Wednesday, September 29, 2004


Retailer Karstadt plans shake-up
Germany's KarstadtQuelle aims to shed 77 smaller department stores and may hive off its real estate assets into a listed company as part of urgent surgery aimed at returning the firm to profit next year.
Support from Karstadt's main shareholders for a 500 million euro ($615 million) capital increase to create a financial cushion while it takes the knife to its sprawling portfolio and slashes jobs helped push the stock up as much as 8 percent.

The ailing group said on Tuesday that restructuring costs would result in a loss before tax and amortisation of up to 1.3 billion euros this year but the overhaul should yield savings of 360 million at its two main businesses by 2006.

Karstadt Chief Executive Christoph Achenbach, who took charge in June, said the changes were ``both long overdue and essential.''

"They may be extremely painful in the short term but will open a good future perspective for (Karstadt) in the mid to long term,'' he said at a news conference.

German financial services group Allianz, which owns about 10 percent of the department store and mail order group, said it had confidence in Karstadt's new management and was ready to subscribe to the capital increase. The Schickedanz family, which owns some 41 percent, will also subscribe. The process should be completed by the end of November.

The mid-cap stock was up 6.65 percent at 14.27 euros by 1150 GMT after opening as much as 4 percent weaker on news of the restructuring charges and share issue. It had touched a high of 14.45 euros. The MDAX index of mid-cap stocks was flat.

"Positive above all is the fact that Allianz will take part in the capital increase,'' said Christoph Rehbach, an analyst at HSBC Trinkaus & Burkhardt.

"(The restructuring) is in principle the right approach. The question is whether it can be realized in this form,'' he added.

Particularly challenging will be the disposal of the stores, analysts and bankers say. Karstadt is planning to transfer them to a new company and sell it as quickly as possible. It will retain 89 larger stores as part of its core business.

Disposals, job losses
The Essen-based group wants to raise 1.1 billion euros in 2004 and 2005 through divestments that will also include clothing chains SinnLeffers and Wehmeyer, sports goods shops Runners Point and Golf House, and its stake in a joint venture with U.S. coffee shop chain Starbucks.
The company will keep a 50 percent stake in Thomas Cook, Europe's second-largest tourism firm, it said.
Karstadt, which announced the appointment of Harald Pinger as chief financial officer, said it expected the overhaul to result in ``markedly positive'' earnings before tax and amortisation from 2005.

A supervisory board source said thousands of jobs would go as a result of the restructuring but that the final figure had not yet been agreed. Media reports have said the company would shed up to 8,500 jobs, or about 11 percent of full-time staff.

Services union Verdi said the plans had been forced through against the wishes of employee representatives. It announced works meetings for Wednesday that could force store closures across Germany, including the KaDeWe flagship in Berlin.
Analysts said KarstadtQuelle's financial shape would be uncertain until its first progress reports on the restructuring.

The company's long-term debt totaled 2.3 billion euros at the end of June, compared with equity of 1.29 billion.

Some analysts have said investors will stay cautious until it is clear KarstadtQuelle can increase sales again. They have said the overhaul may take two to three years to complete.
In the restructuring, Karstadt plans to shed non-core businesses accounting for about 700 million euros in sales, or around 15 percent of its over-the-counter retail business.
It said that it would reposition the mail-order brands Neckermann and Quelle and develop growth areas in online, foreign and specialty businesses.

Dresdner Kleinwort Wasserstein and ABN Amro are joint bookrunners for the capital increase.
Source: Reuters. September 2004
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Retailers warned of credit threat
Britain's growing credit crisis could trigger a retail slump affecting some of the biggest names in the high street, a leading credit management lawyer has warned. While consumers come to terms with soaring credit card bills - the nation's personal debt broke through the trillion pound barrier last month - Larry Coltman believes the knock-on effect will inevitably be felt by retailers. He also warns that a sharp slowdown in the spending spree that has provided the dynamo for the UK's economic buoyancy over the past few years, will almost certainly result in a dramatic increase in the number of insolvencies and business-related bankruptcies. But runaway debt, and the steep rise in bankruptcies, point to a looming crisis, warns Coltman, a partner in the Midlands office of international law firm Reed Smith, and President of Coventry and Warwickshire Chamber of Commerce.
Write: by LuisB. September 2004
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Tesco in digital photo deal
Photo-Me International to install minilabs
Tesco is to install 165 digital photo minilabs from Photo-Me International (PMI) in stores across the UK.
Photo booth operator PMI, which has been successfully expanding its digital business, said more than half of the DKS 1550 minilabs will be supplied to Tesco in its current financial year, ending on April 30 2005.
As photography moves inexorably from conventional film to digital media, there is a huge opportunity for retailers, and Tesco's decision is a vote of confidence in both the market and PMI.
The DKS 1550 can produce 1500 prints an hour from both traditional and digital sources, including photo transfer from digital cameras, cameraphones and PDAs
Write: by LuisB. September 2004
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Lidl attracts customers with cheap fruit
Lidl apparently aims to attract customers to its newly opened stores in Norway with cheap fruit and juices. The price of bananas at Lidl stores is 3.90 Norwegian crowns per kg and juices cost 3.45 crowns per litre, which is many times cheaper than in other Norwegian food stores. Big Norwegian grocery chains like Rimi and Rama1000 feared that Lidl would attract new customers by offering very cheap beer and therefore reduced beer prices in the summer of 2004 before Lidl had opened any stores in Norway. The company already has stores in Sweden and Finland and is expected to soon expand to Denmark as well.
Write: by LuisB. September 2004
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Metro to open Belgrade store January 2005
Metro will open its first store in Serbia on 1 January next year in the capital Belgrade and will invest in it E15m, the state Radio 1 reported. Metro will invest E15m in the store and plans to open 8 to 10 stores in Serbia over the next three years. The next three are planned to be in the northern city of Novi Sad, in Nis in southern Serbia and Kraljevo in central Serbia. After Metro opens its first store it is expected that other German retail chains will also invest in the country, the state broadcaster RTS quoted Serbia's Deputy Prime Minister Miroljub Labus as saying. He added that Serbs spend around E50m annually in Metro's stores in the neighbouring countries.
Source; Metro AG
Write: by LuisB. September 2004

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South Korea’s five-day workweek to generate new retail trends
South Korea’s new five-day workweek could revolutionise the country’s shopping trends especially for department stores, analysts said.
According to a recent report by Samsung Economic Research Institute (SERI), retailers needed to become more leisure-oriented to meet new consumer demand for venues, activities and products.

Legalised in July this year, the five-day workweek would affect a total of 1.8 million workers in South Korea from companies with more than 1,000 employees each. Companies with 300 employees or more will implement the system on 1 July 2005, followed by the remaining workplaces in 2011.
The report also highlighted the emergence of more multifunctional shopping complexes in both urban and rural areas. "More retailers will provide cultural events and activities as they focus on entertaining rather than just serving as a shopping stop. They will be pervasive in the years to come,” said Im Bock-soon, director of the distribution and logistics team of the research division at the Korea Chamber of Commerce and Industry.
Shinsegae Department Store and Hyundai Department Store in southern Seoul are pertinent examples, both housing a diverse array of facilities comprising retail outlets, arcades, movie theatre and educational attractions.

Kwon Tae-woo, assistant manager of the marketing team at Shinsegae, said the department store would also be organising more cultural prize giveaways, gift certificates as well as cash-back events to go with the country’s move towards a more leisure-oriented shopping experience.

Meanwhile, the majority retailers - solo department store branches with no accompanying entertainment facilities - are looking at alternative ways to build up their businesses.

For instance, renovation plans are underway for Lotte Department Store's main branch in downtown Seoul to upgrade its retail space with more floor areas and room for leisure activities by end 2004. This will entail creating more rest areas with cultural themes like art gallery and musical events, a bigger food court and restaurants with standards equivalent to those found in five-star hotels.
"We're competing with the discount retailers, such as Carrefour and Samsung Tesco's Home Plus. These days, people can get everyday items at low prices, so operations like ours will have to offer a more extravagant place to spend time," said Ha Soo-yeon, head of the public affairs department at Lotte Department Store in downtown Seoul.

Other smaller outlets like Migliore, a thrift market comprising hundreds of independent retailers, prefer to focus on the more practical side of its business by like offering specialized products in the recreation area.
In the meantime, retailers like E-Mart and Carrefour are already going in line with the increased demand for leisurely pursuits by focusing on recreational equipment and clothing, as well as consumer electronics. A Carrefour spokeswoman has also predicted a sales increase for its home improvement items, with increases in labour costs, and people spending more time to improve their living environment.
Source: AsianTrade. September 2004
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China bans sale of leading luxury brands outside of Beijing
China has banned the sale of leading luxury brands outside Beijing chain stores regardless of whether or not they are genuine items. Speaking at a news conference in early September, Li Dongsheng, vice-director of the State General Administration for Industry and Commerce said vendors selling luxury brands outside Beijing’s chain stores would face criminal charges for intellectual property violation even when the goods are genuine.

He added that luxury products in Beijing would only be sold at authorised stores like Louis Vuitton, Chanel, Prada, Givenchy and Fendi.

Foreign brand companies had asked the Chinese government to announce the ban in view of problems of piracy and counterfeiting in China. In fact, China's Ministry of Commerce has investigated more than 160,000 cases of counterfeiting involving goods worth Rmb1.89 billion (US$228.6 million) last year.
Although most of these cases involved food, mobile phones, fertiliser and seeds, as well as cars, luxury brand owners said they are losing business to Chinese imitators offering fakes at better quality and more varieties.

Maxime Elgue, managing director of Cartier Far East, said the Chinese government must do more to combat counterfeiting. “They need to convince the country that fakes are bad for them. We are spending millions every year to sue companies and terminate workshops," said Elgue.

According to reports citing the International Chamber of Commerce’s findings, half of the US$100 million in counterfeit goods seized by US Customs officials in 2002 were from China. In total, counterfeiting makes up as much as 7% of global trade or US$450 billion annually.

Meanwhile, China has launched a year-long campaign to tighten law enforcement on the country’s intellectual property rights violations.
“Considering that the violations are currently very serious, China needs to lower the threshold for the criminal offences,” said Zhang Qin, deputy head of the State Intellectual Property Office.

Nevertheless, analysts said demand for genuine brands is still higher for Chinese consumers. Dong Tao, Hong Kong-based chief regional economist at Credit Suisse First Boston, said China's consumption of genuine luxury products is still very strong in the face of its rising middle-income class and upper class population. In fact, government statistics has shown a 36% increase in disposable income last year from 1998 to Rmb8, 500 city dwellers.

Giorgio Armani, Prada Holding and Cartier are some of the luxury brands that are confident that their sales in China could increase with rising affluence. While Cartier aims to increase store numbers in China from 10 this year to 20 by 2006, Prada plans to spend 35 million euros (US$42.9 million) to establish up to 15 stores in the country through 2005.
Source: RetailAsia. September 2004

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Private Labels: Does branding matter?
With the amount of branded product these huge retailers move each day, there’s no doubt that their outlets are a valuable asset to brand owners. However, their objectives might at the same time be considered at cross purposes with the branded product they retail. That is because each of these outlets has private label product, which competes at a lower price, side by side with branded products.

Traditionally, private labeling has been strongest in low-emotional involvement goods such as butter, eggs, flour, and sugar. Most often, such products are staple ingredients of larger recipes and individual performance becomes unidentifiable in the resultant mix. However as the private label market matures, it takes on more diverse products and services. For instance, Tesco in the UK offers petrol; President’s Choice, from Canadian retailer Loblaw, offers everything from cookies to financial services, and US-based Costco’s private label, Kirkland Signature, offers tires alongside fresh food and alcoholic beverages.

How big are these discount retailers? Wal-Mart based in the US and Carrefour based in France are considered to be the first and second largest retailers in the world. Costco Wholesale is the largest wholesale club operator – that is 36 million consumers have a membership to purchase goods at a discount in the US, Canada, Japan, Mexico, South Korea, Taiwan, and the UK. The 114 year old, Dutch supermarket giant Royal Ahold (Koninklijke Ahold NV) – whose retail outlets include supermarket chains like Albert Heijn in the Netherlands, ICA in Scandanavia, Bompreço in Brazil, Disco in Argentina, CRC Ahold in Thailand, and BI-LO, Giant, and Stop & Shop in the US – is active in 28 countries on four continents with a reported annual sales of E 66.6 billion last year (US$ 6B). (Ahold is currently responding to charges that its earnings claims in last year’s annual report left items undisclosed.)

Private label sales for these retailers contribute significantly to the bottom line. Jan Hol, Vice President Public Relations and Public Affairs for Ahold, says private labels comprise a considerable part of Aholds overall sales. “If you take the Albert Heijn company, with sales around US$ 7 billion (E 7.7B), 30 percent of their sales come from private label. In Sweden, ICA derives between 30 and 40 percent from private label.”

According to published research from retail consultant John Stanley at John Stanley Associates roughly 45 percent of products sold in Europe and 25 percent of products sold in the US are private label goods. Both markets are considered fairly mature with little room for growth, particularly in Europe, so many of the global private label giants are expanding to capitalize on less-saturated markets. According to a recent ACNielsen report Latin and Central America are showing the largest growth among the new markets (September 1991).
As for the consumer side, Stanley writes that in Europe savings can be between 10 to 18 percent, and in the US, that figure rises to as much as 25 percent cheaper than branded goods.

Because private label products are less expensive, one might be tempted to think of them as a lower quality alternative. Indeed early ventures in private labeling yielded inconsistent quality and tarnished the overall image of a private label concept. Retailers found that consumers, faced with uncertainty, weren’t going to experiment with a non-brand name item. A large part of growing the private label market involved improving the product’s quality.

Now according to Frank Dell, President of Dellmart & Co., a management consultant for retailers, wholesalers and manufacturers, consumers will no longer sacrifice performance for price. “The product must perform in the same way as the branded [product].”

Indeed, performance might be the only leg to stand on for private labels. For when there is no advertising or marketing spin, the product must do all the talking.

Most of the mature private label operators claim to deliver on price and quality. According to Kevin Hade, Vice President of Category Management at Ukrops Super Market chain in the US, Ukrops “wants to offer a product that is equal to or higher in quality to the leading national brand at a lower price.”
Costco’s Cynthia Glaser, Vice President and General Merchandise Manager, Private Label Non-Foods, says Costco will not develop a Kirkland Signature product unless it can make it better and cheaper: “It has to be an item that merits the time and effort that goes into it.”

Similarly Hol at Ahold places quality and price at the heart of an Ahold private label product. “We don’t want to position our private label as a discount label. It is a balancing act between the price, quality and the uniqueness of certain items. We prefer to position ourselves not only on price but in the unique recipe of a product and also the quality.”

To ensure that quality, private labelers began to analyze the contents of a leading brand and then, based on those findings, recreate that item step by step. Now most leading private labelers take an active role in the manufacturing specs of the product and no longer slap their logo on whatever comes off the assembly line. The result is that often the only thing separating one product from the other is the name on the label.

Attention to quality has helped grow the consumer base across economic classes. Private label’s typical consumer was traditionally well-educated high earners. Ironically, those who could benefit most from the lower price alternatives did not do so because, according to Dell, “They were putting their hard earned money out and they wanted a guarantee of the quality and the product’s performance.” As the private label’s quality improves the lower earning consumer can be more certain of the value for money ratio. Just like a branded product, once the relationship has been established, the consumer will continue to buy as long as it continues to perform well.

How far can a private label stretch before the consumer loses confidence in it? According to Hade at Ukrops it’s a fine line “You’ve got to be careful. I question when people get into these intensive multi-tiered strategies. Are they doing that as a benefit to the consumer? What are they accomplishing?”

He explains that although Ukrops wants to grow its private label line, decisions are largely based on what Ukrops thinks the consumer wants. “We measure our success by when we introduce a product. Did it get the appropriate amount of share that we anticipated in the subcategory? If not, the consumer is clearly telling us that we missed the mark and that it needs to be removed from the shelf.”

Hol on the other hands says that with regard to stretch, Ahold “hasn’t seen the border yet.” He goes on to cite examples of success with stretch. “In Europe we sell financial services under our Albert Heijn brand. We have a credit card company in Brazil under the store brand Bompreço. If the store brand is reliable with a good track record, and people have built confidence in it, there are a lot of new innovations and services that you can bring and market under this brand.”

But are private labels “real brands”? Hol insists that they can be. “We do have certain private labels that have emerged into the power and authority of a brand.”

Dell agrees. “But they didn’t start out [as brands]. They started out as a second-tier price alternative. And it’s very clear that the consumer is not really interested in that. And just like a branded product, if I buy a private label product and I don’t like it, I’m unlikely to buy any other private label product.” What’s more, he says, the private label should be managed like a brand as part of the marketing mix of the chain.

In fact, Dell suggests, the private label industry suffers by not taking itself seriously enough as a branded category. “The industry has tried to implement category management, which is a take off of the brand category management from the national brand manufacturers. A lot of them have titles called category managers, but I call them super buyers. They don’t have MBAs in marketing; they don’t spend time studying the industry. These people are in charge of a category, so one of the things that I find as a weakness is that they don’t have what I would call ‘brand managers.’ I think that is going to limit the success and effectiveness of private labels by not having that.”

Still as the private label industry grows, the threat to branded product rises. After all brands are now competing for shelf space with the store’s own product and sometimes, like in the case of Ahold, that product may have one, two or three different levels of varying degrees which procures even more shelf space. What’s more the branded product has an added burden of a large advertising-marketing budget, which can substantially impact the bottom line, particularly on low-margin goods.

The retailers we spoke with agreed that a growing private label industry represents a threat to the branded product, but none were too eager to share advice on how to compete against them.

Hade at Ukrops says brand owners competing with private labels need to offer a combination of quality and price that is a value proposition. “If a private label can meet those requirements and is significantly lower in price [than the branded product], than I would question how well [the brand owner] is running that company. Have they got their resources allocated right? Too much marketing costs?” Not surprisingly, he ultimately concluded that competing with private labels is “their problem.” What will keep private labels from taking over entirely? Is it possible that the cost to market will become too high for branded goods, squeezing brand product owners out of the business? The market seems to saturate at 50% and besides, without someone to copy, the private labels’ R&D costs will lower their own margins. Perhaps the fact that the branded product needs the retailer to carry the product and the private label needs something to copy makes for an unlikely but symbiotic relationship.
Write: by - Robin Rusch. Jonathan Schneider, founder of Square One Research, contributed to this article. September 2004

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US: Coke turnaround could take 2 years
Coke’s turnaround may take two years, according to the company’s CEO Neville Isdell.
In an interview published in the Financial Times, Isdell said that recovery "will probably take 18 months to two years and there is a period in the middle where people will say it's not happening quick enough.
But I'm comfortable with that; I'm here for the long term."
He added that he did not believe a radical shift in strategy was required, despite the success rival PepsiCo has had outside the traditional carbonated sector.
"I know there is scepticism around this, but the number one priority is recreating the relevance of carbonated soft drinks," he said.
Also speaking to the Wall Street Journal, Isdell said the comany would shelve plans to change how it prices its soft-drink concentrate for its biggest bottler, Coca-Cola Enterprises.
Negotiations over how Coca-Cola charges CCE for its syrup have been continuing for a year. But Isdell said Coca-Cola would now focus instead on boosting sales and improving its marketing.
Source; FT. September 2004
Write: by LuisB

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Nike - does it“Cool!”
No doubt this is what Nike intends the visitor to say when opening
Nike's brand and swoosh trademark were born in 1971, and through state-of-the-art marketing, climbed to fame in no time.

The company turned public in 1980. With neat products, TV commercials, Niketowns, and merchandises nicely aligned with the brand, the athletic gear brand became a benchmark of 360-degree branding. Can the same case be made of

The website opens rather quickly, revealing splashy Flash technology. As the visitor returns or refreshes, the background picture of an athlete or a shoe will change. The splash page redirects to different national and category websites, including speed, football, basketball, soccer or women. The impact is professional but rather sober in comparison with what lies ahead.

Interestingly, every category displays a different design and feeling: Deep red for soccer, urban gray for basketball, or green-blue for speed. All of the screens are appropriate for the sport and make extensive use of streamed media. It is Flash 7 at its best, surprising and delighting the user through a satisfying workout of clicks, dives and interaction.

Like playing a new video game, visitors could be hooked for an entire evening just surfing With only two dimensions on a flat screen, the mind is absorbed by Nike's storytelling talent. The intro of "The Outer Limits" comes to mind: "There is nothing wrong with your television set. Do not attempt to adjust the picture. We are controlling transmission. We will control the horizontal. We will control the vertical. […] You are about to participate in a great adventure. You are about to experience the awe and mystery which reaches from the inner mind to the outer limits." flies in the face of usability standards and tests the boundaries to new uncharted territories. From a branding viewpoint, there is much to be questioned or at least debated. But for sure, Nike lives by its standards. It applies to its marketing and entrepreneurialism the same go for it approach that has made its brand known on, and off, the tracks.
Source: Brandchannel. September 2004

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Constitutional Court gives green light to healthcare privatisation referendum
The Constitutional Court has given green light to the referendum on the privatisation of the healthcare sector. The referendum was initiated by the communist party in an attempt to repeal a debated law that would have allowed the involvement of more private capital in the healthcare sector. The twist in the issue is that the law the referendum had been initiated against does not exist any more as it was repealed by the Constitutional Court in an earlier decision. In addition, it is not entirely clear whether a possible outcome being against the privatisation of the healthcare sector reverses the already undertaken - mostly small scale - property sales or it only bans future sales of state healthcare property (hospitals, in particular).
Write: LuisB. September 2004
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Entry of third GSM operator to lower mobile call charges by 20-50%
The entry of a third GSM operator would lower mobile call charges between 20% and 50%, Karl-Johan Nybell, member of Tele 2’s management board said. Tele 2, in consortium with nine Croatian companies, filed the only bid for a third GSM license. The bidding deadline expired on 27 September. Nybell said Tele 2 would aim at a 30% market share and projects mobile penetration rate of 90% in 2009. He added Tele 2 holds 51% in the consortium, but declined to comment on investment plans. Tele 2 hopes to sign interconnection agreements with the other two operators HTmobile and VIPNet as quickly as possible. Nybell admitted Tele 2 was interested in the fixed-line telephone market, but would wait for liberalisation in the telecom sector to be completed. Among the Croatian partners of Tele 2 are Agrocor, Lura, Dalekovod, largest insurer Croatia Osiguranje and Privredna Banka Zagreb
Write: LuisB. September 2004
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