Internationalization patterns in fashion retail distribution:

implications for rm results

Alejandro Molla-Descals, Marta Frasquet-Deltoro and Maria-Eugenia Ruiz-Molina

Marketing Department, University of Valencia, Facultad de Economia, Avda Naranjos s/n,

46022 Valencia, Spain
(Received 25 June 2010; nal version received 14 October 2010)
Fashion retailers have been intensively involved in internationalization processes, leading
to an upsurge of some global fashion brands. Notwithstanding, internationalization
processes may differ across retailers and also their results in their overseas ventures.
This paper aims at shedding additional light on fashion retail internationalization,
proposing two objectives: rst, it aims at identifying several internationalization patterns
in fashion retailing. Second, after identifying several retailer proles, we test for
signicant differences in their nancial results. With chi-square automatic interaction
detection analysis, we identify four groups of retailers whose internationalization
patterns, as well as their prots, cash ows and solvency ratios differ signicantly.
Therefore, internationalization does not always guarantee a good performance for
fashion retailers.
Keywords: internationalization; fashion retailers; service companies; rm
characteristics; results
Introduction
One of the most remarkable trends in the evolution of retailing is the increased industry
concentration and business size. Large retailers in search of sustained growth increasingly
decide to expand abroad, responding to and also contributing to the globalization process.
The internationalization of retailing differs greatly from the globalization of production, as
reported by Dawson (1994) and Dawson, Findlay and Sparks (2008), since manufacturing
and retailing businesses differ in their objectives and challenges. These differences make it
unclear to what extent academic concepts are transferable from production to distribution
(Wigley, Moore, & Birtwistle, 2005).
Today, operating internationally is increasingly common, as an option for growth, but
also as a necessity in a scenario in which the domestic market shows increasing levels of
competition and commercial saturation, such as the European Union mature markets
of highly developed economies, e.g. Germany, France and UK (Lopez & Fan, 2009).
This increases the number of companies internationalizing their activities, no longer
limited to big retailers. In this regard, an increasing number of born-global companies
decide to internationalize their businesses from the beginning of their activity, regardless
of the saturation level in the domestic market (Andersson, Gabrielsson, & Wictor, 2006;
Gabrielsson, 2005; Knight & Cavusgil, 2004). However, there are still companies restricted
to their national territory (Dragun, 2003). These behaviours make the retail internationaliza-
tion process complex and further analysis of retailer internationalization patterns is needed.
ISSN 0264-2069 print/ISSN 1743-9507 online
# 2011 Taylor & Francis
DOI: 10.1080/02642069.2011.540754
http://www.informaworld.com

Corresponding author. Email: m.eugenia.ruiz@uv.es

The Service Industries Journal
Vol. 31, No. 12, September 2011, 19791993
Fashion retailers have been recognized among the most prolic and important inter-
national companies (Alexander & Doherty, 2009; Hollander, 1970), especially with the
emergence of fashion retailer super-brands, i.e. brand-name multinationals (Klein,
2006), such as The Gap, Benetton and Gucci (Moore & Burt, 2007). Indeed, the inter-
national expansion of fashion retailers in Europe far outweighs the foreign activities of
retailers commercializing other products (Doherty, 2000). The Spanish fashion retail
industry also reects this trend. In particular, the Spanish fashion retail chain Zara is
the most international Spanish brand and one of the most successful fashion retailers,
representing an example of global expansion (Ferdows, Lewis, & Machuca, 2003;
Lopez & Fan, 2009). Other Spanish fashion store chains such as Mango and Adolfo
Dom nguez have a wide international presence, while other retailers operate exclusively
in their country of origin (Baena, 2008).
In spite of the popularity of internationalization in retailing, research has provided evi-
dence that failures in international ventures are not uncommon (Burt, Dawson, & Sparks,
2003, 2004; Burt, Mellahi, Jackson, & Sparks, 2002; Gandol &Strach, 2009), resulting in
economic or nancial failure and eventual shutdown of operations in a particular market.
In this regard, while research focuses on the geographical dimension of internationaliza-
tion and the degree of adaptation to local market conditions (Burt, Davies, Dawson, &
Sparks, 2008), little attention has been paid to the impact of retail internationalization
intensity on rm results. Although case studies are common in this industry (Lopez &
Fan, 2009), to the best of our knowledge, there are no studies in the fashion industry
exploring the relationships between internationalization patterns and rm results.
Therefore, this paper aims to identify internationalization patterns in retailing and test
for signicant differences in rm results depending on the type of expansion in foreign
markets. In particular, internationalization patterns of Spanish fashion retailers and their
implications for rm results are analysed.
Theoretical framework and research questions
Retailers international efforts are motivated by the desire to increase sales and protabil-
ity (Evans, Bridson, Byrom, & Medway, 2008) and to diversify their customer base (Vida
& Fairhurst, 1998). Notwithstanding, the retail internationalization process is complex and
an increasing number of born-global companies co-exist with local retail brands. Several
rm characteristics may explain the different internationalization patterns in retailing, e.g.
intensity of international expansion, rm size, mode of entry, age of the company, retail
activity or line of trade and the use of e-commerce.
Firm characteristics of international retailers
In general terms, it is easier to internationalize industrial products than commercial ser-
vices. In a similar vein, non-food retailers and those selling in small and specialized
outlets may internationalize easier than food retailers, as the latter have the obstacle of
the strong inuence of culture on food habits and the wider assortments that impede the
achievement of economies of scale in procurement (Alexander & Doherty, 2009; Colla,
2001). In the case of fashion retailing, several factors have been suggested to explain the
success of internationalization (Dawson, 1993; Doherty, 2000; Wigley et al., 2005), e.g.
small format requiring limited capital and management set-up costs, ease of entry and
exit, more suited to franchising than food retailing, economies of replication. Additionally,
since the European Union has suppressed restrictions for the establishment of retailers
1980 A. Molla-Descals et al.
across member countries, retailers are likely to expand to the geographically nearest
countries that also show little economic, political and cultural differences, that is, countries
which showa small psychic distance with the country of origin. Psychic distance, dened as
the distance between the home market and a foreign market resulting from the perception
and understanding of cultural and business differences (Evans, Treadgold, & Mavondo,
2000), has been identied as a key factor in explaining variations in expansion patterns
and rm results. However, there is debate over the psychic distance concept, as OGrady
and Lane (1996) stated that differences do not necessarily lead to unfavourable results
and the perception that a market is similar does not guarantee that the operation will
perform well. In this regard, retailers whose home market enjoys a high level of income
as well as a developed retail structure may perform well, if not better, in a developing
market because of the different opportunities that are available (Evans et al., 2000).
European retailers not only expand successfully within the European Union but also
into other continents, where formal and informal networks do not act as entry barriers
(Fuller-Love, 2009). This is illustrated by the success of some retail super-brands such
as Gucci or Louis Vuitton (Moore & Burt, 2007), the saturation of domestic markets,
the emergence of market gaps or segments not exploited in other markets and the
expectation of higher returns from foreign markets compared with the national market
(Alexander, 1990, 1997; Treadgold & Davies, 1988).
Furthermore, one factor traditionally used to explain internationalization is rm size.
Although several authors, e.g. Dawson (1993) and Alexander and Doherty (2009), empha-
sized the international potential of small businesses, the small size of traditional small and
medium business establishments has been viewed as an obstacle to internationalization
(Colla, 2001). However, it has been argued that the inuence of this factor is diminishing
(Dawson et al., 2008), and in this regard, Hutchinson, Quinn and Alexander (2005) stated
that a successful international retailer does not need to be large. In contrast to high-cost
market-entry strategies, such as acquisition or stand-alone stores, alternative lower cost
modes of entry have been identied, such as joint venture, franchise and concession
(Palmer, Owens, & De Kervenoael, 2010; Treadgold, 1988), which can be assumed by
small and medium-size businesses with reduced resources. In particular, franchising is
becoming increasingly popular (Doherty, 2007; Petersen & Welch, 2000), since, in
contrast to wholly owned subsidiaries or joint ventures, no equity investment is required.
Additionally, enhancing employee entrepreneurial behaviour through self-efcacy and
coaching may enable the rm to cope more efciently with international competition
(Wakkee, Elfring, & Monaghan, 2010). However, large public-owned companies, with
greater nancial resources, are likely to be present in more countries and continents
than smaller retailers.
Since companies that have accumulated more resources are traditionally those operat-
ing in the market over a long period, older and more experienced companies could be sup-
posed to be more prone to internationalize in comparison to new entrants to the market.
In this regard, experience from ones own retail overseas operations provides a valuable
platform for learning, thus contributing to the success of subsequent international ventures
(Palmer & Quinn, 2005). However, the literature also reports the possible existence of
inertia in older companies that may reduce their likelihood of introducing innovations
(Baptista, 2000; Mitchell, 1992). Johanson and Vahlne (1990) stated that rms tend to
remain domestic unless provoked, pushed, or pulled by an event or market situation,
thus following a reactive strategy.
Additionally, it has been pointed out that there is an increasing number of born-
globals, i.e. companies that decide to internationalize their businesses at or near inception
The Service Industries Journal 1981
(Andersson et al., 2006; Gabrielsson, 2005; Knight & Cavusgil, 2004; Thai & Chong,
2008), showing a proactive approach to internationalization. Examples of these companies
can be found not only among new high-technology rms (Gabrielsson & Kirpalani, 2004;
Warren, Patton, & Bream, 2009), but also in other industries such as fashion (Kuemmerle,
2005; Thai & Chong, 2008). For instance, Boo.com, founded in London in 1998 with the
aim of becoming the rst global fashion e-retailer, set up ofces in the UK, the USA,
France, Sweden, the Netherlands and Germany, offering service in seven languages and
in 18 countries (Kuemmerle, 2005). Although it failed after 18 months, there are also
successful born-global retailers such as Amazon, Net-a-Porter and Barrabes.com.
The type of product commercialized and the retailer positioning may also limit the
internationalization process. In this regard, while technology-based products may be
widely accepted in different countries, foodstuffs or cosmetics seem to be intimately
connected to cultural issues (Gandol & Strach, 2009).
Lastly, electronic commerce has been recognized as an important facilitator of inter-
national expansion, since it provides retailers with a new way of reaching the consumer
(Berry & Brock, 2004; Foscht, Swoboda, & Morschett, 2006) that has even contributed
to modify consumer behaviour (Tsai & Lee, 2009). Although e-commerce is mainly
used in multi-channel distribution in the services industry (Barrutia, Charterina, &
Gilsanz, 2009), it may also provide an opportunity for virtual expansion, especially for
small companies starting their internationalization processes (Alexander & Doherty,
2009). Moreover, since the Internet minimizes location disadvantages (Evangelista,
2005), it enables even small rms to expand beyond their own boundaries from the
beginning of their activity as born-globals (Foscht et al., 2006; Thai & Chong, 2008).
Furthermore, the websites of traditional retailers are becoming important trafc
generators for physical stores. Thus, synergy between on- and off-line stores lies not
simply in searching information before purchasing, but also in integrating both environ-
ments into a broader multi-channel strategy (Colla, 2004).
In view of the above-mentioned evidence, we state the following research question.
RQ1: Are there differentiated groups of retailers regarding their degree of international
expansion and rm characteristics, such as size, age, assortment, legal status and use of
e-commerce?
Internationalization and rm results
One of the main factors explaining international expansion is the search for greater
protability in foreign markets (Alexander, 1990, 1997; Treadgold & Davies, 1988). As
previously argued, internationalization is conceived as a learning process and, therefore,
international and domestic performance is expected to improve as experience in foreign
markets is gained. In this regard, internationalization is considered not only as a key
success factor but also as a key element of survival for large retailers (Dawson et al.,
2008). Additionally, in spite of the large contribution of international sales for some
global retailers such as Ahold or Carrefour (Burt et al., 2008; Nordas, 2008), it has
been argued that internationalization in the retailing sector makes a positive but smaller
contribution to the sales of many other retailers (Etgar & Rachman-Moore, 2008). The
evidence that a retailers competitive advantage and success in its home country is not
necessarily transferable to the host countries is put forward in a group of papers that
explore the issue of failure or divestment in the internationalization of research rms
(Bianchi & Arnold, 2004; Burt et al., 2003).
1982 A. Molla-Descals et al.
Since retailers operate in ever more distant countries and internationalize a growing
number of activities of the value chain, several stakeholders are involved, e.g. employees,
suppliers, customers, owners, competitors and governments. All this increases the
complexity and the risk of failure; in fact, success in the home country does not directly
transfer to the host countries if the degree of adaptation of the retail process is not properly
managed. In this regard, several international retailers have experienced important
difculties in some foreign markets (e.g. Burt et al., 2003, 2004; Burt et al., 2002; Gandol
& Strach, 2009), resulting in a negative nancial impact and eventual shutdown of
operations in that particular market.
Dragun (2003), however, argued that the relationship between internationalization
intensity and results is nonlinear. In particular, companies that perform better are either
global enterprises or companies that have only expanded within their country of origin,
rather than companies in a stage of intermediate international expansion.
In order to clarify the relationship between rm results and internationalization, we
enunciate the following research question.
RQ2: Are there signicant differences in retailers results depending on their degree of
international expansion?
Methodology
Spanish fashion retailers are examined through quantitative research using secondary
sources of information. Spanish fashion retailers share the main characteristics and chal-
lenges of textile and clothing companies in other European countries (Lopez & Fan, 2009)
and include some successful international retail chains, e.g. Zara and Mango, that have
received attention in the literature (e.g. Ferdows et al., 2003; Lopez & Fan, 2009;
Mazaira, Gonzalez, & Avendano, 2003). The Spanish retail market, despite a later
development, now shows trends similar to other European countries, such as Italy,
Great Britain, France and Germany. These trends are highly concentrated distribution
channels, increasing internationalization, emergence of international competitors,
outsourcing and re-evaluation of the business models to adapt to customers changing
tastes (Lopez & Fan, 2009; Tokatli & Kizilgun, 2009). We therefore expect the results
for Spanish fashion retailers to be also generalizable to other European countries.
Table 1 shows the main characteristics of the research.
The database of fashion retailers has been obtained from the available secondary infor-
mation. In particular, we have selected retail companies with the highest value of assets for
each retail merchandise or line of trade. The retailers have been located from the National
Classication of Economic Activities and/or the Tax on Economic Activities codes in the
SABI database, which contains nancial data from the last annual reports of major Spanish
companies, as well as rm characteristics such as number of employees, legal status and
the age of the company. The websites of retail brands and franchise directories (e.g.
Tormo.es and Franquiciashoy.es) provided information on the number of foreign countries
and continents in which the retail chain is present under a stand-alone and/or franchise
basis, the number of franchised stores and the total number of stores of the retailer and
the use of e-commerce.
The unit of analysis is the retail chain, and business groups not offering detailed results
for each retail chain have been excluded. Data from 64 retail chains have been collected,
where 8 chains (i.e. Zara, Bershka, Massimo Dutti, Stradivarius, Pull & Bear, Oysho,
Kiddys Class and Uterque) belong to the same company (Inditex Group). Doing the
analysis at the level of the chain and not the company may have implications for nancial
The Service Industries Journal 1983
performance, such as allocation of corporate overheads. However, analysis at the chain
level will allow us to identify the internationalization patterns of the different retail
chains, and it would be extremely interesting to analyse how chains in the same
company are classied according to their internationalization strategy. Additionally,
since they amount to only 12.5% of the total sample and are grouped in the same
segment, mean calculations may dilute the effect of corporate overheads allocations, and
thus, comparisons with other groups may not be signicantly affected by the chain
versus the company approach.
With these data, an automatic interaction detection (AID) analysis is conducted con-
sidering international expansion (measured as the number of foreign countries where
the retailer is present with, at least, one store) as the key variable in the segmentation
process and a set of rm characteristics as explanatory variables. The AID is a nonpara-
metric statistical analysis technique used to study the relation of dependency between a
dependent variable and several predicting variables (independent or explanatory variables)
operating sequentially through analysis of variance (ANOVA). In each step, the AID
algorithm identies the independent variables that contribute the most to explaining the
variability in the dependent variable (Kass, 1980). In particular, the CHAID (chi-square
AID) procedure subdivides a data set into exclusive and exhaustive segments that are com-
pared through the chi-square statistic (Magidson, 1993). CHAID has been commonly used
in Social Sciences, especially in market research (MacLachlan & Johansson, 1981).
In the present study, CHAID has been used to characterize fashion retailers based on
their internationalization pattern. This analysis is expected to provide heterogeneous
segments that differ signicantly not only in the dependent and independent variables,
but also regarding other variables.
The resulting segments are compared through an ANOVA regarding other variables,
such as business results. In this way, we aim to determine whether the companies belong-
ing to each group behave in a signicantly different way regarding variables that have not
been considered for the CHAID. Finally, the distinguishing features of the fashion retailers
segments are identied.
Results
In order to classify fashion retailers based on their international expansion pattern and
their rm characteristics, a CHAID algorithm is used considering the number of foreign
Table 1. Technical details of the research.
Universe Fashion retailers selling: adult and childrens clothing,
underwear, footwear, accessories
Geographical scope Spain
Unit of analysis Retail chain
Sample size 64 biggest retail chains
Data sources SABI
Tormo.es
Franquiciashoy.es
Retailers websites
Statistical techniques Descriptive analysis
Contingency tables
CHAID
Analysis of variance (ANOVA)
Statistical software SPSS version 17.0
1984 A. Molla-Descals et al.
countries where the retailer has presence as the dependent variable and several rmcharac-
teristics as independent variables, i.e. number of continents in which it is present, rm size
measured as total assets, operating turnover, number of employees and number of shares;
entry mode measured as the percentage representing franchised stores over the total
number of retailer stores; age of the company, retail merchandise or line of trade, the
use of e-commerce and legal status. The results obtained from the CHAID analysis are
shown graphically in Figure 1 and numerically in Table 2.
As can be seen, the CHAID algorithm generates four nal groups of fashion retailers.
In order to further characterize each nal segment, we test the signicance of the differ-
ences between segments regarding the number of foreign countries where the retailer is
present and rm characteristics. Average values for each segment and ANOVA test
values are shown in Table 3.
Regarding the dependent variable for the CHAID algorithm, i.e. number of foreign
countries where the retailer is present, it is observed that the rst group of retailers
shows a signicantly higher average value in comparison to the other segments. Retailers
in this segment are characterized by having stores in a high number of foreign markets.
In contrast to this group, the second group of retailers has no presence abroad, being
restricted to the national market. Similarly, the third group shows a reduced expansion to
foreign markets, while the fourth segment of retailers adopts an intermediate position
between the rst cluster and retailer groups 2 and 3.
Consistently, groups 2 and 3 are mainly focused on the European continent, while
stores in segments 1 and 4 are distributed in an average of three continents. Consistent
with the wide international expansion of retailer group 1, the companies are signicantly
larger in terms of total assets, operating turnover and number of employees, in comparison
with the other clusters. A wide international presence, however, is not restricted to big
retailers, since group 4 also shows a global internationalization approach, with all their
Figure 1. Classication tree generated by CHAID algorithm.
The Service Industries Journal 1985
retailers present in three continents, although they are similar in size to the retailers in
groups 2 and 3.
The wide international presence of retailers in group 4 might be explained by the use of
franchise in their growth strategy, since 37.41% of their stores are franchised in compari-
son with 22.70% in the case of the retail chains in group 1. Nevertheless, differences in the
percentage of franchised stores are not signicant across groups of retailers.
The number of countries in which retailers are present is directly related to company
age, although no signicant differences are observed across the four groups. In a similar
vein, differences between retailer groups regarding number of shares in the rm capital are
not signicantly different.
Regarding the participation of companies in each group, all Inditexs chains have been
classied in the rst nal segment, i.e. the segment including the retail chains with the
Table 3. CHAID variables: average values and signicant differences.
1 2 3 4 F
Differences
between groups

Dependent variable
Number of foreign
countries
32.00 0.00 2.67 14.43 15.26

12, 13, 14
Independent variables
Number of
continents
2.89 1.00 1.39 3.00 102.43

12, 13, 23,

24, 34
Total assets
(thousand euros)
335,060.78 12,753.25 11,143.79 15,877.93 9.61

12, 13, 14
Operating turnover
(thousand euros)
386,758.17 22,909.00 17,605.58 27,003.23 11.61

12, 13, 14
Number of
employees
2513.61 148.90 106.74 219.25 7.71

12, 13, 14
Number of shares 7.47 1.58 2.79 2.36 1.29

Franchised stores
on total stores (%)
22.70 24.60 27.99 37.41 0.60
Age of the company
(years)
26.66 19.48 20.64 22.15 1.34
Number of chains (%) 19 (29.7) 12 (18.7) 19 (29.7) 14 (21.9)
Number of companies 13 12 19 14

In order to test the signicance of the differences between the types of retailers, the Tukey post hoc multiple
comparison test is used. Only statistically signicant differences between groups at the 5% level are shown.

Statistically signicant at 1%.

Table 2. Descriptive statistics of nal nodes.
Node Final segment Size %
Number of foreign
countries average
Standard
deviation Characteristics
2 1 19 29.7 32.00 23.83 Total assets . 58,299
3 2 12 18.7 0.00 0.00 Total assets 58,299
Number of continents 1
4 3 19 29.7 2.67 2.09 Total assets 58,299
Number of continents: (1, 2]
5 4 14 21.9 14.43 16.72 Total assets 58,299
Number of continents . 2
Note: Risk estimate: 221.134. Standard error: 67.464.
1986 A. Molla-Descals et al.
widest presence in foreign countries, except for Uterque, the newest chain in the company,
operating since 2008, that has been included in group 4. Therefore, we infer that all chains
in the Inditex group follow the same expansionist pattern and in a few years Uterque will
probably achieve a wider international presence in parallel with the other Inditex chains.
In order to complete the characterization of the groups of fashion retailers, in Table 4,
we show the percentages or relative frequencies of the group and category in the total
sample (e.g. 21.9% of retailers belong to segment 1 and sell adult wear), and the
chi-square statistic to test independence between retail group and the corresponding
categorical variable.
As can be inferred from Table 4, adult wear is the predominant line of trade in the four
groups of retailers, although it is more relevant in segments 1 and 3, and the percentage of
footwear retailers is relatively higher in segments 2 and 3. There is a predominant presence
of clothing retailers in all four clusters.
No signicant differences are detected regarding the use of e-commerce across
retail segments. Therefore, while all retailers included in the sample have their own
website to provide information on their latest collections and store location, the number
of store brands offering online purchase and payment facilities in the four groups is
still small.
Lastly, international expansion might be helped by funds attracted from investors,
since there is a signicantly higher presence of Public Limited Companies in relation to
Private ones in the most internationalized segments, i.e. groups 1 and 4. In group 1,
Public Limited Companies represent more than ve times the number of Private
Limited Companies (25.0% in relation to 4.7%), and in group 4, the number of Public
and Private Limited Companies is the same, whereas in groups 2 and 3 privately owned
companies represent a higher proportion in relation to public companies.
Table 5 summarizes the characterization of the four groups of fashion retailers ident-
ied on the basis of the variables with statistically signicant differences.
The CHAID algorithm grouped retailers in four segments with similar numbers of
retailers but differentiated characteristics. The rst segment, which we have labelled as
Big global chains, gathers 29.7% of the sample of retailers. It mainly includes very big
retailers that have adopted a Public Limited Company status and have expanded in
several countries and continents.
Table 4. Retailer characteristics.
Categorical variables 1 2 3 4 Chi square
Retail line of trade 13.87

Adult wear (%) 21.9 10.9 20.3 14.1

Baby and childrens wear (%) 3.1 1.6 0.0 3.1
Underwear (%) 1.6 1.6 0.0 0.0
Footwear (%) 1.6 4.7 6.3 0.0
Accessories (%) 1.6 0.0 3.1 4.7
E-commerce 0.58
Yes (%) 6.3 4.7 9.4 6.3
No (%) 23.4 14.1 20.3 15.6
Legal status 10.23

Private Limited Company (%) 4.7 12.5 17.2 10.9

Public Limited Company (%) 25.0 6.3 12.5 10.9

Statistically signicant at 5%.

Statistically signicant at 10%.

The Service Industries Journal 1987
In contrast to this rst segment, the second group, that we have named National
retailers, represents the smallest group, i.e. 18.7%, of the sample, and even if there are
no signicant differences in age and percentage of franchised stores in comparison to
the rst segment, the retailers are signicantly smaller and have not entered foreign
markets, focusing only on the domestic market. They are mainly Private Limited
Companies which are mostly still owned by the founder.
The third group includes companies similar in size to National retailers but with
a presence in several countries, mainly in Europe. It may gather retailers that have
recently started their international expansion in a group of selected markets with similar
characteristics to the national market; therefore, we have denominated this segment
Selective international retailers. This idea comes from the observation that companies
in this group are younger (average age: 20.64 years) than more internationalized retailers,
i.e. companies in segments 4 and 1 (average age: 22.15 and 26.66 years, respectively)
and it is also supported by the presence in this segment of some upscale retailers with
a long tradition in the Spanish market, e.g. Acosta, Mascaro or Sita Murt, that have
recently established in a small number of distant markets such as Russia, China and
Saudi Arabia.
Finally, the fourth group is similar in size to segments 2 and 3, but differs from the
latter in its clearly global strategic approach. The companies included in this group are
present in several countries in an average of three continents. Thus, their expansion is
not restricted to culturally similar countries but also to different markets where Spanish
clothing and accessories might be welcome. We have named this segment Small global
retailer.
The analysis of the internationalization patterns in fashion retailing is completed with
the study of the differences in rm results across the four groups of retailers. In this regard,
Table 5. Characterization of fashion retailer groups.
Variable
Group 1: big
global chain
Group 2:
national retailer
Group 3: selective
international retailer
Group 4: small
global retailer
Number of foreign
countries
High Null Low Medium
Number of
continents
High Low Medium High
Volume of assets High Low Low Low
Operating turnover High Low Low Low
Number of
employees
High Low Low Low
Legal status Mainly public Mainly private Mainly private 50% private/50%
public
Retail activity (line
of trade)
Adult wear Adult wear Adult wear Adult wear
Baby and
childrens
wear
Baby and
childrens
wear
Footwear Baby and
childrens wear
Underwear Underwear Accessories Accessories
Footwear Footwear
Accessories
Number of retail
chains (%)
19 (29.7) 12 (18.7) 19 (29.7) 14 (21.9)
Number of
companies
13 12 19 14
1988 A. Molla-Descals et al.
we aim at testing if rm average results in the last three available years, i.e. 20062008,
differ depending on the retailer internationalization approach (Table 6).
As a result, generally speaking, Big global chains are those obtaining the best nancial
results both in absolute terms and in ratios. While their superior absolute results might be
explained because of their bigger size, their high prot margin, return on capital employed
and solvency ratios denote their excellent performance. In contrast, retailers in the third
group (Selective international retailers) are showing modest prots and cash ows in
comparison with segments of similar size, i.e. 2 and 4, and the lowest prot margin and
return on capital employed.
These results support Dragun (2003), who argued that the relationship between inter-
nationalization and rm results is nonlinear. Similar to this author, we obtain evidence
supporting the superior results of the most internationalized retailers and those focused
on their country of origin, in contrast to retailers with an intermediate degree of
international expansion. However, the inferior business results of Selective international
retailers and Small global retailers might be explained by their relatively recent intro-
duction in some markets and their nancial effort to expand in foreign markets, sacricing
short-term prot for the sake of a wider international presence.
These ndings also support the psychic distance paradox defended by OGrady and
Lane (1996), since although Big global chains are present in quite different markets in
comparison to their home country, they show better results than the other retail chain
groups, which may be present in less distant markets.
Conclusions, limitations and further research avenues
Internationalization is an option that has been widely considered by fashion retailers,
although it is more complex for retailing than for manufacturing companies (Dawson,
1994; Dawson et al., 2008). Our results reect this complexity as they identify signi-
cantly different patterns of retail market expansion, where rm size constitutes a sufcient
but not necessary condition to explain the retailers presence in international markets.
Table 6. Firm results: average values (20062008) and signicant differences.
1: Big
global
chain
2:
National
retailer
3: Selective
international
retailer
4: Small
global
retailer F
Differences
between
groups

Prot (loss) before tax

(thousand euros)
46,904.96 1277.85 564.54 227.99 10.49

12, 13,
14
Cash ow (thousand
euros)
44,346.89 1487.18 725.16 1247.35 10.86

12, 13,
14
Return on shareholders
funds (%)
36.99 24.09 42.29 26.71 0.49
Prot margin (%) 12.80 19.54 20.65 3.22 1.27
Return on capital
employed (%)
38.01 6.49 1.31 14.20 3.92

13
Solvency ratio (%) 54.91 42.43 24.38 9.74 2.69

Number of companies
(%)
19 (29.7) 12 (18.7) 19 (29.7) 14 (21.9)

In order to test the signicance of the differences between the types of retailers, the Tukey post hoc multiple
comparison test is used. Only statistically signicant differences between groups at the 5% level are shown.

Statistically signicant at 1%.

Statistically signicant at 5%.

The Service Industries Journal 1989
In this regard, while all the biggest fashion retailers are currently established in foreign
markets, many smaller retailers have also decided to take their collections across the
Spanish borders. In particular, four groups of fashion retailers are identied and labelled
as Big global chains, National retailers, Selective international retailers and Small global
retailers. Big global chains mainly adopt Public Limited Company status and differ from
the others because they are larger in size, while smaller retailers show signicantly
different international expansion patterns.
We can conclude from our analysis that the differentiated approaches towards interna-
tionalization explain differences in rm results, as both intensive international expansion
(Big global chains) and concentration in the national market (National retailers) provide
better results than other approaches, thus supporting the ndings of Dragun (2003). In con-
trast, intermediate rm expansion provides the weakest results. However, we understand
those retailers classied as Selective international retailer or Small global retailer are on
the way to achieving wider internationalization, maybe they are would-be global retailers.
This nding suggests to retailers seeking internationalization that the initial steps may
not be protable and that internationalization should be a carefully planned long-term
strategy. Going further in the process of internationalization can bring about economies
of scales in sourcing and logistics as well as economies of scope in managements
systems and the application of technologies.
This evidence about low protability initially in internationalization and subsequent
increases in performance links with the ndings on international retail learning (Palmer
& Quinn, 2005). Notwithstanding, for big retailers, international expansion may represent
a low nancial leverage that allows management to experiment and learning without
enormously damaging the overall protability of the group (Palmer & Quinn, 2005).
Additionally, in the context of international retail joint ventures, Palmer (2006) pointed
out that a selective strategy can be successful provided that the reputation of the
international retailer is well established and appeals the partner in the selection process.
Moreover, when local management has strong retail operation credentials, franchised
stores operating with greater autonomy may actually lead to more positive results.
If retailers are aware of the advisability of becoming truly global and the relatively low
inuence of psychic distance as per the paradox argued by OGrady & Lane (1996),
increased competition can be expected in this industry. Thus, we nd support for the
emergence of international competitors that are restructuring the textile and clothing
sector, as pointed out by Lopez and Fan (2009), and fashion retailers should get ready
to cope with increasing competition both in international markets as well as in their
home market. Differentiation, customization and quick response to demand with the
help of technologies may be key factors to avoid failure in this hypercompetitive
environment (Tokatli & Kizilgun, 2009).
Notwithstanding, these results should be understood as a rst approach to this issue,
since only 64 Spanish fashion retailers were analysed. As other studies in the services
industry acknowledge (e.g. Devlin, 2010), there may be similarities as well as differences
with retailers in other countries, and therefore, this research should be replicated in other
contexts before drawing conclusive links between internationalization patterns and rm
results.
Furthermore, the causality suggested between the identied categories and the nan-
cial results may be inuenced by other mitigating factors, such as the percentage of
non-domestic sales. Unfortunately, this information was not duly available for all retail
chains in secondary information sources. Primary data collection from retailers through
a questionnaire may enable the analysis of additional variables potentially inuencing
1990 A. Molla-Descals et al.
the relationship between internationalization patterns and nancial results. Collecting
primary information will also allow to explore the relationship between perceived
psychic distance and the performance of international retailers, as suggested by Evans
et al. (2000).
Additionally, fashion retailing is a complex industry that includes several types of
companies in terms of product commercialized (e.g. adult/childrens clothing, underwear,
accessories, footwear) and brand strategy, such as chain retailers (e.g. Zara, Mango),
designer retailers (e.g. Adolfo Dom nguez, Custo, V&L) and multi-brand retailers (A

rea
Interior). A bigger sample of retailers might provide an opportunity to examine differences
in internationalization patterns also regarding the type of fashion retailer.
Finally, the selection of retailers was made based on their volume of assets in 2008 and
their presence in retailing directories. In this regard, the possible effects of the global
economic recession and its unequal impact on different fashion sub-industries and
market segments should be taken into account. A study that takes a longitudinal approach
could overcome the effects of analysing data from a single moment in time.
Thus, further research should focus on building a theoretical framework to explain
factors for retail internationalization and how and to what extent retail procedures,
systems and operations are adapted to the different cultures in foreign markets. In parti-
cular, it should be explored how to generate customer loyalty in foreign markets and,
then, how to turn intangible loyalty into tangible prots, as suggested by Chen, Shen
and Liao (2009). All in all, according to Dawson (2006), we understand that in order to
shed additional light on the retail internationalization process, further progress is
needed in research to consider what type of knowledge is transferred, in which direction,
by whom and what are the results of internationalization.
Acknowledgement
This research has been nanced by the Spanish Ministry of Education and Science
(Project ref.: ECO2009-08708).
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