Failure in international retailing: research propositions

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Failure in international retailing:research propositionsSteve Burt a , John Dawson b & Leigh Sparks ca Institute for Retail Studies , University of Stirling , Stirling FK94LA, UK E-mail:b The University of Edinburgh Management School , 50 GeorgeSquare, Edinburgh EH8 9YI, UK E-mail:c Institute for Retail Studies , University of Stirling , Stirling FK94LA, UK E-mail:Published online: 15 Apr 2011.

To cite this article: Steve Burt , John Dawson & Leigh Sparks (2003) Failure in internationalretailing: research propositions, The International Review of Retail, Distribution and ConsumerResearch, 13:4, 355-373, DOI: 10.1080/0959396032000129471

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Failure in internationalretailing: research propositions

Steve Burt, John Dawson and Leigh Sparks

Abstract

Whilst retail internationalization practice has a long history, academic research into retailinternationalization is a more recent phenomenon. We argue in this paper that ourcontinuing conceptualization of retail internationalization would be aided by incorporatingaspects of failure in international retailing. In internationalization practice, failure wouldseem to be a common occurrence, whereas in academia, such failure has been almostroutinely ignored. Here, we attempt to define and conceptualize failure in internationalretailing. We then put forward a series of propositions that might serve as a guide to futureresearch on failure in retail internationalization.

Keywords

Failure, internationalization, research propositions, retail, theory.

Introduction

It is one of the features of the academic study of management that research focuseson successes. Retail research is no exception, as seen in the study of internationalactivity. Many retailers struggle internationally yet most research explores success(for example the texts and special issues of Akehurst and Alexander 1996; Alexander1997; Alexander and Doherty 2000; Brown and Burt 1992; Kacker 1985;McGoldrick and Davies 1995; Sternquist 1998; Sternquist and Kacker 1994).The academic literature is full of positive statements and metaphors about retailer

internationalization. Typically retail internationalization is described in terms ofstages theory, development theory and waves of internationalization, all of whichimply growth and success. Research often identifies factors that reduce risk andencourage internationalization, such as management competencies or critical successfactors. Studies typically record the number and sequence of countries entered, themethods of expansion and provide case studies of entry and growth. The emphasisis inexorably on progression. Even when retailers are classified as ‘cautious orreluctant’ internationalists, it is a matter of degree of expansion. Whilst it would be

Steve Burt, Professor of Retail Marketing, Institute for Retail Studies, University of Stirling,Stirling FK9 4LA, UK; E-mail: [email protected]; John Dawson, Professor of Marketing,The University of Edinburgh Management School (Visiting Professor and DistinguishedProfessor UNIDS), 50 George Square, Edinburgh EH8 9YI, UK; E-mail: [email protected]; Leigh Sparks, Professor of Retail Studies, Institute for Retail Studies, University ofStirling, Stirling FK9 4LA, UK; E-mail: [email protected]

Int. Rev. of Retail, Distribution and Consumer Research 13:4 October 2003 355–373

The International Review of Retail, Distribution and Consumer ResearchISSN 0959-3969 print/ISSN 1466-4402 online # 2003 Taylor & Francis Ltd

http://www.tandf.co.uk/journalsDOI: 10.1080/0959396032000129471

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unfair to claim that failure in retail internationalization has been ignored totally (seeVida and Fairhurst 1998), the many failures in retail internationalization practicecontrast with the overwhelmingly positive view of internationalization suggested bythe academic literature. Only very recently has detailed academic interest in failurein international retailing emerged (Alexander and Quinn 2002; Burt et al. 2002;Wrigley and Currah 2003), despite Hollander (1970) drawing attention to itssignificance some time ago. It seems likely however, that failure, in some form, ismore common than success in international retailing (Costil 2003).Major failures in retail internationalization are evident in every decade of the last

70 years and can be found in all retail sectors and across the globe. Some examplesdrawn from the experiences of major retailers illustrate this. The return of Boots toUK ownership in the 1930s (Whysall 1997) resulted from the failure of its Americanowners to operate the chain successfully. The Sears joint venture in Australia failedin the 1950s and they also withdrew from Cuba in 1960. The 1970s were marked bythe failure in the UK of the American GEM stores and Carrefour hypermarkets andthe exit from Australia by K-Mart in 1978. The 1980s saw the failure of Carrefourto establish hypermarkets in the US (Tordjman 1988), the sale of Woolworth storesin Mexico and of Safeway’s operation in the UK. In the 1990s K-Mart failed inCzechoslovakia, Ahold pulled out of China, Lane Crawford closed in Singapore andTesco and Toys ‘R’ Us exited from France. A number of high profile retailinternationalization failures occurred in 2001, including the closure and sale of manyMarks and Spencer international stores (Burt et al. 2002), the withdrawal of C&Afrom the UK, the sale of Home Depot stores in Chile and the exit of Boots andSephora from Japan. The international failures of Ahold in 2003 provide severaladditional examples. These varied illustrations show that there are many cases ofinternationalization exit and failure on which to draw. It is surprising that thisaspect of internationalization has received such scant attention.There are many reasons for this lack of consideration of failure in retail

international activity. First, many current retail structures result from the positiveoutcome of international activity. The results of success are more visible in mostretail situations than are the consequences of failure. There is thus ‘survivorshipbias’ (Denrell 1999, quoted in Forsgren 2002). Godley and Fletcher (2001)demonstrate the considerable historical volume of internationalization into theBritish retail sector. They comment that one reason why this has been ignored inmost contemporary research is because so many of these developments failed orwere taken over, so are not part of current retail structures.Second, retailers themselves try to wipe failed activities from the stock of

explicit knowledge and from both public and corporate memories. Managers whoare associated with the failure may leave the firm or are moved to other areas: ‘thelessons of history are likely to be lost through the turnover of personnel’(Forsgren 2002: 270). Public relations focus on success. For example there is littlemention of Tesco’s first foray into Ireland (see Lord et al. 1988) in any of thatcompany’s briefings on company history, its web pages or in corporate books(MacLaurin 1999). Yet lessons were learnt from this problematic venture. Tacitknowledge probably was retained after withdrawal and this knowledgesubsequently informed the company’s approach to internationalization and itsreturn to Ireland. Similarly there is little mention in corporate histories of thefailed attempts of Carrefour, generally a very successful retailer, to enter the UKusing several formats.

356 The International Review of Retail, Distribution and Consumer Research

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Third, researching failure is perhaps more difficult than researching success,partly for the reasons mentioned above and partly because it is harder to get tothe ‘truth’ in research terms. There remains a stigma to failure in mostcountries and businesses: exit is a ‘dismal’ phenomenon (Ghemawat andNalebuff 1985).Finally, the definition of failure itself is difficult to ‘pin-down’. For example we

have introduced this paper under the heading of ‘failure’. Alexander and Quinn(2002) titled their paper ‘divestment’. ‘De-internationalization’ has also been used(Benito and Welch 1997). Defining what phenomena to study and how to studythem, raises research questions that are particularly difficult to answer at this stageof our understanding of the processes.As perhaps might be expected, Hollander’s (1970) seminal study makes mention

of some international failures but even his attempt to consider the ‘causes andsignificance of de-internationalization’ (184–5) lasts less than a full page and comesto no conclusion other than that failure is a relatively unimportant aspect of retailinternationalization. This is one of the few instances when Hollander misread theretail environment. Since the 1960s there is substantial evidence to suggest thatHollander’s conclusion cannot be sustained. Failure is increasingly evident astypifying the international operations of retailers. As such it deserves to beconsidered carefully and fully. This paper therefore has three aims:

. to conceptualize failure in international retailing and to provide workabledefinitions for future research;

. to review relevant literature on failure;

. to provide some research propositions that could be the basis for furtherresearch.

This paper comprises three sections. First, we develop some definitions offrequently used terms relevant to failure in retailer internationalization. This iscombined with a consideration of the boundaries of the study of failure in retailinternationalization and a review of explanations of retail internationalization failure.Second, research propositions about failure in retail internationalization aredeveloped. Finally, some conclusions are drawn.

Failure: a review

Definitions and concept relationships

The terminology in this area is inexact. Several terms or phrases are used in boththe broad and the emerging retail-specific literature (Alexander and Quinn 2002;Burt et al. 2002; Gielens and Dekimpe 2001), but rarely are they defined adequately.How the various concepts relate to each other is also often unconsidered. Hollander(1970) used the term ‘de-internationalization’ but left it undefined. Since then therehas been discussion of failure, closure, exit, withdrawal and divestment. Alexanderand Quinn (2002) in their study on ‘divestment’ use the terms divestment, de-internationalization, failure, withdrawal, reduction in store holdings, exit, disen-gagement, liquidation, partial or total sales, spin-offs and sell-offs, managementbuyouts and equity carve-outs to describe aspects of the phenomena. We do notbelieve (nor perhaps do the original authors) that these all refer to the same activity;

Burt et al.: Failure in international retailing 357

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neither are they all individually distinct activities. Yet, they seem to be used to meanthe same things in slightly different contexts.In addition to the problems of the specific use of terms there are also complex

or hidden interrelationships. The closure of a retail business is generally deemed abusiness failure, but depending on the owner’s aim, objectives and practice ofclosure, closure could be a desired outcome and financial success (Dawson andSparks 1990). The takeover of a smaller chain by a leading rival might benefitstakeholders by safeguarding jobs, providing a base for future expansion, satisfyingshareholders, and be viewed by the senior management of acquirer and acquiredas the correct business move, despite personal feelings of failure. Closure of abusiness by one company could provide the opportunity to move into a market foranother: ‘the failed internationalization strategy of one retailer becomes the vehiclefor market consolidation for another’ (Hinfelaar and Kasper 2001). Dawson (2001)points to the implications of Metro’s decision in the late 1990s to dispose of itschains of small food discount stores across Europe. This withdrawal was aresponse to the arrival of Wal-Mart in Germany. The disposal allowed JeronimoMartins from Portugal to acquire opportunistically Metro’s Tip chain in Poland,which together with other purchases of failed Polish retailers allowed them tobecome one of the three largest retailers in Poland. In turn Jeronimo Martins hassubsequently been forced to sell off its hypermarkets in Poland to Ahold (whothemselves are part owners of Jeronimo Martins). Similarly, the ‘failure’ in 2002of Dohle’s internationalization strategy in Poland resulted in the sale of the highlyprofitable Hit hypermarkets to Tesco, enabling them to expand considerably theirown presence in Poland. Stakeholders in both Dohle and Tesco gained by this‘failure’.Our concern in this paper however is in the area of failure leading to exit for

reasons of under-performance. This would seem to be the most appropriate place tostart in terms of the development of this research field. We are not interested here inthe case of market exit for more positive reasons, or in other non-divestmentresponses to failure. The approach is emphasized in our concepts diagram (Figure1). The terms used in Figure 1 are defined as follows:

. Failure: an unplanned under-performance by a firm that results in operationallosses in some or all of the trading units in a foreign market. Failure may resultfrom operational activities and/or environmental conditions. Failure may giverise to acceptance of continuing losses or actions to change the situation.

. Divestment: the process of resource allocation that reduces presence in aforeign market. Divestment may be operational through closure of trading units.Divestment may also take the form of organizational restructuring e.g. changingfrom corporate ownership to a franchise or part-sale of a failing subsidiary.Divestment may entail exit.

. Closure: relates to activity at the channel level and involves the cessation oftrading, by a firm, from one or more retail units in a foreign market. The firmwill continue to trade in the foreign market with a reduced intensity ofdistribution.

. Organizational restructuring: relates to activity at the firm level and involvesa change in the control of resources of the firm. The firm will continue to tradein the foreign market through a different organizational form, involving areduced resource commitment.


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. Exit: total withdrawal of a firm from an operational presence in a foreignmarket. Exit may be accomplished through sale of assets, international store-swaps, bankruptcy or other processes.

The definitions introduced here imply that there are different types of actions thatare a consequence of failure and there are relationships amongst different possibleactions and outcomes. In a ‘failing’ international retail business there are a numberof options (Figure 1). Figure 1 covers aspects and responses to failure. Despite itsappearance we are not suggesting that failure is a linear concept (see later). Wewould emphasize that the components of failure are not mutually exclusive;interrelationships exist that may be coexistent or sequential.Figure 1 commences with the premise of a failing business. In most cases some

form of strategic review will take place. A number of options could emerge fromsuch a review. A retailer may accept the situation (Inertia) and continue to bear theloss or under-performance, although in the long run this is unlikely to be

FAILURE = under-performance

INERTIA

Do nothing

STRATEGICREVIEW

OPERATIONALRESTRUCTURING

Change non-store operations e.g. buying processes, supply chain systems, increase branding intensity

INCREASEINVESTMENT

Develop more stores, buy-out joint venture partners etc.

CLOSURE

Retain fewer sales points e.g. close stores, close a mail order channel ORGANIZATIONAL

RESTRUCTURING

Revised organizational form, e.g. shift from own operation to franchising, sell-out joint venture

EXIT

Total exit (all operations) from the country

DIVESTMENT

Firm

Channel

Figure 1 Failure concepts in international retailing


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sustainable. Operational restructuring may retain the existing store stock andorganizational form, but involve changes in non-store operations such as supplychain systems, buying operations and other head office activities. The review couldalternatively suggest an Increase in investment in the international business, forexample by building scale or promoting the brand. A fourth possible outcome is adecision to Divest, involving a fundamental strategic change to the scale and/ornature of the international retail operation. Inertia, operational restructuring andincreased investment may result in an improvement of the performance of theoperations. This may enable the business to move out of the ‘failure’ process, thusemphasizing the non-linear nature of the process. Alternatively, the unacceptableperformance may continue and lead to divestment.Once a divestment decision is made, a number of options are possible. The focus

may be at the channel level and/or at the firm or organization level. In the case ofthe channel, this will include considering the type and number of sales points.Closure of some of these may occur, resulting in a reduced intensity of distribution.At the firm level, organizational restructuring may take place. Several options tochange the management method and structure of the organization are available (e.g.Baronelli and Manoresi 1997; Burt et al. 2002; Dawson 2001; Pedersen et al. 2002).One option would be to remain in the country but in a different organizational form(a reduced shareholding, taking a joint venture partner, moving to a franchiseoperation). The divestment decision could also be total – i.e. complete exit from theoperations and the country. These are not necessarily mutually exclusive choices.Tower Records for example, owned by MTS from the United States, announced inSeptember 2002 that six of its 10 stores in the UK were to be closed and theremaining four were to be offered to a strategic partner or franchisee. This followedan April 2002 announcement of total exit from Japan. At each stage of the completeprocess shown in Figure 1, choices may alleviate the failure and generate a ‘turn-around’ of the business. After each ‘event’, therefore, there are feedback and otherreview mechanisms. These are not included in Figure 1 for reasons of clarity.The discussion above defines failure and exit as different concepts, whilst

recognizing that these may occur as part of the same process, either sequentially orconcurrently. A renewal plan in a countrymight for example have at its heart a series ofclosures of various shops, which could in due course lead to an exit decision for thewhole operation. A retailer may believe a market is appropriate for entry and establishstores in the country, only to find that competitive reactions are rapid and strong new(indigenous or international) competitors emerge quickly, compromising financialprojections and thus the sustainability of the operation. The experience of FastRetailing, a Japanese clothing retailer trading as Uniqlo, as it reviewed its UKnetworkin 2002, resulting in store closures in 2003, illustrates this pattern of change (Dawsonand Kondo 2002). Political or public policy changes might condition, slow or haltdevelopment, perhaps leading to a sub-optimal network and eventually divestmentand exit. Internationalization is not therefore a sterile or static event, but a process.Internationalization sets in motion a series of dynamic impacts (Dawson 2003), andsome of these impacts can result in failure, divestment, closure, organizationalrestructuring and exit, involving companies in both the retail and associated sectors.There is a risk of presenting the concepts as a deterministic or linear sequence.

For example Clark and Wrigley (1997) developed a sequential typology of marketexits, exit options and exit paths, although overlapping between categories wouldoccur:


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We treat exit as a sequence of related strategic decisions made by the firmregarding the use of its inherited configuration of capital, and argue that there isan intimate connection between sunk costs and the logic of these decisions. . . .We view exit as a set of resource management strategies given the temporal pathof revenue and the success or otherwise of previous response to unanticipatedchanges in demand and competitive conditions (339–40).

They suggested that there are more options and paths to pursue in the early stagesof reallocation, whereas in the last stage, the ‘path’, if business remains poor,becomes more certain, leading to exit from the market. We believe that it is moreuseful to see failure and its constituent components, as a discontinuous and non-linear process. Timings of actions and relationships amongst actions will thereforebe as important as identifying the actions themselves.

Boundaries of study

A second main issue arises in respect of the boundaries to the study of failure inretail internationalization. There is a history of research on macro changes in retailstructures and in the stock of retail shops at various scales. Considerable researchwas undertaken for example in the 1930s in the USA on the ‘mortality’ rates ofchain and independent stores (e.g. Boer 1937; Burd 1941; Converse 1931, 1932;Greer 1936; McGarry 1930; Starr and Steiner 1940). More recent research hasexplored the idea of market entry and exit at the macro-economic level (Carreeand Thurik 1996; Kirby and Law 1981; Nijkamp et al. 2001). Debates aboutbusiness formation are plentiful. Failure amongst these new small firms is a widelyreported phenomenon and the closure of small shops has been studied extensively(Dawson and Kirby 1979; Hall 1971; Smith and Sparks 1997). Attempts havebeen made to predict such retail failure (e.g. McGurr and DeVanay 1998). Manyof these studies focus at a national or regional scale on the firm and on thedynamics of the population of outlets. These studies consider failure in a domesticcontext. Increased internationalization affects such dynamics and their impactsneed to be researched. Recent work has linked entry and exit decisions ininternational food retailing in Europe (Gielens and Dekimpe 2001), but has notconsidered impact.Research at the corporate level provides an alternative research strand. Case

studies exist (e.g. Burt 1991b), particularly those on methods of market entry (e.g.Quinn 1996) or on structural change (e.g. Sparks 1996; Wrigley 2000, 2002), whichon occasions have identified situations where exit from an international market hasoccurred (see Sparks 1995) or where internationalization is anticipated to haveadverse trading impacts on indigenous retailers (e.g. Burt and Sparks 2001), or toencourage competitive reactions or market structure changes (e.g. Wrigley 2000). Inthese examples, however, failure has not been the main focus of study. Morespecifically in the context of failure in international retailing, Alexander and Quinn(2002) have used two brief company examples to examine (what they term)divestment in international retailing. Burt et al. (2002) have examined Marks andSpencer’s divestment, closure and exit from a number of international markets andWrigley and Currah (2003) have focused on some of the ‘stresses’ ofinternationalization in Ahold, which have lead to specific market exits.


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A second boundary issue arises in terms of the scope of study. Whilst macro andcorporate level studies focus on firms and store operations, some have argued thatretail internationalization is about more than opening (or closing) shops in anothercountry (Dawson 1993, 1994, 2003). Dawson (1993) develops a view thatinternationalization is about a variety of dimensions involving sourcing, operationsand management ideas. There is a decision to be made, therefore, whether the focusof study of failure in retail internationalization should encompass these, and whetherit occurs separately or in combination at the firm, outlet, activity, sector or managerlevel. We can point, for example, to high profile international moves of individualmanagers that have been personally and corporately unsuccessful, e.g. the sequenceof Americans brought in to ‘rescue’ Laura Ashley in the 1990s. International supplysystems and the switching of sourcing amongst countries provide further examplesof broad international retail activity, not all of which are successful as supply sourcesare switched from country to country. There is also an issue about the impacts ofretail internationalization (Dawson 2003), involving changes in the effectiveness ofdemand chains, sectoral competitiveness, socio-cultural values, public policy,consumer literacy, as well as firm performance. Such considerations go beyond theclosure of stores in a foreign country or the exit from a non-domestic market, whichperhaps would be seen as the natural focus of retail international failure research. Atthis initial stage in the development of concepts and propositions in this subjecthowever, we focus on the operation and organization of retail units in foreigncountries, leaving broader questions for another time.

Explanations of failure

Mellahi et al. (2002), summarizing a large body of literature, have suggested thatcauses of organizational failure can be examined from at least two differentperspectives. The Industrial Organization (IO) perspective locates the causes in theexternal environment. It indicates that the management of failing firms is the victimof external circumstances, and that failure does not imply management ineffective-ness or inefficiency. Siegfried and Evans (1994) further argue that the IO approachfocuses on incentives and impediments to exit. The IO perspective is anenvironmentalist one with management having a relatively passive role. TheOrganizational Studies (OS) perspective on the other hand, places more emphasison internal factors associated with failure. According to the OS perspective, failureis a result of management’s lack of vision and the lack of will and ability to respondeffectively and make necessary adjustments to reverse the downward spiral ofdecline triggered by external factors. Jensen (1993) provides details of such internalinertia. The OS perspective takes a possibilist stance with managers assumed tohave an active role shaping the environment.Table 1 summarizes these two strands of literature. The division between the

external and internal causes of failure is well marked. It would be wrong, however,to assume that these are mutually exclusive or static. Businesses may initiallymisread change in the external market due to internal problems, but this could berectified and a new strategy developed. In an international context, the possibilitiesof misunderstanding the external competitive market may be higher. The reactionof the business to problems internationally may also depend on the organizationalrelationships between the ‘home’ and the ‘international’ divisions.


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Benito and Welch (1997) in their review of de-internationalization suggest thatthree perspectives inform the area. First, there is the economic perspective, thatbasically views exit activity as a rational response to changed circumstances. Ascircumstances and opportunities alter, so activities change to reflect differentpotential and actual returns. The ability of a company to change activities to meetnew circumstances will vary. Within this research strand, the relationship betweenentry strategy, survival and exit has been studied (e.g. Chang and Singh 1999; Li1995; Mata and Portugal 2000). Second, the strategic management perspectivefocuses on ideas of life cycles (Harrigan 1980) and corporate portfolios (Chow andHamilton 1993). Thirdly, the internationalization-management perspective empha-sizes internationalization and assumes perhaps that de-internationalization is simplya mirror image or reverse process of internationalization (see Boddewyn 1985).Some research has suggested that differences exist in terms of barriers to exit andprocesses adopted (e.g. Boddewyn 1983; Karakaya 2000; Matthyssens and Pauwels2000). An additional perspective is a financial one in which divestment increases thevalue of the remaining firm. Padmanabhan (1993) provides evidence that this is acommon situation. Wrigley and Currah (2003) have argued this line in respect ofAhold’s withdrawal from Latin America. Weston (1989) has explained this approachas being the result of changed synergies between the foreign operation and the corebusiness that encourages divestment over time. Fatemi (1984) sees it as a result ofthe operational costs of the total firm being lowered by divestment, as pro-ratamanagerial costs will be higher in a foreign subsidiary.Benito (1997) brings together this diverse literature and suggests the presence of

four groups of factors that underlie the decision to divest. These are:

. Stability and predictability of the environment: economically, competi-tively, socially and politically. In effect this is the country risk factor. This is, toa considerable extent, a perceptual factor on the part of the management of thecore firm.

. The performance of the operations: this may be seen in financial terms or ina broader context of the balance of operations across the firm. It also relates to a

Table 1 Possible causes of corporate failure

External circumstances (Industrial Organization perspective)1. Turbulence in the specific market2. Long-term decline in demand3. Competition increase (new entrants)4. Natural decline of business/market5. Strong unexpected shocks to general market6. Product/process innovation leading to obsolescence7. Public policy and other interventions

Internal circumstances (Organizational Studies perspective)1. Commitment to pre-existing activities2. Lack of perception of, and congruence with the market3. Dismissal of new threats to the business4. Management incapacity or incapability5. Paralysis of decision-making6. Structural obstacles to change

Source: extended from Mellahi et al. (2002).


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time scale with short- and long-term performance sometimes being verydifferent.

. The strategic fit between parent company and foreign affiliate: strategieschange over time and can become very different between a parent company andits foreign operations, leading to tensions and ultimately separation.

. Governance issues: these relate to the ability of the parent firm to manage theparticular type of operation in the foreign environment and so relate to issues ofmanagerial competencies similar to those considered by Hunt (2000).

These four groups of factors are conditioned by, and become subject to, triggers inrespect of the incentives and/or barriers to exit that might exist. Just how easy ordifficult it is to divest ultimately affects the probability of an exit occurring (see Guy1999 for a UK retail example). It will certainly affect the timing (and probably thecost) of any exit: UK retailer Kingfisher’s proposed demerger of its electrical armhas been affected by its ability to close loss-making stores in its German electricalchain ProMarkt at an acceptable cost (Retail Week, 25 October 2002). WhilstBenito’s work draws almost exclusively on studies of the manufacturing sector,nonetheless, at least in respect of divestment, his approach may have widerapplicability.Building on the suggestions of Benito (1997) discussed above, we therefore

propose a four-fold framework of factors for failure in international retailing (Figure2). Again, this is a simplified explanatory device and firms may be affected byseveral of these factors at the same time.First, failure might occur because the market does not turn out to be as expected

(Market Failure). It might, for example, be the case that the market projections andexpected demand and thus profit are simply not achievable in any reasonable timescale and thus exit is the best option. There may be issues about risk and stabilityin the destination country and circumstances may alter. A number of retail entriesinto Eastern Europe, South America or Asia in the 1990s might be illustrations ofthis, e.g. Ahold exiting Singapore and Thailand. This is not only a feature ofemergent economies as seen in the closure of Eddie Bauer stores in the UK in2000, Uniqlo in the UK in 2003 and Truworth International placing stores inAustralia, New Zealand and Singapore into voluntary liquidation in 2000. Therewas optimism on entry, but sales did not meet the predictions, economiescontracted in various crises and so expansion was halted, reversed and finally anexit made from the country.Second, failure might occur, not because of disappointed expectations or macro-

economy changes, but because of competitive effects (Competitive Failure). In thiscase, failure is due more to operational performance in comparison to the actions ofcompetition, rather than to any particular failings in the operations of the firm.Whilst adaptation might be possible to meet the competition, if the retail formula isfixed then such changes are unlikely. Marks and Spencer’s involvement in Canada isan example, perhaps, where the competition was rather stronger than expected andwhere changes to a tried formula were (at least initially) resisted. After a long battleto make headway, involving closure of some stores, lines of business and formats(but also some expansion of particular store format numbers) the company finallyexited the market, conceding that its Canadian internationalization had been afailure (Burt et al. 2002). Similarly, Dairy Farm halted the expansion of their Seven-Eleven franchise in Southern China in summer 2002, publicly blaming stronger


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than expected competitive reactions. Likewise, after several years of attempted re-structuring, Dutch Group Macintosh closed its 19 Halfords units in Germany.Competition in a market itself is affected or regulated by outside factors. Political

dimensions in the late 1990s helped Sainsbury to decide to exit from Egypt.Regulatory restrictions, which aided indigenous retail forms, help explainCarrefour’s expansion problems in the UK in the 1970s and its subsequent exit.As of 2002, Malaysia, Thailand, Serbia and Poland amongst other Asian and CentralEuropean countries are contemplating or already introducing new restrictions onlarge-store development, which effectively target internationalizing food retailers.Legal restrictions on competition affect market entry and development in manyparts of the world (Davies 1995) and therefore affect market structure andperformance and thus potentially lead to closure, organizational restructuring orexit. For example, the German Cartel Office has forced both BP and Shell to divesthundreds of petrol service stations in order to obtain permission for their takeoversof Veba and Dea respectively. These divestments will reduce the market shares ofeach enlarged company to below the required limit (22% market share). Theseforced sales of outlets have attracted potential bidders from France, Austria and

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Figure 2 A framework of factors for failure of international retail operations


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Russia as well as within Germany. Geo-political issues such as the boycott ofapartheid South Africa, the revolution in Iran and the current boycott of Americanretailers in the Gulf States also have an impact on competition and survival in themarket.Third, there might be a situation where a retailer finds that they are simply not a

good international retailer (Operational Failure). Some retailers may have excellentpositions in their home market and make assumptions that these skills and activitieswill translate into all international contexts. However, the company might come torealize that its operating practices and approaches to management do not in fact travelwell. In essence, they are simply not good at operating outside their own cultural orcountry situation. For example K-Mart’s failure in the Czech Republic and Boots’failures in continental Europe and Asia call into question the appropriateness of theircorporate culture for international activity. Wal-Mart’s struggle to reconfigure theGerman supply chain to their ‘normal’ model and Carrefour’s difficulties in obtainingsites and establishing an effective supply chain in Japan reflect the difficulties inimposing established operational activities in (some) international markets.Finally, there may be situations where a retailer operating internationally has to

make decisions about the international business, not because of the situationinternationally, but because of the situation in the home market (Business Failure).Circumstances and competitive advantages can change in both the home and theinternational market. If a retailer gets into difficulties in its home market, then theremight be pressure to concentrate on that market and to avoid spending what mightbe seen as valuable management time and effort on the perceived lesser importantnon-domestic markets. Longer-term international ambitions might be sacrificed forshorter-term emergency measures. Pressure to behave in this way might come frominstitutional shareholders for example who have a more short-term view of thesituation, e.g. the Marks and Spencer’s withdrawals in continental Europe (Burt etal. 2002) and the sale of Jeronimo Martins’ Polish and Brazilian hypermarkets in2002. Sometimes it takes new management less involved in the original internationalactivity, to take such closure decisions.These four explanations for international retail failure are summarized in Figure

2. The first two, market failure and competitive failure are grounded in theindustrial organizational perspective, whereas the latter two (organizational failureand business failure) are examples of the organizational studies perspective. Asstressed earlier, however, these explanations are interlinked and not necessarilydiscrete factors.

Propositions for researching international retail failure

At this stage in our consideration of failure, we have some examples and substantialbut disjointed evidence about failure. Anecdotal evidence and trade press reportageis plentiful. There is a lack of formal structure and analysis to studies, whethertaking qualitative or quantitative approaches. We can, however, take the variousdefinitions, boundaries and explanations identified thus far in the paper and suggesta number of propositions for future research on failure in retail internationalization.Ten propositions are suggested in Table 2. We recognize that others can and shouldbe developed as the field expands. The aim here is to develop some initial ideas thatare researchable and that will help us to understand failure and its relationships. We


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discuss each of these propositions briefly in turn, but recognize that they areinterrelated. The intent in preparing these propositions is not to measure the events,but to focus on the concepts of retail internationalization failure and the processesinvolved. In particular we would emphasize the need for future research into thedecision-making and choice selection amongst the options available.Proposition One: Failure is related to the degree of managerial perceived risk

in any particular country. It would seem possible that some countries are moreprone than others to retailers entering the market and then exiting it, i.e. somecountries are inherently risky. It may be possible that retailers are becoming moresophisticated in their entry strategies and thus countries are ‘screened out’ ofconsideration, but this will relate to entry rates rather than exit rates. It wouldalso seem likely that some countries are the destination of more activities that failat particular times than are others. Over time, however, the countries with highfailure rates may change. We can see from the limited evidence available, forexample, that relatively few foreign retailers have been successful, with manyexits, in Germany and Italy, but there appear to be lower failure rates in theNetherlands and Spain.Proposition Two: Failure is related to the extent and perceptions of cultural and

psychic distance and competitive difference between host and target countries.Culture in this context can be considered as including issues such as infrastructureand level of development. Such a view is not new but lacks sound empiricalvalidation. Much is made in the retail internationalization literature of suchconcepts, focusing on the reduced degree of risk associated with entering countriesthat, as a business, you believe you know better or with which you will have moreaffinity (e.g. Evans et al. 2000). We can suggest that the reverse proposition may alsohold therefore. Failure and exit are more likely from culturally and psychically

Table 2 Ten propositions for possible research on failure in international retailing

A: Market failure1. Failure is related to the degree of managerial perceived risk in any particular country.2. Failure is related to the extent and perceptions of cultural and psychic distance and

competitive difference between host and target countries.

B: Competitive failure3. Failure is related to the retail sector, format and organizational type involved.4. Failure is related to the entry mode.5. Failure is related to the stage of organizational development, normally viewed as the age

and size of firm.

C: Organizational failure6. Failure is related to length of time in the country.7. Failure is related to the extent of experience of international operation as indicated by

number of countries entered and number of formats operated.8. Failure is related to the degree of adaptation made to the customer interaction aspects of

the format in the target market.

D: Business failure9. Failure is related to the managerial competency of the firm in the home market and the

management quality and competency adopted in the target market.10. Failure is related to the degree to which the corporate culture is international.


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distant markets, as more ‘risk’ is involved and there is thus a greater likelihood offailure. The more different the market is, or is perceived to be, the greater theprevalence of failure.PropositionThree:Failure is related to the retail sector, format and organizational

type involved. In the same way as certain countries may prove to be particularlyvulnerable to failure, so too different types of retail activity might prove to be morelikely to fail. This failure could occur in particular circumstances or at particular times.Is it the case for example that food retailing is more likely to fail than electricalretailing? Are hypermarkets more likely to be successful than supermarkets? Is afranchise operation less risky than other types of investment such as a joint venture?We can see, for example, that, over time, international exits of department storesappear to be more common than those of discount food stores and that franchises arenot always successful. There may also be a country factor interacting here, with someforms of internationalization prone to failure in particular countries.Proposition Four: Failure is related to the entry mode. This proposition

effectively contains two main components. First, that the ultimate failure rates in acountry are related directly to entry mode, i.e. some original entry modes are moreprone to failure than others. In some instances entry mode may be effectivelydictated by government policy. Second, we might inquire whether the adoptedentry mode to a country makes a switch to other organizational types more or lesslikely and that this switching is in turn related to overall failure rates. We suggest,for example, that foreign joint-ventures are inherently unstable in retailing and thatfailure rates are high for this type of entry, but that closure and organizationalrestructuring rather than exit are often the responses to failure in this case. Again wemight expect a country factor to be present in this case.Proposition Five: Failure is related to the stage of organizational development,

normally viewed as the age and size of firm. Firms internationalize at differentstages of their life. We suggest that their age and size relate to their propensity tofail. Failure may be less likely in longer-established and larger firms. Moore et al.(2000), however, have shown that internationalization in the fashion sector may befollowing a very different path than internationalization in other sectors, and thatsmaller and newer firms, e.g. Zara and Morgan, may be much more internationalthan anticipated. However, it is unclear whether failure is more prevalent in theseyounger firms than in older ones. There are interrelationships of these size and agerelationships with format and sector.Proposition Six: Failure is related to the length of time in the country. It would

be anticipated that, generally, the longer a business has operated in a target market,so the lower the likelihood of failure. It would seem possible that most failures occurin the early years of internationalization. However, there are obvious exceptions tothis, e.g. C&A’s exit from the UK in 2000/1 after almost 80 years in the country. Itmay be that the dynamic competitive process of retailing complicates thisrelationship, in that long-established foreign ventures may find it hard to changeto meet new circumstances and/or enhanced competition. But, we may also suggestthat different responses to failure may be related to the period of presence in acountry with recent entrants more likely to exit than attempt a restructuring thatmight be considered by a firm of longer residence.Proposition Seven: Failure is related to the extent of experience of international

operation as indicated by number of countries entered and number of formatsoperated. If risk is inherent in internationalization, then one way of reducing risk is


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by learning from experience. As a firm enters more countries and gains experiencewith more formats (or has many formats in the home market), so the likelihood offailure may be lessened. A novice international company, on the other hand, withoutrequisite experience may be more prone to failure.Proposition Eight: Failure is related to the degree of adaptation made to the

customer interaction aspects of the format in the target market. One of the keythemes in the retail internationalization research has been the degree of adaptationor standardization involved (e.g. Salmon and Tordjman 1989). Generally we seeadaptation at the ‘front’ of a store where there is customer interaction, andstandardization at the ‘back’ of the store where the processes are system-driven. Itwould seem likely, therefore, that there is a relationship between the degree of, andthe pursuit of, adaptation at the ‘front’ of store and standardization at the ‘back’ ofstore and failure.Proposition Nine: Failure is related to the managerial competency of the firm in

the home market and the management quality and competency adopted in the targetmarket. It would seem likely that there are internal managerial effects to failure thatneed to be understood and evaluated. The quality and structure of the managementin the target market may be highly influential in the performance of that firm andmay account for differences in performance amongst countries. For example, theextent to which local or expatriate management is used at store level is likely toaffect the extent to which Head Office culture is implemented at store level. Wetherefore need to understand the commitment, organization and engagement ofmanagement in internationalization and how this compares to practices in othercompanies and countries. Whilst there is evidence from the manufacturing sectorsto support this idea, it has yet to be proven for retailers.Proposition Ten: Failure is related to the degree to which the corporate culture

is international. Companies that are internally focused and have a culture that isrelatively unaware of differences amongst countries may be less able to succeedinternationally. There may be a tension here, however, between a strong culture andan international one. International cultures in retailing may be more open toinfluences and adaptation, seeing markets more accurately than indigenous or closedcultures, leading to more failures amongst those companies with a non-internationalcorporate culture. Strong but non-international cultures however may be suitablefor some circumstances.The propositions suggested above are presented as a starting point for research

into the area. There are, of course, many other possible propositions. Those above,however, stem from a review of the evidence, such as it is, and an attempt toposition failure in the same way as retailer internationalization research has beenprogressed (e.g. Burt 1991a, 1993; Dawson 1993, 2001, 2003; Pellegrini 1994;Williams 1992). We have concentrated our propositions on the processes of failure,but within this there is need to assess aspects of divestment, closure, organizationalrestructuring and exit. The propositions above suggest that a variety of researchmethods are needed to progress the area. There is a need for detailed andpainstaking research into the entry, opening, restructuring, closure and exit ofretailers across the globe. Databases need to be created and refined. There is also aneed for detailed case studies of individual companies and situations. Such work willcomplement the macro-level activity, but will also allow more internal questions ofmotivations and organization to be examined. This research needs to be undertakenin various retail sectors, countries and formats.


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Conclusions

This paper began by identifying a gap in the existing research on retail management.Despite the widespread incidence of failure in retail internationalization, thecynosure of academic study has been success. Whilst there are good reasons whyfailure in retail internationalization is difficult to study, there are also equally goodreasons why such study is essential. If we are serious about understanding thetotality of the retail internationalization process then we have to study failure as wellas success.As a first step it is important that the definitions and concepts are agreed. In this

paper we have suggested a number of definitions. We look forward to engaging withothers interested in the area, to see if these are appropriate or if they needamendment. Similarly, we believe there are interrelationships amongst the conceptswe have identified and again we look forward to exploring the nature of these, bothconceptually and through quantitative and qualitative research. We have suggested anumber of research propositions that provide a starting point for the consideration offailure in retail internationalization. These propositions focus on concepts andprocesses rather than measurement or recording of events, though this will benecessary. The propositions explore the dimensions along which measurement offailure might be undertaken to determine its causal factors. These propositions arenot meant to be exhaustive of all possibilities but provide a starting point for thestudy of what we argue is a complex and important process. We see retailerinternationalization as a process not simply an event. We intend to pursue the nextstep, which is the operationalization of the propositions through appropriate researchdesigns. We hope that others will join in this task, in answering our questions, inadding questions of their own and in joining in with the empirical investigations.The considerable expansion of international activity by retailers since the early

1980s has generated an upsurge of academic study of the process. What has becomeevident from these studies is that retailer internationalization is a very differentprocess than that undertaken by manufacturers. It has also become evident that theestablished theoretical frameworks of international business require majormodification if they are to be applied in a meaningful way to retailing. Not leastamong the many differences between retailer and manufacturer internationalization,is the ease with which market exit can be undertaken when things go wrong. Whilstthe processes of market entry are different, so also are the processes of market exit.The increase of international activity by retailers has resulted in a parallel increase inmistakes and underperformance of foreign operations, exacerbated by a widespreadlowering of rates of retail growth in the early twenty-first century. The switch frombeing an essentially domestic sector to one that includes major international firms isnot proving an easy transition for retailers. For these many reasons, therefore, itseems appropriate to explore ideas of failure in international retailing. A betterunderstanding of failure would be of benefit to academics and retailers alike andmight help to close the gulf between theory and practice.

Acknowledgements

The authors gratefully acknowledge the comments and observations of three anonymousreferees.


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Failure in international retailing: research propositions

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