European retailers look outward; outsiders eye market - Special Report on Global Retailing

Discount Store News, August 2, 1993

Retailing in Europe is undergoing major changes, triggered by both internal and external forces.

The key internal factor was the official transformation of 12 Western European countries into one common market called the European Community. The foundation for that move, which took place at the start of the year, was put in place with the formation of the European Economic Community a quarter century ago and the slow but steady bonding of these dozen European nations into one common market during the succeeding 25 years.

The unification is likely to encompass all of Europe by the turn of the century as the handful of non-European Community countries, along with the economically and politically struggling countries of Eastern Europe, seek to join the EC block. This will happen much sooner for West European nations like Sweden and Norway that aren't EC members than for Eastern European countries, with their undeveloped consumer and manufacturing economies.

The drive toward European integration has resulted in changes for an important but limited number of major retailers in Western European countries--both members and non-members of the EC. No longer simply national concerns doing business in just one currency, they have become multinational operations with stores in several nations. As part of this trend, a number of these major retailers have even become cross-shareholders in each others' business.

The intra-European expansion has led an increasing number of retailers to spread their wings internationally by opening their own stores and/or acquiring companies in Asia, Africa and North and South America.

The EC report, Retailing Trade in the EC in the Early '90s, noted that only a handful of European retailers generated more than half of their business internationally. The United Kingdom, France and Germany, were home to the most active international retailers. U.K. companies like Marks & Spencer, Dixons Group, Body Shop, and Laura Ashley tended to expand into Ireland and the United States. French retailers like Carrefour, Auchan and Promodes are likely to move south into Spain, Portugal and Greece, while Germany's merchants tend to open stores in the Scandanavian countries, Austria and Eastern Europe.

Externally, Europe's overall emergence as one of the world's two major retailing markets has attracted a swelling number of merchants like Toys "R" Us, Costco Wholesale, the Price Club, Staples and Wal-Mart (through its McLane food distribution division) from the U.S.--the other major consumer market. These companies are looking to augment and expand their mature American business.

Often, the American retailers are new-concept merchants, bringing with them formats like category killer stores that aren't found in Europe, just as European companies brought new marketing ideas like hypermarkets and box grocery stores to the New World.

The economic integration of Europe is most evident in the retailing sector, with vast marketing differences among the European nations that reflect cultural and economic factors.

Europe, overall, can be divided into three different cultural and retailing/economic zones. Northern Europe, including the United Kingdom, is the most affluent and contains a host of multistore chains. Southern Europe, including Turkey, is less affluent with fractured retailing structures marked by small, single-store operations. Multistore chains--often EC-based multinational companies--are undertaking expansion drives in Southern Europe as these nations become more affluent.

Eastern European countries are striving to develop their retailing sectors in pace with these nations' overall economic advancement. A number of Western European retailers have taken stakes in Eastern European companies, with German merchants particularly active in the former East Germany. Poland, Hungary and the Czech and Slovak Republics have the most advanced retailing structures and have drawn the greater attention from European and non-European retailers.

Retailing developments in Europe's three largest markets include the following:

In the U.K., the pending arrival of Costco and the Price Club, along with Nurdin & Peacock launching a club, has churned up the retailing scene. Staples, in a joint venture with Kingfisher, has started opening office supply superstores. Other U.S. retailers are eyeing England. American retailers see British merchants as high-margin operations facing limited competition and see a place for lower-cost U.S. operations. Retailers from other nations have a similar view. Promod and Eds Discount (a Carrefour division) from France, Mac & Maggie from the Netherlands, and Sogo from Japan are among the other companies opening U.K. stores. English merchants, meanwhile, continue their international growth, with Marks & Spencer opening more units in France while Kingfisher and Tesco have expanded into France, the former acquiring Darty and the latter Catteau.

The cost of revitalization in the former East Germany remains the biggest challenge facing Germany and is the focus of the expansion activities of the major German retailers. Last year, Kaufhof invested $63 million in East Germany, while Karstadt increased its retail footage in the eastern section by about 16.2%. Still, a number of German retailers are continuing their multinational and international growth. Kaufhof's computer specialty store, Vobis, already in Italy, Spain, Austria and the Netherlands, plans to open units in France, Luxembourg and Poland this year. Aldi is continuing its supermarket expansion in Eastern Europe.