International expansion of retail brands, at least as we know them, has its limitations

International expansion does not always involve exporting your retail brand. A recent article in StarTribune gives some good examples. According to this article, Richfield-based Best Buy last week did a major about-face, closing nine of its nameplate stores in China and another one in Turkey, which it entered just two years ago.

Best Buy, which said its international retreat would cost up to $245 million, is just the most recent example of a U.S. retailer finding that stores don't export so well. Wal-Mart had four failed attempts in Asia and Germany from 1995 until 2006. Several years ago U.S. clothiers sampled the European market and failed because, by tradition and sometimes law, there was little or no Sunday shopping. Home Depot has been closing stores in China.

But in some sectors, acceptance of U.S.-branded products can be wholehearted. KFC is a huge success in Asia. So is McDonald's. 

Best Buy's branded stores in China were similar to its U.S. stores, where products made by different manufacturers sit side by side by category. Computers in one section, printers in another, for example. But in China, shoppers are used to smaller stores crammed with technology products that are bunched together by manufacturers and sold by clerks licensed to that manufacturer. Thus there is less comparison shopping. There is also an active black market that undercuts what retailers can charge. Chinese consumers also value price over quality.

Although it closed its branded stores, Best Buy will concentrate on the Chinese marketplace with Five Star, a Chinese chain in which it acquired a controlling interest in 2006. At the time there were 136 Five Star stores, and Best Buy has added some the past five years, bringing the total to 159. Now it wants to accelerate that by adding 40 to 50 outlets in the next two years. Best Buy says its purchase of Five Star has been a success. Year-over-year sales for the chain were up nearly 30 percent with "significantly" improved operating margins.

International expansion, therefore, involves looking at all alternatives and often requires new strategies.