The World Wide Web may be the fastest-growing retail space, but the physical world itself is still a target for U.S. retailers seeking growth. The U.S. led all other nations in global retail real estate expansion last year, opening more stores overseas than anyone else, according to a new report from CBRE Group.
American retailers already operate in more foreign countries than Asian and European retailers do, but the gap is now widening. U.S. retailers expanded internationally at a faster pace last year than in 2014, accounting for 21 percent of retailers entering cities internationally. Italy was second at 14 percent and the United Kingdom third at 11 percent, according to CBRE.
"I think it's an indication that U.S. retailers are seeking growth, and one of the main drivers of growth is to expand into a channel that they're not in today," said Anthony Buono, chairman of CBRE's global retail executive committee.
The retail real estate market in the U.S. is recovering but at a very slow pace, with so much shopping today moving online. Neighborhood and community shopping center vacancies were unchanged in the first quarter of this year at 10 percent, and retail mall vacancies were also unchanged at 7.8 percent, according to Reis.
"Although the national vacancy rate technically did not decline, net absorption continues to exceed new construction, a heartening sign for a market that remains mired in a slow but steady recovery," noted Ryan Severino, Reis' director of research, in a recent report. "While results from the first quarter have not shown any acceleration in the retail recovery, the overall economic environment remains conducive to further improvement."
While U.S. retailers are gaining brick-and-mortar ground overseas, international retailers are not coming to the U.S. at even close to the same pace. The American retail market is mature and expensive, and international retailers find it very competitive. The biggest entrants into the U.S. market are restaurant food chains, like Pret a Manger, a company based in the United Kingdom.
The top markets benefiting from international expansion are, not surprisingly, in Asia. Hong Kong, Singapore, Tokyo and Taipei, Taiwan, head CBRE's list. Moscow, London, Dubai, United Arab Emirates, Beijing, Bucharest, Romania, and Doha, Qatar, round out the top 10. As for what's moving, food and beverage retailers lead, with luxury and business following, and then midrange fashion.
American brands are certainly popular overseas, but some more than others. The Gap announced last week that it will close 75 Old Navy and Banana Republic stores overseas, saving the company an estimated $275 million. While this is just a tiny piece of its 3,700 retail stores outside the U.S., it shows that not all brands work everywhere.
In a new twist, U.S. retailers are starting to move home stores overseas. This is a challenging sector, since the stores are generally large, and tastes in products for the home vary dramatically depending on the culture. CBRE cites successes from U.S. brands like Zara Home and Crate and Barrel in international markets.
One surprising driver of international growth in retail real estate is the internet itself. While online shopping has certainly cut into in-store traffic, it has also expanded international awareness of U.S. brands.
"What retailers are seeing is that customers in those global markets are saying, 'You have an internet brand, you should be opening stores here.' The internet is an activator for global expansion," added Buono.