The challenge of retail in Asia

Retail - or the expansion of mono-brand point of sales - is the only route to growth for brands today, especially in Asia. Yet, the growing costs of doing retail business, the advent of e-commerce, the current market turbulences and the economic uncertainties are all making life more difficult for established retail brands, what more new entrants. Brands that are not strong in retail and, as a consequence, are not strong in Asia, now face daunting challenges to penetrate the market and catch up with their long-established competitors.

European brands initiated 50 to 60 years ago have had a long growth path. About 30 years ago, visionary brands started to develop their retail business out of revenues from traditional wholesale. Cash generated from wholesale was used to finance capital expenditure for retail, thus giving those brands a competitive advantage that now is evident. They started by opening stores in major European cities like Milan, Paris and London, followed by openings in Asia - in Hong Kong first - while properly pacing and structuring their retail development

Meanwhile, retail has evolved from a relatively easy activity 30 years ago to a sophisticated business that today requires companies to be flawless if they are to succeed, especially in Asia. In fact, doing retail in Europe is less stressful than in emerging markets and in Asia in particular. If in Europe, a brand is somehow protected by key-money (the sum a tenant has to pay to the outgoing tenant if the latter agrees to hand over the location before the end of the lease) and long leases, in Asia these safeguards do not exist. Very short leases of one to three years, very high rents ranging from an average of 250 to 300 euros (S$389 to S$466) per month per square metre in Singapore to 500 euros per month per square meter in Hong Kong.