Tesco withdraws from Japan

Today's news that Tesco is seeking to sell it's Japanese chain and withdraw completely from the market should not be a great surprise.  Japan has a highly developed retail sector with many established & highly competent chains - why would Tesco think that it could enter a market that it doesn't know, doesn't have any real logistical links to & is already full of good shops.  Students will also be very familiar with the notion of 'Critical Mass' - where by you need a very significant chain of stores to contribute to the costs of building and employing the large warehouses and infrastructure to support stores - Tesco simply wasn't big enough in Japan to start with and then struggle to grow to a sufficient scale to become competitive.

So no big surprise that withdrawal has come, a sensible decision after an unwise investment - of course they will never disclose how many hundreds of millions they will have wasted in the process.  How long till they give up on their equally misguided American venture??

The opening of new markets

The internationalisation of retailers has not been a linear journey but rather witnessed big splurges of activity due to political and economic changes.  One such change is just happening in India.  Until now the Indian market has been almost closed to international retailers in a bid to protect businesses indigenous to the country, however such restrictions prevent the modernisation of the sector and can lead to inflationary pressures on consumer goods.  A relaxation of the laws on foreign direct investment into the retail sector now looks likely & will lead to a wave of activity from the worlds largest retailers seeking expansion into the massive Indian market.  Under the proposals, incoming retailers would be able to own 51% of any venture (i.e. a controlling stake), and will have to invest at least $100m, half of which will need to be invested into infrastructure that will benefit all retailers in the sector.  They will only be able to operate multi-brand stores in cities with a population in excess of 1m.  This really does represent a huge change in the attractiveness of the Indian market and a great opportunity for the likes of Tesco who desperately needs strong international sales given it's weak strategic position in the UK.  For sure further liberalisation of the market will come in future years and so any investment now is likely to reap even greater opportunities in the future.

Cheer up consumers!

It's a long time since the financial chaos started in the Summer of 2008, however the effects will be felt for a long time yet.  Nobody could have missed the riots over job losses and the continued national debt mounting & so it is timely to remember the critical role that the retail sector plays in all of this and the potential damage that the riots could inflict on all of our purses. 


The logic runs like this.  Consumer retail sales accounts for approximately one third of the entire economy of the country and represents a huge revenue flow for the government through all manner of taxes not least VAT.  How much the consumer spends depends on a number of factors, though most significant is not their actual wealth but their perceived wealth & perception of the security of their wealth - i.e. feel good/bad factor.  If consumers believe that the economy is struggling they may fear unemployment, consequently will cut back on their spending - collectively this will itself lead to the economy shrinking and redundancies being made - so a self fulfilling prophecy.  Consumers will feel bad about their economic prospects in reaction to negative press stories of economic woes or wider negative stories such as the riots.  In short the riots are likely to have the reverse effect of that sought by the trouble makers.

The internet scares me...

There is such a volume of material on the Internet, most of it of little interest or use, consequently while compiling some research this morning using a variety of different key words I found this... 
I only vaguely remember doing this interview for a masters student so was surprised to find it loaded on the net.  This snippet does however quite well summarises the research that I am currently working on, a small part of which has thus far been published in the Journal of Business Ethics with more to follow.
http://www.youtube.com/watch?v=pJrukFbUTeE

Volitility in the most stable of markets

International retailers need to be conscious of how a market could change affecting the viability of their operation.  Tescos' operation in Thailand is an often used example of this given the significant threat to their Thai chain in the wake of the unexpected military coup in 2006.  To the outsider Thailand appeared a very stable nation...  And so we turn to what you might think to be one of the most stable countries in the world; America.  Now I'm not suggesting a coup d'état in America; I'm pretty sure that is unthinkable, but talked about legal changes that would really threaten the viability of Tescos American operations.  California is home to around 125 of 175 'Fresh and Easy' stores, and there is talk of an outright ban in the purchase of alcohol through self-service tills.  Tesco installs self service tills exclusively as an essential part of it's low cost strategy.  As the only grocer in the state to operate self-service tills it is clear that this law is specifically targeting the 'new kid on the block', and if it comes into effect will have a huge effect, forcing Tesco to rethink their strategy and presumably refitting their stores with at least some conventional cashier tills - all on top of a chain that is said to be underperforming and being challenged from a range of commentators.  So in even the most stable of nations it is best to have a plan B.

Calling time on Argos??

Internet retailing has provided great opportunities and challenges to more traditional forms of retail commerce.  Today's striking news that Argos' LFL sales are down some 9.6% surely will bring the company to fully examine their strategic options.  Make no mistake, a 9.6% fall in sales is massive & even more difficult for a retailer such as Argos who cannot quickly flex their marketing to stimulate greater sales - after all their catalogue is printed with fixed prices etc...

For a long time I have thought that Argos has been too conservative in the face of a changing retail environment.  E-commerce and the growth of supermarkets into non-food areas have introduced great challenges, but I believe also great opportunities for the company.  What is it that Argos are great at??  They don't have a great product offer - that can be replicated by Tesco deliver or Amazon...  Their real unique selling point lies in their ultra efficient store operations and selection of convenient locations around the UK.  So how best to utilise this resource.  Well in the face of growing e-commerce threat why not use these stores as collection hubs for the consumer - they could give their local store as their address and collect on a weekly basis all of their non-perishable on-line shopping.  As a consumer there is nothing more annoying than to get home from work and find that three different couriers have tried to deliver packages & I now need to embark on a road trip to 3 different depots to collect my orders...  far rather collated at a store of my choice with a simple customer focused collection method.  This service could be free to the consumer with the on-line retailers giving Argos a cut and saving considerably on the otherwise increased courier costs.  It does seem that there is a current gap in the market to better serve the on-line retailers and while the current Argos model is surely doomed in a few years they would be best placed to serve this new need.  & while their at it what about an Argos drive through....

1,155,347,700 customers are waiting

That's quite a big number & surely quite a big opportunity for the worlds largest retailers to chase.  It is of course the population of India a retail market that has thus far been largely closed to international retailers due to protectionist laws preventing multi-brand retailers from holding a majority stake in retail ventures in the country.  As we have seen gradually across the world such restrictive laws have been relaxed, and it seems that within months India will follow suit finally opening the market up to the likes of Tesco and Wal-Mart.  Large scale investment into the Indian market by the likes of Tesco will not only provide a great opportunity for them, but the necessary investment in distribution infrastructure and change of retail culture will no doubt expose opportunities for a whole raft of international retailers.