case of Marks and Spencer S.L. Burt, K. Mellahi, T.P. Jackson and L. Sparks Abstract Retail internationalization has attracted much attention in recent years as the scale and nature of the activity has changed. Most analysis of retail internationalization however is based on market entry and mainly successful businesses. Here, the internationaliza- tion strategy of Marks and Spencer over 30 years is examined. Its recent large-scale withdrawal from such activity is considered in the light of theories about inter- nationalization and business failure. The complexity of market exit in retailing is emphasized. It is suggested that market exit and failure are important under- researched dimensions of retail internationalization. More detailed and careful work on market entry and withdrawal (failure?) is needed to adequately conceptualize the subject area. Keywords Failure, internationalization, market entry, Marks and Spencer, retail, with- drawal International expansion has been the graveyard of many prominent UK retailers, and none more so than Marks and Spencer. Now it must extricate itself from the businesses around the world that have never fullled its hopes. (Urry, M. Overseas expansion has been retailers graveyard, 30 March 2001, ft.com) Introduction On 29 March 2001, Marks and Spencer (M&S) announced that it was to sell its Brooks Brothers clothing chain (USA and Japan) and Kings supermarkets (USA) businesses, and turn its company-owned stores in Hong Kong into a franchise. In addition, it was going to close most of its company-owned S.L. Burt, L. Sparks, Institute for Retail Studies, University of Stirling, Stirling, FK9 4LA, UK; e-mail: leigh.sparks@stir.ac.uk. K. Mellahi, Loughborough University, Loughborough, UK. T.P. Jackson, Coventry University, Coventry, UK. The International Review of Retail, Distribution and Consumer Research ISSN 0959-3969 print/ISSN 1466-4402 online 2002 Taylor & Francis Ltd http://www.tandf.co.uk/journals DOI: 10.1080/09593960210127727 Int. Rev. of Retail, Distribution and Consumer Research 12:2 April 2002 191219 continental European stores, viewing them as distractions in its quest to restore its fortunes (which have seen sales stagnate since 1998, prots (after exceptional items) fall by over 1bn in three years and its share price collapse from a high of 6.60 on 3 October 1997 to a low of 1.70 on 20 October 2000). A wave of protests across continental Europe about the closures and job losses was the result. This managerial giant of the western world (Drucker 1974) and one of the best managed companies in the world (Tse 1985) found its closure announcement condemned by the French Prime Minister, Lionel Jospin, as particularly unacceptable . . . (they) should be punished. Other French minis- ters weighed in with comments on the scandal and exceptionally brutal behaviour of the company. In early April 2001 a French court ned M&S for breaking the law through a lack of consultation with its workers (they claimed they were effectively sacked by e-mail) and its manifestly illegal trouble- making, suspended the store closures and threatened prosecutions of individual M&S managers. Demonstrations and protests continued in the summer of 2001, including a rally and march in London organized by the global skills and services union UNI. Rather ironically, one analyst report (Dresdner Kleinwort Wasserstein 2001) described the announced restructuring as the easy bit of turning M&S around! Whilst much attention has rightly focused on the rights of employers to act as they see t and employees to be consulted and informed properly, the announce- ment by Marks and Spencer was signicant for another reason. It signalled an end to the international ambitions of successive M&S chairmen and Boards of Directors. Whilst some international store activity will remain, mainly in the form of franchised shops, most company-owned activities will be sold off, closed down or franchised. So ends over 30 years of direct retail international activity and ambition. M&Ss internationalization could perhaps be viewed as an inglorious failure. Given the current level and scale of international retailer activity (e.g. Ahold, Delhaize), and takeovers at the international level by leading retailers (e.g. Wal-Mart/Asda and Carrefour/Promod` es), Marks and Spencer can no longer be considered a candidate for the global retail elite. Rather, it is ghting for its independent life in its British heartland. Whiteheads (1992: 41) challenge (to become the major international retailer with . . . products which sell worldwide) has not been met. The phenomenon of previously successful companies facing a survival crisis is not new (Miller 1990; Lawler and Galbraith 1994; Anheier 1999). The corporate landscape is littered with the bones of bankrupt, but previously successful, corporations. Several popular books describe collapses of successful companies (e.g. Ross and Kami 1973; Ricks 1983, 1999; Miller 1990; Sobel 1999). Notwithstanding the commercial importance of organizational failures, both at the corporate and business start-up levels, the topic however is not a central theme of management research (Cameron et al. 1988; Whetten 1988; Sheppard 1994). Pauchant and Douville (1993) argue that whilst excellence is well- established within the literature on strategy (and indeed M&S have been included themselves in a number of excellence collections), the study of failure or market withdrawal is generally less common (though for a recent retail example see Meyer-Ohle 2002). If organizational failure is not a central theme in management research, then the idea of failure in retail internationalization research hardly registers at all. 192 The International Review of Retail, Distribution and Consumer Research Recent years have seen a torrent of research publications on internationalization. There are, for example, the edited or collected volumes of Brown and Burt (1992), McGoldrick and Davies (1995), Akehurst and Alexander (1996) and Alexander and Doherty (2000), and the books of Sternquist and Kacker (1994), Alexander (1997) and Sternquist (1998). Reading these works however, bring up concerns with the way in which internationalization theory has been developed and outlined in the literature (see Alexander 1997 for a sound run-through of theory development). The literature is replete with metaphors about growth in internationalization, whether it be stages or development theory, waves of internationalization, retailers being cautious or ambitious over activity, emphases on competences or critical activities such as in Dunnings eclectic paradigm or concepts such as psychic distance. If failure in retail internationalization has been considered at all, it is under the guise of cross cultural factors such as adaptability, entry mode and locational disadvantage. Whilst it would be unfair to claim that risk in retail internationalization has been ignored totally, the myriad of failures in retail internationalization practice seem curiously at odds with the mainly positive statements suggested by the academic literature. This lack of consideration of failure in retail international activity may be attributed to a number of elements. First, what is seen on the ground today is the positive outcome of the international activity. It is possible to either forget or fail to record activities that close down. Godley and Fletcher (2001) demonstrate the historical volume of internationalization into the British retail sector, but tellingly comment that one reason why this has been ignored is because so many of these developments failed or were taken over. Second, retailers themselves wipe failed activities from their record books or public memory. For example you will nd little mention of Tescos rst foray into Ireland (see Lord et al. 1988) in any of that companys briengs on company history, its web pages or in the books produced recently by those involved (MacLaurin 1999). Yet lessons were learnt from this problematic venture, which have subsequently informed the companys internationalization approach and return to Ireland. This corporate amnesia probably reects the fact that failure is not such an attractive construct as success. There are many such examples, involving both high prole and lesser- known companies. For example Wal-Marts struggles in the 1990s in Hong Kong, Indonesia and China or Lane Crawfords disastrous move into Singapore are seemingly forgotten or ignored by retailers and academics. Finally, research- ing failure is generally more difcult than researching success, partly for the reasons above and partly because personnel change more rapidly after failure and neither they, nor the artifacts remain to inform us. However, it is believed that a combination of failure and internationalization can provide insights into both constructs and theory development. Why do companies fail in the international market? Why are decisions in retrospect, disastrous? How can businesses extricate themselves from problems? What are the roles of other stakeholders? The aim of this paper is to use M&S as a case illustration to probe these issues. Its international activity is long-term and diverse. It has been a hugely respected business, though currently it can not seem to put a foot right. It is believed that an analysis of its failure in international arenas is both long overdue and may well prove insightful. The research presented here is part of a larger piece of work on organizational failure in M&S (Mellahi et al. 2002). The overall research design focused on Burt et al.: Retail internalization and retail failure 193 using a range of sources, to enable breadth of data capture, augmented by detailed depth research processes, with cross-checking and validation of data, opinions and sources. Here, the focus is only on the international activity of the business, though the same data sources have been used as in the wider research. First, the media and stockmarket analyst coverage of M&S has been enor- mous, because of their high prole, previous success and the depth of the unfolding crisis. For example the Dresdner Kleinwort Wasserstein (2001) report cited earlier is one amongst many analysts reports on the company. Secondary material is thus extensive. Second, M&S corporate publications such as annual reports are readily available. These have been considered together with other public statements by M&S managers and directors available through the press or made for example at the Annual General Meeting (which has been attended regularly by one of the research team). Third, for the overall project, 12 formal interviews were conducted over a period of six months in 2000, with a sample of managers, executives and Directors (see Mellahi et al. 2002 for full details). Whilst the interviews focused on general issues of crisis development and management at M&S, comments about internationalization were made. Finally, since 1998, one of the authors, a former executive at M&S and personally involved in aspects of M&S internationalization, has conducted informal interviews and discussions with M&S management about M&S activ- ities, utilizing his past contacts and colleagues. Most of these informal discus- sions have been by telephone and have sought to cross-check information as it emerged from the research. The paper is structured into ve sections. First, the literature on retail internationalization research is presented, followed secondly by examination of the concepts of failure or market exit. A description and then discussion of Marks and Spencers international activity follow this. Finally, conclusions are drawn, both about Marks and Spencer and the lessons from the case for our understanding of failure and internationalization. Retail internationalization International activity is inevitable . . . the subject area is concerned with explaining . . . the directional or motivational issues associated with that process. (Alexander and Myers 2000: 340) Retail internationalization, as noted earlier, has become the subject of much academic study. Our understanding of the issues involved has undoubtedly developed in the last decade, but questions remain. Alexander and Myers (2000) criticize those working in the subject for being overly concerned with process and insufciently worried about the pre-conditions for internationalization. Taking a broader but similar position, Wrigley (2000b) questions the ability of existing theorizing to sufciently include the factors that are important in the corporate landscape and the ways in which these vary over time. These broad, 194 The International Review of Retail, Distribution and Consumer Research linkage-type issues can themselves be set within a framework of concern about retail internationalization research, which has perhaps four dimensions (Dawson 1993, 1994; Pellegrini 1994). First, there is an over-concern on describing what happens in retail inter- nationalization. Research has become very adept at describing the opening of stores and the countries that any company has penetrated. Listings of countries are then somehow related to degrees of internationalization. Alexander and Myers (2000) argue that this descriptive work, whilst of interest and necessary as a basis, is insufciently grounded in the pre-conditions of markets in the countries concerned. Wrigley (2000a) states that the descriptions are not sufciently cognizant of the corporate and nancial realities of rm and global capital. Both points have merit, in that the description of store openings per se does not tell us the full story about internationalization, but is probably the necessary starting point. This paper however, wishes to make a different point about this work. By focusing on stores opened and countries entered, it is argued that the research is missing an essential component of the internationalization process, namely failure. Adding up countries entered tells us something about a companys international reach. Focusing as well on the relationships between countries and locations (stores) that have been exited, and the reasons behind closures or withdrawals, may however tell us more about the activity, process, company realities and the pre-conditions in target markets for retail internationalization. Second, there has been a debate about the very scope of retail inter- nationalization. Dawsons (1993, 1994) framework lays out a very broad range of activities in which a retailer may engage, all of which may have international dimensions. Sternquist (1997) has challenged this approach, suggesting that store operations alone should be the prime focus for international retailing research. This debate continues (see Alexander and Doherty 2000 for an example). At its extreme, Dawsons suggestion helps us to situate the retail business in the activities it undertakes, similar in a way to Wrigleys (2000a) call to understand the nancial dimension to retail internationalization. However, adding product sourcing, nancing, management movements and the like, does expand the dimensions to be considered and perhaps limits our ability to proceed other than on a detailed case by case basis (Sparks 1995, 2000). It also highlights the important and obvious (but sometimes ignored) point that retail internationalization is multi-faceted and complex. Third, the literature is full of references to aspects of theories that have been borrowed from other sectors. This debate again has been joined by Dawson (1993, 1994) and Sternquist (1997) and commented upon by others (e.g. Alexander and Doherty 2000). In essence, Dawson cautioned about borrowing theories unthinkingly from research in other sectors, when retailing is such a different activity to those other sectors. The nature of retailing and the practice, importance and meaning of its internationalization are for example vastly different to an oil producer or a water company. But the retail literature is replete with such borrowings, particularly from manufacturing research and generally focused on aspects of growth of internationalization (see Alexander 1997; Sternquist 1998 for good run-throughs of this work). The reasons for internationalization and the reasons behind entry and withdrawal are it can be Burt et al.: Retail internalization and retail failure 195 argued fundamentally different in retailing and need to be considered in this different light. It is also generally the case that such broad theory development emphasizes establishment over all other factors. It may become more concerned somewhat with pre-conditions for entry, but it is still market entry that appears to be the critical dimension. As may be expected, it is argued that considering failure (or market exit) in retail internationalization might also be important. For example, research has covered Kmarts entry into Eastern Europe, as it has the more recent entry of Tesco. However, the exit of Kmart, which provided opportunities for Tesco, tends to be neglected. What were the motivating factors for this exit and what can the comparative actions of these companies tell us? Such issues are neglected in the literature, although Dawson (2001) has begun to question whether retail internationalization is the outcome of a clear cut, rationale, strategic planning process or rather an opportunistic event (see Lord et al. 1988). Fourth, the vast majority of academic research on retail internationalization is grounded in the present. There are few studies that present a longitudinal analysis of events, or consider the historical context. Those that do examine the process of retail internationalization over time either with respect to specic retail sectors (Burt 1991, 1993; Godley and Fletcher 2000a, 2000b) or individual companies (for example, Laulajainen 1991, 1992; Treadgold 1991) again tend to focus on entry methods, patterns of investment, market entry and growth. This context also tends to focus on discussion of past actions with current (and possibly uninvolved) decision makers, even when exploring motives for previous internationalization (Alexander 1990; Williams 1992). Discussion of future intentions (Myers 1995) also tends to focus on current plans for expansion, rather than any retrenchment. There has been a considerable expansion of academic work and literature on retail internationalization. This work is however problematic in a number of ways. In particular, and in the context of this study, the literature tends to underplay the merits of taking a longitudinal, case based approach, grounded in the business and corporate realities of the time. It also has little to say about market exit or failure in international retailing, despite the multitude of examples available from practice. This case study aims to explore these issues to help begin building a broader understanding of retail internationalization. The paper now turns to the literature on failure and market exit. Failure and market exit: a review It has to be recognized at the outset that the terminology in this area is inexact. A number of terms or phrases are used in the literature, but rarely are they dened. How they relate to each other is also often unconsidered. Thus for example, failure, closure, exit, divestment or disinvestment could be examined. There is internationalization, so why not de-internationalization? Closure of a business by one company can mean the opportunity to move in to a market for another. Hinfelaar and Kasper (2001) note: the failed internationalization strategy of one retailer becomes the vehicle for market consolidation for another. There are clearly issues to be resolved in our basic denitional 196 The International Review of Retail, Distribution and Consumer Research apparatus. The terms, closure, failure or exit will be used interchangeably in the present exploratory research, although it is recognized that there will have to be theoretical debates about these. In this exploratory work, it is believed that this broad approach is the most useful to allow investigation of the subject. There is also an issue over what is being studied and at what level. There is a long history of research on macro changes in the retail shop stock at various scales (Converse 1932; Burd 1941; Kirby and Law 1981). Research also covers the idea of market entry and exit at the macro-economic level (see Carree and Thurik 1996; Nijkamp et al. 2001 for discussion of this). Debates about business formation are plentiful and indeed some countries have focused their economic policies on ensuring a conveyor belt of new concepts, ideas and businesses. These business start-ups of course succeed, or more likely fail. This raises the question of predicting business failure and attempts have been made to improve predictive accuracy, including for retail failures (McGurr and DeVanay 1998). More pertinent in the current context however, is the work at the corporate level, although as seen above, these do not normally cover concepts of failure. An exception to this can be found in some of the case study work, particularly that on methods of market entry (Quinn 1996) or on structural change (Sparks 1996a, b). Such case study specic work has on occasions considered in passing situations where withdrawal from an international market has occurred (Sparks 1995). Recently, Alexander and Quinn (2001) have used three brief company examples to examine what they term divestment in retailing. There is also a question of what exactly is the focus of any such study. The discussion above focuses on the rm as the object of study. As noted earlier, some would argue that internationalization is about more than opening shops in another country. It is necessary to decide whether the focus of study of failure is at the rm, outlet or activity level (or all of these?). In retailing for example, high prole international management moves that have been failures can be pointed to, for example, the sequence of Americans brought in to rescue Laura Ashley. Failures of supply systems or withdrawal of sourcing from countries is another example, as are international nance movements and their implications for the funding (or not) of international activity. It is necessary to be clear when discussing failure or exit, that it may be highly complex and inter-related and extend beyond ideas of shop opening or closing. It is possible to relate our study of retail international failure to the broader literature on business failures (see Mellahi et al. 2002 for a longer discussion). Causes of organizational failure have been examined from at least two different perspectives. The Industrial Organization (IO) perspective locates the causes of failure in the external environment (Lippman and Rumlet 1982; Frank 1988; Jovanovic and Lach 1989). This perspective emphasizes external constraints and implies that forces of circumstances leave senior mangers with very little room for maneuver. Managers have little strategic choice but to withdraw from international activities because of events beyond their control, or for rational economic reasons. Put differently, senior management of failing rms are the unfortunate victims of external circumstances, and that failure does not imply management ineffectiveness or inefciency. This deterministic role of the environment implies that the management role can therefore be ignored when examining strategic decisions such as international withdrawal. The IO literature suggests instead a range of primary causes of crisis and decline. These include Burt et al.: Retail internalization and retail failure 197 turbulent demand structure due to brand switching, changes in consumer tastes, or cyclical decline in demand, strategic competition due to rivalry among existing competitors or new entrants (Lippman and Rumlet 1982; Frank 1988; Jovanovic and Lach 1989; Baum and Singh 1994; Sheppard 1995), density of organizations and the natural selection process (Aldrich 1979; Aldrich and Pfeffer 1976; Campbell 1969; Hannan and Freeman 1978; Aldrich 1979; Ambur- gey and Rao 1996), strong unexpected environment jolts (Meyer 1982), and technological uncertainty due to product innovations and process innovations (Slater and Narver 1994). It can be argued that organizational failure is a natural and objective phenomenon (Balderston 1972), inherent to the efcient operation of markets. Life cycle theory (LCT) argues that organizations follow the path of: Inexorable and irreversible movement toward the equilibrium of death. Individuals, family, rm, nation, and civilization all follow the same grim law, and the history of any organism is strikingly reminiscent of the rise and fall of populations on the road to extinction. (Boulding 1950: 38, see also Downs 1967, and in the retail context, Davidson et al. 1976, among others) This cycle of development and vulnerability is also at the heart of the wheel of retailing (Hollander 1960), which is based on the notion that organizations commence as low cost/low price businesses, but that as the business develops so it trades up and adds services, ambience and other more expensive attributes. It therefore becomes vulnerable to leaner, newer entrants, which offer shoppers the lower prices they seek. Inherent in the wheel of retailing are concepts of change occurring in the environment (external), but also concepts of management separation from consumer realities, leading to an inability to respond to threats to the business. Whilst not universally accepted, the concept of cyclical trends or tendencies that need to be managed or overcome is an attractive one. This leaves open however, the question of whether failure is due to these external factors or to management failure. On the other hand, Organizational Studies (OS) literature takes a voluntaristic perspective and places more emphasis on internal factors associated with failure (Cameron et al. 1988). Accordingly, and in sharp contrast to the IO literature examined above, this approach assumes that management does inuence the strategic path of organizations, including market withdrawal and failure. Ad- vocates of internal causes criticize IO literature on failure as being too rational, arguing that it presumes objectivity by ignoring the effects of internal factors and the misperception of organizational members in responding to external changes. According to OS literature, failure is a result of managements lack of vision and the lack of will and ability to respond effectively and make necessary adjustments to reverse the downward spiral of decline triggered by external factors. The literature cites as the main internal causes of a crisis, escalating commitment by management to pre-existing strategies and routines (Staw 1981; Bateman and Zeithaml 1988), blinded perception by management to their weaknesses and strengths, customers demands and competitors (Zajac and Bazerman 1991), management malfunctioning (Argenti 1976), strategic paralysis 198 The International Review of Retail, Distribution and Consumer Research (DAveni 1989b, 1990), threat rigidity effects (Staw et al. 1981) and structural inertia (Hannan and Freeman 1984). The discussion above suggests that both IO and OS orientations need to be incorporated in any consideration of retail de-internationalization. A number of previous attempts have been made to integrate the two approaches (Levine 1978; Witteloostuijn 1998). These however have not tended to be developed in the context of either retailing or internationalization. A further strand in the wider literature on failure is the work on divestment and particularly the divestment of activities in an international context. Benito (1997) shows that divestment of foreign manufacturing operations is common, and is related to the economic growth in the host country, the mode of organization (subsidiary or greeneld) and the closeness of the operation to the core business activity. This is reinforced by Chang and Singh (1999), who conclude that whilst the entry and exit mode decisions are dependent on different factors, the mode of exit is strongly related to the original mode of entry. Clark and Wrigley (1997) produce a typology of exit decisions, dening three main types: strategic reallocation, restructuring and changed corporate form and structure; and moving from the simple to the complex. As Baroncelli and Manoresi (1997) show in a retail context however, there are complications, which make simple typologies problematic. They point to a retail divestment of company stores into a franchise, commenting that this is classically an asset- shrinking exercise, but in this case is undertaken for enhanced speed of growth reasons. The literature reviews of retail internationalization and failure and exit suggest therefore that both are somewhat complex and problematic areas of study. There are denitional, conceptual and level of analysis difculties that need to be claried and resolved. Any research at this stage is therefore necessarily exploratory in nature. One way of approaching this is by utilizing a case study to examine some of these issues and to suggest from this, aspects of retail internationalization failure that could be more fully analysed and re- searched, and thus help in theoretical development. M&S: internationalization Prior to its current decline, M&S had been one of the most successful British retailing companies. Figure 1 takes the simple measures of sales and prot to illustrate the commercial success of the company and the scale of the current reverse. There is no point in repeating here the well-known history of the development of M&S from its family, market bazaar, xed price origins. A number of erudite texts by outside observers (Briggs 1984; Tse 1985; Rees 1989), company leaders (Sieff 1970, 1986, 1990) and internal ofcers (Bookbinder 1989, 1993; Goldenberg 1989) provide more than enough detail. In addition there are detailed (Bird and Witherick 1986) and more supercial (Davies 1999) academic attempts at exploring aspects of the companys development. Others have focused on specic strengths or presumed characteristics of M&S (Tse 1989; Kumar 1997; Turnbull and Wass 1998) and how other sectors of the economy could learn from their business practices (Howells 1981; Chesterman 1984). The recent decline of M&S has also attracted wide media comment (Retail Week Burt et al.: Retail internalization and retail failure 199 2001) and the rst journalist authored book on the decline has already been published (Bevan 2001). Such was its domestic image and success, that M&Ss moves abroad had become of interest to academics searching to understand the role of image in retailer internationalization (McGoldrick and Ho 1992; McGoldrick and Blair 1995; McGoldrick 1998; Burt and Carralero-Encinas 2000). One particular aspect of its approach to internationalization, franchising, has also been the focus of study (Whitehead 1991, 1992). M&Ss iconic status within the UK may sometimes have puzzled those from outside the country. However, by 1998 the business had retail sales of almost 8bn, traded from almost 500 M&S stores in over 30 countries and owned Brooks Brothers and Kings Supermarkets in the US. It possessed a renowned private label/retailer brand in St Michael, an enviable UK nancial services operation and made over 1.15bn prot before tax. By any measure, this was a successful business. Two years later however this empire was in nancial and prestige terms, and for a number of reasons, in great difculties (Goodman 2000; Bevan 2001; Mellahi et al. 2002). By 2000, Figure 1 Marks and Spencer recent business performance 200 The International Review of Retail, Distribution and Consumer Research international activities represented 25 percent of the companys retail oorspace, 17.2 percent of its retail (i.e. not nancial services) turnover, but less than 1.25% of the pre-tax prots. Even in its most protable year (1997), this pre-tax prot percentage was only 8.3 percent. Thirty years of international retail store activity has not produced the returns anticipated. There are a number of ways in which M&Ss internationalization can be considered, as it has varied over time. Dimensions of entry method, time, destination and format all are important. The discussion below provides a base chronology for the international activity, before considering details of format, entry and subsequently exit. Table 1 supports this discussion by outlining measures of M&Ss internationalization at ve yearly intervals. It shows clearly the development of the company both within the UK, but also in terms of its internationalization. Table 2 provides details of where and how the company currently (September 2001) operates. Marks and Spencer for a long time had an established export business that exported product around the world to appropriate retail partners, and on ve occasions, the company was the recipient of a Queens Award for Export for this Table 1 Marks and Spencer Business Development 19752000 a 1975 1980 1985 1990 1995 2000 Turnover (m current prices) UK 687 b 1543 2900 4765 5596 6483 Europe 9 b 28 80 120 360 556 US/Canada 70 175 579 544 691 Rest of World c 26 b 26 38 63 171 101 Financial services 19 81 136 364 Total 721 1667 3213 5608 6807 8195 Floorspace (000 sq ft) UK 5712 6374 7216 9225 e 11000 12265 Europe 53 154 266 325 N/a 1517 US/Canada 1881 2304 3895 f N/a 1421 Rest of World 223 Franchises 959 Total 5765 8409 9786 13445 h 13794 h 16485 Stores UK 252 251 265 292 e 283 296 Europe 2 5 9 11 29 40 US/Canada 190 227 376 g 320 328 Hong Kong 7 10 Franchises N/a N/a N/a N/a 73 115 Total 254 d 446 d 501 d 679 d 712 779 Notes (a) The data reported by the company changed often in the reporting period, and terminology is somewhat loose in their reports. It is best to treat the table as estimates and tendencies therefore; (b) Estimated; (c) Initial years reect the export business, later years Hong Kong plus franchises; (d) Franchise store numbers excluded as unknown; (e) Includes Republic of Ireland stores and oorspace; (f) Includes stores in the Rest of World; (g) Includes Hong Kong stores as well; and (h) Excludes franchise store oorspace. Source: Constructed from company Annual Reports and Accounts Burt et al.: Retail internalization and retail failure 201 (and its franchising) activity. Rees (1969) comments that even in the 1960s, this export business involved sending products to over 50 countries. The expatriate and military (NAAFI) markets were the focus of this business, but other countries were involved. This business grew substantially in volume over the 1970s, but was always subject to the vagaries of import bans and international Table 2 Marks and Spencer group locations (at 30 September 2001) Marks and Spencer Marks and Spencer franchises Number of stores Number of outlets United Kingdom: 310 includes 8 outlet centres Bahrain 1 Bermuda 1 Belgium 4 Canary Islands (5) France 18 Gran Canaria 3 Luxembourg 1 Tenerife 2 Netherlands 2 Channel Islands (4) Portugal 2 Guernsey 1 Republic of Ireland 4 Jersey 3 Spain 9 Croatia 1 Hong Kong 10 Cyprus 8 TOTAL 353 Czech Republic 3 Finland 6 Gibraltar 1 Marks and Spencer Direct 1 Greece 28 Hungary 4 Indonesia 9 Israel 6 Kuwait 1 Malaysia 3 Malta 3 Philippines 9 Poland 1 UK Regional Stores Qatar 1 England 268 Romania 1 N. Ireland 7 Singapore 6 Scotland 22 South Korea 5 Wales 13 Thailand 10 Turkey 11 UAE 2 TOTAL 130 Brooks Brothers Brooks Brothers franchises Number of stores Number of stores Brooks Brothers USA: 155 US Airports: 4 incl. 79 retail stores, 75 outlets, 1 clearance Hong Kong 5 Brooks Brothers Japan 65 Taiwan 2 TOTAL 220 China 1 TOTAL 10 Kings Supermarkets Group Worldwide Locations Number of stores USA 27 TOTAL 750 Source: http://www2.marksandspencer.com/thecompany/downloads/store_information/index. shtml (downloaded 12th November 2001) 202 The International Review of Retail, Distribution and Consumer Research trade wars. Export sales outside the group (Table 3) had reached 35 million by 1978, before trade embargoes, various wars e.g. Nigeria, the Iranian Revolu- tion, and exchange rate problems pegged back growth. Nonetheless, it would be wrong to characterize the pre-1970s M&S as a wholly UK business, as many previously have. Indeed, as Table 3 shows, this export business provided not only important sales opportunities but also valuable pointers towards areas of business opportunity. Some of the partners were transformed formally into franchisees as internationalization activity strengthened (see below). As Finlan (1992: 58) notes: Export of goods enabled the business to establish a series of good personal and business relationships. This export business took a variety of forms and depth of agreement. For example, M&S had an agreement with Isetan to sell products in Japan between 1970 and 1978, after which Daiei became the partner in a wider agreement involving managerial know-how and technology transfer. It is not known to us why one partnership ended and another began. For other countries, there was in essence a wholesale operation targeting retailers and trying to expand sales. Some relationships were simply entrepreneurial in the export context e.g. an Indonesian entrepreneur buying $1.5m of goods in 1990, for resale in Jakarta. As a consequence he became the Indonesian franchisee a couple of years later. Some Table 3 Export sales (m current prices) Year Total exports Direct exports outside group Of which Europe America Africa Far East 1977 40.4 24.3 1978 53.2 35.1 1979 44.0 25.5 1980 46.7 26.3 1981 47.6 22.3 1982 58.0 26.5 14.0 2.2 5.9 4.4 1983 67.9 27.6 15.6 3.1 3.2 5.7 1984 84.0 33.2 18.3 2.2 5.2 6.5 1985 92.7 38.2 19.5 4.8 7.6 6.3 1986 106.3 44.8 25.6 6.4 4.8 8.0 1987 115.1 45.0 27.8 6.0 2.4 8.8 1988 126.1 46.5 34.0 5.0 2.5 5.0 1989 125.4 45.8 37.0 3.4 1.8 3.6 1990 136.0 49.3 39.6 3.2 1.3 5.2 1991 164.0 59.0 47.3 2.9 1.3 7.5 1992 N/a 62.7 50.0 12.7(a) 1993 232.2 73.3 57.6 15.7 1994 280.8 87.2 66.8 20.4 1995 339.8 99.8 69.4 30.4 1996 381.6 114.8 81.6 33.2 1997 458.5 (b) 1998 469.6 1999 440.2 Notes (a): From 1992 direct export sales reported as Europe and Rest of the World; (b): From 1997 direct exports incorporated into new geographical reporting structure Source: constructed from company Annual Reports and Accounts Burt et al.: Retail internalization and retail failure 203 deals were made for locations e.g. Panama that served as a staging post for other countries e.g. elsewhere in South America. The full details of all this activity are not in the public domain, but as Finlan (1992) points out, it was not all benecial, except in total sales terms. There was no control, no contracts in some cases, variable standards and inconsistent brand presentation. Across the world, M&S product was sold in a variety of guises and situations, not all reecting positively on the company. This export activity, to a considerable extent, held little developmental attraction. Export sales have declined in importance as this business has withered or been converted (Table 3). Some of the better opportunities for development were formalized in franchise agreements, as for example in Greece or in island communities such as Jersey, Malta and Cyprus, or elsewhere as in Portugal. Other markets were left to their own devices. Long-standing partners sometimes transferred to franchises as with Rustans in the Philippines. Others such as Dodwells (Inchcape) in Hong Kong, saw their export agreement terminated in 1987 as M&S decided to open its own stores there. The rst formal store-based internationalization occurred in 1972, when a stakeholding was purchased in three Canadian clothing retailers. The minority stakeholding was bought out and full ownership assumed when Canadian legislation changed in 1978. These three chains, DAllairds, Peoples and Walkers (the last of which were re-branded as M&S stores) operated as the main international activity of the business for some years. However, this was not a very protable venture and its fortunes uctuated dramatically (Figures 2 and 3). Despite growing to 275 stores in Canada (an increase of almost 50 percent from purchase), and even starting a brief DAlliards excursion into New York State in the late 1980s, M&S never made Canada succeed. The store numbers were cut sharply in the 1990s, DAlliards was sold off in 1996, at a loss on disposal of 25m, and subsequently (1999) the entire Canadian operation was closed, at a cost of 25m plus 24m goodwill write-off. Market exit in Canada took a number of forms over time (stores closed and/or relocated, stores sold-off and eventually chain closure), but all were basically related to a poor economic performance of the business. Marks and Spencer entered the US in 1988 through purchases of the up- market clothing chain, Brooks Brothers (which also had stores in Japan) and Kings Supermarkets, a 16 store New Jersey chain. As with Canada, this acquisition has never really produced the results expected (Figures 2, 3), despite store expansion of both chains. As part of the March 2001 restructuring, both chains are up for sale, though in reality bids for the companies have been encouraged (though have not been forthcoming) for the last two years. This proposed market exit would seem to be different to Canada, as here the businesses are protable and broadly successful. Exit reects perhaps the entry price paid and thus a failure to meet performance expectations and more recently a perceived lack of business t. In the 1970s, M&S also began an organic market entry strategy in parts of continental Europe (Table 4). The rst store to open (subsequently expanded and at the heart of the 2001 restructuring crisis) was in 1975 at Boulevard Haussmann in Central Paris. This was soon joined by a store in Brussels, Belgium. In France, Belgium and Ireland store numbers grew slowly over the 1980s, until another wave of expansion in the early 1990s when Spain and the 204 The International Review of Retail, Distribution and Consumer Research Netherlands were added to this company owned operation. This was followed by a long-awaited entry to Germany in 1996. This corporate store business was never dramatically large, as the store numbers show, or particularly fast-growing, but growth did continue and the business seemed to be solid, particularly in France and Ireland (another country where the export deal with Dunnes was terminated in favour of store development). In the late 1990s however, store numbers in Germany and France were cut as problems continued in the business. Exit here was therefore initially at the store level, rather than the country level. Europe was not the only part of the international expansion to be totally under central control. Perhaps surprisingly, Hong Kong stores opened under corporate ownership in 1988 and expanded rapidly until the economic crisis in the region in the late 1990s, although this expansion was not without its problems (Jackson 1998). The nal strand of the international activity has been franchise stores (Table 5). The franchise route has been used in a variety of markets over time. It evolved in the late 1980s, largely growing out of a formalization of the existing export business, and driven by a desire to control and manage standards of presentation and the wider M&S brand in selected export markets (Finlan 1992). St Michael franchise stores and shop in shop outlets were present in 16 countries by the start of the 1990s, and in Annual Reports were publicly recognized as a means of expansion in markets not deemed suitable for company Figure 2 Sales by business component (m) Note Sales here are as reported in the Annual Accounts i.e. at the prevailing exchange rates each year. Burt et al.: Retail internalization and retail failure 205 Figure 3 Prots and losses by business component (m) Note Sales here are as reported in the Annual Accounts i.e. at the prevailing exchange rates each year. Table 4 Company owned Marks and Spencer store developments: Europe and Asia Year of Number of stores Country entry 1980 1985 1990 1995 2001 France 1975 3 6 8 16 18 Belgium 1975 1 2 2 3 4 Ireland 1979 1 1 3 3 4 Spain a 1990 1 5 10 Netherlands 1991 2 2 Germany 1996 2 Luxembourg ? 1 Portugal b 2000 2 Hong Kong 1988 3 7 12 Total 5 9 17 36 55 Notes (a): The Spanish operation appears to have begun as a franchise, but was then converted into a joint venture with Corteel (80 percent M&S), who were themselves bought out by M&S in April 1999 for 6.2m. (b): Portugal was a franchise operation but this was closed in 1999, with a smaller number of company owned stores opening in 2000. Source: Annual Reports and Accounts 206 The International Review of Retail, Distribution and Consumer Research owned stores in the mid 1990s (effectively non-core Western Europe). The stores are typically much smaller than the UK stores and the colonial base of some of the export business is easy to identify. Some stores have been branded M&S, others St Michael. As with all franchise arrangements, this venture was supposedly geared at utilizing local expertize. There have been outright suc- cesses (e.g. Greece) and failures (e.g. Austria), but in many countries this is not a large operation, nor one with huge growth potential (Table 5). In line with existing academic thought, it might be argued that franchising has been used for the more remote (from the UK) parts of the world (e.g. Indonesia and Thailand). However, as Hong Kong was set up as a company operation and there have been European franchises, the strategic reality is more mixed. It is also clear that the choice of partner in each country and the ambition levels of, and for, each partner are mixed. There have been problems in a number of countries, necessitating closure of stores or even temporary or permanent market exit. The Portuguese franchise agreement was terminated in 1999 after a range of problems, including nancing and standards of the stores. Israel and Turkey are other countries where the partner has changed. Austria has closed completely. Choice of partner and maintenance of standards are key franchising issues. Some partners have multiple countries to run e.g. Al-Futtaim Sons in the Middle East and Robinsons in Singapore and Malaysia. Other agreements are joint ventures set up to manage a franchise. Hungary is run by an Austrian/ Hungarian partnership, whilst Romania is operated by a partnership of the existing Greek and Turkish M&S franchisees. The details of the franchise agreements are not revealed in Table 5, but obviously affect performance and thus market exit. The number of franchises that have changed hands or failed to grow is quite striking. This could be due to problems in the franchise partners business generally, their ability as a retailer to understand the local market and to select appropriate M&S product ranges, the use of varying formats within countries or other essentially internal country- based reasons. On the other hand, questions could be raised as to the contract from M&S in terms of length of time (and thus rate of return), pricing of products at supply and thus consumer levels, availability of supply and other restrictions on activities. Problems in these areas together make it very difcult to develop franchises protability and thus have led directly to store closures and market withdrawals. It is perhaps signicant in this regard that the most successful M&S franchise, Marinopoulos, seems to have disregarded many of the standard M&S franchise restrictions. A full consideration of such operational and control issues is beyond the scope of this paper. It is sufcient here to note the impact such issues have on entry, performance and withdrawal (Quinn and Doherty 2000). Table 6 summarizes the exit strategies followed by M&S. The table shows that there have been a range of both entry and exit strategies used, and that there are relationships between them, in that an exit decision can lead to a new entry mode. The table also suggests that there are issues about the level of exit e.g. store or country. It is also suggested that there are different reasons behind the different exit strategies reported here, and that whilst some of them are economic in nature, not all of them can be seen in this way. It would seem that there are linkages between modes of entry and entry decisions and subsequent exit decisions, but it is not believed that one is simply a mirror image of the Burt et al.: Retail internalization and retail failure 207 Table 5 Franchise store operations Country Partner Entry Exit Number of stores 1994 1997 2001 Note Abu-Dhabi (UAE) Al-Futtaim Sons 1998 1 Austria Thomas Feldman then (1998) Al-Wazzan 1994 2000 2 3 (a) Bahamas Archie Brown 5 5 1 (b) Bahrain Al-Futtaim Sons 1998 1 Bermuda Tess Ltd 1992 1 1 1 Canary Islands Galloway Ltd (Tenerife) and Confecciones Martel (GC) by 1988 3 3 5 (c) Channel Islands Le Riche (J) and Creaseys (G) by 1988 7 4 4 (c) Croatia Al-Wazzan then (2000) Marinopoulos 2000 1 Cyprus Voice la Mode and Symeonides Fashion House Ltd by 1988 9 8 8 (c) Czech Republic COMS 1996 1 3 Dubai (UAE) Al-Futtaim Sons 1998 1 Finland OY Stockmann AB by 1992 5 6 Gibraltar York Ltd by 1988 1 1 1 Greece Marinopoulos by 1988 7 9 14 (d) Hungary JV between Demexco (Vienna) and S. Modell (Hungary) 1988 2 2 4 Indonesia PT Maikelindo 1992 5 5 8 Israel MSIF (Blue Square) then (1996/1999) Golf Kitan by 1991 8 7 7 Kuwait Al-Futtaim Sons 1998 1 Malaysia Robinsons 1996 2 2 3 Malta Supermarkets (1960) Ltd by 1988 3 2 3 Norway Brynild Salg AS 1988 1996 1 Philippines Rustans (Stores Specialists Inc.) 6 7 9 Poland MSF Polska 1999 1 Portugal CRB 1988 1999 4 6 (e) Qatar Al-Futtaim Sons 1998 1 Romania JV between Marinopoulos and FIBA 2000 1 Singapore Robinsons 1992? 7 7 6 South Korea D&S Ltd (Dae Sung) 1997 5 Spain Corteel 1988 1990 (f) Thailand Central Group (Suvimol) 1993 2 6 10 208 The International Review of Retail, Distribution and Consumer Research other, or that our understanding of internationalization entry can simply transfer over to internationalization exit. M&S: understanding internationalization and de-internationalization The discussion above has described the components of international activity (entry and exit). This section attempts to understand this described process by examining themes in this internationalization. One of the key themes in retail internationalization is the motivation of businesses and the direction of retail activity. The motivation for the purchase of the Canadian chains has primarily been ascribed to a set of circumstances and factors in Britain at the time (see Whitehead 1992). To understand the expansion into Canada, the political and economic situation of the time, as well as the interests of the Marks and Spencer founding families has to be considered. From prior to 1939, much of the family fortune was invested within the UK, but also in South Africa in the Woolworths (SA) organization run by the Sussman family (grandchildren of Michael Marks). Indeed, from 1947 there has been a formal agreement between the two companies on matters of management know-how and technological transfer, as well as an agreement not to trade against each other in Africa and the Middle East (Gerdis 1999). Because of the growing Table 5 Continued Country Partner Entry Exit Number of stores 1994 1997 2001 Note Turkey Turk Petrol Holdings, then FIBA (1999) 1995 2 12 Total franchise stores 76 85 118 Total countries 18 20 27 (g) Note (a): Austria did have four stores in 2000, but trading difculties saw them close; (b): Bahamas are not included in the company list as at June 2001 so could be closed; (c): In each of these countries there are two partners with separate spatial agreements; (d): The company list of June 2001 claims 28 franchise outlets in Greece. We believe this is achieved by adding in-store operations; (e): The 5 stores of the Portuguese franchise (CRB) were closed in 1999 when M&S severed the relationship. M&S subsequently reopened two stores as company stores; (f): Spanish franchise became a joint venture with Corteel; (g): Other countries have often appeared in the media as possible targets or even with agreed deals for Marks and Spencer franchises e.g. Russia, Japan. However the truth behind these reports is hard to ascertain and they appear to be incorrect. In the Annual Reports for the late 1980s, the company mentions franchises in Denmark and Sweden, but it is understood that this was not an accurate description of the activity. More accurately, a deal for a franchise in Australia was concluded with Just Jeans in 1997, but was delayed indenitely in 1998. Most recently, franchises have been announced for India (with the Hong Kong owned Planet Sports 08/2001) and Saudi Arabia (Al Farida 09/2001). Source: Annual Reports and Accounts (all years), company web site (2001), reports obtained via Lexis-Nexis, interviews and personal communications. Burt et al.: Retail internalization and retail failure 209 condemnation of the Apartheid regime in South Africa, many businesses were withdrawing their funds. At the same time, the UK Labour government of the 1960s had made noises about extending nationalization into retailing. Chains such as M&S viewed themselves as possible targets in the future. These two issues resulted in investment in Canada, where the Chair and CEO of Walkers, Abraham Gold, was well known to the M&S families. Entry therefore may not have been for the most positive of reasons. Unfortunately however, Canada was not a successful retail venture (Figures 2 and 3). Supply chain problems were never properly addressed, nor were the Table 6 Marks and Spencer internationalization exit Mode of international activity Exit methods Example Possible reason for exit Export business (undated origins) Allowed to decline NAAFI Declining market Crisis withdrawal Nigeria Risk evaluation Transformed into franchises Philippines Market opportunity Transformed into company stores Hong Kong Market opportunity Corporate purchases (1972, 1988) Partial sell-off Canada Business restructuring to attempt turn-around Close down Canada Failure to make returns of investment Total sell-off USA Failure to make sufcient returns, business t, raise money Franchises (1987 onwards) Agreements not renewed Israel Franchise performance Trading decline leading to partial closure Singapore Economic view of store performance Trading decline leading to full closure Austria Franchisee withdrew due to losses Converted to joint venture Spain Market opportunity, to improve corporate returns Converted to company stores Portugal Franchisee performance unacceptable Company stores (1975 onwards) Closure of selected stores Germany Economic view of store performance Sold-off France Stores not protable, buyer available Converted to franchise Hong Kong To save corporate management effort Closed down Belgium No buyer for stores deemed to be unprotable Joint ventures (1990 onwards) Converted to company stores Spain To maximize returns centrally Sources: Annual Reports and Accounts, foreign newspaper reports obtained through Lexis-Nexis 210 The International Review of Retail, Distribution and Consumer Research fundamental differences between the Canadian and the UK clothing require- ments. It would also appear that Canadians never got M&S. Its positioning in the UK market was replicated for Canada, but in a different competitive environment, its position was not seen as distinctive nor unique and the brand lacked meaning (Burt and Sparks 2002). Certainly, its merchandise did not warrant its price premium. The business model did not transfer (Evans and Cox 1997). Investment was poured into the Canadian operation throughout the 1970s and 1980s but without any real impression on the problems. Indeed, it could be argued that a reckless expansion of a bad business took place. When Lord Rayner (the rst non-family member to chair the company since the turn of the century) took over, he wished to establish the business as a true international player. The focus thus switched to the USA and resulted in the purchase of Brooks Brothers. In retrospect, this was seen as a poor buy for M&S in that the price paid was too high and the costs of turning an exclusive chain into a more generally available operation outweighed the benets. Returns were never as high as anticipated (Figures 2 and 3). One of the main parts of the deal, space for M&S stores in Campeaus malls in the USA, was never taken up. M&S in essence never were able to run and fully develop these very different chains. Whilst it could be argued that Canada and then the USA represent culturally similar situations to the UK, in fact the peculiarities of M&S (see later) made them very different. The exit strategy adopted has been to sell off assets in Canada and eventually to close down the remaining operations. In the USA, the exit is being managed through an offer to sell. Sell-off as a strategy is possible because of the distance between the chains and M&S core business. Second, the multi-dimensional approach to store internationalization does not appear to be that coherent. In essence, the business became a collection of activities with little synergy and mix. Canada had been problematic for years. There was no direction in the United States purchases and no synergy. The franchise operations were a mix of the small, colonial, developing markets and random other countries. There was seemingly no rationale in the choice of countries, or strategy in where to move next. At various times reports of M&S franchises opening in Russia, Australia, Taiwan, Japan and China amongst others have appeared in the press. The choice of franchisees seems almost haphazard, and it is unclear if the details of the franchise deal helped or hindered. In some cases it would seem that international expansion initiative has been directed more by franchisees than by M&S. Company-owned stores abroad were develop- ing slowly, with interest shifted from Europe to Hong Kong. Further, a range of branding approaches was being used. In North America the bulk of the operation did not trade as M&S, unlike in Europe. The franchises were mainly branded as St Michael. At home, the operation was struggling with recession (see Figure 1) and a switch in locational and format emphases, encompassing more off-centre and out-of-town stores and stand-alone formats. In short, the company was a collection of operations with little apparent overall strategy, other than a belief in their own business model and power. This belief was, in terms of the home market, apparently well founded until the late 1990s. However, the consequences of this pick and mix approach to the international business were all too predictable. No one element of the international business obtained the attention and direction it needed and potential synergies were not recognized Burt et al.: Retail internalization and retail failure 211 and achieved. The brand potential was never fully leveraged internationally. Purchase or entry alone seemed to be the driving factors, rather than a desire to develop the businesses. Store closures, franchise withdrawals and market exits were the all too obvious consequences. Third, M&S have always held to a belief in their way of doing things above all else. For example the well known Buy British policy, the lack of advertising and marketing, a refusal to take credit cards and a long time resistance to out-of-town developments all marked the company out as different. Mellahi et al. (2002) show how this belief created a cycle of misunderstanding of the marketplace in the UK, which reinforced the decline, once crisis hit in 1998 (see also Bevan 2001). The same holds true for the international operations. The peculiarities of the operation, as for example the long standing aversion to changing rooms and credit cards in the UK, were problems for the international operation to overcome. The reliance on the St Michael brand to hold meaning internationally created another problem. It worked in the UK, so why would it not work anywhere else? Product sourcing that was heavily based in the UK, particularly post-1996, and to a far greater extent than in competitors, damaged the company nancially through the price positions adopted and the currency uctuations caused by the steady appreciation of Sterling. At the same time, the international operations were not insulated from market property prices as in the UK, which hid the problems in Britain for some time, yet at the same time made overseas businesses look comparatively under-performing. To a considerable extent, what were perceived as strengths at home, were weaknesses abroad. In turn of course, these have now become institutional weaknesses at home as well. Finally, we can consider the current restructuring plan. Canada has already been closed, after two decades of problems and weak performance. The US chains are up for sale. The Hong Kong store business is to be converted into a franchise. With the exception of Ireland, the company stores in Europe are to be closed or sold-off as assets (there were also seven previous store closures in Germany and France a year before). This restructuring is to allow concentration on the problems of the British core chain, where modernization and market positioning are fundamental to any restructuring. Yet it is pertinent to ask just how much core management time and effort was involved in these international operations, as the evidence indicates that it was relatively little. Many of the previous idiosyncrasies of the business are to be eliminated. However, the ways in which the closure announcements were made remain the subject of French legal cases, one of which M&S recently (September 2001) won, although others remain to be decided. Whilst these legal cases have now forced M&S to sell the stores rather than close them (thus protecting jobs to some extent), they could not reverse the fundamental decision. This is not really the issue however. The closures in France illustrates one aspect of a number of issues in the process of market withdrawal. The French position is that businesses have moral and social as well as legal obligations to their employees and to the countries in which they operate. Companies who wish to cease operations have to negotiate this with the workforce, provide alternatives and pay appropriate compensation. There are thus legal ties on market exit, just as there are in some cases on market entry. In many ways, these issues are similar to many of those raised by Davies (1995) in his analysis of the effect of Trade-Related Investment Measures (TRIMs) on 212 The International Review of Retail, Distribution and Consumer Research retail internationalization. The M&S affair shows not only that the playing eld in this regard is not level within Europe, but also that such considerations affect both market entry and market exit. For international businesses, some countries offer an easier entry and exit route than others, and thus may be favoured for investment. Compare for example the furore over M&S, with the decision in 2000 by C&A to close its entire 108 store chain in Great Britain. There was no outcry, yet the job loss total was approximately the same. The closure announce- ments may have been handled differently internally by the two companies, but the overall effect remains. Far from a British or Anglo-American disregard for rights, the comparative events show that the country of origin of the retailer may be irrelevant. What are important are the legal requirements in the country of operation. This raises interesting questions about harmonization of labour and commercial laws and their applicability to international retail operations, includ- ing affecting decisions on entry and exit. Conclusions Our experience illustrates that to succeed internationally when entering mature markets, you must adapt your store formats to the competitive realities of these markets. (M&S Annual Report 2001: 12) Why did the internationalization activity of M&S fail? With hindsight, it might be said that there are a number of inter-connecting reasons. First, there has been no overall internationalization strategy. Some of the activities have been seren- dipitous; some were probably misguided. But the range of activities and the incoherence amongst them, tends to point to a lack of direction over a long period. This is a management failure. There were global ambitions for the business, as evidenced in the Quality, Value, Service, worldwide promotional line of the mid 1990s, but no real commitment to converting these ambitions into something concrete. Second, many of the elements that made M&S successful in the UK, did not apply in the global arena. The long-sustained buy- British policy, the peculiarities of the retail operation, the emphasis on a British brand alone and the lack of clear retail positioning and design, all presented problems in the global situation. This suggests that in addition to entry, there should be concern with activities after establishment. Third, despite the length of time in international activities, there was no experience of decentralized control of businesses and the systems needed to develop these businesses. Values in the companies taken over were not enhanced. Arguably M&S never really understood what they had bought, as it was so different to their own operation. When the crisis hit at home, the reaction was quickly to distance themselves from this global operation. If it had really worked, then this international dimension could have been a source of strength in times of crisis. In short, the failure of the international operation falls at the feet of successive M&S management teams. This study lends more credence to the OS perspective discussed earlier than to the IO perspective. The international failure of M&S was not a product of external constraints alone. M&S management often had a genuine choice to Burt et al.: Retail internalization and retail failure 213 enter and exit international markets. Management had the ability to choose where, when and how to enter international markets and when, where and how to exit from them. The argument that rms withdraw for rational economic objectives alone provides only a crude indication to why rms fail internationally. It is suggested that the issue of who makes such choices needs to be examined in more detail when studying international failure. So, what else does this case say about the literature on failure and inter- nationalization? Four key issues can be suggested here. First, it would seem that there may be differences between crisis and failure at home and abroad. Marks and Spencer had crises abroad over a long period of time, but whilst they affected in some way the parent operation, they could not be said to be business threatening. This suggests that in companies that are multi-national in their activities, crises differ in their degree and their importance. Whilst self-evident to some extent, it does argue that failure needs to be looked at in businesses at various scales, including both organizational and spatial scales. International failure may be caused by failure at home rather than operational failure in the overseas market. It might be argued that if M&S had not suffered such a crisis at home, then their poor international performance would have been less visible or problematic. However, in this more global retail market place and with continuous analysis of companies, it is more likely that their continued problems abroad would have impacted on the market view of the potential for the business in due course. This paper would also argue that the case demonstrates clearly that models of internationalization focusing on growth patterns and development alone are inadequate. Whilst there are some links to concepts of expertize in international activity, this failure case shows that it is necessary to understand how and why failures in internationalization occur in order to fully conceptualize the changing retail internationalization world. Studying only the market entry of Marks and Spencer is simply inadequate. Internationalization studies need to consider market entry failure or withdrawal in terms of issues of corporate management, market issues themselves and business method issues. Also it might be useful to add to these issues which have not been covered in detail here, such as the closure of other non-shop based activities such as buying ofces, and the movement of stores at locational levels within countries e.g. the urban hierarchy and micro-locations. At the moment, retail internationalization theory would seem to be covering only one part of the internationalization story. Third, the case also raises the issue of what is meant by failure in inter- nationalization. M&S have changed and altered their international activities, swapping modes of operation and indeed withdrawing from some activities, locations and countries. Franchise partners have failed, but the international activity has continued. There are elements of closure, failure, exit and divest- ment as well as complicated activity switching. Our lexicon to describe, understand and conceptualize this is insufciently developed. Finally, there is a specic issue raised by the M&S case in this regard. Marks and Spencer have announced a radical restructuring plan as detailed earlier. This plan abandons much of the international activity to concentrate on the UK. Part of this plan provides for a major dividend reimbursement to shareholders on completion of property and closure activities. Leaving aside questions of which stores in continental Europe may or may not make prots (as the data are not 214 The International Review of Retail, Distribution and Consumer Research really available), it does seem that much of this plan is driven by the need to satisfy institutional shareholders and the London Stock Exchange, who saw their investments in the company decline massively in value. Financial imperatives may be dictating the scope of the restructuring of the international activity (they seem to have succeeded to date in this regard as the share price has risen sharply since the depth of the crisis, though it remains at a level half its peak some years ago). The case study of M&Ss internationalization experiences has demonstrated that any account of retailing development has to include issues of inter- nationalization and failure. Their story is one that is relatively common, yet under-reported and under-researched in the literature. Perhaps this case study can be the start of a fuller study of these issues and begin the process of conceptualizing all international retail activities. Acknowledgements The authors thank the referees for their useful and helpful comments, as well as others who read some or all of the manuscript and gave advice generally or on points of detail. 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