The Yanks are coming

Retail analyst Rob Lake says the attraction is simple business – convenience and price. If American retailers can offer something different to the market, they’ll be a winner.

“Many of these products are popular. Particularly with Costco, it’s a convenience issue. You can save quite a bit of money there if you’re willing to buy in bulk which is something Australians have never really done before. It’s a value offering.”

Another massive and obvious attraction is brand power. An American retailer may not have a massively different product range to rivals such as Cotton On or Just Jeans, but if they have a brand name with a good amount of demand behind it, they’ll be able to sell and thrive.

It’s been suggested companies such as Forever 21 are building up anticipation of their first stores opening by leaking rumours of their arrival. A good amount of demand already exists for Gap, with travellers often bringing back products from their stores, and much has been made of rumours the company will soon enter Australia.

“They do need a brand power,” Walker says. “But they also have other things, such as a geographical supply chain advantage, a strong Australian dollar and the ability to handle more retail virtually than at any time before.”

“Many are aggressive, price pointed and smart at what they do. They shake the tree when entering the Australian market.”

The dangers

By all accounts American companies have done extremely well in Australia. Giants such as Tiffany’s have found success in the demand and affection for American culture and products.

But there is absolutely no guarantee of success when entering the Australian market. Differences in culture, business practices and even customer preferences can throw a well-planned business into chaos.

There are plenty of disasters to learn from. Coffee chain Starbucks entered the Australian market with dozens of stores using the same marketing strategy they had in the US – open a stand on every street and people will buy.

But the company underestimated Australian’s strong coffee and cafe culture, especially in Melbourne, and closed a number of stores across the country as a result.

Heskin says she often needs to speak with companies looking at the Australian market in the hope of downplaying some extravagant expectations.

“Sometimes a company might say something like, “I envisage 150 units in the Australian market”. But we need to break that down and show them some figures, looking at population centres, the major competitors, and then often they’ll find that number is not really what the industry can support.”

There’s also the risk of cultural overload. Analyst Rob Lake says US retailers need to really consider whether the product being offered is American-centric or appeals to a global audience.

He points to the Disney Store, which closed its last Australian locations in 2003. Stan Gordon, chief executive of Franchised Foods, says this is because the company was too brash in estimating the local love for Mickey Mouse.

“We’ve seen American companies try to impose their will on Australia, and it often doesn’t work because they have to be careful to localise that demand.”

Gordon also says American businesses need to realise the differences in Australia, right down to population and spending habits.

“This is not a similar market at all, and I’m talking from experience from going overseas. Continent A is not the same as continent B and that is the same in any country. Yes, we speak English but we have different terminology and they need to be aware of those small things.”

“It feels the same way on the surface, but it’s not. Different wants, different needs, aspirations, likes and dislikes. Do your homework really well. Australians aren’t as materialistic a people.”

But research suggests Australians are just as retail-hungry as Americans. Household debt has grown to $1.2 trillion, and although retail spending has slid back recently due to three consecutive interest rate rises, Australians are still willing to part with their cash.

However, Heskin says she often needs to make recommendations to companies about how they should market their products and at what price.

“I’ll often eat at my client’s restaurants and I can see the subtle differences that need to be changed. They might have a sign that says “America’s Best Steak”, and obviously that wouldn’t have a big influence because, who cares here?”

“I’m always talking about portion sizes as well, because it’s completely different here. When I’m with clients in the US I often look with big eyes, because there is no way I can eat all of it. Here, they often remark on the small portion sizes.”

Benton says this has been a particular difference the company has taken into account when moving into Australia.

“I think the biggest change is the size of the potions involved. In the US, the standard ice cream would be about 250 grams and cost $4.50 or so. But most of our Australian colleagues have told us that serving size is far too large for this market.”

“So we don’t micro manage our franchisees and their business. But we have taken that serving size recommendation into account.”

Walker says there isn’t much risk of a cultural overload, suggesting younger Australians are more likely to buy from these new retailers.

“By and large I think we’ve always been attracted to American brands. I think about Gap, Ralph Lauren, and classic American branded fashion that has been in this country for quite a long time.”

“I think among the more sorted middle class the culture thing is not so much of an issue. You turn on your TV and 60-70% of free-to-air television is American content.”

Where to go from here?

But the challenges aren’t stopping Americans coming here in droves. Walker says businesses won’t be held back by the prospect of having to change their tune slightly for the Australian public.

“There are good challenges here, and an opportunity for the businesses to become sharper and fitter at what they do, like any business. It’s a very good and compelling offer.”

“They do need to do their research but the demographics aren’t entirely different. Additionally, Gen Y shoppers are becoming more aware of these brands even though they may not be here yet. Next month’s visit from Barack Obama may give these businesses a little bit of a boost as well.”

Looking forward, Benton says NexCen wants to position itself as a competitor

“Right now we have three brands that are getting the most enquiries in, and we’re looking at locations in Melbourne and all along the east coast…we even have interest in Hobart, where there is potential for a Shoebox New York location. These are getting a fair amount of interest.”

“I think your countrymen are interested in American franchises, we’ve had a lot of interest here already… and we’ve had a great interaction out there. As long as we have that, we’ll have a solid base for business in Australia.”