U.S. retailers and developers are augmenting aggressive expansion efforts at home with growth strategies overseas. The goal: boost revenues and shareholder value.

Near-term international opportunities for developers seem the most promising in both Eastern and Western Europe, says Michael Kercheval, president of the International Council of Shopping Centers (ICSC), a New York-based trade organization.

Although many of these countries have highly restrictive zoning laws, large-scale projects can gain approval, especially if a developer promises to deliver a food merchant offering lower prices on everyday staples as well as an entertainment component.

One such company mixing entertainment and retail is Arlington, Va.-based Mills Corp. The mall developer has broken ground on its first international project, Madrid Xanadu in Spain. A 1.2 million sq. ft. complex modeled after the company's successful U.S. centers, including Sawgrass Mills, Potomac Mills and Gurnee Mills, Madrid Xanadu is scheduled to open next spring.

The centerpiece of Madrid Xanadu — developed as a partnership with Madrid-based real estate company Parcelatoria Gonzalo Chacon S.A. — is a first-of-its-kind Snow Dome, where visitors can enjoy snow-boarding, skiing, sledding and other alpine recreation in a winter sports complex.

The main mall structure will be anchored by El Cortes Ingles, Spain's premier department store, and will also include 200 specialty retailers, restaurants and a movie theater. In addition to European specialty store chains such as Benetton, Mills says 10% of the tenants will be U.S.-based retailers.

Although Mills has found success overseas, there is even more potential for U.S. retailers that look abroad to boost revenue. “In the next couple of years, a lot of big U.S. retailers that have continued to expand domestically are going to hit a brick wall,” says Dr. Ira Kalish, chief economist at Columbus, Ohio-based consulting firm Retail Forward. Statistics from the National Research Bureau show that retailers are approaching that wall as retail space per capita jumped from 14.7 sq. ft. in 1986 to 20 sq. ft. per capita in 2002.

Major U.S. retailers, including Gap and McDonald's, have long operated major international subsidiaries. Gap built its own portfolio of more than 650 international stores, while McDonald's has 30,000 stores outside the U.S., mostly franchise units.

By firmly planting the Stars and Stripes — especially in Europe and the United Kingdom — these U.S. retailers now share the retail landscape with ubiquitous European chains such as Marks & Spencer, W.H. Smith, Benetton and Hennes & Mauritz.

Wal-Mart Takes on the World

For Bentonville, Ark.-based Wal-Mart Stores Inc., powerhouse buying capabilities and a low-price mantra enable it to compete in virtually any market, says Mark Williams, chairman of London-based DTZ European Retail & Leisure Group, a joint venture of DTZ Staubach Tie Lueng.

In October, the discount retailer announced plans to open 120 to 130 new stores in existing international markets, which include the United Kingdom, Germany, Canada, Mexico, China, Japan, Korea, Puerto Rico, Brazil and Argentina.

According to John Menzer, president and CEO of Wal-Mart International, stores in the United Kingdom, Germany, Canada and Mexico lead the bulk of the retailer's international sales. Last year, Wal-Mart's annual international sales totaled $35.4 billion, a 10.5% increase over the previous year, Menzer said during the company's annual analyst meeting Oct. 1. The retailer generates more than 17% of its $217 billion total sales from its foreign operations, up from 5% in 1996. As of the close of business on Oct. 18, Wal-Mart (NYSE: WMT) stock closed at $56.28, down from its 52-week high of $63.94.

Wal-Mart became an international player in 1991 when it opened a Sam's Club, its wholesale retail brand, near Mexico City. Since then, its Mexican operation has continued to flourish, according to Menzer. “Our growth in Mexico will be much faster than the developed markets we are in,” he says.

In Mexico, demographics favor its general merchandise and food operations, Menzer says, especially given that 78% of the population — or 100 million people — are ages 39 or younger. “Even better,” Menzer adds, “50% of the population is 21 years old or younger and just starting to move into households and increasing their retail purchases.”

Wal-Mart's Canadian stores have experienced eight years of consecutive growth of both sales and profit since the company acquired the 122-unit Woolco chain — now Wal-Mart Canada Corp. — in November 1994.

The retailer surprised the industry when it bought Germany's 21-unit Wertkauf chain in 1998, establishing a presence in Europe's largest market. The move defied analysts' predictions that the German market was too mature, with margins too thin, sales too sluggish and space too limited to entice the discount retailer, especially when compared with the greater revenue potential of the emerging Asian markets.

When Wal-Mart entered the German market, competitors systematically lowered prices and thus vanquished Wal-Mart's low-cost advantage, explains Kalish, who is also the author of “The Age of Wal-Mart,” a report exploring the company's growth strategies. And, as in the U.S., Wal-Mart found dealings with worker unions to be difficult.

In addition, the biggest obstacle in Germany's retail market is the government, which is very protective of small retailers and enforces strict regulations, says Kalish. Nonetheless, Wal-Mart is committed to Germany, he says. “You're talking about an affluent country with 80 million people. They're not about to give up.”

There also are clear opportunities for the well-oiled Wal-Mart machine in Japan because of that country's inefficient retail structure, says Kalish. Consumers, dissatisfied with traditional Japanese-style retailing and its high prices, are open to the idea of retailers that offer low prices. Earlier this year, the company acquired a 6.1% interest in Seiyu Ltd., a Japanese operator of 409 supermarkets. It also has options to acquire up to 66.7% of the firm. “Seiyu has a very strong and capable management team,” Menzer says. And its portfolio has some of the best real estate in Japan, much of it in the Tokyo market.

One Cup at a Time

Starbucks Coffee also is brewing ambitious international plans. The company opened its first store in 1971 and its first international unit in Tokyo in 1996. Now, it is the fastest-growing take-out operation in history, with more than 5,700 stores worldwide serving nearly 20 million customers a week.

Peter Maslen, president of Seattle-based Starbucks Coffee International, sees plenty of opportunities for global retailing. The company has units in 30 countries, including Japan, China and Europe. It will open more than 1,000 stores this year and plans to reach 10,000 worldwide by 2005. Some 400 of those new stores will be built overseas, representing a 35% increase in its international operation.

“We believe we're still in the infant stages of our growth,” Maslen says. “We've been amazed by the success we've achieved in the countries we've entered so far.”

The company predicts a 25% increase in annual sales this year. “Our international sales continue to be very promising, and in many markets, we've met or exceeded our expectations,” he adds.

Sales have climbed an average of 20% annually — to $2.6 billion in 2001 — for the past decade. On Wall Street, Starbucks has been called the last great growth story. Since going public in 1992, its stock has split four times and has risen more than 2,200%, surpassing even Wal-Mart, and General Electric in total returns. Starbucks' (NASDAQ: SBUX) stock closed at $22.34 on Oct. 18, 13% off its 52-week high of $25.70.

Stepping Out in Style

The Athlete's Foot is finding the Japanese market ripe for development because American sportswear is a hit with youth. The privately held Kennesaw, Ga.-based specialty chain, which has more than 800 stores operating in dozens of countries, has been fueling its aggressive international expansion program with franchise partners since 1998.

“We're bullish on Japan and have a very strong partner there,” explains Bob Corliss, president and CEO. “The country is one of the world's fashion leaders with a hip youth culture.”

The foray into Japan is part of an aggressive effort to stake its claim as a global merchant and fashion brand. The company has waded into Korea and China with much success, and it currently has 28 stores between Shanghai and Beijing.

The downside to the company's large playing field is that “with very few exceptions, we don't dominate any market,” Corliss notes. The retailer is the fifth-largest player in the U.S. athletic shoe business.

Many American fashion brands are popular overseas, says Faith Hope Consolo, vice chairman of New York-based real estate broker Garrik-Aug Worldwide. She notes that American designers such as Donna Karan and Ralph Lauren are already entrenched in European and Asian department stores and freestanding boutiques.

American retailers often pay a high tab to set up shop overseas, says Consolo. In the last year, demand for prime real estate in Hong Kong is up, and so, too, are rents. Some specialty store sites cost in the neighborhood of $600 per sq. ft. for the most desirable locations. Tokyo and Singapore also are pricey, with rents about half that of Hong Kong.

“It's not inexpensive to go, but it's a global marketplace and a much smaller world than we think,” Consolo says, “and American concepts translate.”

Janet Groeber is a Cincinnati-based writer.