Magazine article Marketing

Helen Dickinson on Retail: Retailers' Overseas Excursions Are No Holiday

Magazine article Marketing

Helen Dickinson on Retail: Retailers' Overseas Excursions Are No Holiday

Article excerpt

Against the current backdrop of slowing sales after an unprecedented period of growth over the past four to five years, UK retailers are coming to terms with the fact that they need to look for ways to outperform the market.

High on their list is going overseas, where they can tap into markets whose growth rates are expected to significantly outstrip anything they are likely to see in the UK over the next few years.

Already there has been much evidence of such jaunts, and further expansion abroad. The Body Shop recently announced plans to open a store in Russia, as well as considering setting up shop in China. Kingfisher is also expanding rapidly in China, and last month announced the acquisition of OBI Asia Holding, which adds 13 stores to its growing portfolio of outlets in the region.

In addition, Dixons has agreed a deal with Russia's third-biggest retailer, Eldorado (Marketing, 11 May), that gives it an exclusive option to buy the company in the future.

And Tesco has been busy expanding its international operations - which now account for 21% of total group turnover - in countries including Thailand, Hungary, Korea and China, where there are plans to open more than 100 stores by 2008.

Tesco has undoubtedly benefited from its ability to operate out of a variety of store formats, unlike many of its multinational competitors, which are only able to run out of hypermarkets.

What Tesco and other operators have found, however, is that entering new markets is no piece of cake. Tesco pulled out of France some years ago after its failed acquisition of domestic operator Catteau, and Dixons experienced similar problems when buying the Silo business in the US.

Both retailers have since learned the fine art of operating overseas, realising that success depends heavily on using local knowledge rather than replicating your domestic business. By combining local expertise with their own supply chain and retail skills, UK operators can ultimately reap rich rewards abroad.

Another potential mistake is entering too many markets at the same time and spreading management resources too thin. Don't open in South America and Central Europe at the same time. This is important because it takes a long time to build a critical mass of stores in a country. Long-term commitment of capital and management is crucial because it could take some time to reach profitability in a new market. …

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