Westfield gets a Brazilian… and goes Italiano

It is rare to see an Australian multinational announce two international expansion moves in the same week. And it’s even rarer when said moves are to two different continents.

Shopping centre giant Westfield made two such announcements this week, with joint ventures signed in firstly, Brazil, and today, Italy.

As I wrote about in a book chapter on Westfield a few years ago, the firm has typically been reluctant to seek opportunities beyond the English-speaking world.  The firm entered the US way back in 1977, with a portfolio of properties slowly emerging over the coming two decades.

Westfield succeeded in the US by buying run-down malls that no one visited anymore and turning them around through innovative redevelopment projects.  Most competitors in the industry preferred building new malls.

By the late 1990s Westfield had emerged as the dominant player on the US scene, and continued to grow right through to the global financial crisis.

In the broader world, they have been more cautious.  As we argued in the chapter:

“Westfield’s internationalisation was never a story of extreme risk-taking.  Frank Lowy saw little value in acting as the pioneer in environments where the payoffs were too low.  As long as there were opportunities to be had in the US, then Europe, Asia and New Zealand could wait. Eventually in 1997 the group took over the management of ten St Luke shopping centres in New Zealand. In 2000 Westfield Trust and St Lukes Group merged and the New Zealand centres were re-branded as Westfield centres. Attempts to enter the UK market in the 1970s and 1980s were unsuccessful. Lowy expressed considerable frustration with the lack of dynamism in the UK investment houses and lack of planning enthusiasm (Margo, 2000). Not until early 2000 did Westfield finally obtain access with a 75 per cent stake in a centre at Broadmarsh, Nottingham. The firm has made considerable headway since, with seven centres on the books, and is set to open the largest centre in Greater London in early 2008. Westfield briefly entered Asia in 1998 with a ten per cent share of Suria Kuala Lumpur City Centre in Malaysia.  This investment was short-lived, however, with the company withdrawing in 2000 after the Asian currency crisis.”

So why has the firm moved now?

On the Brazil front, the firm is tapping into one of the most exciting and fast-growing large economies in the world.  The firm may see some useful urban similarities to Australia and tthe US (i.e. more ‘wide, open spaces’ in the ‘burbs), and Brazil may also be seen as far less challenging than China and India for example (with much less government intrusion likely).

At the same time the firm may see far fewer prospects in the moribund US economy and its close-to-saturated Aussie home.

Bringing a local, experienced joint venture partner is a very sensible move for a multinational with no experience in the market. While Westfield hasn’t typically hooked up with shopping centre management firms before (preferring instead to court construction firm and funds management partners – i.e. in essence, supply partners), local adaptation is clearly front of mind here. There should also be an appetite for knowledge acquisition on both sides of this equation.

The Italian move looks a little riskier, with patchier economic conditions and a reputation for bureaucratic randomness.  There may be an argument for very localised attractiveness here, as the firm is targeting one of the wealthier and more retail-savvy parts of the nation – Milan (also home to some of the oldest shopping arcades in the world). Indeed, this could also be a brand-building exercise in a city/region with no shortage of brand champions, especially in the luxury and masstige segments Westfield is keen to attract across its empire.

The final piece of this strategic puzzle might well rest on the role of individuals in both constraining and driving choices.

Firm founder Frank Lowy finally handed over the reins to his baby about five months ago (stepping down as Executive Chairman).  His sons appear to stamping their mark on the firm’s future with these two bold (but tentative) moves.

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Bye bye barrier

Today’s announcement that the two big Aussie supermarkets can no longer negotiate exclusive or restrictive tenancy agreements with shopping centres is long overdue.

So many shopping centres being locked up by Woolworths or Coles has previously served as a very considerable barrier to new entrants in this market. It has helped to protect the profits of these two giants and limited consumer choices.

Greater access should assist German entrant Aldi considerably, and may lure other international players down under. Of course, there will be considerable late mover disadvantages to overcome in terms of economies of scale etc.

One interested aspect will be to see how the dominant mall operator Westfield deals with all this.

Will it reduce their revenues from the supermarket chains? Presumably there was some premium for exclusivity, but this may have been traded off against the certainty of income streams from long-term anchor tenant agreements (with said income used to fund expansions and upgrades of the centres).

Or will they now be able to ratchet up supermarket rents on the threat of offering spaces to rivals (incumbent or new)?

Single-minded business to a T

I saw an excellent interview last week in the Melbourne street press with one of the founders of the T Bar retail chain (unfortunately I lost the magazine – I think it was City Weekly – and it isn’t available on-line). Anyway, to paraphrase it went like this:

What do you sell? T-shirts

Are you going to expand your range to other items of clothing? No

This is a fantastic example of a focused business strategy. This firm is not trying to be everything to everyone. Instead it is sticking to what it is good at and what it knows attracts the customers.

The picture (left) shows the layout of their typical stores – its t-shirts, t-shirts and nothing but t-shirts. The firm can focus its attention on its core capability – sourcing exciting new designs, and finding new locations for their stores, which (as my clever cousin pointed out over coffee) would be very popular with shopping centre owners as they are typically plonked in previously non-retail space (dark corners/walkways etc).

See another pic and some brief words from the founder at this other blog discussion (she also explains that they have no web presence…yet).

Burgers and shopping malls

One major consideration for multinational firms as they expand is whether they need to adapt their products to the tastes and needs of customers in new locations. Here are two recent examples of firms taking on this challenge.

This Economist article discusses the expansion of Burger King in China (the firm intends to open 250-300 stores in China over the next five years). Other fast food chains such as McDonald’s and KFC have adapted their menus considerably in response to different customs and preferences in China (and elsewhere). Burger King has added some chicken and some chili to its offerings. Do you think that will be enough? How do these menu changes impact on the costs of the firm?

Another experienced internationaliser is Australian shopping centre giant Westfield. As I have discussed in a chapter (for a book called The Internationalisation Strategies of Small-Country Firms: The Australian Experience of Globalisation), the firm has extensive competitive advantages in property selection, design, branding and retailer management. They have successfully transferred these skills to home of shopping malls, the USA, and now have began a large expansion in Britain. This week they opened the first large shopping centre in London. In doing so, they are attempting to change the habits of British consumers (and Londoners in particular) as High Street shopping has been the norm rather than driving (or commuting) to malls. Despite launching in very tough times for retailers, the opening seems a success. The next big London project for Westfield is part of the 2012 Olympic site in East London. How long until Westfield dominates the British mall scene too?