Struggling to crack the US fashion market? Here are 7 key elements of any winning strategy
UK retailers have been trying to crack the American market for decades – yet recent history is littered with examples of big British brands, from Tesco to Topshop, that have tried and failed.
There are also great successes, including in the years since the pandemic. British sportswear retailer Gymshark opened its US headquarters in Denver in March 2021 – and according to Drapers, the US now accounts for half of the brand’s global sales.
Meanwhile, Nest client ME+EM received £55 million in funding in 2022 to accelerate its expansion into the US fashion market, which is now the brand’s fastest-growing geography.
European brands have an American dream
It’s not only British brands that are looking to the US, Glossy reported that brands from across Europe have expansion plans, with the North American market seen as a safer bet than Europe.
With the US market more shielded from the geopolitics impacting European markets, and its economy proving more resilient than the UK (as seen in record 2022 holiday sales), there is a greater sense of optimism across the pond. Indeed, 61% of US fashion execs expect better conditions in 2023 than in 2021, according to The Business of Fashion and McKinsey’s ‘The State of Fashion 2023’.
The American consumer is also proving more resilient to global challenges – and consumer confidence even improved in Q4.
However, perhaps due to its stronger market, American fashion is extremely competitive. Despite sharing a common language, it also operates very differently from UK fashion, and approaching the market without a clear localised strategy will be an expensive mistake.
Here are 7 key elements of any winning US scaling strategy:
1. Expect your acquisition metrics to look different
Higher competition in the US means that you should expect your traffic to be much more expensive, and you should approach it with different performance expectations. Fortunately, average basket sizes and lifetime value are both far higher, but you need to calibrate your CPA and ROAS accordingly.
According to Nest’s aggregated paid social data, in 2022 Meta CPM was 110% higher in the US than in the UK, while AOV was 72% higher.
AOV is also rising higher than inflation in the US market. We found that AOV increased by 17% YoY between Q4 2021 and Q4 2022 in the US, showing that American consumer spending is keeping pace with the rising cost of living.
2. Pros and cons of setting up local distribution
The question of whether to set up local distribution is an important consideration.
Fashion businesses do have the opportunity to scale without local distribution. This makes the initial stages of expansion cheaper in terms of investment and sales taxes, so you can focus on audience building.
However, this does make both deliveries and returns more expensive, and there is a risk of making your brand less competitive on delivery time. International shipping costs have also increased significantly in the past few years, making this strategy less attractive than it used to be.
Ultimately, both approaches have benefits, so you should weigh up the cost of deliveries and returns against tax savings and the initial cost of setting up local distribution when considering what is right for your brand.
3. No taxation without representation
One positive is that there is no VAT cost to selling in the US. That said, you may have to pay sales tax if you have either a physical or economic presence in the US.
Setting up local distribution counts as having a physical presence, whilst an economic presence (also referred to as an economic nexus) is a factor to consider once a certain level of sales is met in any of the states you are selling in.
How much sales tax you will have to pay differs state-by-state, as well as by how much of your product you are selling in each state and if you have set up US distribution – but as a general rule, you can expect to pay less tax than in the UK.
4. Strategy eats tactics for breakfast
The most common mistake brands make is to try to enter the US gradually with no strategy. With much higher advertising costs, you will blow your budget in no time.
Strategies that work well for cracking the US ecommerce market include:
- targeting either the East Coast or West Coast
- a city-by-city approach starting with bigger cities across the US
- carrying out market research or consumer insights to discover areas with similar demographics to your current UK customers
- an omnichannel strategy in which you open retail stores or pop-ups in areas you are targeting
All things considered, whichever strategy is right for you will depend on a number of factors, such as your product, price point, target audience, business stage, funding model, and more.
5. Performance alone is not enough
Direct response by itself will not deliver good results in the competitive US market. Even if your performance is strong in the UK, you will need to invest in brand-building in the areas that you are targeting if you want reasonable customer acquisition costs and sustainable growth.
We suggest leveraging paid social for cost-effective brand marketing, as you can target your ICP much more effectively than TV and scale up or down quickly. Leveraging digital channels also reduces up-front investment costs and gives you real-time insights into your brand performance in each region.
Depending on your size and funding, TV is also highly effective for building traffic and trust, especially when leveraged alongside paid social. We also suggest opening physical stores or concessions in the areas you are targeting. This is a great way to bring your brand to life, drive awareness and build memory.
California aside, there is also an opportunity to carry out performance strategies that are not possible in Europe due to GDPR. Although iOS 14 has reduced the impact of some targeting strategies, brands can tap into third-party data to target clients based on demographic info.
6. A different creative language
Creative trends differ between the UK and the US – but also between different states. You can expect USPs that perform well in London to do so in Liverpool, but that is not always the case when comparing New York to Los Angeles. Having a partner that runs ads in the US helping with creative production will deliver much better results than going in cold.
Consumers in the US respond strongly to bargains. Whilst British consumers tend to wait for a bargain before purchasing, American consumers are more impulsive when it comes to sales. According to Nest’s aggregated paid social data, ‘Sale’ messaging delivered a 46% higher click-through rate on Meta in the US compared to the UK.
Americans are also willing to spend more on high-quality British products, building on the reputation that ‘Made in Britain’ products are premium. We saw that ‘Quality’ messaging delivered higher returns, with a 52% higher ROAS in the US when compared to the UK.
7. Find a partner with US experience
You do not necessarily need a partner on the ground to enter the US market, but we definitely recommend working with somebody who has prior experience expanding into the US.
This will help ensure you have the right strategy for your brand. Your partner will know what works and what doesn’t, and you can have confidence in your investment.
More than 90% of Nest’s clients sell internationally. Whether you’re set on expanding into the US or localising for European markets, our team can build a tailored strategy that drives your international expansion. Contact us here.