Rochester, Kent – Have British shopkeepers finally got their European expansion strategies in order? Following two announcements made this morning, it certainly looks that way. Both Kingfisher (LSE: KGF) and Dixons (LSE: DXNS) today revealed that they have taken significant stakes in leading continental retailers.
It's a fact of stock market life that British retailers don't travel well. Operational, logistical and cultural problems are the main international headaches. Whether it's Marks & Spencer (LSE: MKS), J Sainsbury (LSE: SBRY), Boots (LSE: BOOT) or Body Shop (LSEL BOS), overseas expansion typically results in a costly retreat. These days, only Tesco (LSE: TSCO) can genuinely claim to have foreign success.
Today's news from Kingfisher and Dixons shows the two companies quite rightly taking a cautious approach in Europe. Although both retailers already have stores in certain continental countries, both are taking a "Trojan horse" approach to enter new markets. Kingfisher has bought 25% of Germany's leading DIY chain, while Dixons has purchased 25% of Italy's predominant electrical retail specialist.
Investments such as these gain insights into how specific foreign markets work at relatively small cost. What's more, the resulting managerial partnerships can create operational synergies without having to take on the risks of a fully blown takeover. As Dixons reported this morning, "The combination... will benefit from enhanced sourcing and buying opportunities and a two-way transfer of ideas and best practices."
And of course, such holdings can provide a stepping-stone for a full acquisition at a later date, and also prevent others from getting a decent foothold into certain markets too.
Although financial details are thin on the ground, today's investments from Kingfisher and Dixons look to be sound strategic moves. Any successful international expansion requires caution, patience and a deep understanding of the new market. Aggressive takeovers rarely work. In the long run, it's far better for shareholders if UK managers watch and learn from overseas partners before deciding whether a new market is suitable.
More: Avoid The Agonies Of Going Abroad | Kingfisher discussion board | Dixons discussion board
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