#132 Carrefour. Who knew that global retail is that difficult?

For the longest time, French-based retail giant Carrefour made a good poster child for internationalization. With a presence in twice as many countries as British competitor Tesco, its expansion into foreign markets has been broader in scope and faster in speed than any other global retailer’s. Carrefour was one of the first grocers who saw opportunity in Southeast Asia where it entered in the 1990s. At the same time, its failures also came at a much grander scale. Carrefour pulled out of the USA as early as 1994; it left Mexico in 1995; Hong Kong in 2000; the Czech Republic and Japan in 2005; South Korea in 2006; Portugal and Switzerland in 2007; Russia in 2009; Colombia and Thailand in 2010; Greece, Malaysia and Singapore in 2012. In recent years, it has also been considering its units in China, Indonesia, Poland, Taiwan, Turkey, and other markets for divestiture. It almost looks like Carrefour has been undergoing a shift in strategy, and entered a great period of de-internationalization.

Then again, this may just be the nature of that beast called globalization. Some markets grow, others decline. One can never be certain of success, and sometimes companies just have to cut bait. Especially when the home market (in Carrefour’s case, France) still generates more than 40% of total global sales. Some of the countries that Carrefour entered were rather small and therefore, most likely, non-essential to the company’s overall performance. At one point, a prior CEO of Carrefour, Mr. Olofsson, had said that he was pulling out of countries where Carrefour has no realistic prospect of becoming market leader. Wasn’t the business world praising companies like General Electric (GE) for its focus on markets in which it could be number one or number two only?

And indeed, in most cases, Carrefour’s official reason for abandoning international markets was simple underperformance. The question is, what caused this underperformance? It certainly wasn’t part of a deliberate strategy such as in the case of GE. As the New York Times reported in one article about Carrefour’s exit from Japan, it was little sensitivity for the cultural specifics of consumer behavior. Similarly, Carrefour failed to adapt to the environment in South Korea, sometimes as simple as adjusting the height of the shelves down from 7.2 feet (2.2 meters) to match the typical Korean body type. In Singapore, Carrefour failed to understand that its own understanding of convenience – offering a very broad product portfolio under one roof – is not what Singaporean consumers are used to or were looking for; quite to the contrary, what was a competitive advantage in other markets turned against them there – having to travel to an inconveniently located hyper-store heightened Singaporeans’ perception of Carrefour’s prices being higher than those of local competitors. In Hong Kong, there simply was a shortage of locations for new stores that would have allowed Carrefour to grow to a size that was significant enough to create visibility and efficiency. In Russia, it realized too late that all the purchasing power was concentrated in the crowded Moscow market, and that quick acquisitions in other regions were not viable due to the lack of alternatives and an unexpected amount of complexity and bureaucracy.

Granted, retail is one of the most challenging sectors when it comes to globalization. Much of retail’s success is built around efficiency and standardization, which is often tested by cultural differences. Consumers in foreign markets frequently expect something very different from a new entrant, but at the same time they don’t respond positively to those very differences. In the end, what’s different turns them off, and what is the same doesn’t give them enough reason to switch from existing competitors. This is a lesson that many global retailers have learned in the past. Walmart failed in South Korea and Germany, Best Buy and Home Depot pulled out of China, Tesco shut down its Fresh and Easy stores in the US, Office Max left Japan. The list is long.

Given all these examples, did Carrefour not know that things would be getting challenging in distant markets? If they knew, we must ask why they did not do better? As the publication The Economist once speculated, Carrefour may simply have overreached internationally. Maybe the expansion was too rapid, and not enough attention was given to the development and execution of their entry strategy into all these foreign markets. Maybe, driven by pressure from key shareholders, Carrefour couldn’t take a long term view on developing these markets. And if Carrefour didn’t know, the question is why didn’t they? Shouldn’t a company of the size of Carrefour that, in the case of South Korea, invested in excess of $1 billion in a ten year period into the market, have the ability to select international target countries properly? We can only speculate, but all too often, companies take a one-sided look at international markets. Especially in food retail, where competition in the core markets of the West is intense and where margins are razor thin, opportunities for expansion and growth are slim. The markets of Southeast and East Asia, on the other hand, have growing middle class segments with a thirst for foreign brands. In identifying potential foreign target markets, this then easily leads companies like Carrefour to only consider the upside, and to ignore the risk and challenges that always lurk in such markets.

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