As Best Buy officially pulls out of the UK this weekend, Charlotte Hardie considers why it and many other international big shots have failed in their bid to conquer the UK.
But what about the international retailers that think they can make it big in little old Blighty only to fail spectacularly in the endeavour? The most recent high-profile UK failure is, of course, Best Buy. But the US electricals group is far from alone.
Cracking the UK retail market is more difficult than many assume. The opportunity is big. This is a £290bn market. But as Conlumino managing director Neil Saunders says: “Many underestimate what is required to take advantage of that.” Britain may be a small island but it’s crammed full of extremely good retail businesses. Standing out from the crowd is difficult. Unless there is a particularly remarkable competitive difference, a brand could well be doomed to fail.
The reasons for beating a retreat among those retailers listed in this feature are varied. Some, perhaps, could have succeeded if they had persevered – Sephora being one example.
Others were tripped up by market conditions. The downturn, for instance, didn’t help Best Buy; the onset of the digital era made the going tough for Borders; and the squeeze of the UK middle market hurt C&A in the 1990s. Invariably though, market conditions are not the only reason for failure, and very often it boils down to the same old mistakes that cause retailers to fail in countless markets throughout the world; not understanding the nuances.
“The UK is an idiosyncratic market. We have unique characteristics as shoppers – people do think they can plant an unmodified version and think it will succeed,” says Kantar Retail director of retail insights Bryan Roberts.
Tchibo is a good example. The German general merchandise retailer may be a phenomenon in mainland Europe, where it has tens of thousands of shops, but UK shoppers were baffled by a retail model that was based on product lines that changed on a weekly basis.
Differences in the property market can also come as a surprise. Sephora struggled to contend with high rents and found it difficult to find stores that suited its very strict property requirement.
Many international brands come to the UK shouting about their very grand ambitions. In 2003, Tchibo UK managing director David Haimes said he could envisage the retailer’s UK presence totalling 500 stores. It managed to grow to 73 before closing more than a third, then bowing out altogether.
Haimes based this ambition on little more than the size of the UK population compared to Germany’s.
As every UK retailer knows, this can be a tricky market. In geographical terms, it’s small. In retail terms, it’s mighty. Slip up, and it offers little forgiveness.
Best Buy 2010 to January 2012
The background: Carphone Warehouse chairman Charles Dunstone brought the US electricals chain to the UK through a joint venture. He was ebullient about its prospects, and said it signified a new dawn in UK electricals retailing. Hopes were pinned on an exciting store design and top-quality customer service. However, it made a £62.2m loss in its first full year of UK operations. In November 2011 it announced it was shutting its 11 big box stores, and this month left for good.
What went wrong? Best Buy does have a great customer service proposition, but it wasn’t enough. To the average customer, there wasn’t significant differentiation.
What’s more, Best Buy didn’t make enough of a splash – it did not build scale rapidly enough. Nor did it predict the extent to which some of its competitors would respond to competition from the new kid on the block.
“It is a very, very different experience, format and quality of sales person our customers will come across in this store”
Charles Dunstone, Carphone Warehouse chairman
C&A 1922 to 2001
The background: The Dutch high street clothing group opened its first UK store in the 1920s. By 2001, there were only five remaining, but nearly 600 stores in other foreign markets. At the time of its retreat it had racked up £250m of losses in the previous five years and was said to be losing £1m per week. Nearly 5,000 staff were made redundant.
What went wrong? C&A was a victim of the middle-market pinch. Its market share was eroded by retailers such as Next and GAP, which had more of a design reputation. The march of the discounters in the 1990s also affected sales. Another reason cited for its failure was the decision to centralise buying operations in 1996, with a plan to sell the same product in all of its markets – but UK idiosyncrasis were not catered for. Management reached an early conclusion to cut their losses.
Was it the right move? Adapting the brand sufficiently to win back market share would certainly have been a huge undertaking.
“C&A has been part of the British high street for over 75 years and was determined to remain so. Unfortunately, business conditions do not allow this to happen”
Neil McCausland, then-C&A UK managing director
Ilva 2006 to July 2008
The background: Danish furniture retailer Ilva landed in the UK in 2006 amid much fanfare, but having launched three stores in swift succession at Thurrock, Manchester and Gateshead, it paused expansion plans only a year after arrival. It was sold to Icelandic corporation Lagerinn within a year of launching in the UK and announced it was to close all three stores in July 2008.
What went wrong? It promised so much. The design-led, contemporary Danish furniture brand with its upmarket stores was billed as a viable rival to Ikea, and yet it all ended virtually before it had begun. No expense was spared. Its glass-fronted shops were a world away from the light-less warehouses of Ikea, but a plush store environment failed to tempt and the prices were a world away from Ikea’s bargains. “The prices were completely out of kilter,” says Conlumino managing director Neil Saunders. Ilva was said to have lost £2.33 for every £1 spent in its stores in 2007.
“These stores have a strong brand identity and are situated in excellent retail locations. We will be assessing the options for the business in the coming weeks”
Peter Saville, Kroll partner, following its administration announcement
Tchibo 2000 to 2009
The history: The multibillion euro German general merchandise retailer, whose model includes an in-store cafe, arrived in the UK in 2000 full of ambition, but it halted expansion in 2002 after giving itself time to work out the market. In 2003, UK managing director David Haimes said its UK portfolio could total 500, but by 2008 the retailer announced it would close 33 of its 73 stores. In 2009 it closed concessions in Sainsbury’s and Somerfield. Later that year it quit the market altogether.
What went wrong? UK consumers never understood the business model. It worked on continual weekly rotation of stock with new ‘themes’ – around 25 lines – being introduced each Wednesday. But German shoppers are by nature more frugal than the Brits, and the resulting eclectic product offer all came across as a bit too bin-end bargain-basement for the average UK consumer. In fact, in a 2007 Retail Week feature which assessed the prospects for several international retailers, we said Tchibo’s product range list would read like the memory test in Bruce Forsyth’s Generation Game.
“If you think we’ve got nearly 800 full-concept stores in Germany, just by the population in the UK we should be able to get to 500”
David Haimes, Tchibo UK managing director in 2003
Borders 1998 to 2009
The history: US books retailer Borders launched in the UK in 1998, a year after its first international foray in 1997 into Singapore. It grew to 45 Borders stores, and bought 35 Books Etc stores. It went into administration at the end of 2009, two years before the entire brand went under in the US in 2011.
What went wrong? For a time, Borders was very profitable, but eventually, not helped by a lack of investment, it became a victim of market conditions. As Amazon’s might grew and the grocers encroached on its patch, Borders felt the effects. It was further hampered in 2008 by the withdrawal of some of its credit insurance. “Borders did a good job of integrating a leisure component into its stores, but the market just wasn’t there for them anymore,” says Conlumino managing director Neil Saunders. Although eventually failing in the US, too, its model arguably worked better there, with infrastructure differences meaning American shoppers were willing to drive to out-of-town stores, where rents were cheaper, to buy books.
“The level of uncertainty has been removed from the business. It now gives us a chance to drive sales. The good news is there are opportunities”
Philip Downer, Borders chief executive, following a management buy-out in 2009
Sephora 1999 to 2005
The history: UK success for the French beauty retailer was all part of the break-neck global expansion plans of owner LVMH, which bought the 54-chain business for e244m in 1997. It opened its first UK store in 1999, and had totalled nine by the time it bowed out six years later.
What went wrong? One problem was Sephora’s specific property requirements. When it opened its 2,155 sq ft Islington store, UK general manager Lucy Mori said it was one of the few locations in central London that could accommodate the exact requirements of the brand. Kantar Retail director of retail insights Bryan Roberts says there wasn’t enough marketing about the concept either, and it failed to lure people away from Boots and department stores. “It sold a lot of private-label product in a brand-heavy sector. It takes a lot for consumers to buy into that.” The UK property scene also tripped it up: “It was taken aback by how expensive rent was,” adds Roberts.
“It’s a strict concept that fits into a perfect rectangle and it’s hard to find that in older buildings”
Lucy Mori, Sephora UK general manager, on the store’s rigid design concept
Talbots 1994 to 2008
The history: The US women’s classic clothing retailer arrived in the UK with the intention of taking on conventional British brands such as Marks & Spencer, Viyella and Country Casuals. The plan was to open up to 30 stores over the next few years, as part of a worldwide ambition to double its total number of stores to 900 by the end of the 1990s. It succeeded in opening a handful of stores including Regent Street, Manchester, Guildford, Brent Cross, Kingston upon Thames and Meadowhall, but eventually called time on its efforts in 2008.
What went wrong? Despite its enormous popularity across the pond, where it was sending out 55 million catalogues per year at the time of its UK launch – Talbots failed to take off. Shoppers baulked at the expensive, all-American New England-type fashion style that some felt lacked any real sense of contemporary design. Conlumino managing director Neil Saunders said he worked with Talbots while at Verdict Consulting. The retailer originally approached the consultancy because they thought the problem was about not getting the right footfall. “But really,” says Saunders, “it was completely out of kilter with the UK market. It didn’t gel over here at all”.
“The best-sellers over here are the best-sellers in the US”
Arnold Zetcher, Talbots chief executive in 1994