Global Retail Expansion: A Recipe for Creating Shareholder Value?
Measuring the potential shareholder benefits of global expansion and understanding the drivers of value creation
Given the mature state and slow growth of the North American retail environment, global expansion has become one of the hottest growth strategies explored by leading retailers. Gaining access to new customers and untapped markets offers an alluring opportunity to drive new sales growth. Before developing their global strategy, however, retailers should understand their unique value proposition, operational capabilities and organizational structure. In determining whether to expand internationally a few questions arise:
- While expansion can create opportunities to grow sales, does it also generate shareholder value?
- What are the drivers of shareholder value creation (or destruction)?
- What factors should be carefully considered before embarking on global expansion?
To answer these questions, Deloitte analyzed 87 North American-based specialty retailers over a 10-year time frame. The companies evaluated present a mix of domestic and international exposure and fall within a variety of retail segments including apparel, home improvement, automotive, computer and electronics, home furnishing and specialty stores. Deloitte analyzed the retailers across several different financial metrics including enterprise value, total shareholder return, earnings and EBITDA margin, expecting to find that retailers with a global footprint generally outperformed those that remained domestic. Instead, the analysis yielded surprising results that could carry significant implications for retailers considering international expansion.