Executive Strategy
Within the past year China has eclipsed Japan to become the second largest economy in the world making it a potential high yield market for Foot Locker’s expansion into new international markets.
Various studies examining the market in China have shown that the Chinese have developed a certain “hunger” for international brands with fashions and food being among the most highly sought after items in the Chinese market today. Other U.S. based companies such as Wal-Mart Inc. have actually successfully opened up various branches in China with great success.
In fact recent industry data shows that the branches of Wal-Mart located in China are among the highest earners of the company’s international ventures with various high priced retail items quickly being bought as a result of a greatly enriched Chinese economy.
It is based on this that it can be seen that in roads into the Chinese market is a viable step for the company, one which would help to raise company revenues in light of the deteriorating sales in U.S. based markets as a result of the 2008 financial crisis and the resulting deterioration of the U.S. economy as of late.
The primary market objective of this plan is to properly establish the Foot Locker brand in the Chinese market as a retailer of top of line, high quality and original footwear. The primary financial objective of this plan is to reach sales of at least $2.2 million to $3 million during the first year of operations of a single Foot Locker branch in the local Beijing market.
Current Marketing Situation
Foot Locker is one of the world’s largest retailers of foot wear in the world with branches located in 20 countries and with a yearly revenue of roughly $4.85 billion dollars.
Right now Foot Locker is about to enter into the lucrative Chinese market where the appetite for foreign brands makes it an ideal location for subsequent company expansion as seen by the successes of other foreign brands that have attempted forays into the Chinese market.
Unfortunately, one of the inherent problems with selling brand name items in China is the fact that most retailers face stiff competition from counterfeit brand name goods that are ubiquitous throughout China’s various shopping centers and markets.
In fact China is the source of the majority of fake brand name sneakers that are being sold in various global markets that actually undermines the business models of our stores in those areas.
Selling within China presents itself with its own risks due to the fact that not only would Foot Locker have to compete with other brand retailers in the area the company would need to convince its customer base that buying original brand name sneakers is comparatively better compared to buying cheap knock offs.
Market Description
Foot Locker’s market in China consists of consumers in the middle and upper tier of Chinese society, namely the new class of Chinese “elite” that have emerged as a result of the boom in China’s economy.
This specific segment of the population has been known to spend thousands of dollars on various brand named goods such as fashion accessories, clothiers, cars shoes etc. It must also be noted that this particular segment of the population is not as discerning as compared to Foot Locker’s customer segments in the U.S. and Europe.
Various studies examining the buying habits of the Chinese elite show that they tend to buy products based on the brand and the value and rarely take into account product longevity, actual performance in competitions etc.
As such, this particular consumer base presents itself as a potentially lucrative market for the higher priced items that the company currently has in stock.
In Foot Locker’s Chinese market customers will have the option of choosing from several brand name sneakers such as Nike and Reebok however in order to distinguish ourselves from the competition and to cater to the buying preference of the chosen market segment Foot Locker branches located in China will retail only the most expensive types of athletic sneakers available from various brands.
The reason behind this is rather simple with the current proliferation of cheap knock offs in the Chinese market and the fact that the “elite” market segment the company has chosen to cater to only favors the most exclusive and expensive products, Foot Locker will be able to distinguish itself from the competition by stocking products that will not only look better than competing retailers in the area but it will be highly unlikely that there would be imitations of that particular type of product since it has been shown by various studies that Chinese manufacturers that produce knock offs usually do so on only specific types of shoe types and largely avoid the more expensive to produce varieties that Foot Locker will stock in its stores.
Product Review
The products that the company will primarily focus in selling to the Chinese market are name brand athletic shoes by the following companies: Nike, Puma, Reebok.
Other high quality shoes of the distinct non-athletic type will come from the following companies: Converse, Everest, Dr. Martin.
Competitive Review
An examination of the local Chinese market in Beijing shows that stores that utilize the proposed business model for Foot Locker shoe sales in Beijing are actually a rarity. In fact most shoe sales that occur over there usually sell moderately priced products and never delve into the higher range of sneaker types that are available in some of the company’s U.S. based retail locations.
It is due to this that entry into the Beijing market should prove to be rather seamless and profitable due to the proposed marketing strategy that targets the more affluent members of Chinese society.
It must be noted though that an examination of the local Beijing market reveals that one of the greatest impediments to business success of brand name goods is the fact that they are often quickly copied by local manufacturers and cheap knocks offs are churned out by the dozen and sold in various local markets.
In fact it can even be said that the main competitor of Foot Locker in this particular case isn’t other brand retailers but rather the counterfeit product industry that could possibly copy products available at Foot Locker and sell them at a far lower cost. Their business strategy revolves around copying items sold at certain stores that have created sufficient public interest and demand.
While it is unlikely that they would be able to copy the design and materials to every minute detail experience in this particular aspect of the counterfeit industry has taught the company that most counterfeiters can and usually do produce a product that at least looks somewhat like what is being sold in our stores.
Since they don’t need to pay the same fees as our branded stores have to this enables them to undersell their prices at significantly lower prices which affects the bottom line of the company.
It is estimated that that counterfeit shoe industry alone has cost the company millions of dollars in potential sales and as such our entry into their “home turf” so to speak creates numerous potential problems that should be addressed in the future.
Distribution Review
For Foot Lockers China based operations distribution will first be tested through a single Foot Locker area within Beijing in order to test the market compatibility of the Foot Locker brand and the proposed method of targeting the selected consumer market.
No other distribution partners will be included in this particular venture due to the fact that Foot Locker usually focuses on selling foot wear via its own retail outlets.
One potential method of distribution could involve a partnership with Wal-Mart wherein the Foot Locker brand could be incorporated into several of its stores within the China market however such a plan have to wait to till proper market establishment has been accomplished and it has been judged that China is a viable location for future expansion.
Strengths, Weaknesses, Opportunities and Threat Analysis
While Foot Locker has various strengths at it disposal which have proven themselves time and again as the company has entered in new retail markets in the U.S. and other foreign countries one of the company’s major weaknesses is the lack of brand awareness within the Chinese market.
While most people in China have a passing familiarity with brands such as Nike, Reebok and Puma they have little knowledge of Foot Locker as the ideal location to buy brand name sneakers.
On the other hand it must be noted that China does possess potential as an ideal market for the Foot Locker brand and as such despite threats from sources of competition such as the counterfeit product industry entry into the Chinese market should not be backed out on.
Strengths
1. Quality of Products Sold. One of the inherent problems with the current Chinese market is the fact that the proliferation of fake footwear within the country has made people rather skeptical as to the durability and overall quality of particular types of athletic shoes.
By presenting the target market with original, high quality and durable products Foot Locker will be able to make itself stand out from the competition due to the fact that not only will our products outlast the fakes sold in the market but their quality is far better as well.
2. Pricing. While it may be true that in comparison to the counterfeit product industry Foot Locker is at price disadvantage however due to our long term relationship and contracts with several of the major brands, Foot Locker’s prices are still far better and more ideal compared to similar types of original branded shoe wear sold in other establishments in the area.
It is due to this that it can be assumed that given enough time consumers within the Chinese market will be able to properly discern the price advantage of shopping at Foot Locker as compared to other retail locations.
3. Brand Awareness of Products. Several of brands of the items we have for sale such as Nike, Puma and Reebok are actually quite well known in various international markets due to the marketing tactics of our suppliers. It is due to this that entry into the China market should prove to be a rather smooth transition due to presence of brand awareness already in the area.
Weaknesses
While Foot Locker has various strengths attributed to its name in various retail markets it does have several weaknesses that need to be taken into account before venturing into the market in China.
1. Lack of Awareness of the Foot Locker Brand. While the Foot Locker brand has been well established in the U.S. and in 20 countries abroad the fact remains that there is a distinct lack of awareness of the brand name itself in the China market.
The reason for this is due to the fact that Foot Locker has not ventured into this particular market in the past and the company has always been a U.S. based corporation that has made in-roads into foreign markets only within the past decade. It is due to this that various marketing campaigns will need to be established in order to raise brand awareness in the Beijing area.
2. Higher Priced Items Compared to Local Chinese Brands. Due to the presence of various manufacturing facilities and the fact that the Chinese population has had a hunger for western goods various local Chinese brands of foot wear have appeared within the market in China.
Such items, though of relatively low quality, do have lower prices as compared to the items that Foot Locker has for sale in its U.S. and international retail locations.
One method, as mentioned earlier, of resolving such an issue is to focus more catering to the Chinese “elite” namely the newly rich population demographic in China that have a distinct “hunger” for named brand goods. By appropriately modeling the Foot Locker business structure in order to take into account the need to cater to this specific market it is expected that
Opportunities
In the current Chinese market Foot Locker can take advantage of 3 major market opportunities that are available:
1. Increased demand for foreign brand named goods. One of the current trends in global retailing has been an increase in the amount of brand named goods sent to China. As Chinese incomes increase as a direct result of the outsourcing industry the end result has been a marked “upgrade” in the types of products normally purchased by the Chinese population.
This in effect has encouraged various manufacturers to export their products into China in order to take advantage of this apparent market boom and in effect making substantial profits over the increased demand.
2. Higher Income Threshold of the Chinese Market. With the recent expansion of the Chinese economy to that of the second largest in the world this has in effect created a whole new generation in the Chinese population that is flush with monetary assets.
This in effect has actually resulted in comparatively higher volume purchases of brand name goods and services as compared to other countries in the world. An examination of the car manufacturing industry shows that aside from the U.S., China is its largest market for top of the line cars due to the relatively higher income threshold of the new Chinese “elite”.
This presents itself as a gold opportunity for Foot Locker since entry into this new market could result in significantly higher profits for the company as a result of a relatively rich Chinese populace.
3. Lower Operating Costs in China. Comparing to operating costs in the U.S., Europe and other Asian markets China has a significantly lower operational cost. This is due to the fact that costs in relation to the various salaries of workers are actually far lower than the going rate in various markets resulting in significant savings over time in terms of comparative employee salaries between branch locations in China and the U.S.
Threats
In the Chinese market the company faces 3 main threats to its proper establishment:
1. The prevalence of the counterfeit product industry. As mentioned earlier one the main threats to the entry of the company into the Chinese market is the current prevalence of the counterfeit product industry in China.
With various manufacturers within the country easily counterfeiting goods that legitimate retailers sell this presents itself as a problem for Foot Locker since the likelihood of the company’s own product selection the proposed Beijing area may be copied as well resulting in a significant reduction to company profits.
One possible method would be to locate the proposed retail outlet in of Beijing’s exclusive shopping enclaves in order to ensure that the potential for product counterfeiting remains low.
2. Current retailers already in the market. While retail outlets such as Foot Locker are not as prevalent in China as they are in other countries the fact remains that various international retailers such as Wal-Mart do actually exist in the area.
While they may not have as wide a product selection as compared to Foot Locker they do have better brand awareness and prevalence in the Chinese market which presents itself as a problem that the company will need to overcome in order to entice people to buy their branded shoes from Foot Locker instead of other locations
3. Prevalence of E-commerce Shopping in China. One of the current trends in China today has been the prevalence of E-commerce shopping through various China based sites for E-commerce.
While Foot Locker does have its own online retail site a lot of Chinese seem to prefer shopping from locally based sites as compared to international ones. As a result this current trend does present itself as worrying factor since online retailing does have significant advantages over the traditional retail model that the company is going to utilize for its expansion into China.
Objectives and Issues
While daunting the following objectives have been created for the first year of entry into the Chinese market where Foot Locker will attempt to test the waters so to speak and determine the viability of China a new area for continued expansion.
First Year Objective
To attain revenues of $2.2 million to $3 million within the first year of operations in Foot Locker’s primary flagship store in China that will be established in Beijing. Should the project prove to be successful subsequent expansions will be undertaken in Shang Hai and other cities within China
Issues
One of the major issues that needs to be addressed is the fact that the Foot Locker brand name is still relatively unknown in China. As such extensive advertising campaigns and product promotions need to be created in order to drum up interest for store’s opening.
Another issue that must be taken into consideration is the fact that foreign markets have their own cultural sensitivities that need to be taken into account before a venture is launched.
For example when Pepsi first expanded into the Chinese market its advertising slogan of “we bring life” was translated rather humorously into “we bring your dead relatives back from the grave”.
It is due to rather unfortunate cases such as this that when operations are established in China the company needs to make sure that proper translation and cultural sensitivities are followed in order to properly incorporate Foot Locker into the local Chinese business community.
Marketing Strategy
Foot Locker’s marketing strategy in its entry into Chinese market is to position itself on the basis of high quality and exclusivity with the various shoe models and types available at the store being of the highest quality and rarely found in other stores within China.
The company’s primary target consumers will be the relatively young Chinese “elite” who emerged from the recent economic boom in China to become one of the highest spenders in the country to date.
The ages demographic for this particular segment of the population are men and women aged 14 to 30 who are part of the relatively affluent upper class of Chinese society or the relatively well-off Chinese middle class.
In order to reduce revenue costs and to make the company more distinct from its competitors in the local market such as other retailers and counterfeiters the company will not stock any of its low priced shoe selections such as those found in several of its U.S. locations rather the company will instead stock only the latest and most sought after shoe models for that particular year.
The reason behind this is to help establish the Foot Locker as the place to go for the young and affluent to purchase exclusive shoes that people would be hard pressed to find anywhere else thus catering to their sense for style and exclusivity.
Positioning
Utilizing quality and brand name distinction Foot Locker will position itself as the best place to buy foot wear within the initial Beijing market. This will be done by stocking the highest quality athletic foot wear that are available from our various suppliers and advertising our exclusivity as the best and only place to buy shoes of this particular type and quality within China.
Product Strategy
Should the flagship store in Beijing prove to be successful the company will expand into locations such as Shang Hai and Guang-Jo city as well as various urban centers that have opened up within the past few years as a direct result of the continued expansion of China’s economy.
Similar to the business model utilized in Beijing these stores will stock similar high quality athletic shoes targeting the same consumer demographics however these stores will be smaller than the flagship store present in Beijing and in fact will not stock as complete an assortment of shoes as the main store.
The reason behind this is the fact that establishing various retail outlets in different cities within China still brings with it a certain level of uncertainty. It is due to this that the amount of stock that the company should bring in upon initial expansion should be limited in order to ensure that should the worse come to pass the cost of lost revenue to the company will not be as high as it could have been.
Pricing Strategy
As mentioned earlier the pricing strategy the company will employ in its initial expansion into the Chinese market is to stock only high value shoes. This means that shoe prices will average $50 to $200 or more depending on the make and model of the shoe and if it is in limited supply.
The reason behind stocking such high value merchandise is to better distinguish the company from the various retailers and counterfeit goods sellers that emphasize low prices.
By stocking high quality and high priced goods not only does this send out the message that only a certain amount of people can afford shoes here but it also creates a certain form of exclusivity that various commercial studies have shown is an integral aspect of the buying behavior of the new Chinese “elite”.
Distribution Strategy
In this particular case product distribution and sale will all be done through the initial Foot Locker retail outlet located in Beijing. Should this prove to be successful subsequent retail outlets will also be opened in other cities all of which will be under the Foot Locker brand.
Foot Locker itself utilizes the re-seller business model wherein the company buys shoes en masse’ from the shoe manufacturers such as Nike. The company doesn’t actually make the shoes itself and as such other distribution partners beyond that of the company’s retail outlets will not be a necessity.
Marketing Communication Strategy
As mentioned earlier one of the inherent problems with doing business in China is the fact that Foot Locker is a relatively unknown brand within the Chinese market.
In order to remedy this particular situation carefully created and culturally sensitive TV and online campaigns will be created that specifically target the upper and middle class demographic for shoe sales within the Beijing area.
Viral marketing will be utilized as well in the form of various interesting online videos promoting the opening of the store. Not only that a certain contest will be set up on the stores opening day similar to that of the Amazing Race but it will be held within the city of Beijing.
The winners will be given $25,000 thousand dollars and their pick of any shoe within the store. It is assumed that by combining all these elements enough consumer interest will be generated resulting in high amount of sales during the 1st year of operation of the store.
Marketing Research
Utilizing market research Foot Locker will try to discern which particular shoe styles, designs and prices are the most desired by our selected niche market. This will be done through various online surveys, market tests and focus groups in order to help develop the initial conceptualization of the store.
Further more the company will test the brand awareness of certain types of shoes in order to see which brands are more prevalent in the minds of the Chinese populace in order to stock those particular brands and minimize lost revenue through the purchase of shoes that consumers within China won’t buy.
Further more various consumer satisfaction surveys will be utilized in order to determine the reaction of various consumers towards the establishment of the store.
In order to actually get people to fill out the surveys a small competition will be held wherein each individual survey submitted per person will act as raffle coupon for a select pair of shoes within the store. This should at least encourage people to fill out the surveys and submit them.
Marketing Organization
In this particular case the responsibility of determining proper marketing strategy and direction will be headed by a locally hired advertising firm that specializes in promoting foreign brands to Chinese consumers.
The reason behind this is the fact that Foot Locker is still rather inexperienced when it comes to properly marketing its products within the Chinese consumer market as such professionals who actually have experience in the matter need to be hired in order to ensure the establishment of proper precedent regarding proper procedures and strategies in marketing to the local populace.
Actions Programs
The opening of Foot Locker’s new retail branch will be March 2012 and as such the following program of events has been created in order to give a better impression as to the needed timeline of events and actions.
January
During the start of the year Foot Locker will begin construction on its new flagship store for its Chinese market in Beijing and as such this will be the period when the hiring process will begin in order to find capable individuals for both managing the store and being customer service representatives within the store itself.
February
On February Foot Locker will start its aggressive ad campaign in Beijing by buying several advertising segments on local Chinese channels in order to advertise the up and coming opening of the store.
A local advertising firm will also be used in order to help coordinate efforts in spreading the word of the store’s opening through print ad campaigns and viral network advertising. It is estimated that this initial ad campaign will cost between 130,000 to 150,000 thousand dollars in order to achieve full market saturation.
During this period training should also commence for the various customer service representatives as well as the managers of the store.
March
The opening of the store will be done in the middle of the month as such this gives ample time to help complete the advertising campaign to help inform the selected consumer demographic that the store is opening on the 15th and that they should expect it due to the Beijing Amazing Race that will be promoted by the company.
By the 15th the preparations should all be in place and the start of the Beijing Amazing Race should commence indicating the successful opening of the store.
April
During this particular month various operating standards should be finalized such as proper handling of merchandise, customer assistance and the various nuances that come with the new opening of a retail establishment in a foreign country.
May
By May a new $25,000 advertising campaign should be instigated in order to drum up further interest in the store and increase its profile in the public eye. In order to do so more viral marketing campaigns will be established along with several print ad campaigns in various popular Chinese magazines.
June
By this month the entire process should be completed and a smooth flow of both customers and operating efficiency should be underway in order to make the campaign a success.
Budgets
The total first year sales revenue from the Foot Locker pioneer store in Beijing should reached $2.2 to $3 million dollars by the end of the 4th quarter sales period. With a variable cost of $50 to $200 and above per shoe the company will need to stock at the very least 30,000 pairs of different kinds of shoes in order to meet potential demand.
In total this could cost $1.5 million for the price of the stock alone thus the break even point in this particular case is $1.8 million due to the costs of the advertising campaign and subsequent operating costs incurred by the end of the 4th quarter.
Controls
In order to ensure that proper guidelines regarding sales etiquette and the quality of the products are assure the store will implement strict guidelines regarding proper customer service and product handling in order to ensure customers feel welcomed within the store and get the best products possible.
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