Sainsbury’s ill-fated launch in Egypt had nothing to do with Mike Coupe, but the jail sentence that hangs over him is a reminder of the perils of badly considered international expansion.
We take a look at some of the most disastrous examples of retailers’ forays into foreign fields.
Sainsbury’s calamitous expansion in Egypt
Sainsbury’s embarked on a joint venture with Egyptian Distribution Group (Edge) in 1999, a company with a 100-store portfolio in the Middle Eastern country. The grocer bought an 80% stake in the group for £100m, but the move quickly became engulfed in controversy.
Sainsbury’s found it difficult to adapt to shopping habits of Egypt and local shopkeepers soon spread inaccurate rumours that its bosses had links with Israel. After only 18 months and an opening year operating loss of £10m, Sainsbury’s withdrew from the country and sold its shares back to Edge.
- Don’t try to expand abroad at a time when business isn’t booming domestically.
- Don’t venture into countries where customers and their shopping cultures are largely unknown.
Tesco’s about turn in the US with Fresh & Easy
Fresh & Easy was Tesco’s first venture into the US market, crossing the Atlantic in 2007. But its fresh food convenience store model struggled to establish itself in a competitive grocery store market.
Analysts were critical of Tesco’s attempts to import its British retail format, including private-label products and less emphasis on customer service. In April 2009, Tesco reported a trading loss of £142m from Fresh & Easy and six months later revealed that it was temporarily closing 13 stores.
By 2013, after several years without turning a profit, Fresh & Easy filed for bankruptcy before being sold to billionaire Ron Burkle’s investment firm Yucaipa Cos.
- Don’t ignore the realities of the market when trying to come up with a new concept.
Walmart’s doomed launch in Germany
US retail giant Walmart made a rare admission of defeat in 2006 when it bid Auf Wiedersehen to Germany – a move that cost it around $1bn (£650m).
Walmart set up shop in Germany in 1997, taking over the Wertkauf and Interspar supermarket chains in a bid to crack the country’s lucrative $370bn (£240bn) retail market. But Walmart’s 85 stores were not enough for it to establish a foothold, despite sales of $2.55bn (£1.7bn) in its final full year in Germany.
It ended up selling the business to established local retailer Metro.
- Know your market – Germany was too environmentally driven for Walmart and its shoppers largely prefer smaller, neighbourhood shops.
- American employee management practices can’t be replicated across the globe.
- Sizes aren’t universal – Walmart was left with piles of American pillowcases it couldn’t sell to German shoppers.
Dixon’s short circuits in the US
The UK electricals market leader bought US retailer Silo in 1987 for £210m. It turned tail just six years later after the Stateside business racked up disastrous losses.
Silo had overexpanded when recession struck, but Dixons was unable to bring much to the party.
Dixons was more used to running smaller stores than those in the US, and tried to import its own ways of doing business, whether in buying or people – it replaced Silo’s US president with a British chief just months before having to abandon its US ambitions.
- Recognise market differences.
- Take notice of local management and expertise.
Marks & Spencer’s retreat from Europe
In March 2001 then-chairman Luc Vandevlde pulled the plug on the retailer’s business in Europe. As the bellwether focused on improving its core UK operations stores in Germany, France and Spain were shut with the loss of 3,350 jobs and at a cost of £300m.
The retreat from Europe, in particular France where M&S had 18 shops, was condemned afterwards as a mistake, including by Sir Stuart Rose when he returned as chief executive.
Ten years after the closure of France the retailer returned to the country under the leadership of Marc Bolland, who sees international growth as a key strategic objective.
- Don’t make knee-jerk decisions. The closure of M&S’s French business looked like a headline-grabbing reaction to problems at home. It set back M&S’s overseas potential and made no difference to the health of the wider business.
Best Buy’s failed UK invasion
Best Buy landed on these shores in 2010 with the aim of stealing the electricals crown from Dixons, which was in a weakened state. However, it pulled the plug less than two years later with its tail between its legs.
The US giant made some big mistakes, including warning its rival it was coming two long years before it landed, and delaying the opening date of its first stores, giving Dixons more time to get its house in order.
When it shut its 11 shops in January 2012 the retailer cited the uncertain economic period, but Best Buy also underestimated the domestic rival Dixons, which bared its teeth and fought off the competition by improving customer service and updating stores.
- Don’t procrastinate a new market launch, and don’t underestimate the established players in the local market.
B&Q’s ropey start in China
Inspired by the growing middle classes within its eye-wateringly large 1.357 billion population, Kingfisher dove into the China market head first, plonking its successful B&Q DIY concept into Asia in 1999.
But the format did not prove a hit in China like it has over here. Kingfisher appeared to have a woeful lack of knowledge about the local market. It turned out Chinese consumers weren’t into DIY, and the middle classes believed that doing odd jobs around the house was in fact a bit beneath them. Low wages meant there is a big supply of workers to do them instead.
Even B&Q’s larger counterpart, US retailer Home Depot, shut down its Chinese big box stores in 2012 because they could not make money out of the Do It For Me culture.
However, Kingfisher’s China business is starting to look like it has a brighter future. A restructure of the retailer five years ago involved the closure of a third of its stores and a slimmed down product offering.
And in December it secured a partner in the country, Wumei Holdings, which acquired a 70% stake in B&Q China. It now operates 39 shops in the country.
- Do your homework – don’t underestimate the differences in global markets.
- Find a partner early if you lack knowledge of the market.