MARKET WATCH
BY: DARRELL WISBEY
www.darrellwisbey-retailadviser.com
Darrel Wisbey is a chief mentor and retail
adviser who has 30 years of retail experience
and has built a reputation for being a leader
who interprets the market accurately, define
strategic direction and deliver success by
motivating, developing and inspiring teams
to achieve continual improvement
In previous articles growing sales and profit by way of improving
performance in the current stores and opening new local market
stores have been covered so what will a strong business do if
further and faster expansion is considered a viable strategy?
The answer could be: enter the international retail market and
become a global retailer.
Both Tescos and Carrefour, (5th and 6th largest sales retailers in the world)
have demonstrated incredible success in entering and delivering sustainable
success in the global market. When they enter a new country they deliver
success as a consequence of “the right strategy + the right attitude + the
right management.”
What is important to achieve global expansion?
Warning: global expansion is the most difficult of the strategies to grow a
retail business and many very significant retailers have struggled to achieve
successful retail expansion. The requirements to achieve success are often
underestimated and these include: 1. CHECK STRENGTH OF CURRENT BUSINESS: it is imperative the home
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4. government rules and regulations such as ownership, partnership and
foreign investment are clearly understood and accounted for in the strategy.
knowledge on the new country market,
the complexities relevant to entering an international market,
the time that will be required to implement the strategy and
the investment costs required to deliver and maintain success.
Some very successful retailers have stumbled in their desire to achieve
global expansion and these include:
a. Daimaru Department Stores failed in their attempt to enter the Australian
market in the late 80’s because they entered a market that was already
experiencing “department store” problems as a consequence of “mass
merchandising” - a retail format not familiar in the Japan market.
b. Home Depot tried to get a foothold in the China market but after a few
years did a retreat as they had not fully understood the complexities of
“playing in someone else’s retail backyard”. Their strategy suffered because
they discovered Chinese consumers don’t like big box warehouses away
from a city centre and because they tried to bring the DIY concept to
a market where labour was so cheap that most people simply hired a
handyman.
c. Walmart the largest retail sales group operating in 27 countries around
the world still had difficulties in entering the India market. Walmart found
finding a suitable partner extremely difficult entering into a partnership
with the Bharti group in hopes of benefitting from a government
liberalization of the Indian market. However, this did not happen. Walmart
also found an obstacle in the Indian Government regulation requiring
retailers to source 30% of the product from small suppliers.
Global Expansion is Possible: There are many examples of
successful global expansion.
Walmart, (despite country entry hurdles) is still the world’s highest turnover
retailer with around 40% of their total revenue generated from participation
in the global market.
7-Eleven with the highest number of retail stores in the world is proof that
international operations can achieve success when global expansion is
planned and managed with “the right strategy”.
The fast food industry also clearly illustrates success is possible when the
strategy, (in particular the attitude to offer) is correct. McDonalds and
KFC are worldwide global successes and that too has been achieved by
overcoming new country hurdles. McDonalds suffered in the initial entry
into Korea due to government restrictions on sourcing of potatoes and rice
was never a standard item on the USA menus.
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business is robust and protected from international expansion program
costs.
2. UNDERSTAND GOVERNMENT REGULATIONS: it is critical all
3. FAMILIARIZATION ON RETAIL MECHANISMS: it is important to
understand the retail market that exists, (and is likely to exist in the future).
In a “Western developed” country you will find a much more sophisticated
logistics facility and will need to assess the impact on operations. If a
Western retailer enters the Philippine market, they would have to account
for a difference in marketing as they will not be able to use press and
catalogue media home delivery.
4. SECURE LOCAL EXPERTISE: to have local market intelligence and
experience is imperative to future success. The local knowledge is invaluable
to bring to the surface the many “small things” that may not be evident
to the inexperienced eye e.g.: Asian-based retailers will allow loud in store
music whilst Western shoppers prefer low level background sound.
5. LOCATE A “QUALITY” STORE LOCATION: “location, location, location”
is one of the MOST CRITICAL decisions to retail success. Saving on location
costs in the belief this will protect the “bottom line” invariably leads to BIG
PROBLEMS and often in the end is the key reason for retail failure.
6. INVESTIGATE PRODUCT OFFER AND VIABILITY: investigate
competitors who are selling the same or alternative items to assess the
competitive level of your offer.
7. COMPLETE NEW STORE P&L PROJECTION: it is critical a realistic
projected P&L is built and rigorously tested – consider as many “what if”
conditions as possible to ensure financial success is realistic.
The Conclusion:
Entering the international market is the most complex, challenging and
risk sensitive strategy for a retailer to undertake. Local success does not
necessarily ensure international success and failure can have a devastating
impact on overall profit.
The Challenge:
Do you want to be a “big fish in a small pond or a small fish in a big pond …
which is best for you?
DISCLAIMER: The opinions expressed in this column article are solely by author and do not in
any way reflect the stand or position of the PRA.