The rise of Amazon and online shopping has left analysts wondering about the future of physical retail. Retailers Home Depot, Macy's, Sears and Target have all reported disappointing operating results this year as they scramble to figure out how to keep customers who are more willing to stay home and order online.
But American retailers are expanding overseas faster than those in any other country, making up 21% of retailers entering international cities, CNBC reported.
Much of the move overseas is coming from pressured retailers seeking new avenues of growth, though it is risky. But as American goods and services become more accepted overseas, thanks to globalization, it presents huge opportunities for companies.
American culture dominates the world. Foreigners who have never visited a McDonald's, Starbucks (SBUX) - Get Report or Walmart (WMT) - Get Report still know about these businesses, thanks to the ubiquity of American culture.
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This can be both good and bad.
On one hand, American retailers carry the advantage of brand. Consequently, these chains can have an easier time marketing themselves.
The catch is that retailers need to balance the desire to offer something unique and the need to cater to the local culture. It is nice to be exotic, and a business can survive with that strategy.
But true growth comes when the local culture doesn't view a foreign business as foreign or exotic but just as another business that can provide it with what consumers want.
Look at Starbucks in Italy. Starbucks, whose drinks are based on Italian-style coffee, is slated to open its first café in Italy early next year.
Starbucks needs to expand and find ways to grow after a disappointing fiscal second-quarter earnings report that saw weaker-than-expected same-store sales growth. The stock has tumbled more than 10% from its April high, which has necessitated changes and a drive for expansion.
But to expand in Italy seems insane. Italy may be the most discerning coffee country in the world, and Italians often go to coffee bars multiple times per day to grab an excellent espresso for just a euro.
How can Starbucks sell inferior coffee at a much higher price, especially when many Italians will balk at the idea of buying a cup from a big corporation?
The answer is that Starbucks really isn't selling coffee. What Starbucks sells is a space for people to get together in a quiet environment, have free Internet, work on projects and not be bothered by strangers.
And as Wired pointed out, Italian cafes are the complete opposite, with people often drinking coffee standing up.
Starbucks may or may not succeed in Italy, but Walmart has actually succeeded in global expansion after some initial bumps, and its stock has remained stable at about $70 over the past year even while other retailers have fallen hard. Much of this can be attributed to successful overseas expansion.
Most retail expansion has been in Asia and Costa Rica. This makes sense, given rising consumer demand in Asia and a lack of mature retail chains.
But Walmart's initial efforts to expand in Japan and South Korea ran into serious issues.
Although Walmart did make an effort to cater to local cultures, such as being more discerning about its fish, the retailer ran into several problems that it couldn't resolve. For example, Japanese people are generally suspicious of low-priced goods because that means lower quality to them.
But since these earlier failures, Walmart has adjusted its strategy, aggressively partnering with local suppliers.
Walmart has more than 6,000 stores overseas, compared with more than 4,000 in the United States.
Although it has failed in other countries such as Germany and Russia, Walmart is having better success targeting stores in Latin America, especially in Brazil. Rather than building new stores, Walmart is focusing on acquiring new ones that help it integrate with the local culture.
Overseas expansion is a difficult challenge during the best of times.
Numerous successful American companies have experienced trouble working overseas. They became merely exotic, interesting places at best and then failed when interest dried up.
But despite these failures, retail investors should be interested in companies that demonstrate a strong commitment to overseas expansion. The alternative for many physical retailers is to wait and watch their businesses dry up as more and more consumers turn to online shopping.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.