Reflecting on the past year’s advisory work, it’s clear that the retail sector is predominantly seeking support in just three areas – operational improvement, in its broadest sense, financial restructuring and international expansion.

Reflecting on the past year’s advisory work, it’s clear that the retail sector is predominantly seeking support in just three areas – operational improvement, in its broadest sense, financial restructuring and international expansion.

Of the three, international expansion is perhaps the most interesting. At a time when the domestic market is tough, why wouldn’t you conserve cash rather than bet the house on some speculative foreign venture? And the patchy overseas track record of some of the UK’s largest retailers could further reduce the appeal of expanding overseas – Tesco, M&S and DSGi have all had well publicised international failures, as well as successes.

But the fact remains that international is hot. The push factor of operating in a mature UK retail market, together with the pull factors of international markets (the emergence of an enormous class of consumers in both India and China, the explosion of spending power in Russia, or the spend per head in the Middle East) are an intoxicating combination.

Yet such growth has to be adding value. After all, if everyone is doing it, there is a danger of it becoming a zero sum game.

For me, the key is for retailers to be able to answer the following questions:

  • As a category killer, does the scale advantage I enjoy in terms of sourcing more than pay for the extra complexities of having to have some form of global operating model (buying, merchandising, supply chain, etc)?

  • As a specialist, does the brand have enough intangible value to sustain the extra operating model costs – particularly if the operation is franchised, as is usually the case, meaning the cake needs to feed an extra mouth?

If the response is a no, where is the competitive advantage against the local player that will always know the market and the consumer better than any foreigner?

I believe, though, that many UK retailers can answer these questions positively. In many ways, the retail sector is growing up. Today our retailers are trading internationally, but there are already signs that they are planning to operate globally.

The end game may still be some way off – a global operating model of product design/sourcing/supplier management in China, a global hub and spoke supply chain infrastructure, local merchandising/store operations in each region, a shared service centre in Bangalore and senior management operating out of Geneva – but it won’t be long before we’ll be speaking of the leading global retailers in a similar vein to Unilever, P&G, GlaxoSmithKline, BP or HSBC.

Gavin George is head of retail at Ernst & Young

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