Facing Saturated Home Markets, Retailers Look to Rest of World

Asia and Central Europe offer sales opportunities, less competition

MORE and more, retailing is going global.

By the year 2000, 90 percent of the world's 100 largest retailers will be operating globally, according to a recent report by Management Horizons, a retail consulting firm in Columbus, Ohio. That compares with the current 30 percent of the world's 100 largest retailers that operate globally, says Daniel Sweeney, an author of the report.

Retailers in France, Germany, Switzerland, the Netherlands, the United States, and Japan will lead the industry's globalization effort, Mr. Sweeney says, primarily because of the saturated markets in these countries.

``These mature Western economies and Japan are simply not providing the growth opportunities that these aggressive retailers want. So they're looking elsewhere,'' says Sweeney, who is also vice chairman of retail services at Management Horizons, a division of Price Waterhouse.

Most analysts credit the North American Free Trade Agreement (NAFTA) with spurring US retailers to enter Canada and Mexico. Wal-Mart Stores Inc., for example, recently spent an estimated $300 million to buy 120 stores in Canada from Woolworth Corporation.

Yet Sweeney says retailers would have started to expand regardless of the outcome of NAFTA. ``The progress that's being made on the international treaties is simply ... making [global expansion] a little quicker and a little easier,'' he says.

Retailers will be looking to establish a presence in Southeast Asia, China, and Central Europe, he says, where they hope to find less competition, new sales opportunities, and rapidly growing markets. In some cases, Sweeney says, these countries are developing new export-manufacturing capabilities because of their relatively low labor costs.

``That evolving manufacturing sector is producing a brand new and rapidly growing middle class,'' he says.

According to the report, entitled ``Retail World: Window of Opportunity,'' European retailers have the highest percentage of companies operating globally (40 percent) out of the top 100 retailers in the world (ranked by sales volume). Far East retailers are almost equal to Europe in terms of the percentage of global companies (31 percent). The Americas, however, are significantly behind the other trade blocs, with only 18 percent of their top 100 retailers operating globally, (see chart). US retailers did not start to pursue other markets until the last decade, Sweeney says, because the US market offered retailers plenty of growth opportunities until then.

But some analysts disagree with Europe's status as a global retailer. ``Europeans are not deserving of the banner of global retailers,'' says John Ronzetti, vice president of information services in New York for the National Retail Federation. ``They're operating under a number of different circumstances than United States retailers.''

The European market has been saturated for years, but the Europeans have been slow to respond, he says. American retailers, on the other hand, have looked beyond their overbuilt borders to improve profits. And unlike European or Japanese retailers, Mr. Ronzetti says American retailers pursue markets overseas with the intention of establishing four or five stores in a country, rather than building one store per country.

``[American retailers] want to establish a volume great enough that they can achieve the kinds of economies they're used to getting in the United States,'' Ronzetti says. ``They want to get ... a market share quickly established.''

Jerry Bouts, president of Toys ``R'' Us Inc.'s international division, says American retailers are smart to establish themselves first in the US - the world's largest single market. ``If you spread your resources and go off shore too early and too soon ... you could be undercut and lose your position in the US and lose your whole company,'' Mr. Bouts says.

Many analysts see Toys ``R'' Us as one of the best examples of US retailers' globalization efforts. The largest US toy chain started its international expansion spree in 1984. At the end of last year, Toys ``R'' Us had 234 stores in 16 countries, and it plans to open 70 more stores worldwide in 1994. Looking ahead, the company will be targeting Latin America, especially Mexico, Bouts says. And it hopes to open stores in China in the next 10 to 15 years.

The athletic footwear company Foot Locker, owned by Woolworth, has the greatest number of foreign operations of any US-based retailer. One-third of its 9,000 stores are located outside of the US, representing 40 percent of the company's total sales. Foot Locker plans to open 1,000 new stores worldwide by the year 2000, the report states.

Other US retailers pushing into other parts of the world include: K mart Corporation, J. C. Penny Company Inc., Dillard Department Stores Inc., Saks Fifth Avenue, The Home Depot Inc., and Tandy Corporation.

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