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nullManaged growth in China Exploratory workshopManaged growth in China Exploratory workshopAccenture Customer Innovation Network Wednesday 10 September 2008, ShanghaiAgendaAgendaMarket Insights from Japan and Korea Gun-Il Son & Tokinao TonomotoWorkshop Implications for CRV (including Connecting with Consumer Session) Yew Hong KohKorea Retail Team – Gun-il Son gun-il.son@accenture.comCopyright © 2008 Accenture All Rights ReservedKorea Retail Team – Gun-il Son gun-il.son@accenture.comSenior Manager, Retail, Korea Mr. Son is a director for Accenture Korea’s retail consulting practice. He has 8 years of experience with Accenture, working in the retail industry, and he recently led a large scale system implementation project for CJ Home Shopping. Currently, Mr. Son leads a team for process innovation project with LG fashion, which is Accenture’s first engagement with a Korean fashion retailers. Industry involvement: hypermarkets, home shopping, fashion, chemical, auto parts wholesale, and engineering and construction industries. Experience areas: merchandising, store inventory management, in-outbound logistics, warehouse management, eBusiness, Oracle Retail RMS and RWMS, SAP SD/LE module Korea retail team – Kyung-Mo Kim kyung-mo.kim@accenture.comCopyright © 2008 Accenture All Rights ReservedKorea retail team – Kyung-Mo Kim kyung-mo.kim@accenture.comConsultant, Retail, Korea With more than four years of experience in retail consulting, Kyung-Mo specializes in retail SAP, business process consulting, supply chain management, and logistics. He has completed a full cycles of SAP implementations. Recently Mr Kim has been involved in business transformation and implementation projects for major Korean home shopping and fashion retailers. Industry involvement: home shopping, automotive, manufacturing, small businesses Experience areas: Oracle, merchandising, SAP, supply chain management, manufacturing, production planning nullCopyright © 2008 Accenture All Rights ReservedCase Studies – LotteBusiness Area Department store: Largest in Korea. 21 Stores, Revenue 9 Bil USD Hypermarket: 56 Stores, Revenue 4 Bil USD Supermarket: 79 Stores, Revenue 0.9 Bil USD Duty Free Store: Revenue 1 Bil USD Homeshopping: Recently acquired. Revenue 0.7 Bil Convenience store: Licensed operation of 7 Eleven. 0.6 Bil Also operates licensed foreign brands such as Toys R Us, Zara and Krispy Kream Donuts Market Position and Growth Korea’s largest retailer that owns diverse channels/formats No 1 player in department store Other channels such as hypermarket, homeshopping or convenience store are behind the major players Global expansion: Strategic penetration into emerging markets such as China, Russia, Vietnam, IndiaBusiness OverviewnullCopyright © 2008 Accenture All Rights ReservedCase Studies - LotteContinuous investment in core business Concentration of capability on Department Store, Supermarket Further plans to increase the number of department stores to more than two-dozen by 2010 Opened Lotte Young Plaza as a new format department store, targeting customers of teens and early twenties Growth plan for hypermarket to gain market share Strategic Target to secure over 100 Discount Stores till 2011Growth Strategy (1/3)nullCopyright © 2008 Accenture All Rights ReservedCase Studies - LotteBusiness Portfolio Diversification Opening new stores in new businesses such as theater (Lotte Theater, Prime Class), toy store (Toys “R” us), apparel (Zara), food (Krispy Kream Donuts) as category killer Merger of new retail channel: Acquired Woori Homeshopping and rebranded it to Lotte HomeshoppingGrowth Strategy (2/3)nullCopyright © 2008 Accenture All Rights ReservedCase Studies - LotteOverseas Expansion Strategic penetration into emerging markets such as China, Vietnam, India The company entered the Russian market first with its store in Moscow in summer 2007 followed by its second overseas department store in Beijing, China and first discount store in Ho Chi Minh City, Vietnam in 2008. Growth Strategy (3/3)nullCopyright © 2008 Accenture All Rights ReservedCase Studies - ShinsegaeBusiness Area Shinsegae history dates back to 1930 when the Mitsukoshi Department store Seoul Branch was opened as the first department store in Korea The company now operates department stores and discount stores in South Korea and China. As of June 2007, the company operated 121 stores across Korea and China including, seven department stores, 117 discount stores, a premium outlet in Korea, and seven discount stores in China Market Shinsegae also operates Starbucks and Gap stores in Korea Market Position and Growth E-Mart has a market share of 31% in terms of revenue in hypermarket being number one in Korea. E Mart acquired Wal-Mart Korea in 2006 to secure its top position in Korean market. However department store has the 3rd position in the market In 1997, Shinsegae opened E-mart in Qu Yang in China, becoming the first Korean retailer to open an overseas branch. Further until 2008, the company has opened 12 E-mart stores in China. Business OverviewnullCopyright © 2008 Accenture All Rights ReservedCase Studies - ShinsegaeService Shopping environment based on consumer life style: Shopping with family while enjoying sports, baby-sitting, experiencing cultural activities or going to hospital. Quality claim / price tag error & miscalculation / service (delivery, A/S) claim compensation pgm Distinctive Hypermarket Model (1/2)Channel Internet Order - Same day delivery from adjacent store when placing internet order. Able to purchase based on the availability of the nearest store Freshquick items : 2hr 30min-delivery service items Free delivery : purchase more than 80,000 won (80UDS), 3,000 won (50~80USD) or 4,000 won (below 50USD)nullCopyright © 2008 Accenture All Rights ReservedCase Studies - ShinsegaeProduct: Private Label: Launched first private label in Korea. Now segmenting the brands based on consumer behavior, i.e higher quality, organic food, etc In October 2007, E Mart introduced 3,000 products under private labels. The company plans to increase the share of revenues from company branded products to 23% by 2010 and to 30% by 2017 Fresh Food: Focused on fresh food merchandising to meet the customer eating patterns i.e in-store tasting, shelf display lead-time (200), one-day valid items (500), Level of sweetness display for fruits, proper ROQ based on weekly sales data and analysis Distinctive Hypermarket Model (2/2)nullCopyright © 2008 Accenture All Rights ReservedCase Studies – E LandBusiness Area The E Land’s core businesses are fashion and retail while it takes part in other business activities such as hotel, condominium, restaurants, interior, e-business and construction. E Land Fashion Group operates 60+ national brands and 40 private brands while E Land Retail Group operates 32 Super Supermarket stores, 29 outlets across Korea Business OverviewMarket Position and Growth The E.Land Fashion Group is the largest integrated fashion company by revenues in Korea. The E.Land Group has grown from a pure fashion business to a full scale retailer. The compound average growth rate of the revenues of the Group recorded 38.2% from 1987 to 2007 during which period the Group’s revenues increased by 647 times1980-19871988-19941995-20012002-20052006-Adult CasualChild/ Und’wearWomen’sFashion OutletHyper- market$6.8 mil$826 mil$2 bn$4.4 bn Market development/ low-cost production platformBrand management power & franchise operation know-howRetail expansion and knowledge management$516 milCAGR=38.2%nullCopyright © 2008 Accenture All Rights ReservedCase Studies – E LandCreating Value through Acquisition E Land Group has pursued the compressed growth strategy through prudent acquisitions of businesses Expected synergy of acquisition of Carrefour: Retail perspective: Gain competitive advantage on merchandising apparel brand with premium value Apparel perspective: Obtain new sales channel of Carrefour stores But after acquiring E Land Carrefour Korea in 2006, E Land had to sell them to Samsung Tesco (Home Plus) in 2007 due to lack of cash flow caused by excessive LBOCreating Value through AcquisitionnullQuestions?Japan Retail Team – Tokinao Tonomoto tokinao.tonomoto@accenture.comCopyright © 2008 Accenture All Rights ReservedJapan Retail Team – Tokinao Tonomoto tokinao.tonomoto@accenture.comExecutive Partner, Retail Lead, Japan Mr. Tonomoto leads Accenture’s Japan retail consulting practice. With more than thirteen years of experience in system implementation, he has extensive expertise in accounting, material purchase, sales, and information system planning. His other roles involve conceptual designing, operations, project management, and IT planning. Mr. Tonomoto has over 7 years of retail experience in Japan and overseas. He is currently leading an IT planning project for an entire enterprise system replacement for a major Japanese fashion retailer. Industry involvement: beverage, fashion, convenience stores, supermarkets, food services, pharmaceutical, consumer goods, transportation industry, trading companies Experience areas: SAP, Oracle, retail IT and operations planning, process design and implementation, system integration, business transformation, enterprise system replacement Japan Top 10 RetailerJapan Top 10 Retailer※Isetan merged with Mitsukoshi under the Mitsukoshi-Isetan Holdings co. 3 representative cases of Japanese retailer3 representative cases of Japanese retailerSeven ＆ i HoldingsAEONSeiyu /Wal-MartNo1 sales size in Japanese market Main format is CVS (12,000 stores) and GMS. They expanded business by dominant strategy of CVS. (ex. their CVS 12,000 stores located 34 pref. among 47 pref. in Japan.)No2 sales size in Japanese market AEON group is consist from 168 subsidiaries. They expand business by aggressive M&A and by building super shopping center in local area.No8 sales size in Japanese market At 2002, Wal-Mart purchased Seiyu. Wal-Mart is implementing their operation to Seiyu. It is still on the way to have real success in Japanese market.FeatureSeven & I HoldingsSeven & I Holdings (formerly Ito-Yokado Group) formed in September 2005 by converting Ito-Yokado, Seven-Eleven Japan and Denny’s Japan into wholly owned subsidiaries. Operates 13,694 stores in Japan alone across several formats, especially convenience stores and hypermarkets and department stores. One of the most sophisticated Supply chain system/operation in Japanese market The dominant player in Japan’s convenience store sector, the corporate reorganization is designed to further strengthen Seven-Eleven Japan’s operations and market position. Group synergies now include: joint store and product development, loyalty cards, personnel training, marketing and increased supplier collaboration. All formats focus on providing value thru a mix of quality and innovative products as opposed to lowest prices. Increasing emphasis on “Team Merchandising” program to develop high quality private label and co-branded products. They started financial services include banking services, credit card, insurance, electronic money (nanako). Company OverviewSeven & I HoldingsRetail sales and profit* (2005-2007)Sales by format (2007)* Conversion calculations used the year end average currency exchange rate. ** FY ending FebruarySeven & I Holdings views private label and co-branded product development as a critical differentiator in the marketplace. Private Label “Team Merchandising” is Seven & I Holding’s development process to collaborate with manufacturers in creating private label and co-branded products that are positioned not by low prices but rather by high quality standards. To strengthen its private label product development, the Ito-Yokado subsidiary launched IYG Life Design Institute Co. Ltd, separate from its merchandising division, to conduct consumer market research and determine the design and merchandising of apparel ranges. Exemplifying the success of Team Merchandising and the design institute, Ito-Yokado’s “Made in Japan” own label apparel range accounts for 60% of Ito-Yokado’s apparel sales. Team Merchandising has also developed the 120 item “Bimi-Hyakusen” grocery category private label, with plans to expand the range to 200 items. Seven-Eleven Japan’s leverage of Team Merchandise has resulted in 52% of chain sales being a combination of private label and co-branded products. Sources: M+M PlanetRetail; company reportsSeven & I Holdings views private label and co-branded product development as a critical differentiator in the marketplace. Seven & I Holdings - Private Label ProductsSeven & I Holdings - For future growthReinforce the quality of management and operation Integrate the information system of group management. Try to integrate the information system across the different segment to reduce the redundant management cost. Leverage private label products to be more profitable Restructuring non-profitable business/stores Not just opening new stores, they close non-profitable stores including CVS. During 2009, they plan to close 600 CVS stores and 3-5 SM,GMS, while newly opening 1,000 CVS stores. They will close 140 restaurant (Denny’s) among 680. For remaining store (especially GMS,SM) they renovate the old store as required. Roll out private label products among the group Challenging to the new business Try to generate any innovation in format. (what they did before) Opening the discount SM store (named “The Price”). 10-30% lower price than their current SM format. Buying farmer to produce house fresh vegetables for their private label.For future growth, they are focusing on 3 agenda – reinforce the quality of management and operation, restructuring non-profitable business/stores, challenging to the new businessSeven & I Holdings - For future growthAEONJapan’s second largest retailer, Aeon Co. Ltd operates supermarket, super center, convenience, specialty and drug store formats as well as shopping center development and credit card operations. Aeon has identified super centers, an urban market focused format and shopping center development as keys to its future strategy. To become more efficient Aeon is increasingly sourcing product directly from suppliers, bypassing Japan’s traditional wholesale supply systems. To combat competition Aeon offers store brands, branded products at discount prices sold exclusively at Aeon outlets and is upgrading its store and supply chain IT systems. Recently Aeon has used acquisition of either smaller and/or failing retailers as a way to expand rapidly. Aeon’s shopping center development operations contribute revenue and provide control over important real estate sites. In 2006 Aeon intends to spend ¥15 billion renovating apparel departments to resemble exclusive boutiques. They started financial services include banking services, credit card, insurance, electronic money (waon). Company OverviewAEONRetail sales and profit* (2003-2007)* Conversion calculations used the year end average currency exchange rate. ** FY ending FebruarySales by format (2007)AEON - M&A, Super Shopping CenterMergers and acquisitions Aeon has had success using mergers and acquisitions as a method of rapid expansion, with recently acquired failing retailers Mycal Corp. and Yaohan now making positive financial contributions to Aeon’s operations. Aeon expects positive financial contributions from its recent acquisitions of Carrefour Japan, Origin Toshu and increased shareholder stakes in Yamaya Corp (liquor stores), Tsuruya Shoe Store and home center retailer Sunday Co. Ltd. The acquisitions includes owing partial shares (ex. 20%). It is somewhat like a federal system. Shopping Center Development Aeon has become a developer of large-scale shopping centers in Japan thru AEON Mall Co. and its subsidiary Diamond City Co. Aeon’s shopping center development strategy provides sites for its specialty stores, influence on limiting competitors’ store site expansions and contributions to Aeon’s financial performance. Many of the specialty stores are their subsidiaries. AEON Mall Co. currently operates 50 shopping centers in Japan but future growth is dependent on pending legislation governing large retail store development on suitable real estate sites on the outskirts of cities. Sources: IGD; M+M PlanetRetail; company reportsAEON - M&A, Super Shopping CenterAEON has expanded their business by leveraging aggressive M&A and building Super Shopping Center especially in local area.AEON - For future growthAEON - For future growthRestructuring non-profitable business/stores They especially focus on restructuring GMS format. Okada CEO said “there is a possibility to close 100 GMS stores in near future” Revise the plan of building Super Shopping Center. Slowing down the speed of opening new stores. (it is said that 50% compare to the past year) They implemented pure holding company system at August 2008. It makes decision making more faster and clear up the responsibility who responsible which business. It also make more easier to reorganize the business. Leverage their private label (Top value) to be more profitable. Expanding their business to overseas market While pursuing efficiency and reducing cost in domestic market, they try to do aggressive investment to overseas market, especially China and other Asia pacific area. Other Financial services (banking, electronic money) For future growth, they are focusing on 2 agenda – restructuring non-profitable business/stores, expanding their business to overseas marketSeiyu/Wal-MartWith overall 2005 sales of 9,000mUSD, Seiyu’s primary format is the supermarket, averaging 40,000 sq. ft in size, offering a 60:40 split between food and non-food products and operating under the banners of Seiyu, SSV and Sunny . At 2007, Wal-Mart fully purchased Seiyu. (100% owned by Wal-Mart) Currently operating 392 stores. Wal-Mart is implementing their operation/system to Seiyu including global sourcing. SM is relatively performing well, but it seems that apparel is not getting better. After the Wal-Mart fully purchased Seiyu, Wal-Mart issues bonds to get capital for renovating their old stores. And they start reorganize Seiyu’s local subsidiaries (SM).Company OverviewSeiyu/Wal-MartRetail sales and profit* (2003-2007)Sales by format (2007) * Conversion calculations used the year end average currency exchange rate. ** FY ending FebruarySeiyu/Wal-Mart - For future growthWal-Mart’s Influence Wal-Mart’s growing influence on Seiyu’s culture and operations has accelerated in recent years and includes: Seiyu’s adoption of Wal-Mart’s three core beliefs: respect for the individual, the customer comes first, and continually strive for excellence. Accelerated use of both the internet based supply chain tool Retail Link, now in use by 85% of Seiyu’s non-perishable goods suppliers, and the Every-Day-Low-Cost strategy. In-store technology provides real time data on unit sales, orders and inventory to created better staffing models, increase store operations efficiency and minimize out-of-stock levels. They try to implement their own SCM way by reorganizing traditional Japanese wholesaler system. They started net-super market ahead of Seven & i and AEON group. Their slogan is close to customer stand point. That is “pursuing 4 differentiation – Price, Assortment, Freshness, Convenience” Seiyu/Wal-Mart - For future growthnullQuestions?AgendaAgendaMarket Insights from Japan and Korea Gun-Il Son & Tokinao TonomotoWorkshop Implications for CRV (including Connecting with Consumer Session) Yew Hong KohnullConnecting with the ConsumerIdentified CRV initiativesIdentified CRV initiativesWe need to maintain our fast scaling of business JVs with 5