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SJ Special Report: LF Europe President and Cherokee CEO On Penetrating New Markets

The globalization of retail has tested the mettle of many brands and labels as they have moved from their markets of origin into new, lucrative, and sometimes-unforgiving waters. The most common stories are about brands seeking to take advantage of the expanding consumer culture in China, but an equally strong movement has brought European brands to the United States, US brands to Europe, and, in one well publicized flop, the Chinese shoemaker Li-Ning to the US.

Speaking with Sourcing Journal on the subject of entering new markets, Dow Famulak, President of LF Europe, said, “The first thing you need to do is make a real practical assessment of whether or not you should even take a brand into a market. ”

Some brands that are popular in the United States have no cachet in Europe, for example. It can be difficult or impossible for a brand to independently determine its value outside its home market. Famulak said, “Every brand that comes to you when they’re hot comes to saying – I’m really hot. The first thing you have to do is make an honest assessment of whether or not the brand will travel.”

The Li & Fung group has taken brands across borders on many occasions, most recently from Europe and the US into Asia and from the US into Europe. They benefit from their ability to source globally, as the brands often need different sourcing to be able to sell in different countries.

For very strong brands, the decision to move into a new market is about expanding geographically, and the product line does not need to change much. For other brands, companies are taking them into new markets to grow their brand.

Some companies doing this are H&M, and Zara, who have entered the US market in order to expand the reach of their brand, but who lacked a recognizable image when they arrived here. It is equally common for US brands moving to Europe to tailor their offerings. Carhart, for example, is a workwear brand in the United States, but is a boutique brand in France.

Tommy Hilfiger is another brand that moved into the European market and changed its thrust. Their European line differs from their American line in style, price point, fit, and target market.

Famulak said, “You need a brand that is recognizable and has credibility. Once you have that, you need to look at Europe and ask whether the product from the US will sell in Europe. If not, a brand may have to design different product at a different price point to be successful.”
At the same time, it’s vital not to lose track of core principles.

“A brand has to keep its DNA intact. From a supply perspective, you’re probably going to have the same team handling the product. You might use different factories, and there are different issues of vendor compliance and sustainability, but having that same team on the back end helps to keep the DNA,” says Famulak.

Once you know the brand works, most of the pitfalls are related to everyday business matters – inventory issues, for example.

At Cherokee Group, CEO Henry Stupp is pursing a strategy called Licensing 3.0. Cherokee operates in over 40 countries and has annual global sales of almost $2 billion.

Stupp believes that successful licensing is about delivering a total package directly to retailers such as Tesco and Target. It’s also about biculturalism.

“When we work with a new partner, we bring them a turnkey approach – sourcing, product development, tech packs and advertising, in-store, social media campaigns, and promotions. We’re a fully engaged partner – we don’t walk in without exhaustive research,” says Stupp.

This gives stability and consistency, preserving the integrity of the brand. Stupp says, “We must have a brand and a product that is consistent around the world in order to achieve global scale, because that gives our brand the ultimate opportunity for longevity and future growth. We have to have that DNA baked in to every single item that we produce.”

For manufacturing, Cherokee and LF Europe both focus on their role as partners with brands, licenses, and the retailers they are selling through.
Cherokee connects retailers with recommended factories and has a published non-conflict agreement stating that they do not take payments from the factories. This makes it easier for the retailers to trust that the factories have been selected based on quality, not payments.

Li & Fung has long-term relationships with a network of factories, also based on trust, specialization, and a legacy of high quality. For both companies, this means their partners and clients can worry less about the supply chain and more about selling product.

For smaller companies, it is critical to seek reliable partners in new locations and build lasting partnerships. This allows for gradual brand penetration, and also provides a base of local knowledge.

“We must understand how each of our partners do business, and how the consumers operate in each culture. Each of our lines gets the benefit of accumulated data from all of our partners about what worked,” says Stupp.

For example, Stupp says, “Colors differ wildly from China to America and from the United Kingdom to America. We find the colors a little more serious in the United Kingdom, darker than they are in Latin America. Weight differs as we move from the northern hemisphere to the southern hemisphere. We’re actually simultaneously dealing with four seasons at all times, if you think about it, because we’re dealing with the northern hemisphere and the southern hemisphere, and the east and west.”

The Chinese market tends to look toward the US less than might be expected, according to Famulak.

“If you look at the Chinese or Asian consumer, they are more focused on European brands than American brands. They like the cachet of the more established European brands, so tend to gravitate towards them. Of course, if a brand from anywhere is hot, the Asian consumer will be interested in it.”

A year-round approach can benefit manufacturing partners, because they can count on steady ordering cycles. Also, omni-sourcing becomes ever more important when diversifying globally, as brands and labels move through differing free trade regimes.

Famulak gave a few examples of situations demanding more than a China Plus One strategy. He says, “Historically in Mexico there were incredibly high tariffs against Chinese product. If you were going to sell product to the US, you might source it in a place like China or Indonesia, but the same product for Europe may come from Vietnam because Europe is not closed to products made in Vietnam.”

For fast fashion, it becomes more complicated.

“Let’s say you’re a US business and you want to do fast turn – you’re going to do some of it from Nicaragua or Honduras, or you’re going to put it on a fast boat from China. If you’re going to make the same product for Europe, you’re going to need an office in Turkey, and you’re going to need to know how to work with Egypt or other North African countries,” says Famulak.

For Cherokee, omni-sourcing fits into their broader strategy of Licensing 3.0 – offering a total package to retailers.

“We can say, here, it’s turnkey. We’ve designed it, we’ve helped source it, and you can tap right into this maker. They’re compliant, they’re world class, and you’ll get better pricing, faster delivery, better quality. We’re always looking for the world’s best makers,” says Stupp.

Moving a brand or label into a new market can be a tricky business. Countless labels and retailers struggle to find the right balance of brand DNA and local adjustments to find success. Successful retailers and brands use multi-pronged strategies and understand that once the marketing, cultural adjustment, and brand research is out of the way, success or failure in a new market is largely a matter of strong business practices, just like it is at home.

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