U.S. Retailers Pushing to Expand Overseas

06 Jul 2010 - With Americans cutting back on spending, even retailers that had resisted opening foreign branches are now setting up shop outside the U.S.

With Americans cutting back on spending, even retailers that had resisted opening foreign branches are now setting up shop outside the U.S. As Americans' love affair with shopping cools, retailers are venturing overseas in search of growth. Bloomingdale's and Crate & Barrel each opened their first store outside the U.S. in Dubai this year. Abercrombie & Fitch just opened its first store in London. Sears has begun shipping tools and clothing to 90 countries. Macy's is looking at going into China. And Target, the discount chain that for a decade has resisted Wall Street pressure to expand internationally, revealed this spring that it wants to open stores outside the U.S. and is looking at Canada, Mexico and Latin America. Even Wal-Mart Stores Inc. — the retail behemoth that has been operating internationally since 1991—made clear at its annual meeting in June that it was counting on consumers outside the U.S. to make up for stalled sales at home.

"In the 1990s and early 2000s, the U.S. was growing at a healthy clip compared to the rest of the world," said Frank Badillo, senior economist at Kantar Retail, a retail research group. "There are now growing doubts as to how fast the U.S. can grow going forward, and that's given lots of retailers reason to look elsewhere."

Unlike Nike sneakers or McDonald's hamburgers, selling general merchandise has historically been a parochial business. With few exceptions, most of the nation's retail chains have stayed close to home, basing their expansion plans on the vastness of the American landscape and the U.S. consumer's seemingly insatiable appetite.

Now, in the wake of the recession, that long-standing formula has lost its allure.

Two out of three Americans say they have cut back on spending since the recession began in December 2007, according to a survey by the Pew Research Center's Social and Demographic Trends project. And even accounting for the thousands of stores that closed during the economic downturn, Americans are still overwhelmed with opportunities to shop.

Still, setting up shop overseas is no sure thing. Understanding local tastes, adjusting to local culture and analyzing the attractiveness of real estate in local shopping malls and neighborhoods are challenges that have stumped some of the most sophisticated retailers.

Wal-Mart pulled out of Germany in 2006 after eight years and $1 billion in losses, unable to compete with local discounters Aldi Group and Lidl. The Bentonville, Ark., discount chain ran into similar trouble in South Korea, where it also threw in the towel.

Gap, Toys R Us and Starbucks — retailers with extensive international businesses — also fumbled their initial overseas efforts before figuring out how to adapt to local tastes and customs.

"The strength of the U.S. retailers has been scale and replication, not 'How do I flex to the market?,' " said Neil Stern, a partner at McMillan Doolittle, a Chicago retail consulting firm.

Retailers have known all too well the risks of expanding overseas. But as long as Americans were shopping with a vengeance, it was easier to build more stores at home. Now the tables have turned, and the risk of losing ground by avoiding foreign countries is too real to ignore, Doolittle said.

Costco, for example, has quietly become a bigger international company than most investors recognize, said Credit Suisse analyst Michael Exstein in a June 28 report. About 20% of sales and 28% of operating profit came from international activity in 2009 and "is set to grow at an accelerating rate," Exstein said.

Likewise, Urban Outfitters is moving aggressively into Europe and Asia. The chain of trendy clothing stores, which include Anthropologie and Free People, is making a substantial investment overseas by paying third-party providers for services including logistics and systems, said Chief Executive Glen Senk in an earnings conference call this year.

Though relying on local experts is "typically more expensive" than handling overseas operations itself, the company believes the strategy is worth the investment, Senk said. Once the foundation is established, Urban Outfitters can "methodically" bring the overseas operations in-house, he said.

Although Urban Outfitters started doing business in Europe in 1998, its presence there is still small, accounting for about 5% of sales.

The European apparel market is about 10% larger than the U.S. apparel market, according to Urban Outfitters' calculations, with more than two-thirds of that volume in five countries: Britain, Spain, France, Italy and Germany. The market size leads Senk to believe that he could operate at least 100 Urban Outfitters and 100 Anthropologie stores in Europe.

"Any public retailer's board and management has to think about what they're doing internationally," said Madison Riley, managing director for North America at Kurt Salmon Associates, an Atlanta consulting firm. "You have to be making plans. If you don't start now, you'll be in real trouble in the next five to 10 years."

Source: The Los Angeles Times -


Submissions for inclusion on this page are most welcome from franchise associations and related companies and organizations. Please contact us here for more details.

FranSpeak International Subscribe to FranSpeak: International Franchise News, Events and Opportunities

Privacy Policy - FranSpeak International Archives


© 2010 and World Franchise Associates Ltd. All rights reserved.