Preface
This literature review sets the stage for research into refining an international expansion strategy for the Anthropologie chain of women’s clothing, gift and houseware stores. Owing to the dynamic and fast-paced nature of the fashion retailing industry, this literature research found greater utility in more recent news and developments from the rival companies’ Web sites and business reportage rather than dated professional journals.
The review establishes the background with brief scrutiny of domestic market size and medium-term trends up to the last full year before the current recession arrived in full force. An assessment of strengths and opportunities is drawn by tracing the commercial history, positioning, and retail concepts espoused by the mother company Urban Outfitters and Anthropologie itself. As a benchmark for global expansion, the review also investigates the strengths of the Spain-based Zara that, with the rest of the Inditex affiliates, has emerged as the new global leader in women’s fashion retail. Finally, a brief perspective on East Asian expansion markets is offered and information gaps in the existing literature are pointed out.
The U.S. Fashion Retailing Industry
On a seasonally adjusted basis, total U.S. retail sales have floundered along at just under $400 trillion (U.S. Census Bureau, 2008a). Though total sales grew strongly in 2004 (up 16.7%), a 7% decline took place the following year and 2006 recovered the prior year’s loss. Last year, women’s clothing (the sector that concerns Urban Outfitters and Anthropologie most closely) reached a shade under $5 trillion, a remarkable 87% up on the prior year (U.S. Census Bureau, 2008b).
While this is concededly the best the sector has seen in five years for which full-year reports are available, the fact remains that 2006 saw sales shrink by 21% after a miraculous doubling in 2005. The year before that, however, sales slid 25% between 2003 and 2004. The business of women’s clothing retail is a highly volatile one. Nonetheless, Norris (2008) argues that prospects remain bright because, despite inconsistent growth, retail stores dedicated to women’s clothing continue to attract an ever-higher proportion of consumer spending compared to men’s clothing stores, about a four to one ratio.
Anthropologie Company
Concept and Position Within Company Umbrella
Anthropologie opened in 1992, effectively the third addition to the stable of brands owned by Urban Outfitters Inc. after launching with “Free People” (1970) and transitioning this to the flagship “Urban Outfitters” brand (and incidentally, re-launching “Free People” as a niche brand in 2002). The two other UOI brands are the “Terrain” brand of gardening products and wholesale brand “Leifsdottir” under the Anthropologie umbrella (Anderson, 2008). The origin of the Anthropologie name? Nothing more esoteric than the fact that owner Richard Hayne graduated with an anthropology degree from Lehigh University a year before starting what became a lifelong adventure in retail.
The Anthropologie concept is best understood as a maturing of the hip, trendy, and decidedly anti-establishment positioning that Hayne started with when opening the doors of the first “Free People’s Store” in Philadelphia in 1970. At the start, therefore, “Free People” merchandise appealed to the youthful set 18 to 30 years old with outrageous statements on shirts and personal accessories, and a product line that spanned kitschy, vintage/retro, ironic, bohemian, and humorous.
Eventually, the company evolved a more serious strategy as its core market matured. The exclusively “funky” house lines were joined by such premium-priced outside brands as Lacoste, Evisu, Diesel, True Religion, and Seven for All Mankind. Anthropologie was launched to cater to UOI buyers in their 30s and 40s with a more sober line of one-of-a-kind clothing. Throughout the chain of stores, nonetheless, the product line has maintained the original focus on clothing, footwear, and houseware.
At last disclosure, the entire UOI chain had gross revenue of $ 1.13 billion, a net income of $ 448.6 million, a total of 140 retail outlets, and a staff of 7,500. Domestic and international locations came to:
Sources: Urban Outfitters (2008a), Anthropologie (2008a), *Opening in 2009.
As a clothing retailer, Anthropologie competes with every variety, including discount stores, “big box” establishments like Wal-Mart, highly advertised chains like Gap, designer brands like Donna Karan, and the highly successful, Spain-based Zara.
Shaw (2008) reports that the first foreign venture for Anthropologie will be in the fashionable Yorkville shopping district of Toronto. A European expansion is up next, with the hiring of James Bidwell (from Selfridges and lately, the Visit London tourism organization) to fill the new post of managing director, Anthropologie Europe (Anonymous, 2008). Already, however, the specialty chain ships directly to mail-order and Internet customers in 34 countries.
Product Line and Unique Selling Proposition
The chain retails casual apparel and accessories, home furnishings, décor, and gifts. There are two key aspects to the Anthropologie retail concept as it impacts on marketing and the opportunities for international expansion. Taking Richard Hayne’s announced intent at face value, UOI wished to hold on to customers who had been delighted to wear risqué clothing and furnish their homes with offbeat pieces during the “flower power” era of the early 1970s.
The ecological influences then were the impeachment of a President, the last five years of the Vietnam War disaster, and coast-to-coast demonstrations that divided the nation. The young adolescents and youth of the time have now grown up and gotten on with their careers. Anthropologie specifically targets women in their 30s and 40s who are, of course, nearing the peak of their careers and earning power.
The second aspect of the customer psychographic Anthropologie tapped into was that the affluent shoppers found in such store locations as Beverly Hills, Santa Monica, Santa Barbara, and Atlanta’s Buckhead wanted class, not affordability (Southerland, n.d.). If they could not quite afford couture garments or designer brands all the time, they would certainly be motivated by clothes in limited-quantity designs and one-of-a-kind home furnishing. Merchandise uniqueness is enhanced by stocking a surprising number of “found items”, basically bric-a-brac turned up by teams of purchasers that scour auctions and stores overseas, especially Europe, India, and East Asia.
As a result, the discriminating, mature or middle-aged female shopper is mesmerized by new finds such as rose-tinted tableware, whitewashed iron candlesticks, and weathered mismatched chairs in a Tuscan porch setting. Across the aisle might be embroidered dishcloths, colanders, and a gigantic enameled teakettle set on an old, rough-hewn kitchen table (also for sale) that properly belongs in a French countryside fair.
Around the corner is a faux North African souk stall almost concealed by a cornucopia of embroidered pillows, throw rugs, beaded frames, fishing baskets almost black with age, latticed chaise lounges, velvet pillows with delightful patchwork, ornate birdcages, saris, teak benches, and copper vessels burnished to a high sheen. It is as if the shopper had taken a swing through exotic bazaars of the Middle East and Asia during a leisurely two or three hours at Anthropologie.
The chain enhances the image of uniqueness by permitting each branch manager to design a store look and decorate at his or her discretion. Price tags are by no means forbidding. While an antique Breton armoire might set a buyer back $12,000, there are those like vegetable soap that qualify as impulse buys with pricing as low as $7 (Southerland, n.d.).
Background
The Zara fashion chain is the high street (prestige) brand of Spain’s Industria de Diseño Textil (Inditex). From a modest start as a home business in 1963, making a decidedly unglamorous line in bathrobes in Galicia, northwest Spain, the company grew steadily. In 2005, Keeley and Clark (2008) report, Inditex surpassed H&M as the largest clothing retail chain in Europe.
Helped partly by exchange rate movements, weak consumer demand in the U.S.A. base of Gap, and the strong performance of Zara, Inditex grew sales by 9% to reach a total group turnover of €2.22 billion (about US$ 2.84 billion) in just the first quarter of the company’s fiscal year, thereby overtaking Gap to reach a new pinnacle as the global leader in clothing retail. For the full fiscal year, Zara contributed €6.2 billion (about US$8.02 billion), helping boost parent company turnover to €9.43 billion (about US$12.2 billion) and profits to €1.25 billion (about US$1.62 billion).
Inditex opened the first Zara in A Coruña, Galicia, in 1975 or half a decade after Urban Outfitters began operations. The domestic expansion was the order of the day throughout most of the 1980s; not until 1988 did chairman Amancio Ortega venture outside Spain and set up shop in Porto, Portugal. Even then, Inditex began to show its capacity for rapid growth. Zara penetrated the famously difficult New York market in 1989 and Paris the year after that.
By 2008, the Inditex group boasted nearly 3,900 stores in 72 countries. Zara itself accounts for at least 760 of these (Just-Style, 2008). At last count, Gap had substantially fewer stores (3,100 worldwide) and a staff count of around 150,000.
Growth Factors
Inditex looks to Zara to solidify its lead until yearend 2008 and over the medium term. Like Anthropologie, Zara eschews advertising in its drive to defend “home markets” in the Continent and expand aggressively overseas. Instead, the decisive factors behind the rapid growth and global success appear to have been a combination of management and logistics innovation that has duly impressed business schools everywhere. The success factors:
- In the beginning, Inditex showed uncanny timing offering nothing much more than beige trouser suits to Spanish women… “…caught the mood of a nation emerging from dictatorship, whose young women relished new-found freedoms. His formula of low-cost high-fashion conquered the world and continues to grow. A Zara shop, or one of its offspring, opens somewhere in the world every day and a half” (Nash, 2008, 1).
- Inditex characteristically moves into new markets in a cautious “oil stain” pattern. The chain opens just one “anchor” store to build brand awareness and recognition since Zara does not advertise. Subsequently, Inditex is wont to construct smaller Zara branches before setting up equally compact shops of different brands (Bershka [2007 turnover of €925 million], upscale marque Massimo Dutti [€696 million], Pull and Bear [youth-oriented casual wear, €614m], edgy brand Stradivarius [€521 million], Independents/as, Oysho [lingerie. over €200m], ZARA HOME [the furnishings line, also topping €200m], and Uterqüeto for accessories) to acquire the necessary economies of scale and strengthen profits.
- Merchandising and store design are optimized to pull in traffic since there is never any media advertising to speak of. The fashion boutique look is preferred. A corollary of this is that stores have to be located prominently in up-market malls and shopping centers.
- Zara is tightly integrated, both backward and forward. Virtually all design, product development, production, delivery logistics, and sales are done in-house.
- Store staff share a commitment to act as the eyes and ears of the company to spot new fashion and accessorizing trends and, just as important, report them up the line fast. The compact group of house designers is equally committed to pushing new designs to production as quickly as possible. It is then up to store merchandisers to display new products prominently so that Zara exudes a perennially current (if not slightly ahead) fashion sense.
Other than the cautious market beachhead, therefore, extremely short time-to-market seems a very important explanation for the unparalleled growth of Zara and other brands in the stable.
Zara already has two flagship stores in East Asia. The one in Shanghai achieves prominence by dint of a stand-alone, two-story store in the middle of the high rises and no less than 170 retail establishments on Huai Hai Road, Shanghai Times Square. Many of the most established American and European fashion brands are also somewhere in the area. Another flagship East Asian locale is the one in Shin Sai Bashi Suji, a street in Minami, just south of Osaka, jam-packed with 160 retailers and steeped with a tradition of commerce stretching back to the 17th century (Zara, 2008).
Anthropologie in Overseas Markets
Strategic Considerations
Plans for going international rest, first of all, on the fact that 17% of the core Urban Outfitters chain presence already lies in Canada and Western Europe. As well, the positive response of its affluent target shoppers – the most numerous Anthropologie locations are in California, New York City and the retirement haven that is Florida – has permitted the brand to breast the tide of flagging sales besetting the U.S. fashion retailing industry since the economy slid into frank recession in December 2007. “Same-store sales, which tallies performance at outlets open at least a year, rose a solid 14% at Anthropologie in the quarter.” (Shaw, 2008, 1).
With Urban Outfitters also offering a distinctive, trendy assortment of goods and a standout shopping experience, the group rang up a countercyclical 22% quarter-to-quarter sales boost to $285.6-million with earnings rising at an even healthier 24% clip. Last May, Anderson (2008) reports, UOI also reported strong first-quarter performance: sales up 25% and profit jumped 45% versus the holiday shopping quarter. This is one indication that the company has the cash reserves to invest in overseas expansion.
High Potential Markets
Earlier in 2008, before news of the deepening U.S. recession drove expectations down in the region, designer and luxury brands were extremely enthusiastic about the prospects of the Asian market. Remarked Vincent Shaw, Chanel president for the Asia Pacific, “Asia has a huge population and an incredible liquidity. We believe that there’s huge opportunity and Asia is going to be very successful” (Wong, 2008).
Radha Chadha, co-author of the book “The Cult of the Luxury Brand,” agreed, affirming that the thriving markets of Asia absorb more than half the luxe-branded volume worth about US$ 80 billion annually, certainly greater than sales to the US and Europe combined, “…The reason why Asians buy so many luxury brands is that in Asia you are what you wear. A luxury brand is a symbol that defines who you are and your social status” (Chadha and Husband, 2008, 5).
At Louis Vuitton, in turn, president for Asia Pacific Jean-Baptiste Debains justified the avid interest in the continent by pointing to continuing double-digit growth in Hong Kong and the fact that Louis Vuitton already has 18 shops in Beijing, Shanghai, and elsewhere in China. Nor is it all about the Chinese, with LV CEO Yves Carcelle reporting that sales of the brand quadrupled in Vietnam in just the last year. The famed designer handbag and luggage company is also set to open in Indonesia, South Korea, and Taiwan within 2008 (Wong, 2008).
All in all, man-on-the-spot Debains is supremely confident that, worldwide spillover of the American recession aside, Asian economic growth is “unstoppable…I feel there’s a stronger dynamism and energy in Asia. Maybe that is because we have the economic growth that creates the kind of spirit that pushes people to go forward” (Wong, 2008, 1).
Reinforcing the Asian love affair with designer brands generally and American or European brands, in particular, Bienvenido Niles revealed the ten brands Asians most aspired for were: Louis Vuitton, Gucci, Giorgio Armani, Chanel, Versace, Christian Dior, Ralph Lauren, Prada, DKNY and YSL (A.C. Nielsen, 2006a).
By country, the spotlight is apt to remain with the largest economies in Asia by their total business potential: Japan, China, Korea, and India. Status-conscious Hong Kong, where half of the shoppers affirm that they prefer designer fashion and luxury products, deserves special mention (Nielsen, 2006b). As the example of Zara being unable to locate in Tokyo or even central Osaka attests, choosing any of the four countries as a springboard for an entry strategy can involve unwieldy trade-offs like steep rent, congested shopping areas, and long-established competitors.
There is evidence that secondary markets in Asia are worthwhile alternative springboards for entry into the continent. The same Nielsen global survey reveals that Malaysians (28%) and Taiwanese Chinese (28%) are almost as avid as Indians (31%) in buying designer brands. The Philippines (19%), Thailand (18%), Australia (17%), and New Zealand (17%) rank equal 5th to 7th in their propensity for name-brand fashion.
Concerning macroeconomic indicators, the Asian Development Bank (2008) reports that Thailand ranked second in labor force participation rate (72.4%, after Azerbaijan), is in the top ten in terms of gross capital formation, showed a respectable rate of private consumption expenditure about GDP (53%)and could boast of comparatively very low general inflation (2.3%).
As the center of gravity in Indochina, Thailand presents certain advantages to foreign fashion chains. The government actively supports the development of the textile and garments industry via, for instance, the Bangkok Fashion City. Also encouraging is that the production segment of the Thai textile industry is its single largest segment and the country exported US$ 6.84 billion worth of textiles and finished goods in 2006 that accounted for 60% of total exports (Danish Trade Council, 2007). Finally, retailers agree that prospects are good for foreign RTW fashion brands that succeed in being both trendy and competitively priced. All these suggest an amiable base for local sourcing of garments production.
In addition, Sung (2006) maintains, the size of the affluent middle class (3% of the total or 2 million, mostly to be found in the Greater Bangkok area), comfortable average monthly household income of US$655 in 2004 for those living in the city, the dominance of women’s wear, and the leaning towards fast fashion as evidenced by the success of Zara and H&M stores in Bangkok all reinforce the impression of a secondary Asian market that could be receptive to the entry of Anthropologie. The key distribution channels for upscale-middle brands such as Mango, Morgan, Zara, and Bebe are well-known: department stores, shopping malls, and cinema complexes in prime locations like Central Chidlom, The Mall, All Season Place, and J. Avenue.
Conclusion: Recap and Gaps in the Literature
This review of relevant literature and news about recent developments in fashion retailing underlines the tremendous opportunities and tangible challenges of embarking on international expansion. Anthropologie has the cash reserves and the successful marketing niche of limited-quantity clothing, home furnishing, and gifts to proceed to tap with alacrity the 30-to-40-year-old female shopper in Canada and Europe. It does appear that Anthropologie has something to offer status-conscious but “exclusivist”-oriented shoppers.
However, the available research leaves a gap in terms of Thai responsiveness to the core product strategy of the chain since 1992: will they be just as receptive as U.S. consumers to giftware and home furnishing, admittedly unique but acquired in Asia itself or inspired by Asian goods? Failing that, what are equally compelling alternatives?
References
AC Nielsen (2006b). Projecting social status by wearing designer labels – comes with a high price tag.
Anderson, M. (2008). Urban Outfitters launches the ‘Leifsdottir’ concept. AP Online, AOL Money, and Finance.
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Asian Development Bank (2008) Key indicators for Asia and the Pacific, 2008.
Bidwell to lead Anthropologie’s European expansion. (2008).
Chadha, R. & Husband, P. (2008). The cult of the luxury brand. Hongkong: Publishers Associate Limited.
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Just-Style (2008). Zara. Web.
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Nash, E. (2008). From the high street to high winds: Zara boss bids to power the world. The Independent. Web.
Norris, F. (2008). U.S. retail sales show increase because necessities cost more. International Herald Tribune.
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Southerland, R. (n.d.). Anthropologie’s cultured approach to style. Retail Traffic.
Sung, V. (2006). Thailand fashion market: Receptiveness of Hong Kong brands.
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