There are many conclusions one can draw from the Global Financial Crisis (GFW) of 2008 - 2009. One is that China came through it very well, another is that Asia in general (except for Japan) bounced back quickly, and lastly luxury sales took a major hit in the USA in 2009 yet recovered in 2010.

Last month I covered the Billionaire Club and found that China is the fastest growing country for new billionaires. Last week Merrill Lynch Global Wealth Management and Capgemini issued a report saying that

the Asia-Pacific region has passed Europe in millionaires and totals to rank 2nd in the world behind the USA.

Hong Kong’s millionaires alone increased 33.3% in 2010 to number 101,300.

Luxury brands in Asia have been multiplying quickly and tracking millionaire growth. Enter a mall in Shanghai and you are likely to find Prada, Versace, Dolce & Gabbana, Coach, and the like. Not just one mall in Shanghai has these elite retailers, many malls do. Prada launched its IPO in Hong Kong last week. Coach is looking to launch on the Hong Kong market this year as well even though Prada’s IPO was flat.

Why are the world’s luxury brands looking to Asia?

Looking at the graph below you can see China enter in 2004 and increase steadily and take Asia along with it. Meanwhile, Europe, the USA, and Japan look like they have all maxed out their growth.



Another recent report called “How Global Business is the Business of Retail?” surveyed over 300 of the world’s top luxury retailers in 73 countries. This was the 4th year of the report. Included was a ranking of the Top 20 global cities with a percentage of the retailers surveyed operating in the city. Asia is represented well with Hong Kong (1), Singapore (7), Tokyo (8), Beijing (10), and Shanghai (11).

Cleary, there is much data behind the recent rise of Asia for luxury brand sales. Tokyo, Singapore, and Hong Kong have been luxury goods destinations for years. Shanghai and Beijing are relatively new on the scene and are also the best known Chinese cities in the world. But, have you heard of Shenzhen & Guangzhou (near Hong Kong), Tianjin (near Beijing), Hangzhou & Suzhou (near Shanghai), or Chengdu (central China)? These are China’s second tier cities, and many of the world’s luxury retailers are opening stores in them. Louis Vuitton opened 22 stores in 27 Chinese cities during the GFC including many of these second tier cities.

If you can market your product or brand as a luxury good, then you should look to Asia.

It is the one region of the world where you have established markets (Hong Kong, Tokyo, Singapore), newly minted darlings (Shanghai & Beijing), and emerging markets with China’s second tier cities. $11 trillion dollars of asset wealth is sitting in Asia waiting to be unlocked.

By: Matt Flax - Senior Business Advisor at www.DragonGate.Asia



Sources used; Data/Information Links:

US Luxury Sales Fall
http://www.businessweek.com/bwdaily/dnflash/content/may2009/db20090529_986529.htm
Asia Millionaires
http://www.google.com/hostednews/afp/article/ALeqM5hbCc030QzCT4qv_ZT0RwBN8QrPwg?docId=CNG.436300006124f4b5cbc7fecc0f68b6d5.451
Hong Kong Luxury IPOs
http://www.chinadaily.com.cn/usa/2011-06/24/content_12768924.htm
Top 20 Luxury Retail Cities
http://www.retailinasia.com/article/markets/hong-kong/2011/04/hk-retains-no1-ranking-luxury-and-business-fashion
China's Emerging Markets
http://interaksyon.com/article/5601/worlds-top-luxury-brands-compete-for-market-in-china-emerging-cities

There are many, many, many indicators that come out monthly, quarterly, and annually for exporters and importers to decide if a company is trending up.

Simply put, you want your products sold by a company that has an increasing number of people coming through.

One way to track people would be to install an electronic trip wire at each entrance to count the people who enter. However, that would not tell you if they purchased anything or what they purchased. Moreover, it would not explain if sales were increasing or decreasing. Same store sales are good indicators to look at it, but it they are not perfect either.

What are same store sales? They are the total revenue amount change from the same time period at stores for a retail chain that have been open for at least a year. The important aspect for the same store sales indicator is that it does not look at closed or newly opened stores. A chain in a market that has a positive same store sales indicator shows that more revenue was generated over the previous year, but that does not necessarily mean that traffic has increased. Parkson, a department store chain in China recently released stated that for 1st quarter, 2011 its same store sales increased 13.9%. That looks positive. However, inflation could be part of it, as well as a change in merchandise mix to higher priced items.

There a few more things to consider when looking at same store sales. For one, it is a lagging indicator as is most data found in financial reports.

A positive or negative reading is only telling you what happened in the past.

Changes in strategy or tactics that impact sales and traffic will not show up until future reports. Also, the indicator could be skewed depending where a holiday, sale event, or disaster falls. For example, Chinese New Year in China follows the lunar calendar so it falls differently each year. This year it fell in February, in 2012 it falls in January. Same store sales for next February may look negative for Parkson and other retailers in China, while January may look positive because of the holiday moving. Looking at a trend of many months is best to overcome monthly swings. Finally, same store sales are a macro indicator that may hide underlying micro problems within the retail chain.

As with most analysis, looking at trends is the best way to use same store sales.

For multi-nationals, it is also important to look at the market they are in. Wal-mart has suffered 8 consecutive quarters of decreasing same store sales in its US operations; however its operations in other countries have increasing same store sales.

Wal-Mart 4th Quarter, 2011 Same Store Sales
(Fiscal Year ending 1/31/11)

Same store sales are just one indicator to look at.

Dig deeper with Parkson and Wal-Mart and you will find other micro level detail that may change your thoughts on the same store sales figures. Higher profit margin fashion and apparel items made up 48% of merchandise sales for Parkson. In Wal-Mart China the average ticket price was up 9.6%. However, traffic was down 7.2% because of merchandise changes during an acquisition. It is always best to look behind the numbers!!!


By: Matt Flax - Senior Business Advisor at DragonGate.Asia



Data/Information Links:

Parkson Quarterly Performance Report
http://www.chinaretailnews.com/2011/05/24/4312-parkson-china-releases-quarterly-retail-performance-report/
Wal-Mart CEO discusses 4th Quarter, 2011 Results
http://seekingalpha.com/article/254292-wal-mart-stores-ceo-discusses-q4-2011-results-earnings-call-transcript

Last week I discussed how important the right localization mix is for the success of a multi-national company that moves into a non-domestic country. Deciding on opening business in a new country is most likely part of a long term strategical plan, maybe a goal from a five or ten year company plan.

Tweaking the localization mix to get it right and be successful in the new market is tactical.

Another words, tactical is making short term changes to your long term strategy. A failing strategy can certainly cause a company to fail, and so can a tactical mistake or two. Failure can be pulling out of a market like Best Buy in China (see last week) or it could be a complete closure of a company like former United States #2 electronics chain Circuit City.

Circuit City was the #1 electronics chain in the United States for many years before Best Buy entered the market. Both Circuit City and Best Buy were large “big box” retailers. Best Buy started gaining ground on Circuit City in the 1990’s, yet Circuit City did not make any major changes to its strategy until it was too late At #2, Circuit City made the strategical move to open smaller concept stores and tactical moves including changing management, closing stores, and replacing long term store employees with new hires that need be trained by new management. This last one was a clearly a tactical move to save money in the short term. However, the effect on the long term viability of the company was fatal. Best Buy used a customer centric strategy that focused on customer service. This literally turned a Best Buy core competency into a massive differentiation over Circuit City. The Great Recession put the final nail in Circuit City’s coffin in 2009, but they started digging that hole many years prior.

Recently two multi-national retail behemoths from the United States have been struggling at home after each made a tactical change that didn’t work.

Wal-Mart decided to cut costs by eliminating thousands of SKUs to simplify their merchandise mix. Keeping prices low for its customers is the core strategy that Wal-Mart has been implementing since its inception. The cost cutting is in line with its strategy, however Wal-Mart’s same store sales have been declining since this tactical move began in 2009. The timing also coincided with the Great Recession, however Wal-Mart and low prices should have benefited from an economic downturn.



Target differentiated itself from Wal-Mart by creating a product mix of higher priced goods to go with low cost goods. Sales for Target fell sharply in 2008 and 2009 mirroring the economic downturn. So, Target decided to make the tactical move of adding lower profit food items to its stores to lure people in. Targets sales have improved, but are lower than they forecasted. People may be going to Target for food now, but they may only be purchasing lower revenue and small profit food items. Plus, Target had to make room for food by discontinuing higher revenue and profit items.

Circuit City’s tactical moves killed the company, Target has not changed its tactics yet, and Wal-Mart is making another tactical change by adding SKUs back to its mix and hoping customers will come back as well. Be cognizant of how your tactical moves will affect your strategy.


By Matt Flax – Senior Consultant at DragonGate.Asia



Sources;Data/Information Links:

Circuit City Liquidates
http://www.msnbc.msn.com/id/28691963/ns/business-us_business/t/circuit-city-liquidate-remaining-us-stores/

Wal-Mart US Sales Decline
http://www.standard.net/topics/economy/2011/04/11/wal-mart-fights-declining-us-sales

Target Criticized for Tactical Move
http://finance.yahoo.com/family-home/article/112885/target-retailer-cachet-wsj

What makes one product or brand sell like water or oil in one country and sit on the shelf like its toxic in another country? Look around the world in the last 20 years of globalization and you will see many successes along with some failures. Three of the largest retailers in the world are the American based Wal-Mart, French based Carrefour, and British based Tesco. Each of them is an incredibly successful multi-national retailer that sells just about everything from food to jewelry to electronics to clothes to home goods. And…..they have each failed in a few markets. Strangely, in some places one or two have succeeded while the other or others have not.



Wal-Mart failed in Germany and South Korea, Carrefour failed in South Korea as well while Tesco does well there, Tesco has failed in Taiwan where Carrefour has been successful, and Tesco has struggled in the United States ever since it entered the market in 2006. These failures are not limited to these big retailers either. Best Buy, the biggest electronics retailer in the United States pulled out of China in February and Mattel closed its six story Barbie store in Shanghai in March.

In the case of Wal-Mart in South Korea analysts say that Wal-Mart did not understand the South Korean market well enough to localize properly. The degree of localization is how much you design the experience and products for the local market. South Koreans were not looking for an “American” experience, but instead a more local experience from a global retailer. Wal-Mart has been successful in many other markets around the world, in those markets they were able to figure out the right mix of localization to win.

Best Buy is a customer service centric electronics retailer. They staff their stores with helpful representatives to help with all of your electronics needs and offer installation and home services as well. Best Buy’s customer service focus led them to become the top electronics retailer at home in the United States. In China local people are used to going to large electronics malls with many vendors to negotiate the best price. Best Buy tried the same customer service centric model and charged a higher price than local chains offering fixed pricing in China. Best Buy also purchased the Chinese electronics chain Five Star and plans on reopening in China under the Five Star name.

Tesco entered the United States with a big splash, opening about 200 stores under the name Fresh and Easy in 2006. Their idea was to open small neighborhood stores with easy to make meals and fresh food. Tesco did a lot of market research including living with families in California. Timing (12-18 months before the great recession), not so great locations, and a miss read of the market has led Tesco to consider withdrawing by 2013 if Fresh and Easy does not turn a profit by then.

Wal-Mart is thought to be successful in China because it dipped its toe in the market first to get a handle on how to localize. Expansion and further investment followed after they believed that they had figured out the right localization mix. Of course, Wal-Mart also likely learned from its mistakes in Germany and South Korea.

By; M.F.


Sources&Data/Information Links:

Top 250 Retail Companies (2010)
http://www.stores.org/2010/Top-250-List
Wal-Mart Leaves South Korea
http://www.nytimes.com/2006/05/23/business/worldbusiness/23shop.html
Tesco Leaves Taiwan
http://www.guardian.co.uk/business/2005/sep/30/supermarkets.tesco
Mattel Leaves Shanghai
http://www.businessweek.com/globalbiz/content/apr2011/gb20110421_445230.htm
Best Buy Fails in China
http://www.cnbc.com/id/41882157/Why_Best_Buy_Failed_in_China
Tesco Struggles in the United States
http://hbswk.hbs.edu/item/6462.html