PRINT THIS STORY:

CHANGE TEXT SIZE:

Europe's retailers crossing borders

By Susan Thorne

With Spanish fashions in Paris, a Belgian grocery in Greece, and numerous other store migrations, Europe is fast becoming a single retail market as retailers seek to expand outside their home countries.

The number of cross-border moves made by retailers in the 1990s is almost double that of the 1980s, according to a joint study by the Oxford Institute of Retail Management, Oxford, England and Jones Lang Wootton (JLW). Virtually all the largest retail companies now have a cross-border presence in Europe, the study shows.

Of the top 50 European Community (EC) retailers, only nine have not yet ventured abroad. The phenomenon is expected to continue into the next century with an extra push from the Euro, the single European currency that is scheduled to be introduced in 1999. Many hope the Euro will lead to an even more unified market.

The three leading initiators of cross-border retail activity in the current decade are the 7United Kingdom, France and Germany, according to JLW/Oxford Institute figures. Top target countries for foreign retailers during the 1990s have been the United Kingdom, Spain, Germany and France.

"There's been a massive rush here in the last 15 to 18 months," said Jenefer Greenwood, a retail analyst with Hillier Parker, London. "We expected it when the commercial barriers were broken down in 1993, but the recession held things back from '90 to '94.

Foreign penetration now extends to 15.7% of store sites in central London, Hillier Parker statistics show. But English retailers have also made themselves felt in malls and main streets in the rest of Europe. Companies such as HMV and Virgin (recordings), Vision Express, Next (apparel), and Tesco (groceries) are seizing opportunities in both central and eastern Europe.

Some retailers have jumped borders because of a vacuum on the other side. Discount food retailers moved into the less-developed southern European markets -- Spain, Italy and Portugal -- in the 1970s. More recently, northern European grocers such as Makro (the Netherlands), Delhaize Le Lion (Belgium), and Carrefour, the French hypermarket/grocery company, have stepped into Greece.

But in the latest wave of international retailers, many players appear to have been pushed, rather than pulled, by the saturation of their home-countries, which has forced them to look abroad for further expansion.

Hennes & Mauritz, a Stockholm, Sweden-based chain selling low- to mid-priced apparel, has extensive operations outside Sweden -- not because conditions are favorable there, but because "We have to go somewhere else if we want to expand," said Kent Gustafsson, operations director for H & M Hennes & Mauritz AB, the parent company. The expansion of other countries' retailers also intensifies the competitive atmosphere, he added.

With more than 500 stores under its H & M banner in 12 European countries, only 117 of them in Sweden, Hennes & Mauritz has become an export specialist. Mr. Gustafsson feels that close attention to merchandise quality is one key to his company's success.

The firm's head office closely oversees all designs, for instance. It also has employed attention-getting media ad splashes and selects prime store locations to help establish a conspicuous presence in foreign markets. H & M has stores at London's Oxford Circus and on the Rue de Rivoli in Paris, for example.

A clear, consistent retail identity has also been an asset, he said.

"Maybe the main thing is that we have stuck to our original idea. We haven't changed," Mr. Gustafsson said. Hennes & Mauritz remains sensitive to differences between countries and tries to employ local management personnel as well as in-store staff.

Fashion and children's wear jointly make up the largest exported merchandise category, accounting for around 38% of European cross-border activity, according to JLW/Oxford. Apparel retailers can most readily step into other national markets because of the shared youth culture and fashion tastes throughout the EC, pointed out Mr. Gustafsson.

"Borders are disappearing because of what we call the MTV generation," he said. "The young people are watching the same programs, looking at the same movies -- so markets are becoming more similar." This allows fashion retailers to move from one country to another with less adjustment for local tastes.

In other sectors of the apparel market, high-fashion designer stores have been multiplying in the 1990s, particularly in big-city high street locations. Ms. Greenwood said that some of these are "diffusion" fashion designer stores that extend a designer's label to a wide range of merchandise, from handbags to perfume to accessories and apparel.

French and Italian names such as Versace, Emporio Armani and Stephanelle have been planting flagship stores of 20,000 square feet or more in downtown London areas such as Bond Street or Regent Street. Spain's Zara clothing stores and Hugo Boss of Germany are also in the new wave of globalized fashion retailers.

Food retailing is another area in which there is much internationalization, amounting to about 11% of total sales. Germany's rank as a cross-border leader is due partly to its rapidly expanding grocery discounters Aldi, Lidl (a subsidiary of Lidl & Schwarz, owner of Kaufland and KaufMarkt cash-and-carry stores) and Plus (a member of the Tengelmann group), whose stores number in the thousands across Europe. These companies have made inroads in France, the United Kingdom, Spain and Portugal in the last decade.

In other sectors such as fashion or department stores, however, Germany's retail performance abroad is quite weak, observed Peter Fuhrmann, director of the German Council of Shopping Centers, Dusseldorf.

Denmark's Netto chain, whose parent company is Dansk Supermarket, also has extended its discount food format, which has become popular across Europe. Add to that list the very successful hypermarket/discount giants Metro, Rewe, Edeka, Tengelmann, Spar Handels (all German-based) and French players Leclerc, Carrefour, Promodes and Intermarche.

The hypermarket, a combination grocery and discount big box store, is also a common shopping center anchor in southern Europe, making food retailing a much more important element in the shopping center merchandise mix in Italy, Spain, southern France and Portugal.

It is no longer only the larger retailers who are moving across national boundaries; smaller and middle-sized retailers as well have been making a strong showing in the 1990s, said Robert Clark, a retail specialist with Corporate Intelligence, a London research and retail information consultancy. Examples of mid-sized success stories would include Escada, a German fashion retailer, and The Body Shop and New Look from England.

Moving across borders doesn't always mean picking the market with the highest spending or hottest economy. London-based Marks & Spencer opened its first unit in Germany last year, adding to its foreign footholds in France, Belgium, the Netherlands and Spain. The food/clothing retailer plans expansion to five German locations in the near future, despite the depressed German economy. Although Germany is going through a very difficult period, said Marc Bauwens, country manager for the company's Germany and The Netherlands division, it was the right time for his company to move because retail rents are low and the English pound is strong.

"We are feeding off a counter-cycle with the strong pound, using the [Channel] Tunnel as our logistics," he said.

The firm's theory: By being lean and mean during tough times, Marks & Spencer will be ready to take advantage of a stronger German economy when that materializes. Some hope Germany's economic fortune will turn following this fall's election.

Mr. Bauwens noted that the advent of the Euro will make cross-border operations easier, and hopes it will bring about greater consistency in pricing. "Hopefully at a later stage we'll see tax harmonization, too, " he added.

The latest trend, with big implications for the future, is the new interest in eastern Europe on the part of western European retailers, especially those from France, Switzerland and Britain. In the years 1995 through 1997, 30% of all cross-border activity was in the Czech Republic, Hungary and Poland, according to the JLW/Oxford information. Food retailers have been especially big in this area: Britain's Tesco, the Dutch Royal Ahold (Albert Heijn), Belgium's Delhaize Le Lion and Norway's REMA 1000 (discount groceries) have all converged on the Czech Republic, for instance.

Hungary, the Czech Republic and Slovakia often attract retail companies first, and many then go on to open additional units in Poland, said Mr. Clark of Corporate Intelligence.

"In the last two years, Poland has been the big prize. It's the most populous country, and it has several big urban areas besides Warsaw, so you can get economies of scale," he explained.

Another newly prosperous region which U.K. retailers are starting to notice is the Republic of Ireland. (See story page 5.) Ireland has been a target for British food retailer Tesco, which last year purchased Irish grocery chain Quinnsworth; and for the U.K. retail chain Boots, which has bought the largest Irish pharmacy chain, the 15-outlet Haynes Conyngham Robinson (HCR).

Besides looking to Europe for new opportunities, some EC retailers are eyeing markets in North America. For instance, Royal Ahold has expanded into the United States in this decade by acquisition of various domestic food chains, and other European food chains have followed.