Retailers that want to keep growing in the face of heavy competition or saturation in their home markets always have an option: look to consumers in other countries. But multiple challenges arise when attempting an international expansion.
Other countries often have different languages, different rules about what can and can’t be sold, and different tax structures. Consumers often have different shopping styles and payments preferences. And these subtle differences can make international expansion a risky challenge even for retailers with deep pockets.
In brick-and-mortar, luxury brands have been successful in establishing limited numbers of overseas locations in exclusive locations. And an international presence is central to large chains from small home markets such as H&M, Ikea and Uniqlo. H&M alone operates more than 3,600 stores in 59 countries.
But big U.S. retailers have stumbled when going abroad, due to logistical challenges, supply chain development, and
Big box is hard to ship
U.S. operators have had difficulty going abroad, especially when trying to export the sprawling big-box stores American consumers have grown to know and love. Target exited Canada earlier this year after its aggressive expansion undercut the ability to deliver a positive customer experience.
Building stores before establishing a stable supply chain and online presence, the chain throttled its own effort in under two years. “With the benefit of hindsight, looking back, we took on a little too much, much too fast,” Target spokesperson Molly Snyder told Retail Dive in January 2015.
“It seem audacious to get 133 stores online in over a year over that span of geography and to build a distribution network at the same time,” DIG360 Consulting Ltd.’s David Ian Gray told Yahoo! Finance Canada.
Local customs can affect big brick-and-mortar chains, too. Wal-Mart halted expansion of its Best Price Modern Wholesale brand halfway into a 50-store push into India for three years, simply because shoppers in the subcontinent prefer to shop at Mom-and-Pop corner stores. Last month, Wal-Mart announced it would resume expansion in India, targeting the owners of those stores.
The world’s largest retailer has made global gaffes in the past. Wal-Mart lost $1 billion on an expansion into Germany, where competition was fierce and shoppers found its store greeters to be overly friendly. And in South Korea, the chain failed to pick up on cultural nuances such as shelf height for almost 20 years before pulling out.
Last year, Wal-Mart closed several stores in China, where consumers were unimpressed—or put off—by its low-price promise. After suffering numerous food-safety scandals, some Chinese shoppers tend to equate cheap prices with unsafe or poor-quality products.
More stores on the way
Other big U.S. retailers have had better luck establishing a physical presence overseas. Costco is becoming a huge force in Asia, where the opening of a new warehouse store spurs 30,000 to 40,000 signups in the first eight to twelve weeks—more than triple a U.S. store opening—and membership renewals reach 87.9%.
Department stores are also catching the global fever, with data showing sales sliding 5.1% in April 2015 from the prior year inside the U.S. Macy’s and Nordstrom have both announced international plans, with Macy's opening new stores for its flagship and Bloomingdale’s brands in Abu Dhabi in 2018 and Nordstrom moving into Canada.
TJX has successfully opened stores in Canada and Europe under its various brands, and now is set for a major push into Australia with the acquisition of the Trade Secret chain.
“TJX is one of the few major U.S. retailers to have expanded successfully in international markets including Canada and Europe, which gives us confidence in our potential growth in Australia,” chairman and CEO Carol Meyrowitz said in a statement.
But expansion has some growing pains too. Abercrombie & Fitch experienced difficulties when it first expanded into Europe, cannibalizing same-store sales by opening too many locations too quickly. But its 170 international locations now sell 75% more goods per square foot, Forbes says, and emerging markets such as India, China, and South Korea hold additional promise.
Charming Charlie, a Houston-based retailer of color-coordinated, jewelry and accessories, upgraded its IT network to navigate its fast expansion at home and overseas. Just over 10 years old, the chain has been opening about 50 stores every year, and now has more than 350 locations in the United States, Canada and the United Arab Emirates.
E-commerce can start expansion
The web observes few boundaries, however, and e-commerce is helping companies large and small tap into international markets in an inexpensive and scalable way. Most major retailers in the U.S. realize some cross-border sales; Macy’s site goes so far as to offer its international visitors a special tab on its site and accept payments in other currencies.
About 7% of U.S. retail e-commerce sales in 2014 came from overseas markets last year, according to eMarketer, or about $20 billion, and the total is expected to grow to about 16% of sales by 2020. So with decent website and proper planning, retailers can reach customers throughout the world without opening a single store.
But there are pitfalls in ramping up to satisfy international business, too. Cross-border e-commerce demands more than a translated web storefront. Shipping, taxes, trade duties, and—again—cultural differences can make international transactions difficult to manage successfully.
But international e-commerce can help build a brand big enough to take on bricks-and-mortar. “The benefits outweigh the challenges, as online shopping strengthens the brands and prepares international customers for a visit to the U.S. stores,” says Forbes’ Walter Loeb.