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U.S. retailers looking for overseas expansion Value-oriented stores likely to find success in foreign markets; The Outlook


AS U.S. RETAILERS face increased competition in a nation many call "overstored," some chains are looking to spread their banners overseas, tapping into underserved markets with potentially lower operating costs or turning to industrialized countries to launch expansions. Earlier this month, U.S. retail giant Wal-Mart Stores Inc. announced it is buying 74 "hypermarket" stores from the Spar supermarket chain in Germany, after entering the European market a year ago with the purchase of 21 stores from the German WertKauf chain. Also this month, J. C. Penney Co. made its first move into Brazil's expanding retail market, agreeing to pay the equivalent of $33 million for control of that nation's Lojas Renner SA department store chain. Have U.S. retailers become dependent on overseas expansion for growth? How successful are they likely to be?

Walter Loeb

Loeb Associates

U.S. retailers have saturated the U.S. to a great extent with stores and are now looking for opportunities worldwide. With technology available to them now, they're able to communicate as quickly with Berlin as they can with Chicago. However, there are some warning signs. People like Toys 'R' Us, in the forefront, have run into considerable problems in some of the countries. They did not understand the mood of the people, nor the necessary dynamics of retailing.

Wal-Mart, with its value orientation, will be successful with international expansion. I expect further expansion in Europe, especially when Europe is unified into one currency. Wal-Mart will be attractive to customers wherever because they have the confidence of knowing they're getting name brands.

Mark Zandi

Chief economist, economic consulting firm RFA

Retailers have a particularly special need to look overseas, given that the demographic forces here in the U.S. are increasingly unfavorable. The population is aging and an increasing share of the spending dollar will be devoted to nonretail consumer services -- health care, travel and entertainment. Retailers are looking overseas, looking to younger populations that are growing more quickly and will have a greater demographic need for spending.

It will be pretty tough for retailers over the next few years. The global economy is a mess, with half the world's economies in recession. But it's a good opportunity for many U.S. retailers to buy assets and to become a presence in these markets now.

The real opportunities for growth are in markets that are more underserved, in Latin and South America and Asia, but many retailers probably will cut their teeth in industrialized countries more like our own. The distribution channels are there and advertising is similar.

Sally Wallick

Retail analyst,

Legg Mason Wood Walker Inc.

For the most part, what retailers are doing is supplementing growth by expanding overseas, or looking further down the road and concluding in the long run, in addition to the domestic expansion, they really need to expand overseas. Do they need it to grow today? For the most part no. Some companies are positioning themselves to be able to take advantage of opportunities overseas. In some instances in the Far East, the problems there have created opportunities, and for strong companies that have the capital and that can take a long-term view where they don't have to be overly concerned about getting an immediate return on their investment, it may make sense.

A lot of companies -- Wal-Mart, Gap, Costco, TJX in Canada and U.K. -- these are very strong, well-managed companies that have formats that are very exportable. In the case of Costco and Wal-Mart, these are value-oriented formats that really may offer the consumer in some countries something that hasn't been available to them before. With Gap, that's a name that's well enough known that it travels well.

Dale Ingram

Director of International Public Affairs, Wal-Mart Stores Inc.

It [international expansion] will be a significant part of our growth. Over the next five years, about one-third of our earnings growth and sales growth as a total company will come from the international units.

The Wal-Mart brand represents a way in which families can save money and have a good shopping experience. Regardless of where you live, that's something families look for and seek and something we feel confident we can deliver. At the same time, we have a lot to learn in each of these markets.

Our goal isn't to replicate and have a cookie cutter Wal-Mart but to adapt the stores for the customer in Germany. In each country, you still have to be a local retailer, but at the same time be willing to take risks. In Germany, we were told German customers don't shop in the morning. Larger stores open at 9 a.m., and we decided to experiment and open stores at 7 a.m. just to see how it worked. So far, the response has been great and many other stores followed suit.

Pub Date: 12/27/98

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