For Brands and Retailers Expanding Abroad, It’s a Wild World

Gyrations and unexpected hiccups abound

Author: Andria Cheng

July 31, 2017

Plenty of US retailers and brands are looking overseas for growth. And plenty are finding unexpected obstacles and tripwires along with opportunity.

Consider toymaker Hasbro. The maker of Transformers action figures and Monopoly board games said in its most recent earnings call that the company’s near-term international sales and operating profit have been hurt by “challenging macroeconomic issues impacting both consumers and retailers” in the UK and Brazil. That’s despite the fact that Hasbro has seen rising demand in markets from the US and Canada to China and Russia.

Hasbro, which generated more than two-fifths of its 2016 sales from the international segment, said its full-year outlook for the unit is positive even though it expects both countries will “face challenges going forward,” CEO Brian Goldner said on the call.

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Brazil’s economy, the largest in Latin America, recently suffered through its worst recession on record, although it showed a little life in the first quarter of 2017, growing 1% from the fourth quarter. Euromonitor said in a report this year that it expects Brazil’s consumer spending growth will remain weak through 2030, and it doesn’t expect the average household income in the country to overtake its 2014 level before 2025.

Meanwhile, in the UK, the 2016 Brexit vote has not only hurt the value of the pound, but it also has been tied to indications of weakening consumer spending. Appliance maker Whirlpool cut its profit forecast late last year and posted worse-than-expected Q4 results in January because of lower UK demand following Brexit. The company said in its recent Q2 earnings call that sales excluding currency impact in the Europe, Middle East and Africa region dropped 5% because of “continued demand weakness in the UK.”

UK and Brazil are just part of the international puzzles that have affected some US brands’ results. Geopolitical instability and increased local and regional competition have forced US and other global retailers to rethink their international expansion strategies, according to global strategy and management consulting firm A.T. Kearney’s 2017 Global Retail Development Index report.

Its study showed that many global retailers have taken a pause this year to re-examine their store networks, formats and logistics. For example, A.T. Kearney noted that Brazil saw more stores closing than opening in 2016 for the first time in recent history, with Walmart closing more than 60 stores there and others such as Kate Spade shutting the few stores they had in the country.

“Some emerging markets’ profiles have shifted for economic or political reasons, and retailers are holding back from entering, for example, Turkey or Russia, which were more popular destinations in the past,” Hana Ben-Shabat, a partner in the retail and consumer practice of A.T. Kearney, said in an email interview. “During the last year, we observed a major slowdown in entries into new markets.”

As US Congress recently passed a new sanctions bill against Russia, Ben-Shabat said political risk is a variable that could also lower retail attractiveness.

McDonald’s, a company with a huge international portfolio, calls Russia a challenge. “Between the sanctions, very high inflation, challenging currency, consumer spending is significantly down,” McDonald’s CFO Kevin Ozan said in a June RBC conference.

And results at soft drink giant Coca-Cola point up the complexities of global diversification. While some of Coca-Cola’s larger markets like China and Nigeria are expected to see stronger growth this year, most of Latin America, including Brazil, Argentina and Venezuela, remains a difficult operating environment for consumer products companies, CEO James Quincey said on the company’s Q2 call. Meanwhile, in India, new tax and other policies in the country have resulted in near-term uncertainty for retailers and consumers that hurt the beverage industry there in the first half, he said.

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“There are still regions around the world experiencing political instability and some challenging economic conditions,” Quincey said.