Strategic Direction

Emerald Article: Globalization's winners and losers: Lessons from retailers J.C. Penny, Home Depot, Carrefour, Ikea and others

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To cite this document: (2006),"Globalization's winners and losers: Lessons from retailers J.C. Penny, Home Depot, Carrefour, Ikea and others", Strategic Direction, Vol. 22 Iss: 9 pp. 27 - 29 Permanent link to this document: http://dx.doi.org/10.1108/02580540610686531 Downloaded on: 08-04-2012 References: This document contains references to 3 other documents To copy this document: permissions@emeraldinsight.com This document has been downloaded 5097 times.

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Globalizations winners and losers

Lessons from retailers J.C. Penny, Home Depot, Carrefour, Ikea and others

etailers provide one of the most visual features of the increasingly global nature of business. Travel to almost any airport, then venture into the shopping malls in the city centers and the suburbs, or visit the big box stores on the edge of town and the facia boards on the front of the stores have a remarkable similarity the luxury brands at the airports, the fashion stores in the malls, the household goods at the edge. Their march forward can appear to be relentless. The truth is something more complex. Some win, some lose. The winners take the spoils, the losers can be taken to the brink. Retail stores are products of the communities they serve. Sometimes this translates, sometimes not. Sometimes companies adapt, sometimes they dont.

Marks & Spencers fortunes have revived, however this is centred on their home market of the UK. Their overseas adventures alone were not responsible to their earlier decline, but they did help make a bad situation virtually intolerable. By way of contrast, Swedish home furnishings giant Ikea goes from strength to strength. Their home market being small, internationalism was embraced from the early days. Success recipes from one company may not always work from another, yet there are general strategic lessons to be learned.

Comings and goings in Chile

Issues are brought into sharp focus by a study by academics of Chiles Universidad Adolfo Ibanez based in the capital Santiago. Examined are the reasons for failure of four high prole retailers whose Chilean market entry and development experiences fell well short of expectations. For the USAs Home Depot and J.C. Penny, Carrefour of France and Royal Ahold of Holland, the experience is one that they may feel they would rather forget, but would do well to remember: 1. Home Depots rst international expansion outside of North America was to enter the Chilean market in 1998. They followed this by opening stores in Argentina and Mexico. In 2001 Chilean operations were sold to Falabella, initially their joint venture partner, and Home Depot withdrew from the market. Home Depot failed to appeal to women in the way that their local competitor did, which also spoiled the shopping experience for their male companions. They were deemed to be arrogant when dealing with their Chilean suppliers. Their executives werent well accepted by stakeholder communities and the business community in Chile. They were also not sufciently differentiated from an established local competitor. 2. Carrefour, like J. C. Penny, made the mistake of entering the market without the benet of advice from a local partner. They lasted in Chile for six years from 1997-2003. They simply didnt adjust sufciently to the needs of the local consumer. The established player in LIDER did so much more successfully. Carrefour also paid top of the market prices and had no real plan for growth. That their country manager was French simply compounded these problems.

DOI 10.1108/02580540610686531

VOL. 22 NO. 9 2006, pp. 27-29, Q Emerald Group Publishing Limited, ISSN 0258-0543

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 Carrefour, like J. C. Penny, made the mistake of entering the market without the benet of advice from a local partner.

3. Royal Ahold operated in Chile from 1997-2003 also. They partnered with Velox Retail Holding who had interests in both Chile and Argentina. Aholds withdrawal from Chile was prompted by massive accounting irregularities. With the Argentinean nancial crisis they had become responsible for Veloxs debts. Although operations had been devolved to Velox the result was still an unsuccessful one. 4. J.C. Penny withdrew from Chile by selling their business to a local competitor. They operated from 1995-2000. They too did not adapt to Chilean shopping habits, failing to meet local expectations in areas such as the sale of electricals. They had intended to operate ve stores, but had a series of problems, and only operated one in Santiago, which became logistically very expensive. They had centralized systems and didnt source any stock from Chile. The executive in charge was intelligent, but an American who only spoke English in a Spanish speaking country, making communication and understanding of customer needs difcult. The experiment didnt work. In international business the standardization versus adaptation debate is a vital one. Should businesses try to standardize operations with all of the benets of consistency and economies of scale that go with it, or should they adapt to local conditions and maximize their business performance in the local marketplace. For these retailers the message is one of adapt or, if not die, then face mounting losses and give up.

Ikeas stumbles and the great leap forward

Ikeas story presents something of a contrast. However, the rise and rise of the Swedish furniture retailer has not been without a few twists and turns along the way, beloved of business school case study writers. Their current position, though, is an impressive one. 1.1 million customers visit Ikea every day. They operate 226 stores in Europe, Asia, Australia and North America. Such is the excitement that a store opening can generate that one in Jeddah, Saudi Arabia led to scenes in which two people died, another in London, UK required the police to control a gathering crowd of around 6,000. They have managed to become a phenomenon that, as CEO Anders Dahlvig has stated, goes beyond furniture and is all about lifestyle. They are a brand with almost cult status. People who buy into the concept feel safe in that their purchases will be well designed, cheap and environmentally sensitive in its production. Their stores are almost the center for like-minded 21st century tribe. Like Starbucks and Virgin the brand transcends mere products. Japan proved a difcult market for them, and North America almost disastrous. They have learned from it however and recognize that they failed to listen to customers. In the US market Ikea set their prices too high, failed to call their beds king, queen and twin, sold sofas that werent deep enough, curtains that were to short and kitchens that didnt t. That they recovered, eventually, is a testament to adaptation. The USA is now one of Ikeas three fastest growth markets, Russia and China being the other two. To the year ending August, 2005 their annual revenues were $17.7 billion, having grown 15 percent on the year before. The pace of store openings has quickened. US stores, for example, should grow from 25 to a targeted 50 by 2010, which will still be less dense than in Europe so more space to expand into. Cost obsession, melded with design is the key to their success, with customer focus and knowing when to adapt vital in internationalizing.

China: the view from the cosmetics counter

China is the new frontier for much of international business, with retailers getting ever more serious as its economic growth continues apace. The beauty industry is probably the fastest

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 LOreal realize that to be lastingly successful they need to take the Chinese market seriously and invest, its size and growth meriting serious attention.

growing area. It is a market that didnt exist in any meaningful way fteen years ago, yet should be worth around $9.6 billion dollars by 2009. Fighting it out are LOreal of France, Shiseido of Japan, together with Estee Lauder of the USA. Proctor and Gamble are also there, dominating the cosmetics and toiletries sector, their Olay brand proving popular. The division line in the market is between fashion and tradition. They need to work hard, but the overseas big brands are differentiated enough to service the fashion sector, cloaked as they are in images of overseas glamour. The local Chinese competitors are best served to understand the customers and thrive in the traditionalist segment. LOreal realizes that to be lastingly successful they need to take the Chinese market seriously and invest, its size and growth meriting serious attention. Chinese researchers, primarily chemists, are stafng new laboratories in Pudong, China, as new pigments, waxes and oils are developed suitable for local people, their skin tones and aspirations. By way of contrast, tradition is strong, and maybe even becoming fashionable. Shanghai Herborist Cosmetics sees itself as Chinas Body Shop (the eco-friendly UK-based group now owned by LOreal). The big brand carve up is not a foregone conclusion. As the Chilean example shows, the local can strike back. All lessons in marketing start by stressing the needs to understand customers wants, needs and demands. While globalization brings complexity, this simple truth persists.

Comment
This multiple review article is based upon the following papers. Lessons learned from unsuccessful internationalization attempts: Examples of multinational retailers in Chile by Bianchi and Ostale in the Journal of Business Research provides an academic survey that focuses on the Chilean experience, but provides a number of truths about market entry and development that transcend the national context. Keywords: Retailing, International business, Chile, China Ikea: how the Swedish retailer became a global cult brand, published in BusinessWeek, provides journalistic rapportage, but does dig a little beyond the success story. Battle for the face of China by S. Prasso in Fortune is useful for its cosmetics industry focus, going beyond a general analysis into the dynamics of a fast-growing market sector.

References
Aron, R. and Singh, J. (2005), Getting offshoring right, Harvard Business Review, Vol. 83 No. 12, pp. 135-43, ISSN 0017-8012. Gaston, R.S. (2005), Outsourcing information services in investment banking, Business Information Review, Vol. 22 No. 4, pp. 263-8, ISSN 0266-3821. McClenahen, J.S. (2006), Hot! Hot! Hot!, IndustryWeek, Vol. 255 No. 1, pp. 23-6, ISSN 0039-0895.

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