As Target’s recent withdraw from the Canadian market showed, sometimes a successful business can’t cut it in a foreign market. To Target, its guns-blazing, self-proclaimed gift from the heavens approach to Canada probably felt right.
Unfortunately after less than two years of blunders, billions of dollars lost and another six years to go before profitability, the brand announced it was ending its foray into Canada, liquidating 133 stores and laying off more than 17,000 employees.
Call it culture shock, call it poor timing, but either way, some business plays look rosy on paper but in practice fail to stick. Target isn’t the first company that saw immense success at home but got shunned abroad. In an effort to learn from the mistakes of others, we took a look at seven of the biggest foreign flops and the reasons why they failed to woo consumers elsewhere.
Home Depot fails to inspire the DIY movement in China
With the Chinese economy in the midst of a growth spurt and the housing market following suit, 2006 seemed liked a good year for U.S.-headquartered DIY giant Home Depot to dip its toes into the market. It was until they’d opened 12 stores that they realized the Chinese didn’t really like to do it themselves. Unlike the Western world where renovating your home is considered a bit of a hobby, developing countries have a tendency to see DIY as a sign of poverty. By 2012, Home Depot had shuttered its stores and taken a US$160 million after-tax hit in the process. File under, needs improvement.
Walmart creeps out the Germans
Like Home Depot, U.S. big box retailer Walmart failed to take into account cultural nuances – in particular personal space – when it opened up shop in Germany in 1997. The chain opened 85 stores in an attempt to tap into the frugal country’s lucrative discount department market. But with intricate labour laws, restricted business hours and rows upon rows of regulatory red tape, the market was harder to crack than the American retail giant anticipated. The icing on the cake – customers were a tad bit freaked out by Walmart greeters and their propensity to bag customers groceries for them, both unusual practices in Germany. In 2006, Walmart pulled out, at a cost of US$1 billion.
Starbucks too hot (and expensive) for Australia
Massive U.S. coffee chain Starbucks ended up with a ton of melted iced machiattos when it tried to push into Australia in 2000. Much like Target’s failed leap to the Canadian market, Starbucks went down under with similar naïveté – Aussies act the same as Americans so why wouldn’t their coffee drinking habits be the same? Unfortunately, the local movement dominates the Australian coffee market and for those prone to visiting chains, Starbucks proved to be too expensive. But the slow burn didn’t set in until 2008 when the caffeine peddler suddenly closed 61 stores to the tune of a reported $143 million loss. Starbucks kept the faith until 2014 when it handed over the remaining 24 shops to the Withers Group, which operates the 7-11 chain in Australia.
Best Buy too big for its britches in the U.K.
Best Buy entered the UK market in 2010, buying up a 50 per cent stake in UK mobile phone company Carphone Warehouse for $1.3 billion. The goal, which was initially to launch 200 stores, was revised to 100 stores but didn’t even get that far. By late 2011, the big box electronic retailer announced it was closing the lackluster 11 stores it had managed to open during the run. The reason? Despite keeping an eye on strategic acquisitions for years before making the Carphone Warehouse play, Best Buy chose the apex of the worst economic decline in recent history to open up shop. The whole bungled affair was estimated to have cost the company around US$318 million.
Hailo gives up in North America
Unlike Walmart or Home Depot, it took London, U.K.-based taxi finding app Hailo less than a year and a half to decide it wasn’t up for a rumble with entrenched competitors Uber and Lyft – both peer to peer, ride-sharing networks powered by apps. Despite getting around US$77 million in investment from high profile venture capital groups like Atomico and Union Square Venture, Hailo didn’t see much point in trying to compete in the price war between Uber and Lyft when it’s doing just fine in Europe with nearly two and a half million registered passengers and 2013 revenues of US$100 million. The company pulled out in October 2014, shutting its operations in Washington, Chicago, Boston, Toronto and Montreal.
Mattel misses playtime in China
It’s clear the Chinese are a tough consumer for Western retailers to entice. In March 2009, Mattel hoped to hawk its skinny fashionista Barbie to the kids of China. The goal – build a giant 36,000-square-foot Barbie stronghold with six floors, a staircase lined with 875 Barbies and a Barbie-themed bar in the midst of Shanghai’s flashy retail district. Unfortunately, Mattel didn’t study its market enough. In a culture that stresses skill building and educational toys, Barbie was seen as a bit of a distraction. Within two years the behemoth of a store was closed. But it’s worth noting that Mattel has been tirelessly educating itself on the Eastern market and is slowly making another play. This time, might we recommend Entrepreneur Barbie?
Tesco fails to whet U.S. appetite
For U.K.-based grocery chain, convincing American consumers to shop at its Fresh & Easy seemed like a done deal. And a few years earlier, the brand could have found success selling its fresh supermarket meals to the growing local and organic consumer base. But Tesco’s Fresh & Easy opened the doors in 2007, on the edge of a recessionary cliff when American consumers appetite for food spending was heading south. Five years later, Tesco announced it was abandoning its American dream and closing its nearly 200 stores on the west coast. The failure cost the British chain nearly US$1.8 billion.
There’s a moral somewhere in there, but if you ask the c-suite you’re sure to get a mixed bag of responses. Some models just don’t work. The truth is, when building out international operations it’s a delicate balance of timing and understanding the cultural nuances. Get it wrong, and it may cost you more than a little humiliation and a pile of cash.
History has shown that good ideas fail all the time, and when expanding into unknown waters, businesses need to be all the more careful.
