Lessons from Offshore
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\"paco1\"Lesson #1 – Returning Turtles

“Organized retail” is the term we use to describe modern trade in the emerging market. It is an explosion that has quietly been transforming access to goods across the planet. In most emerging markets, the first intrusion of organized retail is the modern grocery store or hypermarket; however, it has stretched beyond big boxes, to specialty retail, foodservice and how malls are built.

\"paco2\"Local merchants that have ventured to the United States and Europe are behind much of that transformation. They have left home to get educated, observe and process, and then return to to reinvent. One early example is Thailand-based Lotus, an agribusiness broker that saw organized retail as a way of vertically integrating in the early 1990s. During the first Asian money crisis of 1997, Lotus sold its first attempt at retail, a grocery chain in Thailand, to Tesco and then made the decision to bet on China. In 2014, Lotus not only operates nearly 60 retail superstores in China (which sell the food products they produce), but also owns many of the shopping malls (such as Super Brand Mall in Shanghai, pictured) where their stores are lead tenants.

\"paco3\"Lotus is one example of the expat Chinese community returning home with language and cultural knowledge, plus critically useful global business experience. The Mainlanders call them “Returning Turtles.”

Lesson #2 – Build a Mall to House a Cineplex

Another example of returning to historic roots is Israel-based Cinema City International. The company started as the local Disney distributor. Like many Israeli firms locked out of Middle Eastern expansion, these businesses have returned to Eastern Europe finding old family connections that managed to the survive the Holocaust. Cinema City is now the third largest operator of cineplexes in Europe. When it couldn’t find new cinema locations in Eastern Europe fast enough, the firm started developing malls. Its model was to build a mall with a cineplex in a prime spot, fill it with tenants, write itself a fair lease, and then put the mall up for sale and move onto the next project. Today they have close to 1000 screens mainly in Eastern Europe.

\"paco4\"Lotus and Cinema City are great examples of using ingenuity and cultural ties to build a business. I have two much smaller ones I’ve seen just in the past month in Brazil that have merit in their own more modest way.

Lesson #3 – The Butantan

A large Brazilian conglomerate with fingers in many businesses, including real estate development, saw the explosion of food trucks in New York City and is now testing a new and improved version in Sao Paulo. The company acquires urban land parcels for development; they estimate it takes at least two years to assemble both adjacent lots and get approval for building. In a nimble move, it is testing using vacant parcels that are pending approvals as locations for the food truck business. Conveniently, it is starting with a vacant lot across the street from its corporate headquarters in Sao Paulo. They call the park, Butantan. They contract with food truck operators providing them a secure, clean, and safe location in a lot surrounded by high-rise office buildings and residential towers.

\"paco5\"There are almost a dozen food offerings including fancy ice cream and crepes, sandwiches, and barbeque. Picnic tables and awnings give visitors a variety of seating options. During peak lunch time hours, the park has more than 100 people eating and chattering away. Each food truck operator is supplied with electrical power, so there are no noisy generators. My favorite upgrade in this truck food park are very slick and stylish washrooms and bathrooms, a generation or three past Port-a-Potty. The big idea is that once construction starts on the site, the entire food park folds up its awnings and migrates to a new location.

The curious wrinkle has been with the food service provider catering to the corporate headquarters. Their sales in the building are down, particularly in warmer weather when employees flock to the outside venue. The effort is now focused on how to get an evening audience onto the property. According to the corporate planners, if this goes well, they will explore how many food parks they can effectively operate. In addition to providing modern amenities to dining customers, the park controls trash and monitors hygiene. Responding to market demands, trucks can be traded in or out to offer a variety of cuisines. New York City, are you listening?

\"paco6\"Lesson #4 – The Alergo Shop

Still in Brazil. As the story goes, an enterprising mother with an allergy-prone child saw an opportunity for a targeted business. How many modern parents do you know that struggle with caring for a child who is allergic to everything? Now you can find a collection of everything you need related to allergies under one roof. Pillows and bedding. Clothing and hats. Cosmetics, hair care and skin care. There is a line of hypo-allergic earrings and jewelry. I especially like the bug repellent section, which features both lotion and devices. The store is evangelical with books, information and doctor recommendations. The merchant has targeted a select client that is loyal, willing to spend and grateful for the attention. What makes the store even more impressive is the extent of the private label products they offer. This small chain of eight stores was founded in 2000; it now has an active e-commerce offering, and a social media presence.

\"paco7\"Lesson #5 – Restacking the Mall

The Alergo shop is located in a mall following a practice of many emerging market shopping malls that have a service-based floor or wing. The tenants pay a lower rent because they are destination businesses that don’t necessarily need gratuitous traffic. Travel agents, key makers, dollhouse furniture galleries, custom tailors; these tenants are ones the landlord is happy to have, recognizing that they act as magnets that drive daily traffic.

The Big Lesson

At its most basic level, retail is about birth, life and death, and sometimes, rebirth. Painfully few merchant organizations survive more than three generations. Reinvention needs to be ongoing to survive. Retail is a place where the willingness to work and the ability to recognize opportunity meet. In new markets across the globe, young merchants are looking and processing what they have learned and observed elsewhere. Surviving \"paco8\"and flourishing in a rough-and-tumble world is not something for the fainthearted. The ability of emerging markets to foster retail innovation is testament to the trader gene that exists in humans. It is also a tribute to using models and strategies from successful businesses in other parts of the world and adapting them to local markets. In this new flat world of retail, both mustangs and gamblers can thrive. And the most successful have a dose of both.

 

One of Paco Underhill’s popular programs has been “What First World Merchants Can Learn from Emerging Markets.” Variations of that lecture have been given to audiences across the world. This article is the first in a series of many lessons Americans can learn from global merchants.

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