Distinguishing Rout from Strategic Retreat

Aim

There is a tactic in which forces withdraw while luring the enemy deeper in, then strike once the enemy’s supply lines are stretched to the limit. It is Russia’s traditional specialty—the scorched earth strategy. “Because I know that,” says Damian McKinney, “I couldn’t take comfort even when I heard that Russia was on the back foot in Ukraine.”

An organization that clearly distinguishes between a rout born of defeat and a retreat executed to win is a formidable one.

 
Deep Dive

Russia’s scorched earth strategy has a long history. One of the most famous examples is how it repelled Napoleon’s invasion of Moscow through the combination of vast territory and a brutal winter. Russia employed the same approach against the Nazi invasion as well.

From a military standpoint, the conditions for successfully executing a scorched earth strategy are likely the following:

(1) A vast territory capable of drawing the enemy deep inside
(2) Precise timing aligned with an enemy eager to advance
(3) Stakeholder agreement to accept the resulting damage

Russia attempted a scorched earth strategy against the Japanese army in Manchuria during the Russo-Japanese War, but it failed. The commander of the Russian army, Alexei Kuropatkin, was unable to secure the support of Tsar Nicholas II. As a result, the operation was left incomplete, and Russia suffered a decisive defeat at the Battle of Mukden during its retreat. In other words, condition (3) was missing.

While different from scorched earth tactics, the Mongol Empire’s way of fighting shares the same principle of “falling back in order to win.” The strength of the Mongol army lay in its exceptional horsemanship. Every Mongol soldier was a cavalryman, riding from early childhood, and it is said they could continue campaigns for days while eating, relieving themselves, and even sleeping on horseback.

One technique unique to them was to feign retreat, lure pursuing enemies forward, and then twist their upper bodies 180 degrees while riding to shoot arrows backward. Enemies who pursued too far without understanding this tactic were devastated. With this approach, a force of only 100,000 Mongol soldiers swept across the Eurasian continent.

Both Russia’s scorched earth strategy and the Mongols’ backward shooting on horseback succeeded because everyone—from top leadership to frontline soldiers—shared the same objective: “fall back in order to win.” It is much like the counterattack strategy in football. Italy’s national team, which won the 1982 World Cup, was famous for its use of catenaccio.

I, too, once executed a “strategic withdrawal to win” in my previous role at MHD in our wine strategy. Our shareholder, LVMH, decided to focus on its own branded wines, and we discontinued handling high-end wines for which we had exclusive import rights in Japan.

Looking back, I can see that this decision met the conditions for a successful “scorched earth” approach:

(1) Financial capacity to absorb losses
(2) Exclusive distribution rights that other importers would eagerly take over
(3) Stakeholder agreement to accept short-term damage

Among these, the most challenging was (3). The shareholder had initiated the move, so there was no issue there. However, our sales team lamented:

“We’ve built strong relationships with high-end restaurants because we handle premium wines like G* and P*****. Without them, we won’t even be able to approach those clients.”

Next, I found myself effectively shut out by organizations such as Wine K*** magazine and the Japan S******* Association. When I first took the role, they had said things like:

“As the new president, we’re counting on you to expand the wine market!”

But once we began the “scorched earth” strategy of withdrawing from all non-house brands, they stopped speaking to me altogether.

In the end, however, the strategy of focusing exclusively on our own wines—covering everything from production to sales—was a great success.

It is not easy to generate profits in the wine business. In particular, if you are involved in only part of the value chain, margins are small and structurally unprofitable. Owning the entire value chain—from production to sales—is the critical success factor (CSF) for securing profitability.

As an aside, one reason for the low profit margins may be that people in the wine business simply love wine too much.

“I’ll gladly carry this wine even if the margin is low.”
“I reinvest everything I earn into winery tours—wine is my life.”

A classic example I witnessed was a sommelier angrily confronting staff:

“Who sold the wine I had carefully set aside!?”

In the end, we built a high-growth, high-profit wine business centered on our own brands through the kind of cold, disciplined decision-making instilled by Bernard Arnault.

It left me thinking:

“Neither LVMH nor Russia are to be underestimated.”

At the same time, I learned this:

“Organizations that establish their own way of doing business—and execute it with confidence—are truly strong.”