Comment: Retailers need to learn the nuances of trading in the USA

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Tesco’s recent announcement that it is abandoning its strategy of operating stores in the US is just the latest example of how difficult it can be for British retailers to succeed on the other side of the pond.

Despite huge investment in its US Fresh & Easy business, Tesco has never made been able to make a profit over there.

Whilst there is often an assumption that Britain and the US are quite similar, the truth is that we are culturally very different. Perhaps that’s why nearly half of British retailers believe the US remains the hardest market to crack, according to the findings of a survey released by Barclays. Despite our shared language, respondents actually considered the US to be more difficult to master than China, which ranked second in the survey.

A common mistake that many British retailers have made over the years is to treat the US as a single entity – even though its massive population and physical size make it more akin to Europe. California, for example, would in fact have the eighth biggest economy in the world if it were its own country.

Of course, different states in the US aren’t exactly like different countries, but they still require retailers to adopt a highly targeted approach. Securing the right location is essential. Just look at Pret A Manger. The chain now has 34 locations in New York City – with more opening soon – plus seven in both Washington DC and Chicago, and two in Boston.

Pret understands that the culture found in less cosmopolitan cities may not be congruent with the company’s offering, pricing and brand. Today, the company hasmore than 50 locations in the US – but they are all concentrated in just four US cities. It’s a strategy that has clearly paid off: Pret in 2011 had estimated US sales of $46.2 million, up nearly 30% from $35.8 million in 2010.The lesson here is that retailers must know their customers’ culture if their products are to transcend geographical boundaries.

Jack Wills is another success story in this regard. The ‘Fabulously British’ retailer has 13 outlets in the US. This makes it the company’s largest overseas market. The company has made a name for itself by capitalising on America’s love of all things British. However, like Pret a Manger, Jack Wills also understands that its brand – targeting preppy, anglophile university kids, hanging around Martha’s Vineyard in hoodies and t-shirts – won’t necessarily resonate across all 50 states.

Topshop, meanwhile, has taken a slightly different approach to cracking the US market. After opening just four stores in the US, including a new 25,000 sq-foot store in Los Angeles, the retailer opted for a very considered and low-risk approach to expansion.

Rather than pouring millions into new outlets right away, Topshop agreed a deal with the US department store Nordstrom to sell its clothing in some of its branches. This measured approach not only helped to de-risk the venture by sharing any potential pain, but also enabled the company to build its brand and win consumer trust much more quickly; sharing the shop floor with other brands that are well-liked by the store’s customers makes a new brand seem less ‘alien’.

Smart retailers are realising that they must not waste money on staffing, merchandise and sky-high rents before doing some serious groundwork.

While some people may still believe that the UK and USA are simply two nations divided by a common language, retailers that want to enter the US market need to realise that the differences actually go much deeper than that.