From Costco to Target, Some Retail Concepts Travel Better Than Others

Retailers who succeed at home often can’t resist the promise of international expansion, yet the global retail landscape is littered with the cautionary tales of companies that flopped: Target in Canada. Home Depot in China. Tesco in the United States.

Even among companies that succeed, few capture more than 10% of a foreign market.

That’s because most retailers fall into the same trap: They either copy and paste their home-market playbook into new markets or alter their model so much to accommodate local conditions that they lose what made them successful in the first place, says Harvard Business School Professor Rajiv Lal.

Based on an in-depth study of 20 companies that succeeded beyond their home borders, Lal says retailers should practice “balanced adaptation”—preserving their “secret sauce” while selectively tailoring parts of their business models to align with local markets.

“Global success doesn’t come from trying to be everything to everyone. It comes from being deeply relevant without losing your soul,” Lal and coauthor Srikant Gokhale of the University of California, Berkeley, write in the May working paper “Retail Expansion to International Markets: Why Some Retailers Succeed and Many Fail.”

The pressure on retailers to expand internationally is greater than ever, especially for those based in Western markets facing slower growth and aging populations. At the same time, emerging markets are growing rapidly and creating new opportunities for expansion, though they’re also more complex and competitive than retailers often anticipate, which is why Lal argues that many business leaders may need to rethink their approach.

Walking the tightrope to success

The researchers studied 20 retailers, drawn from Deloitte’s 2023 Global Powers of Retailing list, including supermarkets, warehouse clubs, convenience stores, and quick-service restaurants. The companies, ranging from Walmart and Costco to TJX and 7-Eleven, had accomplished meaningful international scale: at least 25% of revenue from abroad, over $1 billion in international sales, and a presence in more than 10 countries.

Concentrated primarily in the US, Europe, Canada, and Japan, the list included companies with mixed track records—often succeeding in some markets while struggling in others—allowing Lal and Gokhale to isolate what separates durable global performers from those that ran into trouble.

They found that the greatest success comes from walking the tightrope of balanced adaptation, where a retailer’s ability to adapt meets or exceeds the demands of the local market without diluting its core advantage. This approach hinges on three core elements:

• The secret sauce. The distinctive product, capability, or business model that gives a retailer its competitive edge.

• Adaptive capacity. How much a retailer’s core model can flex across markets without losing its identity.

• Adaptive need. The level of change required to succeed in a given market, shaped by local culture, regulation, and consumer behavior.

Stretching that secret sauce

In some cases, the same retailer will succeed in one country and fail in another, despite using similar strategies.

“That is the puzzle,” says Lal, the Stanley Roth, Sr. Professor of Retailing. “These are companies that know how to do business—so why the discrepancy?”

The answer often lies in how far a company can stretch its secret sauce into new territory. Sometimes that means passing up a market where the concept simply won’t align with its consumers.

“Not every retail concept is equally adaptable to a given local market,” Lal says. “It’s not about how much I adapt my concept. It’s about how much I can stretch my concept without breaking it.”

One company that found the right balance: TJX, the retailer behind T.J. Maxx and Marshalls. Its flexible sourcing model—buying excess merchandise, often from high-end designer brands, and selling it at steep discounts—has succeeded in Canada, Europe, and Australia, with consumers in various markets enjoying its “treasure hunt” shopping experience.

“Ted English, the former CEO of TJX, once told one of my classes that the company will always have supply. If the product doesn’t sell, brands will sell it to them. And if it does sell, manufacturers will overproduce it. They have executed that in every market,” Lal says.

Contrast that with Home Depot, whose do-it-yourself model thrived in North America but faltered in China, where consumers prefer to hire professionals for home improvement projects, the researchers say. Home Depot withdrew from China after six years.

A thoughtful approach to expansion

To increase the chances of success when expanding internationally, Lal suggests businesses should:

Enter familiar markets first

Retailers can start testing the stretchability of their concepts by introducing them to markets that resemble their own. “The easiest market to go into is where the markets are similar in many dimensions, particularly from a consumer standpoint and cultural standpoint,” Lal says.

Know that product advantages may travel better than process ones

It’s important to understand regulatory and supply chain differences in new markets, particularly if a retailer’s concept relies on taking advantage of market inefficiencies. “You can adapt a product more easily than you can change, say, regulations limiting operating hours or zoning,” Lal says.

Understand your limitations

Retailers should ruthlessly examine whether their secret sauce can be reformulated for a given market and still maintain its unique flavor, Lal advises. “If I adapt, what happens to my concept? Can I execute my concept with the same efficiency and effectiveness? Nobody wants to think ‘my concept has limitations,’ but it’s critical to know what they are.”

It tends to come down to making a delicate judgment call, Lal says: “The important thing for managers is to appreciate how much their concept can be stretched without breaking down the principal comparative advantages they have.”

Illustration credit: HBSWK with image from Adobe Stock/Sergey Nivens.