THE CHALLENGES OF INTERNATIONAL LOCATION

BunningsBunnings owner Wesfarmers may buy a DIY chain in the UK. Photo: Patrick Scala

It has been announced that a change of scenery and weather is on the cards for Australian hardware giant Bunnings. It has purchased UK home improvement and garden retailer Homebase with the intention of rebranding its 265 stores as Bunnings.

Till now Bunnings has been enjoying near cloudless success in their operations in Australia. It is click-and-mortar business (Kotler 2012), offering retail purchases from its multitude of well-positioned ‘housing development areas’ retail stores and online. It has superior logistical and IT systems, buying power to negotiate best deals with its suppliers and it delivers an enormous range of products to thousands of customers. Basically, it is a category killer (judging by recent Masters’ failure) (Kotler 2012).

However, business success in one country does not guarantee success in a different geographical location.

It is fascinating that in times of easily available information, large reputable companies with known brands, abundance of resources and experience do still fail with their international expansion ventures.

Take Target’s expansion into Canada, for example. Target is the second largest general merchandising retail player in the USA.

Target

Only two years after entering Canada with a net loss of more than $2 billion in 2015, Target has announced that they are closing 133 of their Canadian stores.

So what did Target do wrong?

Effective and efficient supply chain is crucial to insure business success.

Empty shelves

Target’s supply chain issues were major contributors to the failure. Target introduced a new inventory tracking system, untested and unfamiliar. This prevented their warehouses and retail stores from communicating effectively and created an ‘empty shelves crisis’ for the company.

 

Additionally, the company failed to learn their customers. They just assumed that Canadian customers will have the same shopping habits and preferences as their customer base in USA. Wrong! Canadians have not taken to the one-stop shopping concept very well.

Target’s expansion plan was excessively aggressive with 124 stores opening within 10 months. With inadequate preparation for the opening, the entry was a disappointment for customers.

Choice of location was another issue for the expanding US giant. An overwhelming majority of Target Canada stores were taking over leases from Zellers retail chain. Unfortunately, many Zellers locations were not ideal: some in run-down shopping centres, some difficult to access and with insufficient space.

Product selection was not as wide as their offerings in USA and prices were high. That disappointed the Canadian customers who were familiar with US Target stores.

While focusing on opening over a hundred stores in the country, Target failed to introduce online shopping in Canada. In era of e-commerce, internet presence is absolutely crucial as the customers are accustomed to various shopping options.

In total, the rushed aggressive entry, paired with inferior locations, supply chain failures and absence of an online shopping option doomed Target into retreat from Canada.

Bunnings should see the Target Canada case as a cautionary tale. Building customer intelligence in a new location and a well thought through expansion plan would be crucial to global success.

Bunnings’ expansion is not without risk considering that the UK market is more competitive with lower margins. The home improvement space is dominated by B&Q chain owned by Kingfisher PLC. The UK home improvement market is also culturally different from Australia: residential spaces are smaller on average and home owners have a culture of ‘do it for me’, rather than DIY. Nevertheless, the strategy of slow entry with carefully chosen locations, established global supply chain and targeting ‘tradies’ positioning might just work for Bunnings UK.

 

References:

Kotler, P & Keller, KL 2012, Marketing management, Upper Saddle River, N.J.: Prentice Hall.

Posted by Katerina King, ID: 214229162 (WordPress name: kkin108)

 

 

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