Once Fearful, U.S. Retailers Head Overseas In Search of Growth : Retailing: Domestic competition is driving the new global strategy, but language and customs can be hurdles.

Starved for a burger in Malaysia? Try the local McDonald’s. Want a carton of milk or a rice ball in Japan? Stop by 7-Eleven. Looking for a Barbie doll in West Germany? Head for Toys R Us.

A handful of big-name American retailers have, for years, pushed their well-known trademarks into promising overseas markets. For just as long, though, most U.S. merchants were cool to the idea, partly because there was so much business on American soil.

Now the migration abroad is gaining momentum. More American retailers, less fearful of the daunting hazards of international business, are expanding, launching or at least considering outlets abroad, particularly in English-speaking countries and Japan.

Two key reasons, experts say, are stiff competition and the dwindling number of good locations for new stores in this country. Slow population growth in parts of the United States also plays a role.

“For many retailers to grow, they’re going to have to go off-shore,” said Clark A. Johnson, chairman of the Pier 1 Imports chain.

Added McDonald’s spokesman Chuck Ebeling: “The growth potential outside the U.S. is almost infinite.”

American firms with international cachet are also being drawn abroad by foreign investors. Among them are such upscale clothiers as New York’s Barneys and Charivari, which have teamed with Japanese partners. And Saks Fifth Avenue was auctioned last month to a Mideast investment group that said it wants to expand the chain internationally.

Much more of the increased foreign activity involves U.S. franchising companies. While giants such as McDonald’s continue to expand aggressively, their ranks overseas are being joined by smaller franchisers including Woodland Hills-based California Closet Co. and Irvine-based Mr. Miniblind.

Still, the flow of U.S. stores into foreign markets is more of a trickle than a flood. For instance, according to the most recent statistics compiled by the International Franchise Assn., only 374 of the estimated 2,500 to 3,000 U.S. franchising companies have ventured outside this country. Many merchants are wary of the considerable risks and mindful of how Sears, Roebuck & Co. and J.C. Penney encountered problems and sold off some European and Latin American stores in the 1970s and 1980s.

Consumer products companies such as Coca-Cola have been way ahead of U.S. retailers in going overseas, mainly because they deal with the public through distributors and other intermediaries who are familiar with local customs and tastes. Retailers face the trickier task of dealing directly with fickle consumers.

“It’s easier to export an individual product than a whole ball game,” said Michael Gould, president of the fragrance maker and retailer Giorgio Beverly Hills.

Apparently for similar reasons, not many foreign retailers have come to these shores, aside from such notable exceptions as Benetton, which sells apparel, and Gucci, the luxury goods firm.

“The Europeans haven’t made major inroads. It’s just little boutiques,” said Neil Thall, an executive with the consultants Kurt Salmon Associates.

Like many other U.S. retailers, Johnson, who directed the Wickes home improvement stores in Western Europe in the early 1970s, said he isn’t interested in taking Pier 1 overseas until the home furnishings company exhausts its opportunities domestically.

There are good reasons for that posture: U.S. merchants face formidable obstacles overseas. Many worry about restrictions on exchanging currency and pulling out profits, along with foreign taxes.

Clothing retailers must adjust to foreign sizes, styles and quality preferences. In Western Europe, for example, dry cleaning is very expensive, so shoppers tend to buy goods that require less care. J.C. Penney bombed in Belgium because it relied on American merchandise, said Walter Loeb, a New York retailing consultant.

Store owners sometimes are hard-pressed to acquire good locations because of high real estate costs. In addition, companies accustomed to big U.S. stores that attract customers who drive from miles away can be stymied overseas by bad roads and the lack of freeways.

Retailers who need to buy supplies in their new overseas markets often must deal with multi-tiered, old-boy distribution networks. “It’s the biggest shock that American retailers have when they go overseas,” said Pier 1’s Johnson.

These distribution networks are a particularly stiff barrier for supermarket operators and discounters, which operate on low profit margins and need to buy supplies as cheaply as possible.

Retailers are hampered by other restrictions that generally don’t exist here. In West Germany, shops generally close for the weekend on Saturday afternoon. Japan has locked out Toys R Us, one of the most successful international retailers, with a law giving local retail councils veto power over big new stores. Partly as a result of last month’s U.S.-Japan trade accord, the Paramus, N.J.,-based company hopes it can enter the Japanese market next year.

“In every country we’ve entered, we have had some degree of resistance,” said Robert C. Nakasone, a Toys R Us vice chairman.

By far the biggest barrier, however, is language. During negotiations with foreign partners, misunderstandings often arise, even in places where English is widely spoken.

An executive with Southland Corp., parent of the 7-Eleven chain, said he was surprised by the puzzled looks he drew from a group of English-speaking investors in Hong Kong when he touted the importance of providing convenience for customers.

Only later did he learn that, to his hosts, a “convenience” meant a restroom. (Ironically, Southland’s Japanese partner has made an offer to buy the slumping Dallas company.)

Some experts worry that too many U.S. firms, particularly budding franchise companies, are getting into the international arena without enough research.

“It’s not a matter of what works in the United States works everywhere else,” said Edward Kushell, a Los Angeles consultant and past president of the International Franchise Assn.

Even big, successful franchisers have failed in foreign ventures. The expansion-minded Long John Silver’s Seafood Shoppes chain saw its batter-fried codfish flop with the fish-loving Japanese. (“Too much of a greasy taste,” explained a company spokesman.)

Kushell said that all too often, franchise companies are prematurely drawn into overseas deals by foreign investors who offer up-front cash. The problems, he said, crop up later when the foreigners discover that the U.S. franchisers lack the training and operating know-how to support a big expansion in an unfamiliar market, raising the prospect of costly lawsuits.

In one respect, however, franchise companies are well-suited for international business. Accustomed to working with franchisees with ties to their individual markets, these companies are sometimes more flexible marketers.

McDonald’s, which has built its international reputation by serving Big Macs and french fries worldwide, also offers pasta salads in Italy, wine in France and McSpaghetti noodles in the Philippines, which resembles a popular local dish.

Non-franchise retailers usually team with local partners or with licensees that run the operations but make royalty payments to U.S. firms. Almost universally, native managers are hired to run the stores, although American advisers may be used in the early stages.

Loeb, the retailing consultant, predicts that improved computer systems that enable retailers to track sales closely at far-flung stores will encourage more companies to test overseas markets.

Still, even the U.S. retailers that are among the most experienced in foreign markets find it difficult to get started in a new country, largely because of language barriers and regulatory demands.

“It’s going to take you three or four times longer than you thought it would. . . . It takes a lot more patience than many U.S. businesses have,” said Lewis P. Maddox, a new area development manager for Southland.

Retailing experts say the companies that fare best abroad tend to have a special approach, product line or international cachet. A case in point is the jeweler Tiffany & Co., which has stores in London, Zurich, Munich and Hong Kong, along with 10 domestic outlets.

Another widely cited example is Toys R Us, which has thrived overseas largely because of its vast selection of playthings, competitive prices and its focus on one line of business, Nakasone said.

Units, an innovative women’s- and children’s-apparel chain, recently cut a partnership deal to enter Japan. Said company President Milt Schulle: “You have to have something special to sell.”

SELECTED U.S. RETAILERS IN FOREIGN MARKETS

Store: Southland (7-Eleven parent) Foreign Stores: 5,192 Foreign Markets: 18 countries Store: McDonald’s Foreign Stores: 3,498 Foreign Markets: 52 countries Store: Kentucky Fried Chicken Foreign Stores: 3,008 Foreign Markets: 58 countries including the Pacific Rim, Canada and Britain Store: Burger King Foreign Stores: 700 Foreign Markets: 35 countries including Asia, the Pacific, Canada, Europe, Latin America and the Caribbean Store: Sears, Roebuck & Co. Foreign Stores: 117* Foreign Markets: Canada, Mexico (sold stores in Belgium, Spain and Latin America in the 1970s and 1980s) Store: Toys R Us Foreign Stores: 74 Foreign Markets: Canada, Great Britain, West Germany, France and six locations in East Asia Store: The Gap Foreign Stores: 23 Foreign Markets: Great Britain, Canada Store: California Closet Co. Foreign Stores: 7 Foreign Markets: Canada (with master franchises in Japan and Australia) Store: Tiffany & Co. Foreign Stores: 4 Foreign Markets: London, Zurich, Munich and Hong Kong (also recently bought two Faraone stores in Italy) Store: Carl Karcher (Carl’s Jr.) Foreign Stores: 3 Foreign Markets: Osaka, Japan (with plans for stores in Malaysia, Singapore and Australia) Store: Mr. Miniblind Foreign Stores: 2 Foreign Markets: Tokyo (Its Japanese licensee plans to open 1,000-5,000 units.) *Includes only general merchandise stores, not catalogue sales offices.

U.S. FRANCHISERS’ FOREIGN OUTLETS

U.S.firms in Total Year foreign markets outlets 1971 156 3,365 1972 175 6,153 1973 208 9,509 1974 217 9,663 1975 222 10,964 1976 234 12,348 1977 244 14,217 1978 266 17,156 1979 275 19,449 1980 279 20,428 1981 288 21,416 1982 295 23,524 1983 305 25,682 1984 328 27,021 1985 342 30,188 1986 354 31,626 1987 NA NA 1988 374 35,046

Source: Commerce Department, International Franchise Assn.