It has been interesting to watch the response of businesses to the Brexit vote since the EU referendum took place last year. In some ways very little has changed, as businesses have carried on doing what they do best amid all the uncertainty – innovating, expanding and serving their customers.
Ambitious, fast-growing brands will often look to grow internationally. Indeed it is encouraging that even against the backdrop of Brexit, so many of the businesses we speak to at The MBS Group are still looking to expand both into the UK and Europe, and from the UK and Europe out.
But global growth brings challenges all the same, from building operations in new territories and putting the right teams in place, to harnessing investment that unlocks the growth potential of local consumer markets. These challenges are compounded by issues like Brexit and the presidency of Donald Trump – who has signalled a more protectionist stance for the US economy – and should be weighed against the huge opportunities.
With all of these issues top-of-mind, I was delighted to host a dinner this week on the topic of international expansion on behalf of MBS and in partnership with private equity firm L Catterton. Joining us were CEOs and chairs from a host of leading brands, each with their own international growth stories to tell.
As the largest consumer-focused investment firm in the world, L Catterton is the embodiment of dynamic global growth. The firm operates six distinct and complementary fund strategies focusing on consumer buyout and growth investments across North America, Europe, Asia and Latin America, managing assets of over $14bn. It was a privilege to welcome several partners and senior executives to the dinner to share their experiences of building truly global businesses.
The story behind the firm’s origins is fascinating in itself. L Catterton was formed in January 2016 through the merger of three organisations: Catterton, a consumer-focused private equity firm founded in 1989; L Capital, the private equity arm of luxury group LVMH; and Groupe Arnault, the family holding company of LVMH chairman and CEO Bernard Arnault.
A partnership of this kind is rare in the private equity world, but the decision to merge was a bold, creative move that signalled the ambition of both Catterton and LVMH to act fast in a quickly changing global market rife with opportunities.
LVMH had already been an investor in Catterton’s funds for almost two decades, where investments were focused primarily in the US. L Capital, meanwhile, invested in brands in Europe and Asia. The merger enabled the two firms to harness each other’s knowledge in their respective regions and – in the words of L Catterton co-chief executive Scott A. Dahnke – “create a global consumer investing franchise with unmatched access to resources in the industry”.
On the basis of this comprehensive international strategy, L Catterton has set about investing in businesses in high-growth industries around the world. Previous investments have included companies such as Intercos and Restoration Hardware, while since the merger it has sealed deals with the likes of professional makeup brand Il Makiage and premium cycling brand Pinarello.
It was fascinating to hear the insights of both L Catterton and the other businesses in attendance at our dinner. As the conversation turned to global expansion and the opportunities and challenges businesses face today, I was interested to hear attendees discuss the new ways that brands are using online data to decide how and where to launch.
Indeed one brand explained that it had decided to set up several shops in a particular city in the US because it was recording strong demand from that area on its website. Alongside this micro-targeting, the brand used social media and other digital channels to drive buzz and awareness in the city when it launched.
But attendees also warned against getting “lost” in data when expanding overseas. For example, one executive spoke about the importance of getting a feel for a new market, which could involve visiting local stores to understand the major players and competitors, and the scope for innovation. This instinctive approach can complement and refine a data-centric approach, it was suggested.
There was also discussion about the importance of hiring local nationals to provide an in-depth understanding of different countries. Some attendees spoke of the need for brands to remain true to themselves and retain their core DNA, which could include immersing the local hire in the home market for a period of time to provide them will a full understanding of the brand and business.
Several attendees also highlighted the dangers of overstretching when expanding internationally. They urged brands to show a degree of patience by first launching in those countries that offer the highest rate of success, rather than investing excessive amounts where the risks are higher.
This could include the US, where many brands have come unstuck due to the scale, complexity and level of competition in the market – particularly in places like New York. It was argued that businesses should avoid “flag planting” and market “skimming” in favour of building depth in key markets. This is often a better way of achieving proof of concept when trying to secure investment for international expansion.
Interestingly, though, there were also warnings about the need to act fast and ride the momentum wave when business are doing well, for fear of missing out on possible opportunities in other countries. Again the role of data was highlighted as being critical here in helping business to make calculated decisions about their approach to overseas growth.
All of these insights are hugely valuable as businesses look to build global strategies in today’s challenging political and economic climate. My perception from all the positive discussions we heard – and from L Catterton’s amazing story – is that there remain enormous opportunities for businesses when they show flexibility, entrepreneurialism and careful planning in their international investment strategies.