Comment: How reliable a source of growth is international retailing?

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With demand flat and most retailers having too many stores, genuine growth has become challenging to achieve and sustain.

With demand flat and most retailers having too many stores, genuine growth has become challenging to achieve and sustain. So the need for new growth stories has become a major preoccupation for most management teams. While a domestic growth story is quite rightly carefully scrutinised and challenged, the two strategies that tend to be nodded through are ecommerce and international, and sometimes the two together.

So how reliable a source of growth and attractive returns is international? History suggests fortunes are actually very mixed.

There are many ways international strategy can be pursued and each has its own challenges and risks. Each adds material complexity to the business and the implications need to be fully understood and managed. Acquiring an existing business may be an option but it didn’t work for major players such as Marks & Spencer, Sainsbury’s and Dixons in the US. On the other hand, a new custom-built format proved no more successful for Tesco.

Walmart’s acquisition of Asda has been successful. This was after mistakenly thinking it could introduce discounting to a German market that was price-led decades before Sam Walton opened the first Walmart store.

Ultimately, it is local knowledge that will determine the fortunes of an international strategy. One way of buying that knowledge and reducing the risk is franchising. M&S has had a successful international franchising business for many years. Its company-owned overseas stores have had a much more mixed time and, having shut down, it is now trying the company-owned approach again.

But is franchising giving too much away?

The essence of retailing is surely the relationship with the customer. Sub-contracting that relationship to a third party necessarily makes that part of your business fundamentally different - it’s really wholesaling.

Generally speaking, successful international retailers will do well in their domestic markets too. They will be exporting a finely tuned, demand-driven proposition. Retailers that are grappling with major challenges in their home market will be spreading their attention more thinly, and increasing risk. The idea that you just have to pitch your tents in these new territories and customers will show up is fanciful.

Primark is a great example. At home it is a tightly run business that has developed its offer in steady increments but remains true to its core principles. It is exporting this tight control overseas, progressing in a steadily, solid fashion.

Asos is another example, exporting a very well-managed domestic proposition overseas.

Taking websites overseas is seen as a low-cost, low-risk entry route. It certainly avoids the need for long-term commitments to real estate. Nevertheless, there are huge challenges and one is overseas fulfilment. Finding the right delivery partners is critical, just as it is at home.

Corporate ego should not be allowed to get in the way of gaining the thorough understanding that manages risk.

Hiring real estate experts and lawyers is simply not enough. International retailing can be an attractive growth opportunity but not without genuine local knowledge.