Asia - target of many European retail companies

In their drive for expansion over the last decade, European retailers have focused increasingly on Asia alongside eastern Europe and Latin America. Rapid economic growth in many Asian countries and the fragmented retail structure in the region provided companies offering modern large-scale retail formats with opportunities for development no longer to be found in their largely saturated and regulated domestic markets. Even though the economic difficulties of many countries have clouded the outlook, the long-term prospects are still favourable.

Retailers from across Europe have invested in countries throughout the Middle East, East and Southeast Asia in a wide variety of forms. The first steps were taken in the nineteen-seventies and eighties, with Ikea, Body Shop and Otto in the vanguard. The Swedish retailer got the ball rolling in 1975, opening its first furniture store in Hong Kong. Eight years later Body Shop launched cosmetics stores in Singapore and the United Arab Emirates. Another three years later, the Otto group set up a mail-order joint venture with Sumitomo in Japan. SHV, Carrefour and Marks & Spencer followed at the end of the eighties.

Despite the early start, Ikea’s involvement in Asia has been limited. Hong Kong and Singapore in 1975 and 1978 were followed by Saudi Arabia and Kuwait in the eighties and the United Arab Emirates, Taiwan and China in the nineties, but the total number of stores has remained small. Of Ikea’s 161 stores in 29 countries across the world, only eleven are in the company’s seven Asian markets. Body Shop has taken a different approach, adding another sixteen markets to the initial two. The company’s approximately 400 stores in Asia, almost exclusively franchise operations, account for nearly a quarter of the Body Shop total.

International expansion in the mail-order business requires a functioning transport and communications infrastructure in the target country. After its entry into the Japanese market, it wasn’t until the mid-nineties that Otto felt the conditions were right to begin mail-order operations in India and China and, a short time later, in the smaller markets of South Korea and Taiwan. In each case, Otto secured the support of nationally-based partners in the form of joint ventures.

The Dutch group SHV has taken a step-by-step approach to expansion in Asia, starting off in Taiwan and Thailand, then waiting several years before turning its attention to Indonesia and Malaysia, and then pausing again before focusing on Korea, the Philippines and China. Since 1996 the company has concentrated on increasing its penetration of existing markets, raising the number of its cash & carry outlets to 66. It has since withdrawn from the Korean market.

The French group Carrefour contented itself with the Taiwanese market for five years before embarking on a steady expansion in 1994 by opening hypermarkets in Malaysia and China, followed by Thailand, South Korea and Hong Kong and subsequently by Singapore and Indonesia. Last year it opened its first hypermarket in Japan. Carrefour has concentrated its investment on Taiwan and China, which together account for more than half of the company’s nearly one hundred stores.

Marks & Spencer chose Hong Kong as the starting point for its Asian expansion. Although running its own stores in Hong Kong, the company expanded into other countries in Asia exclusively by the franchise route. It now has a broad base of around 60 department stores in twelve foreign markets. As part of a necessary consolidation exercise, Marks & Spencer now also plans to convert the ten stores in Hong Kong into franchise operations.

The mid-nineties saw more European retailers moving into Asia, including Auchan, Casino, Cora, Promodès and Pinault-Printemps-Redoute from France, the UK’s Boots, Kingfisher and Tesco, Metro and Tengelmann from Germany, Ahold (Netherlands) and Delhaize (Belgium). They invested in hypermarkets, supermarkets, cash & carry outlets and large-scale specialty stores. Other companies exported their small-scale specialty shop concepts.

Auchan, Casino, Cora, Promodès and Tesco focused their attention on the hypermarket sector. Tesco initially bought 13 stores in Thailand, followed by two stores in South Korea together with Samsung. At the end of last year it added a hypermarket in Taiwan. Through new store openings, Tesco has expanded its chain to 32 outlets.

Alongside Carrefour and Tesco, Casino has also developed into a leading hypermarket operator in Asia. After opening its first two Géant stores in Taiwan, the French retailer entered into a joint venture covering a total of ten stores with one of the country’s two leading retail groups. By purchasing a majority interest in the Big C group Casino gained access to Thailand and control over 23 hypermarkets, giving it a leading market position alongside Tesco.

By contrast, Auchan has so far failed to match its competitors in terms of size. After opening a store in Thailand and one in China the company acquired a majority stake in the RT Mart group, which runs eleven hypermarkets in Taiwan. In view of the strong positions held by Tesco and Casino, as well as by Carrefour, Auchan sees little opportunity for growth in Thailand and intends to pull out of the market in favour of the Casino group.

Of the two other French retailers, Promodès opened initial stores in association with local partners in Taiwan and Dubai, which after the merger became part of the Carrefour group. Cora has three hypermarkets in Vietnam, the first of which opened in 1998.

Ahold und Delhaize invested in the supermarket sector. The Dutch company Ahold set up five joint ventures in 1996 to introduce its specially developed supermarket concept for Asia, Tops. Economic factors subsequently led the company to pull out of China and Singapore and concentrate on Thailand, Malaysia and Indonesia. It now has just under 100 supermarkets in the region. The Delhaize group has 70. It began by buying two small chains in Thailand and Indonesia before purchasing a 49 percent stake in a Singapore-based company in 1999.

Like its then partner SHV, the Metro group entered the Chinese market in 1996. Metro runs eight cash & carry stores in China, SHV four. To continue its expansion Metro also intends to move into the Indian, Vietnamese and Japanese markets.

Around a quarter of a century after the opening of the first Ikea store in Asia, further European retailers decided to transfer their large-scale specialty store concepts to the region. Kingfisher opened initial B & Q home improvement stores first in Taiwan, then in China. Tengelmann followed suit last year with three Obi stores, also in China. In Taiwan, Pinault-Printemps-Redoute built two Conforama furniture outlets and one Fnac media store.

The small-scale specialty shop concept has been transferred more frequently than the large-scale format. This is particularly true of the clothing sector, from international designer fashion boutiques to fashion chains such as André, Benetton, Bally, Stefanel, Esprit, Cyrillus and recently Zara. In the cosmetics/perfumery sector, Boots and Sephora have joined Body Shop and Yves Rocher. The UK company Storehouse has franchise Mothercare and Bhs stores in numerous markets in the Middle East and East and Southeast Asia.

Having focused their Asian expansion efforts in the past on the small and medium-sized markets, particularly Thailand and Taiwan, European retailers are set to devote more attention in the future to the large markets of China and Japan, as well as India, where none of the large retailers yet has a presence.

- Study by EHI