From zero to launch

SD3How a small Australian retailer is starting to see the light as it pushes to break into the lucrative US market.

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Seeing global retailers enter new markets, including the US, has become a commonplace. So much so that the difficulties of international expansion sometimes seem like an historical artefact that no longer applies.

This is clearly not the case, particularly for smaller retailers without international experience. The successful ones are often lean and mean businesses that are stretched to dedicate the resources necessary to deal with the complexities of overseas expansion.

Still, they can do it, so long as they are prepared for a perilously steep learning curve. This is what Happytel, a high-end Australian digital accessories retailer, discovered during 18 gruelling months of preparation to enter the US market.

Happytel finally got to the start line. How did it get there and what are the takeaways of Happytel’s experience for other retailers?

Happytel opened its first three units – which it expects to be the first of many – in early June at three of the premier superregional shopping centres in the Phoenix metropolitan area. With more than 20 years of operating experience in Australia culminating in 70 kiosks and inline stores, the tightly-run family business was pushing against the frontiers of market saturation and looking for growth opportunities elsewhere.

In late 2014, two of the retailer’s directors – brother and sister Max and Elizabeth Ryu – noticed during a trip overseas that products being sold by some of their counterparts in the US appeared to be months and in some cases years behind what they were selling in Australia. Not only did they perceive a differential in product quality, but the incumbent players’ visual merchandising and service levels looked ordinary as well.

This made the US market an obvious target for their growth aspirations. But unlike its would-be US competitors, Happytel doesn’t work on a franchise model. All of its stores are company-owned and operated, which limits the speed at which they can roll out stores. The advantage though, says Elizabeth Ryu, is that, “branding, products, presentation, and customer service can be a consistently high standard across all stores.”

CL1The retailer’s board approved the US market move, a small internal project team was pulled together, and it was game on.

18 months later, Happytel opened glitzy kiosks at three top centres owned by one of the leading US mall operators, Macerich: Scottsdale Fashion Square, Chandler Fashion Center and Arrowhead Towne Center. The openings followed 18 months of research, site inspections and gruelling negotiations, all of which threw up unforeseen costs and setbacks that could have derailed the whole enterprise.

Why so hard?

To begin with, most Americans speak the same language as Australians and there is some common cultural heritage. Moreover, US malls are broadly similar to those in Australia, with configurations, management practices and lease terms that Australians have no problem understanding.

The Ryus quickly formed relationships with key leasing personnel at some of the leading west coast US shopping centre companies, including Macerich and Westfield. Identifying the right locations wasn’t difficult after the company established its decision rules, based on success drivers in the domestic Australian market.

But now the challenges mounted. Space was difficult to come by in the centres Happytel was targeting, causing the retailer to have to play a waiting game to break into California. Meanwhile though, Macerich offered Happytel entry into Phoenix, an offer that was readily taken up by the retailer’s directors, who saw Phoenix – just a half-day’s drive from Los Angeles and a lot less by air – as a natural geographic extension of the California market.

Just as the big breakthrough appeared attainable though, cracks started to appear. As part of the package for accepting space in prime locations, Macerich offered Happytel locations in a couple of centres that the Ryus felt didn’t suit their market positioning.

As Max Ryu explains, “Macerich wanted to offer the whole smorgasbord of shopping centers in Arizona, whereas we just wanted to start with a select few centres to see how our model translated to the US market. I can understand their point of view but we were very particular about what we wanted.”

Macerich was flexible and that issue was eventually laid to rest, but matters were further complicated by a timing issue: the spaces Happytel wanted were coming available about three months earlier than the retailer wanted.

A compromise on this was struck, but even so the deadline quickly got big on the retailer. The time frame was perilously tight, considering what needed to be accomplished.

First, the project team had to figure out supply chain logistics for the US market. Would they use a distribution warehouse overseas or start by flying in merchandise directly from their suppliers and from Australia?

AH3Second, a kiosk had to be custom-designed for the space at Scottsdale, which was more of an octagon than Happytel’s customary rectangular configuration.

A manufacturer and shopfitter had to be found for the kiosks. At the recommendation of Westfield, they contacted a company in California that turned out to be a great fit for Happytel. Despite the initial design challenges, they smoothed out the manufacturing and shopfitting processes quickly enough to get the kiosks open on time.

A third big problem though was labour. Recruiting was much tougher than expected, and personnel, once acquired, had to be trained up to Happytel’s service philosophy by Australia-based staff.

Legal compliance was a fourth big hurdle – labour laws in the US vary from state to state and the Happytel team found that advice relevant for, say, the California market, was largely irrelevant to Arizona.

Fifth, and completely unexpected, Happytel needed to obtain business licenses for each county in which it opened for business.

Sixth, the project team had to edit its product assortment and decide on a pricing strategy based on consumer insights that weren’t nearly as deep as what they would have liked. Pricing in particular is an issue, considering that Happytel is at the upscale end of the market and needed to educate its customers about why its merchandise might cost more than the competition.

Although the first units are finally open, this is clearly still a work in progress but the challenges of breaking into the market have brought about a huge and unexpected upside for Happytel. It’s the ‘up-skilling’ of the project team and the knowledge that they can overcome huge obstacles in a pressing timeframe if they really focus themselves on it and work as a team.

“Our company learnt the importance of teamwork and trust,” Elizabeth Ryu said. “The US launch team achieved a result that they never thought they could as individuals.”

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