TORONTO - Shopping in Germany could leave Hudson's Bay Co. with a handful of new challenges if it emerges the winning bidder for department store operator Kaufhof.The Canadian retailer is reportedly planning to make a binding offer for the Kaufhof chain in hopes of expanding into a new market and scooping up the valuable properties that come with it.But the move could also leave the iconic Canadian company taking a big risk as an outsider in a foreign land."There's a considerable amount of due diligence that needs to be done to understand a new country," said Sandy Silva, NPD Group's fashion industry analyst.It wouldn't be the first time a retailer strolled into the tough German market with big hopes and was instead dealt a rude awakening.Walmart left in 2006 after a colossal failure to understand local customs stretched from its break rooms to the cash registers. Others like England's Marks & Spencer and Castorama, the French home improvement retailer, also retreated.Hudson's Bay (TSX:HBC) is said to be bidding for Kaufhof against Austrian real estate company Signa, owner of fellow German department store chain Karstadt, with unofficial offers pegged at around $3.5 billion.If Hudson's Bay wins, the company would hold a valuable slate of real estate, with 120 Kaufhof stores across Germany and another 16 in Belgium.Hudson's Bay has already generated profits from its North American real estate portfolio, grabbing $650 million in a sale-leaseback for its flagship store in downtown Toronto and another $1.8 billion from Zeller's store leases in 2011.In Germany, one of the most valuable spaces would be Kaufhof's flagship store at the heart of the Alexanderplatz public square in Berlin. The area is flooded with tourists and is one of the country's busiest department stores.But Hudson's Bay would still be tasked with operating in a mature consumer market where the department store model is fading, said Thomas Roeb, an economics professor at Bonn-Rhein-Sieg University."Kaufhof is a high-risk investment for any prospective buyer," he said in a statement. "History tells us it is particularly difficult for foreign companies that have struggled to understand the German consumer."Even more than Target Corp.'s failure in Canada, Walmart found that Germany is a hard market to crack. The discount retailer arrived puff-chested in 1998, buying about 95 stores from two local chains who failed to make many of them profitable.From there disaster struck, as an American Walmart executive parachuted in, making demands that mimicked the U.S formula. Door greeters and cashiers were told to always smile and make eye contact, which was sometimes misinterpreted as flirtatious by customers.Behind the scenes, Walmart's daily staff huddles were dismissed by employees, while local unions challenged its code of conduct, which forbade staff interaction that could be viewed as sexual.Above all, Walmart's famous low prices were consistently undercut by local discount chains. Eight years after its launch, the company packed its bags and went home.When it comes to sales, Hudson's Bay stands apart from Walmart and CEO Gerry Storch says he wouldn't make presumptions before entering a new country.While Storch declined to say whether Hudson's Bay was in talks with Kaufhof, he called international markets a "huge opportunity" if certain standards are upheld."One of the rules that I always go by is that your team must be local," he said in a recent interview."When I was chairman and CEO at Toys 'R' Us, we operated in every country in Europe. There was not a single American in any of those business units — not one. I believe quite strongly, wherever you are in the world, given the importance of local taste and custom, that you have a local team."Retail analyst Brian Yarbrough says many executives hold that perspective after an acquisition, but they quickly change their tunes if profits go south."The first hint sales are weaker than planned, heads start to roll, and they bring in people from the U.S.," he said."I've seen this so many times. Rarely when one company buys another does the management team stick around for long. There's always culture clash."Follow @dj_friend on Twitter.
This article exists as part of the online archive for HuffPost Canada, which closed in 2021.