Retail Week's 25th anniversary: How have UK retailers fared abroad?

As an island race, with an outward-looking, seafaring history, it’s little wonder that foreign lands sparked interest among British retailers.

Enticing international vistas have been exercising the UK retail sector since the 1970s. This ramped up in the 1990s and early 2000s and exploded in the digital age. It’s not limited to one category either - stalwarts such as Tesco and Marks & Spencer find themselves cheek-by-jowl with newer entrants such as Superdry and Primark, luxury labels such as Burberry and pure-plays like Asos.

Recent history shows that the perils of global ambitions remain. Tesco is one of the highest profile US failures, forced to call time on its American dream after five years of losses Stateside, despite putting in two years of intensive on-the-ground research.

But Tesco’s original overseas odyssey actually started far closer to home. In 1993 it paid £175m for Catteau, a 92-store grocer in northern France. After struggling against discounters and larger chains and lacking critical mass, Tesco exited France, and sold Catteau to Promodes in December 1997 for £250m.

Its second foreign foray, which began a year after the French acquisition, was far more successful.

Tesco moved into the burgeoning central European market with the £15m purchase of a 51% stake in 43-store Hungarian supermarket chain Global, then acquired the 31-store Savia chain in Poland for £8m, and in 1996 spent £79m on 13 Kmart stores in the Czech Republic and Slovakia, which it converted to the Tesco name.

Since then it has expanded aggressively in the region and moved too into Asian markets including Thailand and its jewel in the international crown, South Korea - although it is currently rethinking its strategy in the country following recent legislation aimed at protecting local businesses. It also entered Japan through a c-store acquisition - and subsequently exited.

International test-bed

Tesco has also used its international operations as a test-bed for ideas, from the quirky virtual store launched in a Korean subway station to the fundamental store repositioning brought about by its first hypermarket trial, carried out in Hungary before the format was brought to the UK.

Sainsbury’s and Marks & Spencer embarked on international growth even earlier but eventually sold off all or part of their overseas businesses as they dealt with problems in the UK.

Sainsbury’s looked abroad in 1983 when it began to amass shares in Shaw’s, a New England supermarket chain with a similar proposition, and by 1987 the UK grocer had completed the purchase of 100% of the 60 stores in Massachusetts, Maine and New Hampshire.

It then boosted its US presence with the 1994 acquisition of a stake in Washington DC-based Giant Food.

Sainsbury’s was widely expected to purchase the remaining shares by the end of the decade but instead Dutch retailer Royal Ahold stepped in in 1998 to acquire all of Giant Food. In 2004 Sainsbury’s sold Shaw’s to Albertsons for $2.5bn (£1.59bn) as it decided to devote its resources to domestic operations.

The story is similar to Marks & Spencer’s, which re-entered France in 2011, a decade after an ignominious exit. In March 2001 M&S revealed it would close all 38 of its continental stores by the end of that year as part of a group restructuring, selling eight Portuguese and Spanish stores to El Corte Inglés and 18 French shops to Galeries Lafayette.

At the time, chairman Luc Vandevelde said the decision was “one of the most important announcements in M&S’s history”. At the end of the same year M&S sold Brooks Brothers in the US for $225m (£143.5m), less than a third of the price it had paid in 1988. Robert Colvill, then M&S’s finance director, said the sale price was “acceptable”, adding: “I think what we paid for it is completely irrelevant. It was clearly too much and the company has admitted that publicly on several occasions.”

Five years later M&S sold its 26-store northeast US-based Kings Super Markets chain - which it had acquired in 1988 for $110m (£69m) - to a private equity consortium. “The disposal of Kings is the last part of our programme to refocus Marks & Spencer,” said then group finance director Ian Dyson of the decision. “Kings is a strong brand with a committed workforce but it doesn’t fit with our core business.”

Franchise route

M&S did not abandon its international ambitions, however, but instead went down the franchise route. It now has more than 400 international stores in 44 territories across Europe, the Middle East and Asia and earlier this year M&S also re-entered the Netherlands with an ‘e-boutique’ in Amsterdam. There are plans for additional Dutch stores.

“What Marks & Spencer and their peers did all those years ago was hugely ambitious,” says Cushman & Wakefield global head of retail John Strachan. “Nowadays there are experienced joint venture partners to work with in many of these markets but back then you had to do it all yourself. It was more intuitive - certainly the vast amount of data we have now was not available.”

For the first wave of British pioneers the US was a tough market. Entertainment retailer HMV sold its last US outlet in 2004 after failing to make a profit, while in 1993 Dixons sold its stake in electricals chain Silo after six years of losses. Dixons - which has since turned its attentions to Europe - has been going through consolidation over recent times, having sold its Spanish operations in 2011, but it has learned many lessons from its strong Scandinavian business.

“The difference between the early days and now is that expansion is being driven by fashion retailers, not the grocers and big-box retailers,” says Strachan. And that covers all price points: luxury brand Burberry has become an international powerhouse, buoyed by sales in Asia and the Americas, while Sir Philip Green has opened Topshop stores in New York, Chicago, Las Vegas and Los Angeles.

Key flagships

Rather than carpet North America with stores, Green has opted to open key flagships and support them with marketing and online delivery. The Arcadia brands have also expanded through franchising in emerging markets, notably the Middle East, and Topshop made its Chinese debut in Hong Kong in June.

Topshop competitor pure-player Asos has had a storming few years since it started its international march.

International sales account for about 60% of its revenues, and the online pioneer is planning to launch in China this year.

At the value end of the market, Primark continues to outperform - its German stores are motoring and it is opening next in France.

Global tie-up

Alliance Boots, having sold a 45% stake to US drugstore chain Walgreens for $6.7bn (£4.28bn), is to develop its overseas expansion online, offering more than 23,000 products on its yet-to-launch site. The retailer already operates stores in Norway, the Republic of Ireland, the Netherlands and Thailand, while through its tie-up with Walgreens, Alliance Boots is also rolling out Boots products in the US and is testing items in 23 stores operated by Dairy Farm-owned Mannings in Hong Kong. Boots has gone international before: it created the first Sephora store, opened in Paris in 1970, but sold the 38-store chain to Shop 8 in 1983.

Despite challenges, global advocates remain convinced that internationalisation is the way forward. Kingfisher chief executive Ian Cheshire is behind a strategy to be “a truly globally integrated company” in the next five to 10 years and says global retailing is “absolutely the future”. The first international B&Q store opened in Taiwan, then in 1998 B&Q acquired Nomi, Poland’s leading DIY retailer, and merged with French DIY market leader Castorama, opening in China in 1999 and Russia in 2006.

While the early expansionists had little technology to guide them, the future of international growth is intertwined with online. Indeed, UK retailers have appeared all over the globe - from Debenhams in Libya to Mothercare’s 1,000-store franchise network, Peacocks in Russia to Ted Baker in the US, Courts’ Caribbean outposts to Iceland revealing expansion plans for the Middle East.

A variety of strategies have emerged, from online-only through to bricks and clicks. Aurora, for example, has made the most of its multi-brand website Andotherbrands.com to precede store entry in Australia and to switch from concessions to online-only in the Netherlands. British retailers are likely to look overseas for opportunities for some time to come.