Kikki.K losses hit $8 million as global expansion continues: Why retailers play the long game to go overseas

The chief executive of stationery retailer Kikki.K has said he expects further investment will be needed for the brand to continue expanding into a range of global markets, after the company posted a reported 65% jump in losses this year.

Retail heavyweight Iain Nairn told Fairfax the brand has been undertaking “heavy investment” in marketing, the brand’s global head office, and staff for its UK and Hong Kong store rollouts. Fairfax reports the company’s accounts show an $8.4 million loss for 2017, up from a $5.1 million loss in 2016, as the global expansion continues.

The chain now has more than 100 stores across Australia, New Zealand, the UK and Hong Kong. It expanded into the US through a partnership with Nordstrom this year.

Nairn has said the global strategy is a “long-term play”, and did not rule out raising further capital to help the stores grow.

Kikki.K is not the only Australian stationery player taking on the globe. The UK market is currently filled with a range of brands from Down Under, including Premier Investments’ Smiggle and Cotton On Group’s Typo.

Weighing up the risks of global expansion

Retail expert and associate professor at QUT Business School Dr Gary Mortimer says Nairn is probably correct in saying investment in global stores will be a long term proposition for Kikki.K. However the fact remains that there are many risks when a retailer takes on a new market.

“It is a long game, but the fact is when you enter a global market, there are significant costs involved,” Mortimer says.

“From property to management and supply chains becoming longer, we often forget how expensive it is.”

There’s a clear reason lifestyle brands like Kikki.K are so keen on global expansion, Mortimer says: the size of the Australian market means there is only a small base of customers to encourage to spend with you.

“In a market that’s fairly saturated, the move is to go international and find markets that are similar,” he says. 

Other retail analysts agree: when Kikki.K announced its partnership with Nordstrom, Euromonitor International senior analyst Bettina Kurnik observed “over recent years, international expansion has proved popular for Australian fashion stationery brands as they look for new revenue streams, due to Australia’s low dollar”.

While Kikki.K, Typo and Smiggle all seek to cover different demographics, there has been a global decline in stationery spending in markets like the US, Kurnik said in June.

Mortimer says there is a risk brands will expand into an international market only to find out too late that market is saturated, but it’s likely Kikki.K has been watching the space for some time.

“We refer to it as a pioneer and follower strategy, where Kikki.K will have entered [markets] only after they’ve watched,” he says.

“It’s the same thing we saw here with Kaufland. They registered their trademarks in about 2014, then sat back and watched Aldi [in Australia], and waited.”

Three questions to ask before expansion

Mortimer says retailers looking at going global need to keep in mind it will often take years and multiple stores before a profit is turned in a new market.

However, there are a few key questions a business can ask before making that leap.

The first, while it may seem obvious, is who the new competitor base will be, and what they offer.

“You need to grow volume first — understand who your direct competitors will be,” he says.

Next, make sure you can clearly articulate what you offer that others don’t, and ensure you can explain this to shoppers in the new market.

“Make sure the new market actually understands how you are different.”

Thirdly, weigh up whether you’re going to form a partnership or go it alone, crunching the relative long-term costs of both possibilities, Mortimer says.

“Often a safer way to test the market is to go in as a concession, in a big department store like Nordstrom or Macy’s,” he suggests. 

“The cost of standalone stores could then maybe later be supplemented by those concessions.” 

SmartCompany contacted Kikki.K for comment but did not receive a response prior to publication.