Note to British retailers: don't try to take on America

Did anyone really think Tesco could do it?

When Tesco announced it was going to take on America, I thought, ‘When will they ever learn?’ and waited for the Yorktown Bugler of 1781 to sound the retreat all over again.

This escapade by the UK’s biggest retailer was always destined for disaster, and so it has proved as Tesco is forced to write off a cool (reported) £1 bn – money they now urgently need at home to invest in the underperforming original UK business.

The record of British grocers and other retailers in the Land of the Free is littered with failures: remember M&S’s ill-fated venture? That’s the M&S which was a penny bazaar in Manchester, then became a wardrobe for the ladies of Middle England, before turning to food, where it was the first ever retailer to put an acceptable chicken Kiev on the nation’s dining tables.
Then it screwed up in America when it bought Brooks Brothers, a purveyor of up-market (in America, that is!) men’s suits, shirts and ties – the sort of offerings which would be considered offensive in Savile Row. The suits were surely cut by lumberjacks and the shirts were made by tent-makers. (Don’t even talk about the ties!)

M&S had made a bad mistake, and the bugler sounded the retreat.

Then J Sainsbury had a gamble and lost their shirt too, with something called People’s Stores, before the Bugler was called on once again.

But when the mighty Tesco said it was going to sell frozen chips and carrots in California, everyone had forgotten its rivals’ track record. Tesco, however, wasn’t going to spend zillions on an acquisition – it would build from scratch, with a new brand – called, after endless market research, "Fresh & Easy".

Well, the chips and carrots never took off, and are now definitely off the menu.

The shares rose on the announcement, leaving that Old Sage of Omaha rubbing his hands with glee: he had bought the discounted shares, but not the chips and carrots.

What is it about America, and British grocers? Here are some of the answers: British retail management doesn’t work there; they can’t bully suppliers there like they can here, in our much smaller market; the distribution logistics are far more complicated – bigger distances, more media outlets for adverts, far greater shopping around for price; much less consumer loyalty, and so on. Then you are only ever working on tiny margins – just 3 per cent, which get easily squeezed at both ends.

The only British retailer to make a bit of a success in America that I can recall – as they didn’t end up a loser, at least – was British American Tobacco.

Having wrung every ounce of profit from the addictive nicotine, before it was realised that cigarettes were just cancer-sticks, it then joined the trend towards conglomerates, so-prevalent in the 1960s-80s, and went into insurance and financial services, and retail in America: it acquired established chains like Marshall Fields in Chicago and Saks Fifth Avenue, both profitable department store chains, and sensibly left the incumbent American management in charge.

When the stock market M&A teams had made two generations of income from creating such conglomerates – remember Hanson, BTR, Pearson, Williams Holdings? – the mood music changed again and the next generation made the same fees in reverse, by taking it all apart again...

Such are the City’s fashions and its zero added-value. The City’s new love affair was with single product/sector companies, with global markets and expertise who knew exactly what they were doing – like Tesco.

So, it is worth pondering which sectors of the British economy have made real money in America. One starts with pop music, actors, TV and films – entertainment is the second biggest industry in America, and in export terms too, only behind defence.

And the UK has done well in defence in niche sectors – BAE, Rolls-Royce, Smiths Industries, Dowty-Messier, Cobham, Chemring and so on – which all depend on world-beating technology. Banking and financial services have their fair share too.

Cars have been hopeless in the past, but now Jaguar Land Rover is the fastest-growing marque in the world, and doing well in America too, as are those hardy perennials Rolls-Royce and Bentley.

And certain non-computer parts of the digital world, such as mobile phone services, and luxury brands too – Burberry, Barbour and fashion generally – and the advertising that goes with it.

Anything except frozen chips and carrots, in fact.

This article first appeared in Spear's magazine

Photograph: Getty Images

Stephen Hill writes for Spear's

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Is anyone prepared to solve the NHS funding crisis?

As long as the political taboo on raising taxes endures, the service will be in financial peril. 

It has long been clear that the NHS is in financial ill-health. But today's figures, conveniently delayed until after the Conservative conference, are still stunningly bad. The service ran a deficit of £930m between April and June (greater than the £820m recorded for the whole of the 2014/15 financial year) and is on course for a shortfall of at least £2bn this year - its worst position for a generation. 

Though often described as having been shielded from austerity, owing to its ring-fenced budget, the NHS is enduring the toughest spending settlement in its history. Since 1950, health spending has grown at an average annual rate of 4 per cent, but over the last parliament it rose by just 0.5 per cent. An ageing population, rising treatment costs and the social care crisis all mean that the NHS has to run merely to stand still. The Tories have pledged to provide £10bn more for the service but this still leaves £20bn of efficiency savings required. 

Speculation is now turning to whether George Osborne will provide an emergency injection of funds in the Autumn Statement on 25 November. But the long-term question is whether anyone is prepared to offer a sustainable solution to the crisis. Health experts argue that only a rise in general taxation (income tax, VAT, national insurance), patient charges or a hypothecated "health tax" will secure the future of a universal, high-quality service. But the political taboo against increasing taxes on all but the richest means no politician has ventured into this territory. Shadow health secretary Heidi Alexander has today called for the government to "find money urgently to get through the coming winter months". But the bigger question is whether, under Jeremy Corbyn, Labour is prepared to go beyond sticking-plaster solutions. 

George Eaton is political editor of the New Statesman.