Retailing Management Canadian 5th

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 CHAPTER 7:
INTERNATIONAL RETAILING STRATEGY
ANNOTATED OUTLINE
I. International Retailing: Canadian Issues
A. American Retailers Come to Canada
 Overcrowded retail market in US led to interest in
pursuing Canadian retail opportunities.
 1990 Winners acquired by TJX
 1994 NAFTA (North America Free Trade Agreement)
enabled US retailers to move into Canada.
 1994 Walmart came to Canada, bought Woolco.
 1999 Shoppers Drug Mart sold to U.S Kohlberg Kravis
Roberts and in 2013 sold to Loblaws Co.,
 1999 Club Monaco acquired by Polo, Ralph Lauren.
2006 the Hudson’s Bay Company, Canada’s oldest retailer
(1670), was bought by US billionaire Jerry Zucker. Zucker
passed away in 2008 and was acquired by NRDC Equity
Partners. NRDCs portfolio of retail companies became
components of a new multinational limited partnership
called the Hudson’s Bay Trading Co. In 2012 the Hudson’s
Bay Trading Co., was dissolved and Hudson’s Bay Company
would operate both Hudson’s Bay and Lord & Taylor. In
2013, HBC acquired Saks Incorporated. The merger means
that HBC will include three North American retail brands:
Hudson’s Bay, Lord & Taylor, and Saks Fifth Avenue.
 In 2011, HBC sold most of its Zellers store leases at its
best locations to Target.
Instructor’s Manual for Retailing Management, 5ce
INSTRUCTOR NOTES
Have students name their favourite retailer,
is the retail store Canadian owned?
Take a quick poll as to the number of
favourite retailers who are Canadian vs.
foreign owned companies.
Ask if they think of Canadian ownership
when shopping.
Then there were the buyouts, where many
popular Canadian retailers were acquired
by American giants. Examples include
Shoppers Drug Mart (acquired in 1999 by
Manhattan-based buyout experts Kohlberg
Kravis Roberts and Co.), Club Monaco Inc.
(purchased in 1999 for $80 million by Polo
Ralph Lauren, US), Winners (now owned by
TJ Maxx), and Canadian icon Tim Hortons
(purchased by American fast-food giant
Burger King in 2014).
Success in Canada came quickly, and US
retail banners now control approximately
38 percent of all retail sales in Canada. San
Francisco’s Gap Inc. expanded quickly to
include Gap stores, urban chic Banana
Republic stores, and the trendy youth-
oriented, big-box store, Old Navy.
What is the trouble with Canadian retailing
and why is the sector becoming
Americanized so quickly? Retail experts are
quick to judge, pointing to lack of attention
to customer service, lacklustre Canadian
stores that need an image update, and
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 International Retailing Strategy
B. Canadian Retailers in the United States
 Some of the problems identified with Canadian
retailers unsuccessful attempts at penetrating the US
market:
 Inability to secure good real estate.
 Underfunded advertising budgets.
 Underestimating competitiveness of US retail
market.
 Failing to do market research.
 Not enough money & resources invested in retail
projects.
 Copy cat approach. Copying successful US retail
concepts does NOT work.
 Suggestion, expand cautiously:
 Acquisition of existing US retailers.
 Develop unique product.
Instructor’s Manual for Retailing Management, 5ce
sales staff who lack initiative and product
knowledge. According to experts at the
Retail Council of Canada, this is a bad rap
as many Canadian retailers at all levels
strive to exceed customer expectations and
remain very competitive in an increasingly
complex marketplace. Still, Nordstrom from
the United States, which opened stores in
Canada in 2014, remains the gold standard
globally and a tough act to follow, excelling
in visual merchandising, knowledgeable
staff, and unbeatable customer service.
Perhaps the reality is that Canadian
retailers do not have the deep pockets of
their southern neighbour. Consider this:
When the 127-year-old T. Eaton Co. Ltd.
was going through its bankruptcy problems
in 1998 and trying desperately to attract
customers, a $60 million renovation took
place across its 64-store chain. In stark
contrast, Marshall Fields in Chicago spent
twice that amount on a single store.2
The Quebec-based, 50-year-old Pharm-
Escomptes Jean Coutu pharmacy practically
owns the Quebec market, with 269 stores.
Looking to expand further into the US
market, the company announced in 2004
the purchase of Eckerd drugstores in the
eastern United States for $3.1 billion. This
strategic move was based on Coutu’s long
track record of successfully operating in the
United States, extending back to 1987 and
its takeover of 333 Brooks Pharmacies in
seven northeastern states. Coutu’s success
was built on retaining the old management
at Brooks and learning the business before
making any major moves.
In Canada, we see very little in the way of
Canadian firms buying out American
businesses that have already established a
presence here in Canada. One buyout of
note was Bell Canada purchasing The
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 International Retailing Strategy
Globalization
 Some factors stimulating globalization of retailing are
(1) the maturation of domestic markets, (2) the
development of skills and systems to effectively
manage global operations, and (3) the removal of
trade barriers.
Maturation of Domestic Markets
 Most large retailers have saturated their domestic
markets. Growth-oriented retailers see greater
opportunities in international markets.
II. Global Growth Opportunities
 Ten Global Trends: 1. Wal-Mart increases its retail
power, 2. Price over Innovation, 3. Experience
Shopping Attracts, 4. Empowered Customers, 5. Kids
are a Market Opportunity, 6. Growth of Dollar
Stores, 7. Luxury for All, 8. E-Commerce Sales here to
Stay, 9. Loyalty is Important, 10. Retailers build their
own Brands.
A. Attractiveness of international markets
 Two factors that are often used to determine the
attractiveness of different international opportunities
are (1) the potential size of the retail market in the
country, and (2) the degree to which the country can
and does support the entry of foreign retailers.4 Some
indicators of these factors are shown in Exhibit 7–1.
The (+) or (−) indicates whether the indicator is
positively or negatively related to the factor.
Instructor’s Manual for Retailing Management, 5ce
Source (formerly known as Radio Shack)
from the defunct US electronic giant Circuit
City.
Which U.S. retailers have been successful
expanding in Canada? Why? (Wal-Mart has
been successful in some markets, but not
all, because their everyday low price
strategy is appealing to most consumer
markets).
Which non-Canadian retailers are
successful in Canada? Why? (IKEA from
Sweden has been successful in U.S. because
it appeals to newly formed relatively highly
educated households, i.e., college grads
buying for their first real home).
Domestic market saturation can be
explained by product penetration levels for
any product. For example, in the Canada
almost 99% of all households own a TV set,
but the penetration rates are far lower in
international markets, especially emerging
markets such as India and China.
Ask students to generate international
growth opportunities for The Gap, Roots,
Wal-Mart, and a grocery store chain.
Discuss why different opportunities might be
attractive to each of these retail chains.
Ask students to choose one of the ten global
retail trends and have them explain how this
has had an impact in their purchasing
behaviour this could be a explain a personal
situation as a shopper or retail employee.
Review China, Brazil and Russia with
students.
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 International Retailing Strategy
 What issues would encourage a Canadian retailer to
seek expansion in the international marketplace?
Limited retail competition in the foreign
marketplace, rising number of middle class
consumers globally, younger population in global
markets, Free trade agreements, relaxed regulatory
control in global markets, lower wages and
operating costs, opportunity to diversify and an
opportunity to try new innovative concepts.
 International expansion is one form of a market
expansion strategy. The most commonly targeted
regions are Mexico, Latin America, Europe, China,
and Japan.
 International expansion is risky because retailers
using this growth strategy must deal with differences
in government regulations, cultural traditions,
different supply chain considerations, and language.
Instructor’s Manual for Retailing Management, 5ce
The World’s largest Shopping District
 Dubailand located in Dubai, Arab
Emirates, is the world’s largest
shopping experience with 40 million
square metres of gross leasable space
designed for retail, entertainment, 31
hotels including convention facilities
and residential. With this new retail
/entertainment project Dubai is trying
to project itself as a tourist destination
for families.
 Dubai with a new focus on tourism
plans on attracting 20 million visitors
by 2020.
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 International Retailing Strategy

Who is Successful and Who Isn't
 Retailers, particularly store retailers with
strong brand names, may have a strong
competitive advantage when competing
globally.
Which Canadian-based retailers have been
successful in going global? Lululemon, Artizia,
Joe Fresh
Which U.S. retailers have been successful in
Canada? Home Depot

 Some Canadian retailers may have a
competitive advantage in global markets
because the North American culture is
emulated in many countries, particularly
among young people.
 Some large European and Japanese retailers
have considerably more experience operating
retail stores in nondomestic markets.
 Category killers and hypermarket retailers may
be particularly suited to succeed
internationally because of the expertise
they’ve already developed at home.
Discuss the reasons why category killers and
hypermarkets may be more successful
internationally.
These reasons include: (1) experienced use of
technology to manage inventories, control
global logistical systems and tailor merchandise
assortments; (2) buying economies of scale and
efficient distribution systems; (3) development
of unique systems and standardized formats
facilitating better control; (4) focused
communications due to narrow assortment and
focused strategy; and (5) willingness of global
consumers to forgo service for lower prices.

B. Global consumer attitudes and retail trends Retailing View,7.1: Can Joe Fresh Save JC
Penney … and Retail?
 Following changing consumer attitudes and
retail trends around the world has provided
a unique career for Canadian Anthony
Stokan. In his book, Naked Consumption:
Retail Trends Uncovered, he highlights ten
global retail trends:

1. It’s a Wally, Wally World—Walmart will

increase its retail power across all income
levels.
2. The Death of Inspiration—Price emphasis
focuses on utilitarian store environments.
3. Experience Shopping—Go beyond
entertainment to attract niche markets.
4. Empowered Consumers—Consumers use
the Internet to comparison shop.
5. Kidopoly—Kids are a big market
opportunity; $25 billion in direct sales and
$500 billion worth influencing parents’
spending in North America.
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6. Dollar Store Euphoria—Consumers like the

value of low-priced merchandise.
7. Luxury for All—Include affordable luxury
elements in products for all shoppers.
8. E-Commerce: Action/Transaction—Sales
online will remain a minor share of overall
retail sales.
9. The Loyalty Myth—There is value in keeping
and growing an existing customer base.
10. The New Brand Management—Successful
retailers will build their own brands.

 Retailers engage in international ventures

for many reasons. When the home
marketplace is not producing desired sales
and profits diminish over time, some of the
problems may be attributed to:

 a saturated home marketplace with no

room to grow
 a highly competitive marketplace
 an aging population that spends less and
saves more
 an economic recession, which limits
consumer spending
 high operating costs including staff wages,
rental costs, and taxes
 restrictive policies on retail development
 shareholder pressure
 The age factor is a dominant issue in Canada
and the United States, where aging
populations have put their spending years
behind them; the prediction for the future is
that the North American economy will be
much slower growing. North American
retailers who want to maintain growth rates
have no alternative but to sell their products
in an international arena. The reality is that
if you want 8 percent growth in sales, you
are forced to go to new growing economies,
probably in South America, Mexico, or Chile,
where a dominant young population
between the ages of 15 and 25 (the
desirable demographic) is entering the
workplace, producing, and spending.
 It should be noted that countries such as
Taiwan, South Korea, and Singapore are also

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now aging quite rapidly. Although younger

than Canada, these countries over the next
ten years will experience a dramatic
slowdown in consumption. China has an
immense population of 1.2 billion, and even
if you get a small portion of the market,
success can be huge. China appears to have
stronger retail market potential than India,
with a population of 1 billion. China has a
one-child-per-family policy, whereas Indians
still have three children per family. If a
population includes many children, then
much of its resources are used for the
health care and education of its young
people, inevitably putting a taxation burden
on those of working age and limiting
disposable income for retail purchases.
 To succeed as an international retailer, the
company must have a thorough
understanding of the macro-environment,
including cultural differences, government
policies, and the economic stability in the
international trade area. Other important
factors include the sources of product
production and the distribution capabilities
within the international market. Some of
the factors that would encourage a retailer
to enter into the international marketplace
include:

 limited competition in the

international marketplace
 rising numbers of middle-class
consumers with improved standard of living
 younger population with purchasing
power
 trade agreements and
organizations, including North American
Free Trade Agreement (NAFTA), World
Trade Organization (WTO), European Union
(EU)
 relaxed regulatory framework
 favourable operating costs,
including lower wages and taxes
 opportunity to diversify
 opportunity to try innovative
concepts

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 Both the micro- and macro-

environments must be wisely managed for a
retailer to be successful.
 Italian designer Giorgio Armani
made his first venture into Beijing, China, in
1998. According to Armani, “The Chinese
market is growing full steam ahead. We are
seeing very good results from Chinese
tourists buying in our Hong Kong flagship
store and the future possibilities are
endless.” The designer was well aware of
the growing Chinese market for luxury
goods; the decision to open a new flagship
store in Shanghai in 2004 was part of an
ambitious strategy to have 30 stores in
China by 2008.9 By 2013, he had 289 stores
in that country.10

C. Keys to Success

 Four characteristics of retailers that have

successfully exploited international growth
opportunities are: (1) globally sustainable
competitive advantage, (2) adaptability, (3)
global culture, and (4) financial resources.

The world’s largest shopping district Consider a retailer such as Wal-Mart. What are
international market conditions necessary for
 Officially launched in April 2009, Bawadi, the Wal-Mart to succeed with its low costs, efficient
multibillion-dollar leisure and tourism operations strategy?
destination in Dubailand, has the world’s
largest shopping experience, with over 110
million square metres (1185 million square
feet) of gross leasable area. It has over 400
retail outlets, including numerous
international brands. Dubai is one of the
United Arab Emirates in the eastern Arabian
Peninsula, and Dubai City is the main city.

 The world’s largest shopping area provides

support to the tourism and hospitality
industry, which in turn plays a major role in
the diversification and development of
Dubai’s economy. Bawadi includes a 10

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kilometre–long hotel and shopping strip,

entertainment, convention centres, and
residential complexes. The 31 hotels,
ranging from three to five star, focuses
Dubai as one of the world’s premier family
destinations.
 Dubai’s fantastic—even bizarre—previous
developments include The Mall of the
Emirates, featuring a ski slope in the desert
and man-made islands shaped like palm
fronds. These strategic marketing tactics
helped draw over 10 million tourists in 2014
to this tiny desert land that is fast running
out of oil

Globally sustainable competitive advantage

 Entry into nondomestic markets is most

successful when the expansion opportunity is
consistent with the retailer's core bases of
competitive advantage.

C. Keys to success Wal-Mart has stumbled in some international

markets because they underestimated the
Four characteristics of retailers that have differences in cultures, e.g., Argentina.
successfully exploited international growth
Discuss Tim Horton’s lack luster performance in
opportunities are:
the United States and Krispy Kreme’s dismal
performance in Canada.
 globally sustainable competitive
advantage
 adaptability
 global culture
 financial resources19

a) Globally sustainable competitive

advantage

 Entry into nondomestic markets is most

successful when the expansion opportunity
is consistent with the retailer's core bases of
competitive advantage.

b) Adaptability

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 While successful global retailers build on

their core competencies, they also recognize
cultural differences and adapt their core
strategy to the needs of local markets.

 Government regulations and cultural values

also affect store operations. Some
differences, such as holidays, hours of
operations, and regulations governing part-
time employees and terminations are easy
to identify. Other factors require a deeper
understanding

c) Global Culture Ask students to think of some products that

could be considered uniquely Canadian. What
 To be global, one has to think global. It is not cultural adaptations need to be made before
sufficient to transplant a home-country culture these products are marketed in nondomestic
and infrastructure into another country. markets?

d) Financial resources What can smaller retailers do to succeed

internationally?
 Expansion into international markets requires a
long-term commitment and considerable up
front planning.

D. Entry Strategies Have the students choose a retailer who has or

could go global. Ask them to choose and justify
 Four approaches that retailers take when an entry strategy.
entering non-domestic markets are direct
investment, joint venture, strategic alliance,
and franchising.

a) Direct Investment Identify the products/services/conditions for

 Direct investment involves a retail firm
investing in and owning a division or subsidiary
that builds and operates stores in a foreign
country.
which the retailer would prefer direct control
over global operations offered by a direct
investment strategy.

 This entry strategy requires the highest level of

investment and exposes the retailer to
significant risks, but has the highest potential
returns.

b) Joint Venture Would a retailer be more likely to use a joint

venture when entering Canada or when

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 A joint venture is formed when the entering entering China? Discuss.

retailer pools its resources with a local retailer
to form a new company in which ownership,
control, and profits are shared.

 A joint venture reduces the entrant’s risks. The

local partner understands the market and
access to resources – vendors and real estate.

 Problems with this entry approach can arise if

the partners disagree or the government
places restrictions on the repatriation of
profits.

c) Strategic Alliance Strategic alliances are often used for learning

about a country's unique environment and
 A strategic alliance is a collaborative other business conditions.
relationship between independent firms. For
example, a foreign retailer might enter an
international market through direct investment
but develop an alliance with a local firm to
perform logistical and warehousing activities.

d) Franchising

 Franchising offers the lowest risk and requires

the least investment. However, the entrant
has limited control over the retail operations in
the foreign country, profit potential is reduced,
and the risk of assisting in the creation of a
local domestic competitor is increased.

D. Costs Associated with Global Sourcing

Decisions

 Canadian retailers use production facilities

located in developing economies for private
label merchandise to take advantage of low
labour costs.

 Foreign currency fluctuations, tariffs, longer

lead time requirements and increases
transportation costs can influence global
sourcing decisions.

a) Tariffs also known as duties, are taxes

placed by a government on imports thus

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increasing the cost of merchandise imported from

international sources.

 Since lead times are longer retailers using

foreign sources must maintain larger
inventories to ensure that merchandise is
available when the customer wants it. Larger
inventories mean higher inventory carrying
costs.

b) International Human Resource Issues

 The legal-political system in countries often

dictates retail human resource practices.

 Canada has led the world in eliminating

workplace discrimination.

 In China and Japan employees downplay

individual desires and focus on the needs of
the group of employees – group based
evaluations and incentives are more effective.

 Should management in foreign countries be

local or Canadian?

 Walmart has experienced problems hiring and

training local managers who are scooped by
rival retailers.

III. Global Versus Multinational Retailers

 Global strategy means that the retailer

replicates their standard retail format and
centralized management throughout the world
in each new market.

 Multinational strategy is used by retailers who

change their products and image to reflect the
international marketplace. They use a
decentralized format, changing their retail
concept to adapt to cultural differences
catering to local market demands.

 Multinational retailers often enter a joint

venture with a retail company from the host
company.

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A. Global Location Issues Ask students what types of research they would
do and how they would collect information
 What makes global location decisions more when selecting a foreign retail location.
difficult and potentially interesting is that those
in charge of making these decisions are
typically not as familiar with the nuances of the
foreign location issues as they are with the
same issues in their home country.

 Real estate is where many grand global designs

ultimately succeed or fail.

 When it comes to picking an exact site within a

foreign city, many retailers rush to their
decisions without the right knowledge.
Decisions often demand knowledge of local
traffic flows, the desired side of the street, or
urban development patterns.
See Exhibit 7-3, The World’s Largest Shopping
 Occupancy costs in global cities, such as Malls and Retailing View 7.2: Mega-Malls in
London, Paris and Tokyo, are extremely high. Asia
Retailers have to be extremely high-volume to
survive.

 Real estate restrictions also complicate

international location decisions. Solutions
occasionally demand a littler ingenuity and
flexibility.

B. Top 250 Global Retailers Exhibit 7-5: Ten largest global retailers and the
ten largest Canadian companies that fall in the
 Exhibit 7-5, The Top 10 Retailers, includes top 250 global retailers: 2011.
companies that compete on the basis of
several different categories, firms that are Ask what companies will be in the top 5 global
known for specific categories (such as Kruger retailers in 5 years.
for groceries and Home Depot for home
improvement), and firms that sell a wide Why?
variety of merchandise through different retail
formats (such as Tesco plc.). Discuss how some companies are doing a good
job of dealing with changing customer needs
 The top 10 retailers represent approximately and others are not.
29 percent of the total Top 250 sales; the
majority of the largest global retailers remain
involved in the food sector and other fast-
moving consumer goods; supermarkets are the

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most common store format operated by 103 of

the Top 250 retailers.

 Walmart is the world’s largest retailer and

represents 10 percent of the top 250 sales.

 As a group, the 10 largest global retailers have

a much larger geographic footprint than the
top 250 global retailers overall. These retailers
operate on average in 16.7 countries, which is
nearly two times as many as the average for
the entire group of 250 retailers.

 The revenue from foreign operations account

for nearly one-third of the total top ten global
retailers’ retail revenue.

 Several U.S. retailers are now venturing

abroad, though in terms of global expansion,
they have still not caught up with their
European counterparts.

 Historically Canadian retailers have not sought

out the global expansion as they have a large
consumer market in Canada and relatively
abundant land to expand.

C. Structure of Retailing and Distribution Pick a type of store, say department stores, then
Channels Around the World ask students to compare department stores in
Canada with those in their native country or in a
 The US distribution system has the greatest country they recently visited.
retail density with a greatest concentration of
large retail firms. The combination of large
stores and large firms result in a very efficient
distribution system.

 The Japanese distribution system is

characterized by small stores operated by
relatively small firms and a large, independent
wholesale industry. As a result, a larger
percentage of labour being employed in
distribution and retailing than in Canada.

 Northern European retailing is most similar to

the North American system. Southern
European retailing is more fragmented across
all sectors. Central European retailing has

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changed from a highly concentrated structure

to one of extreme fragmentation (involving
small family owned stores).

 Factors that have created differences in

distribution systems include social and political
objectives, geography, and market size.

 Japan and several countries in Europe have

laws regulating store sizes and protecting small
stores, while also being more expensive as
compared to land-abundant Canada.
Moreover, North American retail market is
larger than Japan or any single European
country.

D. Counterfeiting is a Global Threat Ask how many students have purchased a

product with a designer logo that they know is
 Counterfeit is an imitation or fake product that not the “real thing”.
is usually made with the intent to deceptively
represent its contents or origins, clothing,
software, watches.

 Bootleg term is used when there is little or no

attempt at hiding the fact that this is a
counterfeit product, CD’s, DVD’s, software.

 Knock-off product may imitate a well-known

brand sold at a lower price, of inferior quality,
no attempt to deceive the buyer or infringe
upon the original product.

 Manufacture and distribution of counterfeit

products have been linked to organized crime.

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ANSWERS TO DISCUSSION QUESTIONS AND PROBLEMS

1. Read “IKEA: Bringing Its Philosophy to a World Market” at the beginning of the
chapter and visit www.ikea.com.
a) Explain why Ikea has had such a strong appeal in the global marketplace.
b) Why does the philosophy “one size fits all” not work in global markets?
Suggest situations where this policy is problematic.

a) Ikea has built a global success strategy based on selling unique product, well-designed
functional furniture at low prices - the Swedish way. The concept works because the
consumers knows and trusts the name Ikea as a retailer who stands behind their quality
products. Consumers are provided low prices and information on easy assembly. The
appeal is universal; quality, functional design, affordable prices and it is easy to
transport and assemble for urban dwellers.

b) The “one size fits” all philosophy of Ikea does not work in all global markets as not all
products are universal to fit the local lifestyle.
Example, the Ikea Scandinavian beds did not fit the deep pocket bed linens that are sold
in North America designed for pillow top mattresses popular in Canada; result,
consumers chose not to purchase the Ikea bed. TVs sold in Canada did not fit into the
Ikea wall shelving units that customers anticipated buying for their home entertainment
system. Even Ikea’s European-style bath towels were too small and thin, and the glasses
were deemed too small for the super-sized thirsts of North Americans. The European-
style sofas were too hard for Canadian bottoms and the Ikea dining room tables were
too narrow for turkey dinner with all the trimmings.

2. Explain how global culture can impact the success or failure of a global retailer like
Toys R Us.

Global culture has had a positive impact on Toys R Us, proven by its success of having
expanded to nearly 650 stores in 31 countries outside the U.S. since entering the
international landscape in 1984. Quality, value, and selection have been its corporate
philosophy; a philosophy that parents world-wide have come to expect from a toy
company. Success of tracking the toy trends in different countries is a crucial part of
global culture success or failure for a company like Toys R Us. As well, establishing a
strong brand name and maintaining leadership in the industry are key factors for their
success or failure internationally.

3. What advantages does a multinational retailer such as Avon have over a global
retailer?

Avon’s unique advantage, including the fact that they are the world’s largest
direct seller of beauty products with annual revenue exceeding $8 billion
annually, can be credited to their marketing strategy. According to their website,

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Avon ‘markets to women in over 100 countries through over five million
independent Avon Sales Representatives’. In addition, their products are
available in over 100 countries worldwide; they have been chosen by Business
Week as one of the ‘top 100 global brands’; and have been chosen as the ‘most
trusted brand’ on three continents. This strong brand loyalty and recognition on
an international scale makes it hard for global retailers to match their success.

4. Why are global companies such as McDonald’s Restaurants gaining worldwide

customer appeal?

According to McDonald’s corporate website, they are ‘the leading restaurant brand
with more than 30,000 local restaurants serving nearly 50 million customers in
more than 119 countries each day. Approximately 70 percent of McDonald's
restaurants worldwide are owned and operated by independent, local
businessmen and women’. This strategy of having a local appeal in communities
across the world has been a key factor in appealing to customers. Most notably,
however, is their community and charity work worldwide with its Ronald McDonald
Charity Houses, raising millions of dollars for needy children and parents. McDonalds
thinks globally, but acts locally; a strategy that has universal appeal.

5. Explain the strengths and weaknesses of global companies versus multinational

retailers.

Global companies strengths comes through having a centralized management and a

standardized image versus multinational retailers who gain strength through adapting to
local environments, decentralized management and more flexibility in regards to store
design. This difference has created a stronger competitive environment with
multinational retailers often adapting and creating new and innovative ways to compete
against standardized business models, established supply chains, and often inflexible
pricing strategies.

6. Why is a joint venture alliance often a favourable approach to facilitating an

international retail venture?

A joint venture reduces an entrant’s risk by sharing financial costs. As well, the partner
often has a better understanding of the local market and has access to more resources
such as vendors and real estate.
An example of a recent joint venture (2006) can be seen with a recent joint venture
between Tim Hortons, Wendy’s and IAWS from Ireland. According to Tim Hortons
corporate website: ‘Wendy's International, Inc. announced a joint venture between its
Tim Hortons subsidiary and Irish based IAWS GROUP, The venture will bring to North
America the innovative European bakery manufacturing technology of Cuisine de
France, an IAWS subsidiary. Cuisine de France is a leading foodservice company that
manufactures and supplies baked goods under its own brand name to retail outlets in

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International Retailing Strategy

Ireland, the United Kingdom and the United States. IAWS is a $1 billion (U.S.) in sales
Irish company, which trades publicly on the London and Irish Stock Exchanges’.

7. Why is it important to understand the macro-environment when making decisions

about an international retail venture?

It is extremely important for a retailer to keep abreast of the ever-changing macro-

environments in different countries. They must regularly ‘scan’ each component of the
macro-environment to ensure they are not caught ‘off-guard’. A competitor’s strategy,
supplier environments, the political stability or instability of the country, socio-cultural
environments, new technologies, or new laws are just some of the issues to
consider. As well, monitoring the economic activity of international markets is crucial;
ignoring this macro-environment can have a devastating effect on a retailer entering
new international markets. Bottom line is that it is important for any retailer to have a
contingency plan when decision-making about an international retail venture.

8. Explain the importance of understanding the micro-environment when planning to

open a retail store in an international location.

A retailer must understand the importance of the ‘controllable’ factors: place, product
mix, price, promotion and people (customers) since retailing is geographically tied and
thus each component needs to be adjusted based on the retail environment of the
international location(s) they are entering.

9. Complete a research study to determine what laws and regulations exist for opening a
retail store in the following countries.

Some laws include:

- China: restrictions on foreign invested retail enterprises that restrict the development
of larger stores and chain stores (number of, square footage) by foreign investors;
domestic retail enterprises are not subject to the same restrictions.
- India: restrictions on foreign investments make it difficult for retailers to enter and
expand into India. The only opening in the retail sector so far has been to allow 51
percent foreign stakes in single-brand consumer stores.
- Russia: Due to the passage of the 1993 laws "On Protection of Consumer Rights" and
"On Advertisement.", it is now prohibited to sell imported food products without
mandatory product information in Russian.
- Mexico: companies have to observe Federal, State and Municipal laws at the same
time. Fiscal obligations depend on the corporate structure and degree of presence of a
foreign company in Mexico.

10. Choose a retailer that you believe would be, but is not yet, successful in other
countries. Explain why you think it would be successful.

A Winnipeg-based Canadian company, ‘The Northwest Company’ demonstrates

several key traits for success for expansion into other countries: strong

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International Retailing Strategy

leadership, strong brand recognition, proven sales and profits, and support of
both international and community causes. With sales of over $1.5 billion and
employing more than 6,692 people, it is a leading retailer of food and everyday
products to rural communities and urban neighbourhoods across northern and western
Canada and Alaska. The company operates 193 retail outlets under the banners of
Northern, NorthMart, Quickstop, Giant Tiger and AC Value Center.

Their core strengths include their ability to adapt their product mix to each unique
market they serve; logistics expertise in moving product to, and operating stores within,
remote or difficult-to-reach locations; their knowledge and extensive experience serving
indigenous and lower-income customers; and their ability to apply the above strengths to
serve customers within complementary niche businesses. The North West Company is a
retailer to underserved rural communities and urban neighbourhood markets which
offers a broad range of product and services with an emphasis on food. A northern store
serves communities with populations from 300 to 9000 residents and is around 7,500
square feet in size. A store of this nature would offer food, family apparel, housewares,
appliances, outdoor products and services such as post offices, income tax return
preparation, pharmacies , quick-service prepared food, ATMs, commercial business sales,
money transfers and cheque cashing.

The company is active in Aboriginal economic development and education initiatives, has
recently donated 300 pairs of running shoes to inner-city students and is a major
supporter of the Canadian Diabetes Foundation through its annual international
marathon teams comprised of its employees and members of the communities they
serve. The North West Company has raised approximately $1, 902, 597 in sponsorship
and donations as of 2012.

ADDITIONAL QUESTION
1. Choose one of the Top 10 Retailers (Exhibit 7-5) with which you are familiar. Have they
been successful in expanding beyond their parent country? Why or why not?

From the Exhibit of the Top 10 retailers, students can see that in general, European retailers
have been more successful in expanding to more countries as compared to the U.S. retailers. In
general, given smaller sizes of the countries in which these retailers originated, they had to
expand to other country markets to sustain their growth strategies. By contrast, the U.S.
retailers have enjoyed a larger market size within North America alone, thereby rendering global
expansion less of a priority for them.

Lately, however, some large U.S. retailers, such as Wal-Mart and Home Depot, have expanded
to other countries. At the same time, retailers such as Kroger, and Target, have concentrated
only in the U.S. market. Several factors could be brought to bear upon this, including the
products/assortments offered and the specific retail strategies pursued by these firms. Products
offered by Wal-Mart are used for day-to-day consumption and the need for such products

Instructor’s Manual for Retailing Management, 5ce

© McGraw-Hill Education, 2017
International Retailing Strategy

(toothpastes, soaps and detergents, furniture) are present in other countries as well. A similar
case can be made for home construction, home repair and related products offered at Home
Depot. On the other hand, grocery retailing would require the creation of an indigenous supply
organization in the country to which the retailer is entering. While Ahold and Sainsbury operate
complete retail and supply chains in the countries in which they are currently present, Kroger
may be less willing at this stage to make this type of investment in other countries. Other firms,
such as Target, have until recently viewed global opportunities as not worth the risks of global
expansion. In January 2011, Target Corp. announced that they will enter the country through a
sweeping acquisition of up to 200 Zellers leases. The $1.8-billion deal is a significant premium
over the roughly $1.1-billion Hudson's Bay Co. owner Richard Baker paid for Canada's oldest
retailer in 2008 for the entire corporation. The purchase will shift Canada even further toward a
retail economy dominated by U.S. brands in several key categories, with the exception of the
grocery business.

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© McGraw-Hill Education, 2017