Facing an inevitable bust?

I was a little alarmed by the comments from the head of the Australian operations of the Blockbuster video store operations this week.

In response to inquiries about the viability of the local concern in light of the likely bankruptcy of their US parent (well sort of parent – it’s pretty much an international franchising setup with the distinct Aussie entity using the US mob’s brand, systems etc), Paul Uniacke indicated (in effect) that he saw no significant threat from alternatives to his bricks and mortar operations. This is despite the US version experiencing a 16% sales drop in the last quarter.

His argument is that Aussie consumers haven’t embraced mail-order DVD delivery offerings from startup competitors, nor have they shifted to streaming/download options.

I would think the missing word there is “yet“.  Surely it is only a matter of time before wandering up to an understocked, inconvenient video store becomes as quaint and antique an idea as using a phone box or sending a telegram?

He is right that the actual decline in store-based DVD rentals hasn’t happened here yet, but I am certain growth slowed a while back, and that decline is just around the corner.

Mail order might not the threat its proponents hoped for, but streaming will be (as demonstrated already by the utilisation of illegal and legal download services).  The much vaunted upgrade in Aussie broadband infrastructure will greatly facilitate this.

The strategic lesson: just because technology and socio-cultural effects haven’t kicked in yet, don’t fob them off as irrelevant.  Learn lessons from similar and more advanced markets.

Blockbuster Australia should be looking very, very hard at web-based video delivery (although, I must say, I can’t see that much in their existing resources and capabilities that would see them out-perform Amazon, Apple or even Telstra on this front). Alternatively, they’ve got to find something interesting to do with all of the stores.

As an aside, my local Blockbuster has halved in floorspace in the past year, and still looks empty every time I walk past…

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So where the bloody hell are the global retailers?

In 2006, Australia ran an ill-fated tourism campaign with the tag line “So where the bloody hell are you?”

The latest list of the 250 largest retailers in the world has just come out from Deloitte, and we could be asking the same question of international retailers with respect to the Australian market.

Back in a 2007 chapter (for a book called The Internationalisation Strategies of Small-Country Firms: The Australian Experience of Globalisation), I highlighted the limited presence of retail’s big international players in the Aussie market. The list back then was 13 foreign-owned firms from the Deloitte’s 2006 Top 250, plus 3 Australian firms who were big enough to make the list.

Looking at the 2009 list, there has been a slight decline in this international presence in the intervening three years. There are now only 14 firms from the list operating bricks and mortar stores in Australia. They are (with global ranking, and new arrivals in green):

10. German discount supermarket giant Aldi who operate in 15 countries
22. Aussie behemoth Woolworths (3 countries)
29. Wesfarmers, owner of the Coles, Target, K-Mart and Bunnings brands in Australia (2 countries)
32. Swedish furniture kings Ikea (36 countries)
42. French conglomerate PPR (Gucci, Puma etc) who have a very minor retail presence down under (48 countries)
59. Toys “R” Us from US (36 countries)
68. French luxury goods firm LVMH (15 countries)
113. Gamestop from US, who poerate as EB Games in Australia (16 countries)
129. South African supermarket chain, Pick’n’Pay, who own Franklins (6 countries)
146. Blockbuster video stores from US (22 countries)
150. Sports chain Footlocker from US (20 countries)
174. Italian spectacles seller Luxottica (OPSM, Sunglass Hut) (20 countries)
214. French firm Lagardére (formerly Hachette) who operate Newslink, Relay, Bijioux Terner and various other shops in airports and train stations (30 countries)

The 2009 list also included book retailer Borders who have recently exited Australia. Also gone since 2006 are Gus/Burberry (UK) due to a de-merger and Metcash (South Africa) via an Australian management buyout. (I, like Deloitte, also had erroneously included 7-Eleven which it turns out is run by a licensee in Australia). The Wesfarmers acquisition of Coles shrunk the Aussie-owned presence (as Bunnings will thus leave the list now). The most substantial new kid on the block is EB Games with almost 200 stores in Australia.

So, why the reluctance to head down under? I have argued this about the impact of Australia’s history and location:

As the nation was geographically distant and disconnected, and local suppliers were protected by high tariff walls, domestic retailers quickly built considerable location-bound advantages over any potential inward FDI. Entrepreneurial locals and later powerful incumbents were able to ‘cherry pick’ concepts from overseas and introduce them to Australian consumers confident of their likely success.

Most of the international firms who have broken through have typically had very strong firm-specific advantages (usually in specialist retail formats), and have been pretty aggressive in their internationalisation. It is worth noting that the average firm in the Top 250 operates in 6.8 countries. All but one of the international players in Australia exceeds that average substantially (while the Aussie pair are underperformers).

Is it the case that only experienced internationalisers can make the leap to Australia? Or do they only bother once they’ve exhausted more rewarding locales?

One of the big boys is heading our way – #9 Costco is building in Melbourne right now. Can we really expect too many more from the list on Australian shores in the near future?