Retailers Told to Broaden Their Horizons

Discussion
Oct 27, 2010

By George Anderson

Retail executives and economists at the World Retail Congress
in Berlin, Germany are not looking for Europe or the U.S. to fall into a double-dip
recession. That said, many are predicting slow growth for the foreseeable future
and think it’s time to look to developing markets to spur expansion.

"The retail industry has grown too rapidly and has increased capacity
far more than demand over the last decade and now we’re left with too many
stores, too many retailers and certainly too many shopping centers," Dr.
Ira Kalish, director of global research at Deloitte, said of the U.S. retail
business.

Stuart Rose, chairman of Marks & Spencer, said the current economic
environment does not concern him as much as the recession in the 1970s did.

"Retailers have got to be more efficient, got to innovate and got to
be confident," he said.

Dr. Kalish said retailers will be looking to use
cash on hand to expand through acquisitions in markets such as Brazil, China,
India and Russia.

Mr. Rose said an alternative to going headlong into a new
market is to test the waters through e-commerce first.

Online is "already
our largest store" and "the internet will
be the advance guard into new markets."

Discussion Questions: Do you expect to see substantially more global expansion
on the part of U.S. retailers? Do you favor the online or acquisition route for
moving into foreign markets?

Please practice The RetailWire Golden Rule when submitting your comments.

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11 Comments on "Retailers Told to Broaden Their Horizons"


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Dr. Stephen Needel
Guest
10 years 6 months ago

Expansion is a good thing for businesses, but only if it is done well. Done poorly, it’s a great way to get rid of your extra cash. International expansion is even harder to do well (hello Tesco, welcome to America). While global expansion may be a great idea for using up extra capacity and getting real growth, underdeveloped countries are underdeveloped for a reason. There’s a lot more homework that needs to go into globalizing other than pointing to a market and saying, “there’s a whole bunch of people there–why aren’t we there?”

The e-commerce question is a chicken and egg question–can you build a business first as e-commerce, then expand to brick and mortar? I’d love to hear from people with expertise, as long as we don’t take Amazon as our example.

David Biernbaum
Guest
10 years 6 months ago

Global expansion for retail chains sounds glamorous but it’s easier said than done, and it’s seldom profitable, and never predictable. Much easier for McDonald’s and Taco Bell than say for a U.S. drug chain or even a mass merchandiser. Wal-Mart has had to nearly re-invent itself to have success overseas.

Bill Emerson
Guest
Bill Emerson
10 years 6 months ago

Yesterday we congratulated Macy’s on finally recognizing that customer preferences and needs vary within the continental US. Today we’re wondering if retailers are going to expand into different countries, different languages, different cultures. I think I’d focus on getting the US right before I ventured abroad.

Dan Berthiaume
Guest
Dan Berthiaume
10 years 6 months ago

Absolutely–Walmart is preparing for entry into South Africa and new Nielsen data shows there is a largely untapped market of affluent consumers in Indonesia (the world’s fourth-largest country by population). A new upper class is forming in many emerging markets and its members are more concerned about outward signs of status than the affluent in more developed nations. Ironically, upscale retailers may have some of the best opportunities in emerging markets.

Gene Detroyer
Guest
10 years 6 months ago
Dr. Kalish is so right. The U.S. retail business “…has increased capacity far more than demand over the last decade and now we’re left with too many stores, too many retailers and certainly too many shopping centers.” Growth will be minimal and left to new concepts. Unfortunately, U.S. retailers have been slow on developing new concepts, while foreign retailers have dominated the buzz and growth. If the only real opportunity for growth is new real estate, it isn’t going to be in the U.S. However, a retailer must have a sustainable competitive advantage to enter and succeed in other countries. Other than Walmart whose SCA is operations, few U.S. retailers offer something so unique as to make an impact. Acquisitions are not an answer. Acquisitions are not growth unless 2+2=5. Again, other than Walmart, what U.S. retailer brings any kind of thinking to improve revenues or operations in an acquired firm? It is more likely to happen in the other direction, foreigners to the U.S. It matters not if ground is broken online or in… Read more »
Joan Treistman
Guest
10 years 6 months ago

I’m in agreement with those who say you must know about the market you plan to enter. Starting with e-commerce to test the waters depends on the integration of e-commerce in that country and culture.

There’s a lot to study regarding how purchase decisions are made, the guidelines for communication and of course having the appropriate products for sale. This type of venture is not for the faint of heart or those without deep pockets. But I would not rely on e-commerce results to predict the potential of brick and mortar opportunities.

Kim Barrington
Guest
Kim Barrington
10 years 6 months ago

The Big Box stores won’t be able to do it. This type of expansion is going to take some real ingenuity which they don’t have.

The infrastructure in developing economies is not the same so to use the same approach as what has been used in the United States is simply foolish.

But there are ways to do this that will jumpstart the whole process. I’m totally on board with international expansion, just not in the same way as these guys approach the U.S. market.

Robert Straub
Guest
Robert Straub
10 years 6 months ago

Mr. Detroyer asks for another example of a US retailer beyond Walmart that is operating uniquely and successfully abroad. I would say that Costco fits this criteria. While they often fly under the radar, they have very solid operations in Canada, Mexico, Japan, South Korea, Taiwan, and the UK. And the expansion doesn’t end there as they have their first warehouse in Australia open, and plans to expand into Europe.

Anne Bieler
Guest
Anne Bieler
10 years 6 months ago

Retailers should be looking beyond the borders for growth–there is opportunity for some who can learn and go the distance. It is not easy for anyone, and the learning curve is steep. Walmart closed their Sam’s Clubs in Canada after a 5 year try, while the discount/mass stores continue to grow at a good pace. Costco was too far ahead in the Toronto market, offering the right selection, and growing steadily.

For those who read about the rapid expansion of Modern Retailer in BRIC countries, there is a long term commitment to doing the right thing for the local market, retail success doesn’t translate easily. Fundamentally, there is enormous competition for locally produced goods and services, at price points that are far below US and EU experience. The infrastructure and supply chain issues are huge obstacles to overcome. For many, M&A are a better path to learn, understand and develop new solutions that fit a culture and country.

Craig Sundstrom
Guest
10 years 6 months ago

I think U.S. companies’ presence abroad will grow, but it will continue to trail many European and Asian competitors; a variety of reasons, including, of course, a large domestic market, account for this element of “Overseasphobia” and I don’t see radical changes in the near future (that it is necessary to append “Germany” to “Berlin” stresses this point.)

Victor Willis
Guest
Victor Willis
10 years 6 months ago

For sure, there are plenty of opportunities but the strategy needs to be solid and tailored to the specific market. Acquisition worked well for Walmart (Asda in the UK) but trying to roll out a cookie cutter approach (Walmart, Germany) can be disastrous. Costco and Gap have both been successful but for different reasons. Another strategy that could be explored is ‘brand expansion’. Something favored right now by Waitrose in the UK (Duchy Originals by Waitrose now on sales in Taiwan) and Alliance Boots (#7 cosmetics and Botanicals ranges now in Target stores in the U.S).

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