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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
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
192 The International Review of Retail, Distribution and Consumer Research
Retail internationalization
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
de ned. 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 de nitional
Burt et al.: Retail internalization and retail failure 197
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 speci c 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
pro le 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 inef ciency. 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
198 The International Review of Retail, Distribution and Consumer Research
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 in uence 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
Burt et al.: Retail internalization and retail failure 199
(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 green eld) 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, de ning
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 de nitional, conceptual and level of analysis dif culties that
need to be clari ed 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 pro t 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 of cers (Bookbinder 1989,
1993; Goldenberg 1989) provide more than enough detail. In addition there are
detailed (Bird and Witherick 1986) and more super cial (Davies 1999) academic
attempts at exploring aspects of the companys development. Others have
focused on speci c 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
200 The International Review of Retail, Distribution and Consumer Research
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 pro t 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 dif culties (Goodman 2000; Bevan 2001; Mellahi et al. 2002). By 2000,
(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
Burt et al.: Retail internalization and retail failure 203
Direct exports
Year Total 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
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
204 The International Review of Retail, Distribution and Consumer Research
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
bene cial, 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 re ecting
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
pro table 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 pro table and broadly successful. Exit re ects 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
Burt et al.: Retail internalization and retail failure 205
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
206 The International Review of Retail, Distribution and Consumer Research
Table 4 Company owned Marks and Spencer store developments: Europe and Asia
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 dif cult
to develop franchises pro tability and thus have led directly to store closures and
market withdrawals. It is perhaps signi cant 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 suf cient 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
208 The International Review of Retail, Distribution and Consumer Research
Table 5 Continued
Number of stores
Country Partner Entry Exit 1994 1997 2001 Note
Turkey Turk Petrol 1995 2 12
Holdings, then FIBA
(1999)
Total franchise 76 85 118
stores
Total countries 18 20 27 (g)
Note
(a): Austria did have four stores in 2000, but trading dif culties 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 Corte el; (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 inde nitely 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.
Mode of
international
activity Exit methods Example Possible reason for exit
Export business Allowed to decline NAAFI Declining market
(undated origins)
Crisis withdrawal Nigeria Risk evaluation
Transformed into Philippines Market opportunity
franchises
Transformed into Hong Kong Market opportunity
company stores
Corporate Partial sell-off Canada Business restructuring to
purchases (1972, attempt turn-around
1988)
Close down Canada Failure to make returns of
investment
Total sell-off USA Failure to make suf cient
returns, business t, raise
money
Franchises (1987 Agreements not Israel Franchise performance
onwards) renewed
Trading decline Singapore Economic view of store
leading to partial performance
closure
Trading decline Austria Franchisee withdrew due
leading to full to losses
closure
Converted to joint Spain Market opportunity, to
venture improve corporate returns
Converted to Portugal Franchisee performance
company stores unacceptable
Company stores Closure of selected Germany Economic view of store
(1975 onwards) stores performance
Sold-off France Stores not pro table,
buyer available
Converted to Hong Kong To save corporate
franchise management effort
Closed down Belgium No buyer for stores
deemed to be unpro table
Joint ventures Converted to Spain To maximize returns
(1990 onwards) company stores centrally
Sources: Annual Reports and Accounts, foreign newspaper reports obtained through
Lexis-Nexis
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
Burt et al.: Retail internalization and retail failure 213
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
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
214 The International Review of Retail, Distribution and Consumer Research
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 of ces, 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 insuf ciently developed.
Finally, there is a speci c 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 pro ts (as the data are not
Burt et al.: Retail internalization and retail failure 215
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.
Helpful information about commercial aspects of the franchise relationships was also
received from a number of individuals who must remain anonymous.
References