Internationalisation Efforts Lead to Increased Market Share - Essay Example

Upscale Retailer Shifts from Public to Private: Internationalisation Efforts Lead to Increased Market Share Introduction The retail industry is often inundated with competition as department stores and other retail entities attempt to outperform one another in a bid to gain market share. The upscale department store described in this study provides consumers with prestigious retail merchandise in both mens- and womens-wear, beauty products, fashion accessories, products for the home and gourmet food selections. A company with over 100 years of longevity, this department store has shifted from public ownership to private ownership, allowing the firm to make rapid changes into the international luxury retail markets. This study identifies the internationalisation and general business strategies of the company under investigation and will be referred to as Company X in order to ensure anonymity for both the corporate entity and the manager who was interviewed for this project. Participant and Company Overview The participant in this study carried the title of Regional Marketing Manager, responsible for domestic promotion and advertising efforts as well as working with various executive team members regarding global marketing initiatives. This manager, in her eleven years of service to Company X, has travelled extensively on domestic soil and has visited many of the firm’s international locations in order to identify the impact and delivery of global marketing strategies. Though the primary responsibilities of the subject are primarily domestic in nature, she is privy to the internationalistion efforts of the department store and provided the researcher with a large volume of global marketing and sales initiatives. Company X, from an internal perspective, is considered to be on the UK’s foremost retailers of upscale clothing and associated home merchandise, with the majority of their products targeted at the upscale, high-end consumer. For the majority of their operating history, Company X maintained only one store in London, but in the latter portion of the 1990’s the firm began to expand into additional domestic markets. It was only after the firm went from a publicly-traded entity to private ownership that internationalisation efforts began as the firm began to experience less profitability in a rather fluctuating and unpredictable UK market. Today, the firm maintains retail stores in the United Arab Emirates (UAE), Hong Kong, Ireland and Saudi Arabia, allowing the firm to establish the Company X brand name in global luxury consumer markets. Company X Business Strategies The firm maintains a relatively simple business strategy: Catering to the contemporary upscale consumer providing unique fashion and home brands and focusing the majority of their marketing efforts to maintain consumer perceptions of modernism and exclusivity. In order to maintain this high-end image, the firm directs none of its marketing efforts at the middle-class or working-class consumer as purchasing lower-end merchandise will erode the firm’s reputation for providing luxury lifestyle products. In the 1950’s, the company attempted to draw in additional markets by providing a variety of lower-cost fashion merchandise which served to undermine the luxury consumer profitability targets as the upscale buyers’ perceptions of exclusivity were diminished. By the end of that decade, the company returned to promoting its upscale appeal and had eliminated the process of purchasing lower-end merchandise, thus segregating the middle-class consumer from the high-end buyer. In the early 2000’s, the company went from publicly-traded to private, which created a considerable controversy from the stakeholder and shareholder communities. However, the interview candidate suggested that the new private ownership took the firm into an entirely different direction, allowing Company X to capture the global market and boost overall profitability by well over 20 percent. The participant suggested that the new global focus has turned what was considered to be a rather stale marketing initiative and transform it into one of contemporary living and international consumer relationships. The subject identified that internationalisation has transformed not only the marketing element of the firm’s operating and strategic initiatives, but has radically improved the scope of how the company is perceived in the global marketplace; allowing Company X to diversify both its investment objectives and its partnerships with various fashion designers across the world. It was suggested that prior to private ownership, Company X had been unable to secure partnerships with many well-known couture designers. The participant suggested that the overseas luxury consumer, especially in Hong Kong and Saudi Arabia, have become very brand-conscious and maintain perceptions of quality based on the label of every piece of fashion merchandise. In addition, the desire for beauty enhancement in countries where men and women have maintained a long history of segregation has served to contribute greatly to the firm’s profitability in the foreign market environment. Hence, the firm’s internationalisation strategies are to capture the luxury consumer market utilising a focus on beauty and fashion; much unlike domestic efforts which tend to emphasise home interior products alongside fashion and beauty merchandise. The participant further indicated that its fashion and beauty focus overseas have met with their fair share of successes, in which the company has not yet determined that exiting is a viable strategy and has yet to pull its retail stores from any of its foreign locations. The subject identified that there are currently no plans to exit any of the territories in which Company X is currently thriving. Experiences in the Foreign Luxury Markets The global fashion and beauty marketing campaigns are not only focused toward women in the foreign marketplace, in fact it was identified that in Saudi Arabia and the UAE men are large buyers of beauty products, including expensive face creams and various designer fragrances in a much larger proportion that that of the female clientelle. This has radically shifted their buying habits overseas and their subsequent promotional considerations which target at a growing trend toward male vanity in these highly developed and thriving international regions. This has allowed the firm to create partnerships and product delivery agreements with many well-known beauty industries in Europe to provide a line of beauty products catering to Saudi and Arab men. Interestingly, it was identified that the fashion and beauty elements in these nations provide profitability nearing 70 percent over that of the female buyer; a substantial difference from the domestic consumer which is primarily female in beauty purchases. When determining an entry strategy for both the UAE and Saudi Arabia, the company relied heavily on the input of consumer research agencies which highlighted demographic trends for the luxury consumer in these markets. In addition, the participant (somewhat reluctantly) indicated that the company had placed several of the owner’s foreign associates into the competitor retail environment as temporary employees in foreign competitor retail stores to report back on any observed trends. She was rather amused that this was a rather unethical method toward Company X receiving strategic information, however the company’s owner wholeheartedly embraced the policy and capitalised on the competition’s reported inability to hire associates who were bilingual to satisfy a diverse Saudi Arabian luxury culture. Details of the associate employee compensation package or reporting agreement would not be identified by the subject. The aforementioned strategy in gaining valuable information about the Saudi and UAE consumer environment was rather innovative and tended to reflect the firm’s serious commitment to understanding foreign culture prior to market entry rather than merely relying on periodic observation, overseas meetings or consumer reports as a tool for determining the initial supply chain strategy. It was implied that the company’s owner did not believe in creating entry strategies which involved any form of partnership, such as the joint venture, thus the firm created a foreign direct investment strategy in each foreign location; establishing their retail presence literally from the ground up through the construction of their wholly-owned retail centres. Exceptions to this were in Ireland, where the company purchased an independent retail company that had been struggling to remain profitable. Though this represented another foreign direct investment, the company utilised the knowledge and skills of the Irish management and subordinate teams, providing these individuals with jobs at Company X once the process of acquisition was completed. Because the Irish luxury consumer is typically congruent with the needs of the UK clientelle, it was suggested that Irish foreign entry was a rather seamless process which met with instant consumer approval in the form of high consumer revenues. In addition, the Hong Kong exception has Company X leasing a very large retail centre in a busy, upscale shopping mall. In Saudi Arabia, a licensing agreement was the market entry strategy to use the Company X name. This was supported by post-study research which suggested the existence of an 80,000 sq. ft. department store in a new upscale retail environment (Buxton, 1999). The decision to enter with a foreign direct investment approach was determined at the highest levels of the organisation as Company X, during its period of public ownership, found that the pressures of investors and its guiding board of directors offered the firm very little in terms of creating flexible and innovative strategies for building capital. The shift to private ownership gave the firm a new type of leadership who believed in the strength and vitality of Company X as an independent firm with a strong cash flow and balance sheet. Removing investor influence was perceived by the subject as the rationale for avoidance of any entry strategy which would limit total control over strategic foreign policy, such as the joint venture. The subject suggested that Company X is very liquid and in the event of the necessity to exit any foreign territory maintaining wholly-owned facilities overseas was considered a strategy for diversifying through real estate investment in nations where large governmental incentives were delivered to promote the development of retail businesses. Hence, investment portfolio diversification appeared to be the most primary aspect of international market entry. The participant refused any questions regarding sales volumes in the foreign market environments due to the nature of private ownership; as these details are not public information. However, the manager indicated that the firm had experienced an overall approximate profitability increase of nearly 30 percent since establishing its overseas companies. It was suggested that further contact with senior-level leadership would be required to obtain consent authorisation to discuss the tangible sales volumes since entering foreign markets in the early 2000’s. (Of course this was incongruent with this researcher’s capabilities and time-frame for conducting extended interview sessions). The participant did indicate, however, that they had managed to outperform their public competitors year for year since 2005, which suggested (by reviewing the annual reports of competitors) to be in excess of £80 million each year. Despite the inability to discuss sales volumes in each foreign market, the subject indicated several key lessons which were learned by Company X after entering Hong Kong. The consumer in this region was initially believed to be less sophisticated than their UK clientelle in terms of brand recognition and the acceptance of edgier fashion brands which appealed to the younger luxury demographic in the United Kingdom. Post-study research tended to confirm this expectation as evidence suggested that Hong Kong consumers are not driven by having an understanding of Company X’s rich heritage (Media, 2007). Hence, based on consumer data, the company decided to target the young Hong Kong consumer with a different strategy and a variety of products not necessarily found in their UK department stores. Initial sales volumes and consumer responses were overwhelmingly low, which prompted the company’s owner to assemble a task force designed to facilitate a rapid change in strategy. After approximately two months of intensive research, using consumer surveys and on-site observations, it was determined that many of the luxury consumers in Hong Kong routinely travelled to Europe and North America in search of more contemporary fashions and accessories. Hence, the demand existed for many of the exclusive brands carried by Company X in the UK, suggesting that the Hong Kong consumer was much more fashion-forward than illustrated in consumer reporting data. This created an opportunity for Company X to radically change its supply chain strategy and deliver many of the same products to the Hong Kong consumer with brand names they were already familiar with. By creating advertisements and promotional materials which emphasised modern lifestyle and associating Company X with a progressive Hong Kong mentality, the firm was able to recapture those consumers who had initially refused many of the original product offerings in that nation. Because initial reports regarding the shift toward gender equality in the United Arab Emirates, product selection was initially geared toward the female consumer in a larger proportion than males. However, as previously identified in this study, the demand for male European fashions and beauty accessories was enormously higher than women, which was originally reflected in the substantially-low sales volumes of female beauty accoutrements. As a rather innovative shift in foreign marketing, Company X established an ongoing fashion modelling (catwalk) promotional campaign which depicted many UAE males exhibiting the latest fashion trends at highly publicised modelling events. The participant suggested that initial unsatisfactory financial returns in the UAE retail facility were offset by a substantial interest in acquiring European male fashions after radical changes occurred in the clothing buying policy in this area. The male-dominated fashion industry in Saudi Arabia, which was contributed to a pre-existing, ongoing segregation between female equality, turned this particular Company X retail centre into a store which caters to the male mentality for cultural superiority. This is supported by post-study research which indicated that Saudi men are depicted as maintaining “rank chauvinism” against women (Hardy, 2007: 58). In fact, the participant identified that the majority of international promotional efforts, in various UAE publications, generally depict men to appeal to the high-dollar male consumer. Gucci brand, specifically, was cited as one of the highest-grossing fashion products amongst the males in the UAE which created a situation in which the supply chain had to be radically changed (and partnership agreements modified) to ensure an ample, continuous supply of male-targeted Gucci products in this retail environment. The firm temporarily had a problem supplying Gucci products in the UK because the demand for them was so enormous in the UAE. The primary learning lessons identified in the aforementioned foreign markets were that Asian and Middle-Eastern luxury consumers were much more brand conscious than originally expected, making it relatively easy to engrain the Company X name into a culture already familiar with (and previously eager to travel to Europe to purchase) the majority of brand names carried by the domestic Company X retail headquarters. Though several adjustments to supply strategies were necessary to achieve their goals of increased profitability from foreign consumers, the participant indicated that to the best of her knowledge no serious disruptions to the business (or its financial goals) occurred due to variations in consumer behaviours or buying patterns in these nations. Because Company X already maintained extremely long-standing agreements with various fashion designers, for the sake of receiving increased business from Company X most of their designer partners were readily adaptable and flexible to increases in overall product purchasing. Additional Company X Considerations Logistical concerns and lack of available retail property for direct acquisition were cited as two primary concerns when entering the Hong Kong market. Because of its somewhat unsatisfactory proximity to traditional land distribution for the delivery of European fashions to Hong Kong, the company incurs much higher freight and distribution costs as the majority of its products must be shipped via ocean transport or air. Though specific financial data was not discussed, the representative suggested that costs of delivery in Hong Kong required them to offset some of these charges by providing higher price tags than would normally be added to domestic merchandise. Though Company X believed that these price changes were relatively obscured from the local consumer clientelle, this was a major concern that higher prices would be rejected by consumers who readily travelled to Europe in pursuit of domestic fashion products. However, to the best of the participants’ knowledge, this strategy was working sufficiently in this region. The company’s owner maintained a very close relationship to all of its foreign sales and marketing staff (as well as expatriate managers who were assigned to launch and monitor initial entry) and continues to do so to this day. Oftentimes, the owner and his senior leadership team make changes and expects rapid response from his foreign team in terms of marketing efforts and promotion initiatives. Though it was suggested that the owner had been a vital influence in sustaining profit objectives, she did indicate that such singular influence often created visible disruptions in the foreign markets when products and various displays were required to be torn apart and remodelled during operating hours. This was an issue which was currently being addressed but had not yet met with resolution. This is likely an element of private ownership that is par for the course in private retail businesses. In the UAE and Saudi Arabia, these transparent changes to the store’s design were incorporated into promotional efforts with an emphasis on how these changes are due to innovations to better serve a sophisticated customer, attempting to offset disruptive in-store changes by appealing to a cultural trend for modernisation. The participant suggested that the company is currently considering a direct investment in China, but has yet to determine how best to appeal to the Chinese luxury consumer. Post-study research indicated that the company’s owner was reluctant to act on this intention as mainland China consumers are not perceived as being “sophisticated enough” to understand the scope of high fashion (Lau & Yeh, 2006). Conclusion It would appear that Company X maintained a solid entry strategy based on both foreign consumer demographic reporting as well as some rather questionable tactics to gain insight into the foreign consumer mentality. In addition, despite any initial setbacks, it would appear that Company X has gained significant ground in seizing global market share from its competitors after transitioning from a publicly-traded company to a privately-owned firm. Having the flexibility to create their own marketing and sales strategies, without the input or pressure of a variety of investors, has made Company X a force to be reckoned with in the overseas luxury fashion and beauty markets. With a substantial increase in total profitability in recent years, Company X may provide a benchmarking template for other industries looking to expand into the UAE, Saudi Arabian, Irish and Hong Kong market environments. It would appear that Company X chose the correct entry strategies to avoid sharing administrative controls with other entities and their performance in the international arena has not caused any substantial issues in emerging profitable in foreign ventures, making them right on target for global longevity. Bibliography Buxton, Phillip. (1999). ‘(Company X)’ to open its doors in Saudi Arabia’. Marketing Week. 22(21): 8. Hardy, Roger. (2007). ‘Girl trouble’. New Statesman. 136(4854): 58-60. Lau, J. & Yeh, A. (2006). ‘Dawn of the designer culture retailing: Luxury retailers are opening stores in China – but doubts remain about the level of demand, writes Andrew Yeh’. Financial Times. London: 10. Media. (2007). ‘(Company X) looks to rebound as Hong Kong’s next fashion destination’. 6 Apr 2007: 8. Read More