Foreign market

Consumer's demand for new format shall be driving the growth for organized retailing. However, it must also be kept in mind that consumer expectations are also evolving and changing rapidly over time. Thus, for example, Department Stores per se were a novelty for the Indian consumer at the beginning of the 90's. The ability to look at and shop for major national brands under one roof was a major USP and therefore Shopper's Stop had an excellent run in its first 5-6 years of existence.

However, as more and more retailers upgraded the space and size of their own outlets and more apparel companies opened exclusive outlets offering a larger width and depth of product, this USP seems to have lost its sheen. With the advent of Shopping Malls that offer multiple brand choices, department stores such as Shoppers Stop have to reinvent their USP or else they are likely to lose business to exclusive stores of the same brands operating in the same Malls (or others in the close vicinity). Another example can be in the Durables sector.

The opportunity is ripe for start-ups of national or large regional chains offering a wide range of consumer durables (white and brown goods, entertainment electronics, office / home computing and accessories, and small gadgets and home appliances). The USP can be built-up on the line indicated as under. Thus, to summarize, the emerging organized retail sector offers unparalleled opportunities to entrepreneurs and existing businesses seeking an entry in Retailing. The consumers are open to change, and several USP platforms can be occupied since at present, the "canvas" is more or less blank.

However, the new entrants should carefully strike a balance between what the perceived need of the consumer is and what is financially prudent and operationally feasible from the business perspective. Having taken a decision for a particular format and its USP, the business managers must periodically review the external developments to assess if the original USP is still relevant and in case the external environment has changed, then reinvent the format and its USP so as to continue to have relevance in the Indian context.

International spread has a largely negative effect on financial performance, except for the most globalized, and generally largest, retailers. Performance of the most globalized, and generally largest, retailers is, however, cushioned by the size factor. While their performance is still inferior to that of purely domestic operators, their size ultimately seems to bring some benefits of scale and corporate learning curves over time. So Smaller and medium-sized retailers are looking towards exploiting their domestic markets fully before being tempted to expand internationally.

Larger players are becoming more careful regarding the selection of the geographical spread. The world's leading retailers are internationally very diverse, and thus exposed to a wide variety of different national cultures. Some of them, for example Tesco, Bang & Olufsen and Ahold, operate in several regions and have significant cultural exposures. Others, such as Sainsbury's, Colruyt and Sears, have a limited geographical presence, and hence are less exposed culturally. International presence by itself, however, does not necessarily translate into the equivalent cultural exposure.

Foreign market entry needs to be regarded as a multi-stage process. Although often seen traditionally as a one-off undertaking, it needs to be seen more as an extended progression towards establishing a meaningful presence in the target market. Initial decisions at entry do affect subsequent performance. The scale, mode and order of entry, as well as the extent of format adaptation and foreign store concept familiarity, continue to influence the functioning of foreign subsidiaries in the post-entry period. Being "opportunity-led, strategy-driven" is one winning formula for foreign market entry.

Decisions taken as part of the overall corporate strategy are likely to be the most successful, while remaining opportunistic is also vital for realizing future performance potential. Foreign market entry risk is significant and must be properly managed. Multiple entries carry multiple risks which should be mitigated on a portfolio basis. Retail format needs to be described and measured via multiple dimensions. It's a company-specific, strategy-driven phenomenon that does not lend itself readily to classification. There is no single metric capable of, or suitable for, an exhaustive description of retail formats.

Size, price, quality, value, proximity, convenience and variety are some of the frequently used format characteristics. Format has a similar level of complexity to a "brand" as a concept, with both physical and cognitive elements. In the analysis, we took the "Core format" for each company as the main operating format described in the company's published accounts. Format transfer in the context of international expansion exhibits varying degrees of adaptation, e. g. no modification – limited change – extensive change. The degree, in each particular case, is determined by the strategies pursued while entering a new market.

International retailers developing non-core formats in foreign markets are exposed to Format Diversification Risk (FDR). As part of the total risk exposure, FDR reflects uncertainty about implementing untried retail formats in unfamiliar surroundings. Format exposure (the proportion of international non-core shops) and international exposure (the proportion of international shops) are not equivalent. A retailer could be exposed from the format angle, but be only modestly international, e. g. Jeronimo Martins. Conversely, a retailer with limited format exposure may exhibit a high degree of internationalization, e. g. Carrefour.