Retail is becoming an international operation with the process speeding up dramatically in the 90s, despite difficult economic conditions. Retail Intelligence looks at the top international players and sectors most likely to succeed.

The retail industry is becoming increasingly internationally focused. The late 80s was really the start of retailers having international interests on any significant scale, and despite the economic conditions of the early 90s, the process of retail internationalisation has increased at a dramatic rate.

No less than 114 countries host European retail operations and there are 3,797 counts of European retailers in non-domestic markets and non-European retailers with operations in Western Europe. It is certainly an accelerating trend. 1,355 non-domestic retail operations have entered European markets during the 90s, this compares with just 106 in the 70s and only four in the 50s (see appendix).

During the last decade the most attractive European markets have been Belgium, Germany and the UK. Less developed markets such as Spain and Portugal have also attracted their share of non-domestic players.

Which European country has the most international retailers?
The answer is France. 1,060 French overseas retail operations have been identified. The French have long been considered the most ambitious of Europe's international retailers, and certainly their interests in such disparate markets as Africa, Asia and Latin America do nothing to dispel this.

Although UK retailers are often characterised as unadventurous in terms of international growth, in fact they have the second highest count of non-domestic retail operations (672) with strong links with the English speaking world. German retailers also have a significant international presence with 524 operations beyond their borders.

Are retailers pushed or pulled into the international arena?
Growth in retail internationalisation in the 90s is often a reaction to lack of growth opportunities at home, for example, as a consequence of format maturity, market concentration levels, high operating costs and increasing regulation within the retail environment.

In addition, retailers have been pulled into those markets they consider attractive due to their less developed retail structures such as, Southeast Asia and Eastern Europe, which offer cheaper operating costs and a less regulatory environment plus growing consumer demand and expenditure levels. In some cases they have moved into other advanced retail markets, perhaps due to high levels of expenditure or a gap in the market, as in the case of the continental food discounters Aldi and Netto moving into the UK.

Other factors facilitating the international activity of European retailers include developments in IT and other technology, the establishment of the Single European Market and the Euro, and converging consumer demand.

However, not all international expansion has been successful, for example the closure of German food retailer Rewe's UK Penny Market operation and the disposal of Tesco's French Catteau chain. Nevertheless, the cumulative effect has certainly been one of accelerating expansion of major international growth by retailers.

What is happening to international retailing in Europe?
French, UK and German retailers have the most significant non-domestic operations. The French are the most prevalent of European retail internationalists. They have been ambitious in their moves into non-European markets and also have a significant presence closer to home. Their German counterparts have placed far more emphasis on a border-hopping strategy, moving into nearby markets, whether developed, such as Austria (77), or developing, such as the Czech Republic (27) and Poland (30). The UK has favoured the Irish market, where it has an overwhelming presence (71), and also the USA (29), undoubtedly a reflection of shared language and perceived cultural links.

Non-European retailers moving into the region have often chosen the UK as their first port of call and as a means of establishing a foothold in Europe. In particular this has been the case for numerous US retailers. More recently, Germany, which also has an advanced retail structure, has been a focus for non-European entry, most notably by the world's largest retailer, Wal-Mart, a move that has sent tremors throughout the European grocery industry. This action may be perceived as the development of US retailers' confidence within Continental Europe.

There is a general trend of incremental expansion within Europe, whereby retailers move into a relatively proximate market, learn from this experience, and then move into a neighbour of the host market. Less developed retail markets, which have up until now been characterised as host markets, are themselves starting to internationalise operations. Spain, which has seen an influx of foreign retailers, is now very successfully exporting retail formats, notably the much discussed fashion chains Zara and Mango.

Although some retailers attempt continent-wide coverage, (for example Otto, Metro and Scheckler), or even worldwide (for example, Benetton, IKEA, Toys R Us, and The Body Shop), it is more common for activity to be concentrated on regions. Benelux (Belgium, Netherlands and Luxembourg) have had cross-border activities between each other for some years, with several operations also across the border in Germany.

Which world regions are most attractive?
The direction of international expansion of retailers is often understood in terms of their propensity for entering markets that are geographically proximate and/or culturally similar or with less developed retail structures.

The majority of expansion by European retailers is at an intra-European level. Beyond this, European retailers have focused upon markets in Asia, the Middle East and the Americas. In particular, French retailers have been ambitious in moving into non-European markets.

River Island: recent entrant to Middle Eastern market

Indeed, they are notable as the only significant European presence in Africa (38 operations), an outcome of post-colonial links and relative geographic proximity. Also, French retailers are the only European group to have substantial operations in South and Central America (63), and, along with the UK, in Asia (134 French operations, 103 UK) and the Middle East (105 French, 100 UK). Such expansion cannot be easily explained by means of spatial or psychological proximity, but the attraction of these markets can perhaps be explained by their rapidly developing nature.

While the retail structures of South and Central America are relatively undeveloped, they have been influenced by the impact of European (and of course American) retailers for some time, exemplified by the French hypermarket operator Carrefour which has had a presence for more than three decades. Such markets were initially a focus for attention because of European colonial links and continue to attract large players such as Dutch group Ahold and French operator Auchan, as well as smaller retailers such as Zara and Grand Optical.

Asia has been an attractive region for many retailers, although recent economic uncertainty has undoubtedly had a negative impact. Numerous non-food retailers have moved in, often using lower risk entry strategies such as franchise or licensing agreements, illustrated by Austin Reed and Morgan. It is significant that food retailers have also established a presence recently, including Tesco's acquisition of a 75 per cent stake in 13 Lotus stores in Thailand. Joint venture methods are sometimes the only available entry method due to regulations. However, they can be attractive to both parties; trading inflow of retail know-how and investment for inside knowledge of the consumer market and local business culture from their indigenous partner.

European retail activity in the Middle East is very much focused on franchise agreements in sectors such as women's wear and children's wear. While the likes of Bhs and The Body Shop have operated here for more than a decade, more recent entrants include Adams, Oasis, and River Island. European activity in Africa is heavily dominated by French interests and is primarily in the form of franchising, with operators including Kookaï and Tati. European retailers are also found in other world regions and this is often a reflection of post-colonial links, such as French owned sportswear retailer The Athlete's Foot in the Caribbean and UK furniture store Courts.

Expansion in Eastern Europe is steady and growing, but is not proceeding as rapidly as once may have been thought, primarily due to caution regarding unstable economies and currencies, and the situation in the Balkans. Poland and Hungary are the most popular countries, particularly for DIY and grocery retailers. Other new markets are also opening up. For example, retailers such as Carrefour and Delhaize 'Le Lion' both have joint ventures in Southeast Asia, although the economic crisis may hold back further development. Dutch and French companies have been establishing interests in the markets of South and Central America, while the Middle and Far East have a plethora of franchised clothing and household decoration formats.

There has been an increase in the presence of retailers from the USA, particularly category killers such as Toys R Us and Staples, but also clothing and footwear operators such as Nine West, Gap, and of course, the advent of Wal-Mart. The flow is not one way. Indeed North American interests are so significant for Ahold that it considers itself a Dutch-American company. Europe has also been host to retailers from further afield, for example, Cash Converters form Australia and Mega from South Africa which acquired Hammicks.

Which sectors make successful internationalists and how do they enter markets?
While in the past international retailing was somewhat restricted in terms of the types of retail activity, an increasing variety of retail sectors are operating internationally. The fashion sector has always been one of the more international, due in part to the global appeal of some fashion brands and the flexibility of these retailers in their choice of market entry strategy. The clothing sector, particularly women's wear and children's wear, is the main sector of international retailing. This trend continues with the successful international activity, both in Europe and outside, of such retailers as Max Mara, Escada and Hugo Boss.

As the likes of Benetton and, more recently, the Spanish operation Mango illustrate, franchising continues to be the main market entry method for clothing retailers representing a low risk route to rapid expansion. Organic growth through company owned stores is also popular, and as in the case of Marks & Spencer, may be used in conjunction with other methods such as franchise or licensing agreements depending upon the nature of the host market. Concessions are an important way of building a retail name at a slower pace but at less expense. It is a method often used by fashion retailers, most often with concessions in department stores, as exemplified by the entry of UK operation Oasis into the German market.

Mail order also has long established international players, due to the relative ease of setting up an international logistics operation and translating catalogues without having to open foreign stores. Again, this trend continues, exemplified by the likes of La Redoute and German retailer Otto. Sportswear retailers such as Footlocker, the Athlete's Foot, and Décathlon have been establishing an international presence, in part a reflection of the popularity of athletic clothing and footwear as casual wear.

TV shopping, such as QVC, has not really taken off in Europe. However, the Internet looks set to, it is a relatively easy way to access consumers around the world, but is far more appropriate for some sectors of retailing than others.

Food retailers are also taking up the challenge of moving into more advanced retail markets. While the impact of foreign hard discounters in the UK may not have matched some earlier predictions, they continue to increase their presence, and the names Aldi, Netto, and Lidl are familiar across Europe. Interestingly, some retailers obviously feel more comfortable with their international activities than at home, the Austrian retailer Julius Meinl has sold its domestic operations to Rewe of Germany while retaining its foreign ventures.

The much talked about entry of Wal-Mart into Europe has finally occurred with its move into Germany. The debate continues as to whether this is merely the first in a long line of European acquisitions. Certainly, with a global turnover three times that of Metro, the largest European retailer, Wal-Mart would seem to have the capability to make its move when and where it sees fit. In addition to Europe, Wal-Mart has also placed emphasis on emerging markets including China, and has stated that internationalisation is a fundamental part of its plans for growth.

Benetton: franchising is its main market entry method

In Conclusion…
International retail activity may not have reached the levels predicted in the last decade, but it is certainly a phenomenon that is increasingly shaping European retail markets and organisations. The establishment of a Single European Market may not have caused a pan-European retail structure to emerge overnight, but European integration is facilitating the cross-border activities of retailers and highlighting opportunities within the region for non-European operators.

International retailing remains a relatively high cost and high risk growth strategy and not all plans for internationalisation come to fruition. However, there is certainly a deepening and widening of international retail coverage, in part due to the increasing sophistication of the organisational structure of retailers.

Not only are more retailers establishing an international presence, but also increasingly, they are doing so in more diverse markets and on a significant scale. Rather than non-domestic operations being an interesting, if potentially costly, experiment, they are becoming an important part of the business that, in an increasing number of cases, contributes more then the core domestic operation.

About Retail Sans Frontières report
Retail Sans Frontières looks at the extent and variety of incursions into Europe by European and non-European retailers, and those of European companies into other continents.

It provides a complete review of the status of cross border retailing - updating the two previous reports on cross-border retailing published in 1991 and 1994. The report features a thorough analysis and assessment of the implications in terms of destinations, sector of operation and method and timing of entry.
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