U.S. retailers entering overseas markets often overestimate or underestimate demand.
The misfires stem from a lack of knowledge about some of the business and political complexities and nuances of mostly uncharted territory. But that hasn't chilled the desire of most companies to tap into growing economies across the globe.
Take Brooks Bros.' opening day in Santiago, Chile, last April. "We were surprised by the depth of what was shopped,'' said Claudio Del Vecchio, president and chief executive officer. "Shoppers bought everything — shirts, suits, shoes."
Typically, a Brooks Bros. opening overseas is marked by far less exuberant spending across categories; shirt sales can comprise as much as 70 percent of the total. Shirts are less expensive than most Brooks Bros. products and readily identified as embodying the spirit of the brand, so they're an easy impulse buy, Del Vecchio explained. As customers become more familiar with the assortment, the selling evens out across categories, and shirts average out to some 30 percent of sales.
In Germany, Wal-Mart was far too optimistic. The retail giant was up against restrictive building codes, scarcity of land for new stores and a lack of a critical mass to leverage costs, a sluggish economy and, most important, tough competition from local chains Aldi, Tengelmann and Metro. Last July, Wal-Mart announced the sale of its ailing German retail business to Metro AG and took a $1 billion charge in the second quarter to cover the exit. Wal-Mart last year also left South Korea, where it was losing money.
But the world's largest retailer has fared better in Brazil, Canada and Mexico. And despite some setbacks on the world stage, Wal-Mart recently bought a 35 percent stake in Taiwanese retailer Trust-Mart, which will more than double Wal-Mart's retail footprint in China, and entered India with a retail joint venture with Bharti Enterprises Ltd., a New Delhi conglomerate. Under the deal, structured to capitalize on loopholes in India's restrictions on foreign direct investment, it is said Wal-Mart will provide logistics and sourcing expertise and Bharti will franchise retail units.
Gap Inc.'s international sales have been generating negative comps. To minimize risk, last year Gap shifted from a strategy of strict ownership of the stores to signing with franchise partners better acquainted with the markets. Deals have been struck in the Middle East and Asia. Gap still owns its stores in Japan.
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