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

Photo: Getty Images
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I'm far from convinced by Cameron's plans for Syria

The Prime Minister has a plan for when the bombs drop. But what about after?

In the House of Commons today, the Prime Minister set out a powerful case for Britain to join air strikes against Isil in Syria.  Isil, he argued, poses a direct threat to Britain and its people, and Britain should not be in the business of “outsourcing our security to our allies”. And while he conceded that further airstrikes alone would not be sufficient to beat Isil, he made the case for an “Isil first” strategy – attacking Isil now, while continuing to do what we can diplomatically to help secure a lasting settlement for Syria in which Assad (eventually) plays no part.

I agreed with much of David Cameron’s analysis. And no-one should doubt either the murderous barbarism of Isil in the region, or the barbarism they foment and inspire in others across the world.  But at the end of his lengthy Q&A session with MPs, I remained unconvinced that UK involvement in airstrikes in Syria was the right option. Because the case for action has to be a case for action that has a chance of succeeding.  And David Cameron’s case contained neither a plan for winning the war, nor a plan for winning the peace.

The Prime Minister, along with military experts and analysts across the world, concedes that air strikes alone will not defeat Isil, and that (as in Iraq) ground forces are essential if we want to rid Syria of Isil. But what is the plan to assemble these ground forces so necessary for a successful mission?  David Cameron’s answer today was more a hope than a plan. He referred to “70,000 Syrian opposition fighters - principally the Free Syrian Army (FSA) – with whom we can co-ordinate attacks on Isil”.

But it is an illusion to think that these fighters can provide the ground forces needed to complement aerial bombardment of Isil.  Many commentators have begun to doubt whether the FSA continues to exist as a coherent operational entity over the past few months. Coralling the myriad rebel groups into a disciplined force capable of fighting and occupying Isil territory is a heroic ambition, not a plan. And previous efforts to mobilize the rebels against Isil have been utter failures. Last month the Americans abandoned a $500m programme to train and turn 5,400 rebel fighters into a disciplined force to fight Isil. They succeeded in training just 60 fighters. And there have been incidents of American-trained fighters giving some of their US-provided equipment to the Nusra Front, an affiliate of Al Qaeda.

Why has it proven so hard to co-opt rebel forces in the fight against Isil? Because most of the various rebel groups are fighting a war against Assad, not against Isil.  Syria’s civil war is gruesome and complex, but it is fundamentally a Civil War between Assad’s forces and a variety of opponents of Assad’s regime. It would be a mistake for Britain to base a case for military action against Isil on the hope that thousands of disparate rebel forces can be persuaded to change their enemy – especially when the evidence so far is that they won’t.

This is a plan for military action that, at present, looks highly unlikely to succeed.  But what of the plan for peace? David Cameron today argued for the separation of the immediate task at hand - to strike against Isil in Syria – from the longer-term ambition of achieving a settlement in Syria and removing Assad.  But for Isil to be beaten, the two cannot be separated. Because it is only by making progress in developing a credible and internationally-backed plan for a post-Assad Syria that we will persuade Syrian Sunnis that fighting Isil will not end up helping Assad win the Civil War.  If we want not only to rely on rebel Sunnis to provide ground troops against Isil, but also provide stable governance in Isil-occupied areas when the bombing stops, progress on a settlement to Syria’s Civil War is more not less urgent.  Without it, the reluctance of Syrian Sunnis to think that our fight is their fight will undermine the chances of military efforts to beat Isil and bring basic order to the regions they control. 

This points us towards doubling down on the progress that has already been made in Vienna: working with the USA, France, Syria’s neighbours and the Gulf states, as well as Russia and Iran. We need not just a combined approach to ending the conflict, but the prospect of a post-war Syria that offers a place for those whose cooperation we seek to defeat Isil. No doubt this will strike some as insufficient in the face of the horrors perpetrated by Isil. But I fear that if we want not just to take action against Isil but to defeat them and prevent their return, it offers a better chance of succeeding than David Cameron’s proposal today. 

Stewart Wood is a former Shadow Cabinet minister and adviser to Ed Miliband. He tweets as @StewartWood.