When consumers finish their Christmas buying, another shopping season will be just beginning: retailers will be bought and sold by other retailers. Britain, in particular, may face a wave of retailer acquisitions.

Wal-Mart especially terrifies its European counterparts, because its high-tech supply system and mass-buying power enable it to command the lowest prices from suppliers. Since Wal-Mart bought Britain’s third-largest supermarket chain, Asda, for just under $11 billion in cash last June, the share prices of nervous British rivals have started to plummet.

But Asda’s retiring chairman, Archie Norman, thinks the stocks have fallen too far. In early November he and three friends invested $8 million in a shell company called Knutsford. Their $8 million was nominally worth $200 million the next day, and when Norman said Knutsford intended to buy “undervalued retail operations,” private investors fought to purchase the company’s few remaining available shares.

Little Knutsford presumably cannot gobble up Britain’s two struggling retail giants, but a bigger company may do so. One of these troubled retailers is Marks & Spencer, a national icon. In 1996, Britons bought 40% of their lingerie, 25% of their men’s suits, and 6% of their food in M & S’s 700 shops.

Founded in 1884, when Polish immigrant Michael Marks opened a penny bazaar in a market stall in Leeds, the company grew rapidly a generation later under the leadership of Michael’s son, Simon (later Lord) Marks. Simon Marks would descend on his stores unannounced, throw anything he considered substandard to the ground, and yell, “Are you trying to ruin my business?” In 1964 he visited a women’s department that stocked shorter miniskirts than he had approved and died of a heart attack.

For many years, M & S was held up as an example of enlightened business practices. It trained its staff and suppliers exhaustively, promoted from within its own ranks, and bought from British suppliers on long-term contracts. Its strategy of buying British turned out to be disastrous. While its competitors were ordering from cheaper, faster overseas suppliers, M & S was placing orders in huge quantities with expensive British firms who took up to 12 months to deliver – by that time, fashions had changed and the clothes were out-of-date. M & S eventually became known for being rather dowdy. At the same time, the M & S culture grew inbred and slow to adapt to change. As a result of these problems, the company’s stock price has sunk 50% since 1997.

The second major British retailer in crisis is J. Sainsbury & Sons’, which, until 1996, was Britain’s largest grocer. Its share price also has dropped by nearly half in the past two years. Sainsbury family members still own 40% of the company; the younger ones may be willing to sell for a decent price. Founded in 1869, J. Sainsbury experienced its fastest growth a century later when the founder’s great-grandson, John, took over. John Sainsbury was wont to land his helicopter unannounced on the flat roofs of his stores, but he was also courteous to all his employees, provided they lived up to his rigid rules. Of these rules, the most important was to maintain a sales density of at least $33 per week for every square foot in the store. In 1912, John Sainsbury (who was made a lord by Margaret Thatcher) retired in favor of his younger cousin David (who has been made a lord and government minister by Tony Blair). Though everyone agrees that David is a nice fellow, he and his successors saw Sainsbury slip behind an upstart, Tesco, which introduced even tougher performance rules and more innovative service. Sainsbury’s, like M & S and Britain’s fourth-largest supermarket chain, Safeway, is a likely candidate for takeover in the near future. The fifth largest, Somerfield, is trying to sell its 140 best stores, but will probably fail to sell its 350 worst ones.

Foreign takeovers seem less likely to succeed in France, where supermarkets are amalgamating into national icons, protected by local authorities. Optimists say this atmosphere is changing, but I would hesitate to invest early in any foreign intruder who seeks to flood France with the cheapest Asian textiles and most efficiently produced American hormone-treated beef.

That is why Wal-Mart has made its first European invasions during the past two years into price-conscious Germany. Wal-Mart seems confident that the stores it has bought can beat the locals in service (which in Germany is atrocious) while cutting prices even further. If Wal-Mart succeeds in Germany, it should succeed in equally free-trading Britain, although primarily in non-food products. The food market in Britain is challenging to enter for several reasons: there are planning restrictions against large out-of-town warehouses, gas taxes are high, and Tesco is already thriving as an efficient grocer in an overcrowded market. One way or another, though, Europe’s main streets are changing fast.

PLAY BY PLAY
This essay is long, ponderous and detail-ridden. Something like this needs to be mapped well so you can quickly find detail questions.

PARAGRAPH 1

When consumers finish their Christmas buying, another shopping season will be just beginning: retailers will be bought and sold by other retailers. Britain, in particular, may face a wave of retailer acquisitions.

The author is setting up a piece about retail acquisitions outside of the U.S.

PARAGRAPH 2

Wal-Mart especially terrifies its European counterparts, because its high-tech supply system and mass-buying power enable it to command the lowest prices from suppliers. Since Wal-Mart bought Britain’s third-largest supermarket chain, Asda, for just under $11 billion in cash last June, the share prices of nervous British rivals have started to plummet.

British supermarket stock has gone down since Asda, a large British supermarket chain, was bought by Wal-Mart.

PARAGRAPH 3

(1) But Asda’s retiring chairman, Archie Norman, thinks the stocks have fallen too far. In early November he and three friends invested $8 million in a shell company called Knutsford.

(1) Norman thinks that the retail market is undervalued.

(2) Their $8 million was nominally worth $200 million the next day, and when Norman said Knutsford intended to buy “undervalued retail operations,” private investors fought to purchase the company’s few remaining available shares.

(2) Notice the unstated implication of that jump in price! How did it jump so much? Surely many people agree that is undervalued.

PARAGRAPH 4

Little Knutsford presumably cannot gobble up Britain’s two struggling retail giants, but a bigger company may do so. One of these troubled retailers is Marks & Spencer, a national icon. In 1996, Britons bought 40% of their lingerie, 25% of their men’s suits, and 6% of their food in M & S’s 700 shops.

M & S, another struggling British retailer, is in danger of being bought by a corporate giant.

PARAGRAPH 5

Founded in 1884, when Polish immigrant Michael Marks opened a penny bazaar in a market stall in Leeds, the company grew rapidly a generation later under the leadership of Michael’s son, Simon (later Lord) Marks. Simon Marks would descend on his stores unannounced, throw anything he considered substandard to the ground, and yell, “Are you trying to ruin my business?” In 1964 he visited a women’s department that stocked shorter miniskirts than he had approved and died of a heart attack.

M & S’s founder was a pretty eccentric guy who had equally eccentric business management practices.

PARAGRAPH 6

For many years, M & S was held up as an example of enlightened business practices. It trained its staff and suppliers exhaustively, promoted from within its own ranks, and bought from British suppliers on long-term contracts. Its strategy of buying British turned out to be disastrous. While its competitors were ordering from cheaper, faster overseas suppliers, M & S was placing orders in huge quantities with expensive British firms who took up to 12 months to deliver–by that time, fashions had changed and the clothes were out-of-date. M & S eventually became known for being rather dowdy. At the same time, the M & S culture grew inbred and slow to adapt to change. As a result of these problems, the company’s stock price has sunk 50% since 1997.

At one time M & S had a reputation for being a very well run and fair business. It did not, however, change along with the times and ended up continuing old-fashioned business practices, while its competitors grew more profitable.

PARAGRAPH 7

(1) The second major British retailer in crisis is J. Sainsbury & Sons,’ which, until 1996, was Britain’s largest grocer. Its share price also has dropped by nearly half in the past two years. Sainsbury family members still own 40% of the company; the younger ones may be willing to sell for a decent price. Founded in 1869, J. Sainsbury experienced its fastest growth a century later when the founder’s great-grandson, John, took over. John Sainsbury was wont to land his helicopter unannounced on the flat roofs of his stores, but he was also courteous to all his employees, provided they lived up to his rigid rules. Of these rules, the most important was to maintain a sales density of at least $33 per week for every square foot in the store. In 1912, John Sainsbury (who was made a lord by Margaret Thatcher) retired in favor of his younger cousin David (who has been made a lord and government minister by Tony Blair).

(1) J. Sainsbury, another major British retailer also has been losing profits, and some of its shareholders may be willing to sell. Sainsbury’s founder was also rather eccentric, but highly regarded. Eventually he passed on the store to his cousin.

(2) Though everyone agrees that David is a nice fellow, he and his successors saw Sainsbury slip behind an upstart, Tesco, which introduced even tougher performance rules and more innovative service.

(2) Sainsbury is being beaten out by Tesco, which is managed more strictly.

(3) Sainsbury’s, like M & S and Britain’s fourth-largest supermarket chain, Safeway, is a likely candidate for takeover in the near future. The fifth largest, Somerfield, is trying to sell its 140 best stores, but will probably fail to sell its 350 worst ones.

(3) Sainsbury will probably be taken over soon, along with Safeway. Somerfield, another supermarket chain, is trying to sell its stores, but will probably not be able to sell most of them. We can infer from this sentence that Somerfield’s stores are not well-run and/or are not profiting enough to be attractive to a buyer.

PARAGRAPH 8

(1) Foreign takeovers seem less likely to succeed in France, where supermarkets are amalgamating into national icons, protected by local authorities.

(1) France is a different case than Britain. Supermarkets are coming together in France to form national symbols of pride and are protected by the country.

(2) Optimists say this atmosphere is changing, but I would hesitate to invest early in any foreign intruder who seeks to flood France with the cheapest Asian textiles and most efficiently produced American hormone-treated beef.

(2) The author does not believe optimists who say France will sell out. He or she thinks that France will not be interested in cheap goods or American meats.

PARAGRAPH 9

That is why Wal-Mart has made its first European invasions during the past two years into price-conscious Germany. Wal-Mart seems confident that the stores it has bought can beat the locals in service (which in Germany is atrocious) while cutting prices even further.

If Wal-Mart succeeds in Germany, it should succeed in equally free-trading Britain, although primarily in non-food products. The food market in Britain is challenging to enter for several reasons: there are planning restrictions against large out-of-town warehouses, gas taxes are high, and Tesco is already thriving as an efficient grocer in an overcrowded market. One way or another, though, Europe’s main streets are changing fast.

Wal-Mart has entered Europe first through Germany, because it is a price-conscious nation. We can infer here that if Germany is price-conscious, then Wal-Mart will be successful due to its low prices. In addition, Wal-Mart believes its service is better than that of German stores.

Our author assumes that if Wal-Mart is successful in Germany, it will be successful in Britain as well. However, success in Britain will have to come from selling non-food products. Entering the food market in Britain is difficult for many reasons. However, our author concludes that “Europe’s main streets are changing fast,” meaning that a lot is happening in the retail sector in Europe, and Wal-Mart or other large conglomerates will be buying up European stores.

1. What is the passage type?

Subject: Economics / Current Events
Action: Describe

2. What is each paragraph about?

P1: Retailers are buying each other out.
P2: Wal-Mart bought Asda and sent British supermarket stock down.
P3: However, Norman, of Knutsford thinks the retail market is undervalued.
P4: M & S may be bought out.
P5: M & S’s founder was eccentric in character and management.
P6: M & S couldn’t stay up-to-date in its business practices and is losing profits as a result.
P7: Tesco is beating out Sainsbury. Sainsbury and Safeway will be taken over soon. Somerfield will not be able to sell its stores.
P8: France is nationalistic and will not sell out.
P9: Wal-Mart entered Europe through Germany, a price-conscious nation. If Wal-Mart is successful there, it will be in Britain as well, but not in food products.

3. What is the organization?

The passage combines fact and opinion. Most of the passage is a history of British business competition. This is a good background because it explains why there may be room for Wal-Mart or other buy-outs there.
Fact: France is nationalistic.
Opinion: France will not sell stores.

Fact: Germany is price-conscious.
Opinion: Wal-Mart will succeed there.

The passage also sets up some contrasts:

Germany vs. France

Britain vs. France

Eccentric business practices vs. Modern, innovative ones

Mom and Pop store vs. Large conglomerate

4. What is the Big Idea?

The retail situation in Europe is making room for takeovers and buy-outs by big companies. However, France may not succumb to this trend.

5. What is the author’s purpose?

To explain the retail situation in Europe and show that the effect on each country is not equal. However, overall changes are obvious.

Explanatory Answers

1. Which of the following can be concluded from the passage?

(A) European retailers have ample reason to dread the American retail company Wal-Mart.
(B) More than 6% of Britons buy their food from J. Sainsbury & Sons.
(C) Wal-Mart is determined to become a major retailer in Europe.
(D) John Sainsbury and Simon Marks shared a similar disposition.
(E) None of the above

Type: Main Idea
(C) The passage alludes to the fear European retailers have of a threat from Wal-Mart, but this threat is not substantiated; hence there is not enough information to definitively infer (A). (B) is also wrong, because the passage says that more than 6% of Brits go grocery shopping at M&S, not J. Sainsbury & Sons. (D) is too vague to be supported by the passage. Finally, (C) is correct. We know that Wal-Mart is making a large effort to become a European retailer from lines like “Wal-Mart seems confident that the stores it has bought can beat the locals in service…”.

2. As compared to France, Germany is:

(A) more open to takeovers by international companies.
(B) less self-conscious about nationalism, protection from the state government is rare.
(C) more interested in cheaper goods.
(D) less concerned with customer satisfaction and quality service.
(E) none of the above.

Type: Detail of the passage
(C) In the sixth paragraph the author says, “Foreign takeovers seem less likely to succeed in France, where supermarkets are amalgamating into national champions, protected by local authorities”, but he or she does not say that Germany is more open to takeovers by international companies or that it is less self-conscious about nationalism and that protection from the state government is rare. So options (A) and (B) are wrong. Secondly, the author says, “Wal-Mart seems confident that the stores it has bought can beat the locals in service (which in Germany is atrocious).” Germany must be concerned with service if Wal-Mart is confident it can bring good service and, as a result, beat local stores. Hence, option (D) is incorrect. Now, consider the lines, “I would hesitate to invest early in any foreign intruder who seeks to flood France with the cheapest Asian textiles…That is why Wal-Mart has made its first European invasions during the past two years into price-conscious Germany.” Price-conscious means liking cheap goods. Hence, (C) is the correct option.

3. The company in which Archie Norman and friends invested $8 million is:

(A) aiming at opening retail outlets in Britain.
(B) likely to be involved in the manufacture or sale of clothes.
(C) a small retail operation that is aiming to expand by buyouts.
(D) not offering any product or service.
(E) none of the above.

Type: Inference
(D) In the second paragraph the author says, “In early November he and three friends invested $8 million in a shell company called Knutsford.” A shell company means that it would not offer any product or service. Hence, (D) is correct. Although it is mentioned that Norman said Knutsford aimed to buy “undervalued retail operations”, we cannot infer that it is planning to expand by buy-outs. So option (C) is wrong. Finally, there is no mention of an intention to open retail outlets in Britain or the likelihood of its involvement in the manufacture or sale of clothes. Thus, options (A) and (B) are also incorrect.

4. Knutsford was worth $200 million the very next day because:

(A) Archie Norman’s association with Asda was enough to lure private investors.
(B) investors believed that some retail operations were undervalued.
(C) Archie Norman had obtained $11 billion in cash from the sale of Asda.
(D) retail operations were perceived as a very good investment.
(E) Knutsford was likely to buy out the bigger retail outlets in Britain.
Type: Inference
(B) In the second paragraph, the author states that Norman said that Knutsford aimed to buy “undervalued retail operations.” Investors jumped at the last shares of his company. Hence, we know that investors believed retail operations were undervalued. The value of Norman’s investment skyrocketed due to this fact, and thus, (B) is the correct option. No evidence in the passage suggests that Norman’s association with Asda was enough to lure private investors, that he obtained $11 billion in cash from the sale of Asda, that retail operations are perceived as a very good investment or that Knutsford was likely to buy out the bigger retail outlets in Britain. So options (A), (C), (D) and (E) are incorrect.

5. Given what the passage says about the success of Wal-Mart, which of the following reforms, if carried out, would be most likely to ensure the continued success of M & S?

(A) a complete overhaul of the supplier base to ensure that it makes volume purchases at globally competitive rates.
(B) a marketing campaign to popularize its brand.
(C) recruiting senior managers from outside and purchasing from global sellers without any purchase guarantee.
(D) training staff for changes in the business environment.
(E) looking towards international rather than British trends and purchase accordingly.
Type: Inference
(A) The passage offers no clues that any of the following would help M & S maintain its success: a marketing campaign to popularize the brand, recruiting senior managers from outside and purchasing from global sellers without any purchase guarantee, training staff for a change in the business environment, or looking towards international rather than British trends and purchasing accordingly. Hence, (B), (C), (D), and (E) are not incorrect. However, in the second paragraph, Wal-Mart is said to be a threat because it can find the cheapest suppliers. If M & S replicates Wal-Mart’s strategy by purchasing at cheaper prices, it will ensure its continued success. Therefore, (A) is the correct option.

6. With which of the following would Walmart have difficulty competing?

(A) Sainsbury
(B) Tesco
(C) Safeway
(D) Somerfield
(E) M & S
Type: Inference
(B) The last paragraph says, “The food market in Britain is challenging to enter for several reasons: there are planning restrictions against large out-of-town warehouses, gas taxes are high, and Tesco is already thriving as an efficient grocer in an overcrowded market.” Therefore, (B) is correct. There is no evidence that Sainsbury, Safeway, Somerfield, and M & S pose any threats for Wal-Mart. The passage, in fact, suggests the opposite. Hence, (A), (C), (D), and (E) are incorrect.

7. A hostile takeover would be unnecessary in the case of:

(A) M & S
(B) Sainsbury
(C) Safeway
(D) Tesco
(E) Somerfield
Type: Inference
(E) The author says that, “The fifth largest, Somerfield, is trying to sell its 140 best stores, but will probably fail to sell its 350 worst ones.” Hence, a hostile takeover is not necessary to beat out Somerfield. The company is already trying to sell its viable stores. Thus, (E) is the correct option. In the case of M & S, Sainsbury, Safeway, and Tesco this does not hold true. Hence, (A), (B), (C), and (D) are incorrect.
8. Which of the following is not mentioned as an obstacle to success in entering the British retail food market?

(A) strict law on food preservation
(B) the need for large out-of-town warehouses
(C) the presence of a well-entrenched retail outlet
(D) an overcrowded grocery market.
(E) high taxes associated with transportation
Type: Detail of the passage
(A) The last paragraph mentions, “The food market in Britain is challenging to enter for several reasons: there are planning restrictions on large out-of-town warehouses, gas taxes are high, and Tesco is already thriving as an efficient grocer in an overcrowded market.” Thus, only (A) is not mentioned as an obstacle.

9. One may infer that France is less susceptible to foreign takeovers mainly because

(A) it does not believe in free trade.
(B) it is not very price conscious.
(C) it is a closed economy.
(D) it is biased against American products.
(E) it is very nationalistic.
Type: Inference
(E) Essentially, the French seem to believe in protectionism. As the author states, “Foreign takeovers seem less likely to succeed in France, where supermarkets are amalgamating into national champions, protected by local authorities…I would hesitate to invest early in any foreign intruder who seeks to flood France with the cheapest Asian textiles and most efficiently produced American hormone-treated beef.” Even the “cheapest Asian textiles” do not lure the French, so price consciousness is not a possible reason. Therefore, option (B) is wrong. Although a mention of American beef is made, there is no evidence of a bias. So option (D) is incorrect. Why does France believe in protectionism? A philosophical objection to free trade, or nationalistic fervor? Free trade and a closed economy are not referred to at all, so we cannot infer either of these are the reasons. Thus, options (A) and (C) are also incorrect. On the other hand, the passage mentions that French supermarkets are becoming national champions and that this is the reason that they are being protected. Therefore, (E) is correct.