Head hunter, Page Executive, on the opportunities for international retail expansion in Russia

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SImon Nolan, director at head hunter Page Executive, on the challenges and opportunities for UK retailers in international expansion

As a large, global organisation we do business all over the world, and sitting here on a flight back to Moscow, it made me think over the opportunities and trappings of international expansion in retail and other consumer industries.

Over the last 10 years we have seen the meteoric rise of retail in Russia, and, having spent an afternoon at one of the leading malls in Moscow, you could’ve easily been strolling about in one of Westfield’s Shopping Centre in London.

However, this international growth is not without its challenges and in the last few months, we have witnessed the large UK retailers, New Look and River Island, pull out of Russia. Did they underestimate the market challenges or fall out with franchise partners?

Let’s have a look at potential problems:

  • The increasingly global nature of consumers and the rise of online shopping means that changing the global perception of a company’s brand around the world is increasingly difficult.

Looking at M&S suggested that their problems seem to continue in Russia, as much as the UK. It is challenging to adjust your brand positioning and if you are a value or mid-market proposition in your home market, it is very difficult to become “premium” elsewhere.

  • The current growing strength of Sterling against both the Euro and the Rouble means that any increases in sales and profitability are quickly offset by declining currency. It also makes it harder to maintain higher operating costs necessary to sustain an overseas operation.
  • Local brands will also improve, Russian brands such as Gloria Jeans and Sportsmaster, rapidly accelerated their growth. Being early adopters within their market has given them strong brand position and amazing distribution which is only set to improve.

So who will win?

In Russia, with the exception of a number of global brands, the market is likely to shift to local players; however some of the operational challenges for these companies are high.

Although many have grown extremely quickly over the past five years, the growth in the top line can hide a multitude of operational problems, soon to be uncovered by the increase in competition and the currency challenge.

From our position as head hunters this has brought some interesting problems. It is very easy to find expatriate consultants to identify the challenges in these businesses, but often the difficulty is not identifying the problems. More concerning is coming up with a plan to fix them and then executing it in an unfamiliar culture and working environment.

Although the rewards are very high for the genuine leaders capable of this, my experience would suggest that there are very few serious change agents with a track record of consistently delivering this level of improvement.

In Western Markets a revolutionary retail leader may only have to change 25% (or less) of business operational practices to turn it around. Within a fast growth retailer in a developing market operational practices may have to change by 70% or more in an environment when there is not always a large pool of experienced employees. This should not be underestimated.

The case study I have used here is Russia, largely because of a number of recent projects we have been involved in there. However, I believe that a lot of lessons and observations can stand for any developing market the rapidly changing economic climate in Russia has just accelerated this process.