great wave of international retailers is coming to the United States.

Most will focus on building a presence in the major coastal cities such as New York, San Francisco, Miami and Los Angeles—but it doesn’t have to stop there.

Another 137 key U.S. markets have historically been largely untapped by international retailers. According to JLL’s 2016 Destination Retail report, those markets represent missed opportunities for global retailers seeking to expand in the United States.

“Secondary and even some tertiary U.S. markets are under-served by the best international brands,” says David Zoba, Chairman of JLL’s Global Retail Leasing Board. “With a little thinking outside the box, global retailers can advance deeper into America and reap the rewards.”

The untapped Americas opportunity

The U.S. remains one of the most advanced retail markets globally, with $4.71 trillion spent in 2015– excluding food service sales and money spent in bars and restaurants. It also has more retail space than any other country, offering 12.8 billion square feet of shopping, encompassing malls, shopping centers, power centers or stand-alone branded retail space for retailers to choose from. This abundance of space presents retailers with several options for entry.

“Stateside expansion offers a number of potential advantages for international retailers wanting to expand,” says Michael Hirschfield, Executive Vice President, JLL’s Retail Tenant Services. “One reason is that the U.S. economy is growing and that can’t be said for that many economies elsewhere in the world. Also, the United States offers a largely unified system of law nationwide and one of the world’s great logistics infrastructures of road and rail. It is easier to cross state borders than to cross country borders in Europe or Asia.”

Yet, relatively few foreign retailers have expanded beyond the coastal cities, other than to the luxury mecca of Las Vegas. One reason: finding the right opportunity can be a challenge in the U.S.’ highly competitive, culturally diverse and mature marketplace. A Barclays Bank survey, for example, found that 46 percent of U.K.-based retailers view the United States as the most difficult market to enter. As one international grocer found, even deep pockets and an established brand name don’t guarantee success.

“Many retailers make the mistake of thinking they must succeed in New York first and, if they do that, the same strategy will work in the Heartland or Texas,” says Hirschfield. “If a retailer doesn’t do well in New York, we see them give up on the entire country. You can’t assume that what works in one U.S. market will work in another.”

Simple unfamiliarity is another likely reason. Visitors to the United States, whether coming for business and pleasure, tend to follow well-beaten paths. Europeans tend to end up in New York, Latin Americans in Miami, and Asians in Los Angeles and San Francisco—gravitating toward the familiar, even when it means paying premium rents or waiting for the right space to become available.

Another factor is an outdated perception of inland regions. For example, the Texas economy is larger than that of either South Korea or Australia, and it has large concentrations of affluent and sophisticated consumers not only in markets like Houston (which has some international renown) but also Dallas, San Antonio and Austin. Yet, for some, it’s hard to get past notions of cowboys and cacti.

History shows it can be done

A handful of international retailers have proven that retail empires can grow from beachheads in New York, Los Angeles or San Francisco. Sephora, the Paris-based cosmetics retailer, opened its first U.S. store in New York around 1998, and has grown to about 350 outlets. Low-cost grocer Aldi has become so commonplace across the United States that many American consumers don’t even know it arrived from Germany in the 1970s.

Others, such as Japan’s Uniqlo and Germany’s Lidl, are poised to launch their own stateside expansion plans. They’ve picked a good time. Retailers have been getting a big boost from a pickup in consumer spending after the U.S. economy grew at least twice as fast between April and June as it did in the first three months of the year.

Another motivation may be a hesitancy to expand elsewhere. In the uncertainty of the post-Brexit world, some retailers are slowing their European market expansion. Slowing growth has also made China—once a retailer hot spot—a less promising market. In contrast, the United States is becoming increasingly appealing for its stability and its retail growth potential.

However, retail success is far from guaranteed. “International retailers need to actively learn about potential U.S. markets that they are overlooking, and determine the best strategy for market entry,” says Zoba. “Careful planning and thorough due diligence are crucial for long-term success.”

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