Byline: Thomas J. Ryan

NEW YORK — For U.S. retailers, Europe and Asia may be better routes for expansion than developing new formats at home, where stores continue to pummel one another in the battle for market share, according to Joseph H. Ellis, head retail analyst at Goldman Sachs.
“Does global retailing pay? Yes, if you’re good enough at it,” Ellis said Wednesday at the Goldman Sachs Global Retailing Conference, at the Plaza Hotel here.
However, casualties from global expansion are high. Ellis estimated more than 50 percent of all retailers will fail abroad because of a myriad of potential pitfalls, including:
The high costs of real estate and tariffs.
Misunderstanding local consumers.
Competing against unfamiliar companies.
He urged top U.S. managers to carefully study potential overseas markets. “Touch it and smell it,” he said, before tapping into it.
“You shouldn’t bother expanding globally unless it’s going to be a multibillion-dollar business, and if it’s a multibillion-dollar business, it deserves your direct attention,” Ellis said.
Citing some potential pitfalls, he said retailers should be aware that consumers in southern Europe prefer brighter colors while those in northern Europe tend to like muted, earthy tones. And GapKids, he noted, adjusted in Japan by offering smaller sizes.
He also said a chain such as Victoria’s Secret would probably not fair well in Indonesia, which is known for conservative dressing. However, the chain “would work beautifully” in Europe.
On the labor front, Ellis noted different countries have different labor laws and methods. Germany, for example, has stricter labor laws than most, although he said the country is “loosening up.” Some retailers have found it hard to get “able and assertive” employees in China, he noted, and found that some employees, conditioned by their Communist past, have declined accepting pay that’s higher than that of other employees.
He said the U.S. retailers at the forefront of global expansion are Wal-Mart, Gap, Tiffany, Eddie Bauer, Toys ‘R’ Us, Disney and Warner Bros.
Ellis said concepts that do best or “travel well” are luxury goods, noting that they appeal to the “educated traveled customer.” He cited the success of Tiffany in Europe and Asia.
Companies with a “unique proprietary product or brand,” including Gap, Body Shop and Ikea, “have developed a truly global following,” according to Ellis. Athletic chains featuring dominant brands, such as Nike, Reebok and Adidas, also translate well overseas, Ellis said.
Ellis said the main characteristics of chains that “travel well” are stores that have a high identity, narrow focus and are “product-driven.”
Other brands that can travel include Looney Tunes, Disney and Blockbuster, he added.
On the other hand, price-driven concepts that rely on a broad array of merchandise have a tougher time. Ellis said these concepts can succeed, but they require a higher level of global management. Specifically, mass retailers will face tough competition from more entrenched hypermarkets that have been rapidly expanding in Asia and Europe over the last several years.
He noted that retailers should obviously target countries largest in consumption.
The U.S. leads the pack with $4.9 trillion in consumer spending in 1995, followed by Japan, $3.1 trillion; Germany, $1.4 trillion; France, $922 billion; Italy, $645.5 billion; United Kingdom, $704.4 billion; China, $396.1 billion; Brazil, $354 billion; Canada, $339.5 billion; Spain, $326.2 billion; South Korea, $241.9 billion; Mexico, $168.8 billion; Taiwan, $152.4 billion; Indonesia, $116.6 billion; Thailand, $91.4 billion, and Malaysia, $38 billion.
He called Asia a “long-term pot of gold” and said it might be a good time to explore expansion opportunities now because of depressed real estate.
“South Asia has great potential at this time, if you can get over tariffs,” Ellis said.
In particular, specialty chains selling apparel, cosmetics and body products could take advantage of the fact that most large cities in South Asia have between 10 and 20 well-developed malls and Brazil has 60 urban malls, with many stores with no names on them.
“These are malls in search of specialty concepts,” Ellis noted.

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