In 2012, retailers have continued their entrances into new markets, such as Asia-Pacific, Africa and Latin America, based on the promise of new customers and regional expansion. But expanding overseas requires a lot of prep work. It means understanding market conditions, having a supply chain in place, building brand awareness and getting to know the vagaries of each region’s real estate laws and structures.

To grapple with the ramifications of this, ICSC will be hosting the Retail Real Estate World Summit from September 11 through 14 in Shanghai, China.

The summit will assemble industry, political and financial leaders who will openly discuss the globalization of retail. Areas that will be discussed include the globalization of retail, the state of retail real estate investment, the effect of macroeconomic conditions and political climate and best practices for global retail property development.

Glenn Rufrano, president and CEO of Cushman & Wakefield and an ICSC past trustee, is speaking at the summit in a session entitled The Global Retail Panorama. Rufrano sat down with Retail Traffic to discuss the conference as well as how retailers go about deciding to expand internationally and what happens after they make that decision.

Retail Traffic: Why are U.S. retailers increasingly considering international expansion?

Glenn Rufrano: If you think about what’s going on here, we certainly, as did other places, from 2008 to 2010 had some issues in the economy, including high unemployment and reduced consumer spending. So that creates an environment without much growth. Even today, with things a bit better, retailers are looking at 1.5 percent to 2.0 percent growth rates. So you have to think about where you can be where there is more growth.

Additionally, many retailers have matured in their penetration of markets within the United States. And so they say, “Well, I now need new stores. What can I do?”

Two questions arise. Are there areas growing more than the United States? Yes, there are. And, secondly, where can I put myself that is the most profitable?

That will translate for many retailers into looking at dense urban centers. So can they find growth markets and can they find dense urban centers and can they find growth markets with dense urban centers?

RT: So where are retailers looking?

Rufrano: Even though, long-term, we have a global economy that is linked, at any given time there are areas that are de-linked. In the United States, we have low to moderate growth. But Brazil has high growth. And so does China. And India.

If you’re a major brand tenant, you have to think about those growth markets… We are absolutely seeing tenants looking at all of those markets. And the reason is because of the high growth. They think they can provide differentiation within those markets and create profits for themselves.

The second thought, which is urban centers, is another important thought. [There] may be markets that are not high growth, but are very good dense urban centers. Those too may be areas retailers want to look at.

So another form of destination are cities like London, Paris, Milan and Hong Kong. These are dense urban markets where profits can be created because the brand is distinct [and] you have an ability to garner new clients, even if the overall economic picture isn’t as robust as [in] some other places.

RT: So once a retailer has made the choice to go international, how do they implement those plans?

Rufrano: In some cases you hire firms like Cushman & Wakefield. That’s the reason we know what’s going on. So tenants will come to us. We have a presence across the globe.

They ask us to come in and understand their formats. We look at size, functionality, whether they operate on one level or two levels, etc. How are they the most profitable? And once we understand the dynamics, we do studies so that they understand, for example, Sao Paolo and the demographics and how leases are structured and what the requirements are and the laws and how to hire.

As an example of how that is occurring, we are holding a conference in New York that will be sponsored by Cushman & Wakefield and the law firm Wilkie Farr & Gallagher LLP. The purpose of that conference is to expose U.S. retailers to the Brazilian market. We will have presentations on fundamentals and demographics. And Wilkie Farr will explore the legal side, explaining how leases work in Brazil and what the requirements are. So in one full day you can get a market overview and a legal overview.

RT: How important is it to work with an outside firm when expanding internationally?

Rufrano: There are some tenants that have their own internal real estate professionals and they will send them to markets around the world. But in most cases, retailers have not been exposed to certain markets and they will not try and study it on their own. They hire some form of consultant. And then after they study things, if it’s an appropriate market, they hire someone to go out and find sites.

And other things come into play. If someone at Gap, for example, is going to pick Australia, they not only have to think about the demographics, relationships and leasing, but it’s also the Southern Hemisphere. So when it’s summer here, it’s winter there. So they also have to think about distribution and to get the right goods to the right markets in the right seasons. So moving from a home base to cost-effective global distribution takes a lot of time and effort.

RT: Do you think the pace at which retailers are expanding internationally is increasing?

Rufrano: I would characterize it as accelerating. The primary impetus is that retailers have matured in their home markets. If they are going to grow, they have to find other markets.

RT: During the recession, it seems like retailers have improved how they handle supply chains and run on tighter inventories. Does the improvement in logistics and supply chain management make it easier to expand internationally?

Rufrano: All businesses that got through the Great Recession had to do more with less, or else you were gone. The retailers that are out there now were able to become more efficient and better manage supply chain and logistics.

One other thing that is important is that once retailers—and every form of manufacturing actually—recognized that they could produce goods in other locations outside of the U.S., the supply chain became globalized.

That in itself—having elements of the business outside your home base—makes it easier to move around the globe. The big push, of course, is China. I’m not sure there are many retailers that don’t buy something from or produce something in China. So, once you are buying from China, India, Thailand, etc., you are already global. You have a global supply chain and global distribution becomes possible.

What’s left is the entry of stores into new markets.

RT: How does brand awareness factor into this? We’ve seen examples in the U.S., for example, of international retailers opening large flagships in New York as a way of introducing themselves to U.S. consumers. Is that what U.S. retailers are doing internationally as well?

Rufrano: You need market positioning for a series of reasons. You need brand awareness. But since you also have to create the supply chain and logistics to get the goods onto shelves, you do need enough [capacity] for it all to make sense. It’s going to be very difficult for the Gap to be profitable by opening a single small store in a market anywhere in the world. They need a critical mass for it to work.

So it’s a question of recognition. But it’s also about [capacity].

For some retailers, it may work to have a large flagship. If you’re Apple, and you’re a destination, you can sell a lot of merchandise out of one large store and not have to open multiple stores in a market. But if you’re LaCoste, you don’t have the same brand recognition and you’re not the same kind of destination. You need multiple stores to penetrate a market. Both models can work. It has a lot to do with the retailers themselves as to which strategy to take.

RT: We also have seen some retail real estate owners internationalizing. Does that help this process as well? For example, does it make it easier for a retailer to expand to a new country if one of the ways they can do that is by working with a developer they’ve worked with in the United States?

Rufrano: There are many examples of U.S. owners overseas now, including Thor Equities, Simon Property Group, General Growth Properties, Taubman and others. They have positions in places like London, Europe, Brazil, China and South Korea. There’s also Gazit Globe, run by Chaim Katzman, that has a major interest in Equity One in the U.S. and major interests in companies in Canada, Sweden and Germany.

So you’re right. Our developers—perhaps not [to] the extent relative to their size in the U.S—do continue to look overseas. And that could help make our retailers more comfortable because they can move into a center owned by one of the major names from the U.S. with whom they may have relationships and a lot of trust.

But, still, all real estate is local. It is much easier to get into other countries by working with local owners to get properties built.

So I don’t think developers going international is a major driver for retailers. It’s a phenomenon that will continue to occur, but it’s not dependent.

RT: You have a unique position having had the experience of running New Plan Excel, then heading up Centro Properties Group in Australia, serving on the board of General Growth Properties and now having landed at Cushman. How has that experience informed how you look at the globalization of retail?

Now, at Cushman, I have a view of the retail environment that’s global. The difference is that Cushman has 243 offices in 60 countries with people that understand retail in all of those countries.

I can also take my knowledge of the U.S. and Australia and really broaden it to the rest of the globe with a good feel for what retailers need and want.

RT: What do you expect to get out of the Global Summit?

Rufrano: I went to the last Summit in Cape Town and I found it very educational. I think this one will be even more so. Shanghai is a great spot for this. It’s almost Ground Zero for all the new trends that we’re talking about coming to fruition. So having it in Shanghai, a dynamic growth market, and having some of the best people from around the globe being there, will be great. I am looking forward to getting an education.