America's shopping venues are getting an international makeover as moderately priced apparel retailers from Europe, Asia and Canada increasingly set up shop in the U.S.
In coming to America, these retailers are following high-end European designers, who planted their flags in recent decades, expanding first to big cities and then to smaller markets. Now, more foreign retailers are taking advantage of the weak dollar, which reduces the cost of their initial investment, and favorable terms on store leases as landlords look for new tenants to attract shoppers as midpriced U.S. chains like AnnTaylor Stores Corp. and Talbots Inc. contract.
Sweden's Hennes & Mauritz AB, with 156 U.S. stores, calls the U.S. its "largest expansion market." Since the beginning of its fiscal year in December, the "fast-fashion" chain has opened 11 stores in the U.S., including its first store in Seattle on Friday. It plans about 27 more openings this fiscal year, including a store at Westfarms Mall in Farmington, Conn., in August.
Canadian yoga-wear retailer lululemon athletica Inc. plans to open 32 U.S. stores this fiscal year, almost doubling its U.S. presence to 66 stores. South Korea's Who.A.U, which is taking aim at Abercrombie & Fitch Co.'s Hollister chain, hopes to open 450 stores in the U.S. in the next 10 years. And Canadian teen retailer Garage hopes to have 500 stores in U.S. malls in seven to 10 years.
Also expanding in the U.S. are Spain's Zara (owned by Inditex SA) and Mango chains, Germany's luxury sport brand Bogner, Russia's Kira Plastinina, Iceland's Kisan, Japan's Muji and Britain's Topshop chain and Karen Millen brand. "There aren't too many important global apparel retailers that aren't looking at the U.S. market for its potential," says Ken Nisch, chairman of JGA, a Southfield, Mich., retail-strategy and design firm.
Opening shop in the U.S., of course, isn't a slam dunk. There's no guarantee that the economy -- or apparel sales -- will recover from the current slump any time soon. Furthermore, the U.S. is a low-growth market where retailers have long had to fight for market share. But "the U.S. is still the world's largest consumer market," says Christine Day, lululemon's chief executive. "Even if it contracts, it would be a mistake not to be in it."
The retailer, which is opening both urban and suburban locations, has been able to negotiate lease terms that are more favorable across the board than a year ago. The terms, which vary by lease, include fewer built-in rent increases, the option to terminate leases after three years rather than five years and higher sales thresholds before lululemon has to pay a percentage of sales in addition to base rent.
Many international retailers are approaching U.S. expansion cautiously. Muji and Topshop, which is set to open its first U.S. location in New York in October, plan to wait and see how their stores in New York perform before opening stores elsewhere. That's the lesson of Japanese clothing chain Uniqlo, part of Fast Retailing Co., which launched its U.S. operations three years ago with stores at three New Jersey malls. Last summer, Uniqlo closed the stores in favor of building brand awareness via the flagship store it opened in New York's SoHo in late 2006. A spokeswoman says the retailer is looking at further expansion in the U.S.
Foreign midtier retailers still account for only a small percentage of U.S. retail sales overall. Twenty-two foreign chains queried by The Wall Street Journal said they will operate about 475 stores in the U.S. by year's end. The U.S. had roughly 150,000 clothing and accessory stores in 2006, according to the latest government data. But the value of foreign retailers' investments in clothing and accessory stores in the U.S. continues to grow. Between 1997 and 2007, it rose more than 60% to $4.1 billion, according to the U.S. Commerce Department's Bureau of Economic Analysis, which released the most recent data Friday.
Furthermore, foreign retailers have had an outsize impact on the U.S. market. The invasion of fast-fashion chains like H&M and Zara has prompted U.S. retailers from Gap Inc. to J.C. Penney Co. to update their selections faster or more often.
Still, it is unlikely that the influx of foreign chains will offset American store closures that have pushed U.S. mall vacancies to 6.3% in the second quarter, their highest level since 2002, according to market-research firm Reis Inc. For example, over the next few years, AnnTaylor is closing about twice the number of stores lululemon plans to open in the U.S. this year.
International retailers "will provide some incremental demand for the better properties," says Rick Sokolov, president of Simon Property Group Inc., the largest U.S. mall owner by market value and number of properties. He says those most likely to benefit are top-tier malls in high-traffic urban areas generating the highest sales per square foot.
At many malls, developers looking for new concepts to excite shoppers are giving international retailers the deals traditionally reserved for top tenants. "These terms have always been there for the hot retailer, but historically the hot retailer was an American company," says Julie Taylor, senior vice president with real-estate-brokerage firm Cornish & Carey Commercial-Oncor International. "Now, more often than not, those are foreigners."
Source: Wall Street Journal
Labels: Abercrombie + Fitch, Ann Taylor, H + M, Retail Trends, Talbots
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