The Americans are coming. A special SmartCompany investigation into the influx of United States-based companies targetting the Australian market has revealed at least eight brands set to arrive in 2010, with more actively looking at the market.
With the US economy still in the doldrums, these companies see Australia as an obvious choice for expansion, particularly in the franchising sector.
But while many of these companies will find brand recognition in Australia, retail experts say the US companies will need to be aware of cultural, demographic and even language differences between the two markets.
The excitement surrounding the opening of department store giant Costco in mid-2009 is a testament to Australians’ love for American retailers. Thousands flocked to the store’s Docklands location, and paid up to $60 in membership fees for the right to shop.
But while American companies have always been interested in the Australian market, this interest has gone to another level in the last 12 months.
Costco was clearly the most high-profile retail opening in Australia last year, but ice cream chain Ben & Jerry’s also opened to significant demand.
The NexCen group is now committed to opening stores in Australia with its Marble Slab Creamery, Maggie Moos, Great American Cookies and Shoebox New York brands, and is searching for master franchisees and scouting locations.
Management training firm Crestcom International is currently seeking franchisees, pet grooming service Aussie Pet Mobile will open later this month and 1950s diner chain Johnny Rockets is set to make a come-back into the Australian market.
Internet retailer 1saleaday recently opened its Australian site, while jewellery-repair shop Fast-Fix Jewellery and Watch Repair is now set to open soon.
Woolworths is also working hard on developing its big-box hardware chain in a joint venture with US hardware giant Lowe’s.
And if reports are to be believed, then popular clothing chains Gap, Abercrombie & Fitch and Forever 21 are currently scouting for locations, while lingerie chain Victoria’s Secret is being courted by various shopping centre owners.
Why are they coming?
The attractions for these US companies are simple – both countries speak English, have similar wealth profiles, business practices are the same and consumer expectations are relatively well aligned.
Dan Benton, NexCen director of development for the Middle East and Asia-Pacific regions, also says Australia is a natural choice for the company’s brands due to our robust franchising system.
“Australia is popular because it is well known for solid franchising. Franchising is a major contributor to GDP, and there is also more franchising per capita than any other country in the world. We’ve already been operating there with Athlete’s Foot stores, and it’s a great market for us, especially with our Shoebox New York brand.”
“The franchising law in Australia is actually not nearly as onerous as it is in other nations. The code of conduct forces transparency, and we really stress that within our business partners as well anyway.”
Demand is high, fuelled by reports from Australians who have travelled overseas and bring back products and merchandise. The growth of online retail has allowed local consumers to be more open to American concepts.
Melanie Heskin, commercial specialist at the US consulate in Melbourne, who has worked closely with NexCen and Benton, says companies are attracted by Australia’s robust economy and similar wealth profile.
“I think reports have gone out to the US recently about how robust the economy is here. Australia’s franchising industry is really robust here, and it’s also been quite resilient. I’ve noticed towards September onwards I’ve had a lot more enquiries in franchising.”
“Sometimes it’s even due to a lack of understanding. They see a big geographic area and think “wonderful”, but then expectations are wound into line when you give them population statistics. They have a pretty good idea of what Australia is about.”
Heskin also says Australia mimics American business practices, despite some differences in the law.
“You have business practices, and those are fairly well aligned and you have good customer expectations here as well. There are of course some subtle differences in language, but it’s overall a fairly safe and transparent economy”
Brian Walker, chief executive of consultancy firm Retail Doctor, says Australia is a logical first step for American businesses looking to expand internationally.
“For the bigger retailers such as Costco it’s simply a question of scale and growth. They are engines that need to grow organically to benefit shareholders, and for retailers it’s all about moving into new markets. Our country has seen a lot of Americanisation through media, anyway.”
Australians also mimic American spending habits. Benton says both consumers are very much aligned – a major motivation for their entry into the market.
“The two are very similar, particularly from the quick-service restaurant perspective. Our primary target is the middle-class consumer, they eat ice cream and cookies and buy tennis shoes. That domestic market has been our primary target, and it will be in Australia too.”
Heskin also points out that several US companies may enter the Australian market just to keep their operations afloat, especially during the financial crisis.
This could be the case with Gap, although reports of an entry to Australia are still unconfirmed by the company. The business recently reported comparable store sales fell by 3%, compared to a drop in 2008 of 12%.
“A lot of companies were, and are, looking offshore to keep their domestic operations afloat. America and Australian have always had a very good trade relationship, and it’s been fairly solid, so that offers some incentives.”
Why are they so attractive?
American companies are big business. Dozens of retailers, department stores and services companies are employing thousands of Australians every year, and some of the biggest retailers in the country come from overseas, such as the Apple Store.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
