Join my conversation about Uniqlo

Hi patient blog readers,

I’ve been making noise over at The Conversation again, this time about the arrival of various international retailers to Australia, including one of Japan’s finest: Uniqlo.

“Japanese fashion label Uniqlo and homeware store Muji will enter the Australian market next year, following other recent arrivals H&M, Topshop and Zara. Despite the purported decline of brick and mortar stores, Australian shoppers will finally be able to shop at stores they’d once only encountered overseas. It seems a far cry from only a few years ago…”

Read more here, make comments, tell you friends etc…

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Anyone see a 7-Eleven around?

I’m here in Bangkok for my annual supervision of the Global Consulting Project.

And again, I have been struck by the ubiquity of 7-Elevens in this city.  On the relatively quiet street of our hotel there are four branches of said store within a stretch of about 250 metres, including two pretty much directly across the (narrow) road from each other.  Just 400m in the other direction there are another three stores in a 60m stretch.

This obviously generates lots of discussion. One student said he’d seen similar density in Taiwan.  That got me searching for some data to check out which locations in the world have the most of these stores per person.

And here’s what I found.  In terms of population per 7-Eleven store (i.e. national population/number of stores), Thailand is in the top five globally (with ‘top’ meaning not many folks per store, or, put differently, the most stores per person):

I included Australia, simply for illustrative purposes.  We’re a fair way down the ranks (see here for the lengthier store count list – the US (c6,500 is missing)). The table identifies what appears to be the ‘natural home’ of the convenience store – densely populated urban centres around Asia.

For those who have missed the back story, 7-Eleven originated from the US, but was bought out globally by the firm’s Japanese master franchisee almost 25 years ago.

Japan had a pretty big head start on Thailand (opening in 1974, versus 1989 for Thailand), but Thailand is catching up fast.  I saw an estimate that there are over 3,000 stores in Bangkok, which equates to about one store for every 4,000 residents in this megacity (and comfortably defeating city state Singapore).

The Thai franchisee is doing something right, with profits reportedly up fivefold in three years. No wonder there’s talk said firm is chasing the franchise rights for Laos, Cambodia, Vietnam, Myanmar (and also some regions of China!).

I do start to wonder how far such expansion within a given city can go.  Could we eventually see a Bangkok headline like this one (mocking Starbucks’ rapid growth)?

These two stores are within 50 metres of each other in Silom, Bangkok

Bluing about brewing: Will SABMiller bring on an Aussie apocalypse?

I’m not sure which is less surprising: (a) the announcement that the Foster’s Board are now supporting SABMiller’s takeover offer; or (b) the ill-informed hysteria in the tabloid press about the ‘loss of an Aussie icon’.

But let’s have a look at The Hysteria.  The grounds for concern are shaky at best.  The three main complaints are: (i) jobs may be lost; (ii) iconic brands might be neglected, and (iii) profits will head offshore.

Let’s take each complaint. First, will jobs be lost?

I can’t see massive changes to the location of manufacturing . Beer is one of the least international-trade-worthy products due to its high weight-to-value ratio and perishability.  That’s why we see so much licensing of brands across borders, contract brewing, and takeovers just like this one. So brewing jobs won’t be heading offshore (nor packaging, labelling, distribution, engineering). Likewise, technology-wise there are no real gains or innovations that are likely to change labour-capital ratios in this extremely mature industry. So, the brewery jobs should stay.  In anything, if SABMiller can successfully launch and market their deep suite of brands (which will inevitably be brewed locally), then we could actually see some upswing in manufacturing.  Any job losses that might occur are most likely to be in the (old) head-office, with some scope to reduce duplication of tasks.  Even then, I’d predict more turnover than simple shedding of positions, as SABMiller attempts to rejuvenate a pretty moribund mob.

So, will these Anglo-South African-Yankee newcomers tear down long-adored Aussie beer brands?

This is a really curious set of concerns, and based on a number of falsehoods.  Foster’s (and it’s various previous incarnations) has itself been pretty free-willing and cannibalistic in its stewardship of brands for decades. One time icons like Abbotsford Lager/Stout have been demoted, labels have been dramatically altered, sleepy bit-players have been promoted (including VB and Crown Lager) and pushed beyond their Victorian homeland, and even the headline ‘brand’ of Fosters’ holds little-to-no local market relevance (as every Aussie traveller finds themselves having to explain to befuddled foreigners).  Indeed, Foster’s has been making much higher margins on licensed foreign brands such as Corona in recent years than on these supposed national treasures. Yet local ‘Aussie battlers’ haven’t been hitting the airwaves to protest that ‘treachery’.

It is in SABMiller’s interests to maintain and perhaps even revitalise the fortunes of many/all of the aforementioned product lines.  Given Foster’s retreat from foreign beer markets in the past decade, SABMiller taking ownership of these Aussie brands might indeed be the best chance of seeing more than a token blue and white can of Australian ale on overseas shelves.  My personal hope: that SABMiller promotes the much tastier Fat Yak as a higher end export (and maybe also Blue Tongue which I’m guessing comes with the suite of CCAmatil/Pacific Beverages assets that appear to be part of this deal).  That would be doing a lot more to improve Australia’s beer reputation than the currently bland product licensing.

Of course, SABMiller will presumably also increase the availability of its broader range of international brands.  That will test the ‘loyalty’ of died-in-the-wool Aussie drinkers.  But that isn’t SABMiller’s problem or fault.

Finally, won’t profits head offshore?

Firstly, it’s not clear how the average Australia benefitted from Foster’s profits up to now.  Sure, the firm paid taxes, but so will SABMiller.  Shareholders got returns (although pretty paltry ones in recent years given the wine debacle), but they are also getting a decent premium in the takeover.  And if they want to keep getting a piece of the action, SABMiller is listed on the London stock exchange (and in Johannesburg). Again, SABMiller is likely to be making more generous investments in revitalising the Foster’s business in the coming years than the incumbent management have been, so it remains unclear that this is a case where the business is going to be ‘taken offshore’.

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So, in conclusion, I’m arguing that this particular foreign takeover is likely to be one the least harmful we see in Australia in the near future. The nature of the industry is one that doesn’t lend itself to offshoring of key functions, and we should be more interested in what it might do to resurrect a dull duopoly market.

 

Westfield gets a Brazilian… and goes Italiano

It is rare to see an Australian multinational announce two international expansion moves in the same week. And it’s even rarer when said moves are to two different continents.

Shopping centre giant Westfield made two such announcements this week, with joint ventures signed in firstly, Brazil, and today, Italy.

As I wrote about in a book chapter on Westfield a few years ago, the firm has typically been reluctant to seek opportunities beyond the English-speaking world.  The firm entered the US way back in 1977, with a portfolio of properties slowly emerging over the coming two decades.

Westfield succeeded in the US by buying run-down malls that no one visited anymore and turning them around through innovative redevelopment projects.  Most competitors in the industry preferred building new malls.

By the late 1990s Westfield had emerged as the dominant player on the US scene, and continued to grow right through to the global financial crisis.

In the broader world, they have been more cautious.  As we argued in the chapter:

“Westfield’s internationalisation was never a story of extreme risk-taking.  Frank Lowy saw little value in acting as the pioneer in environments where the payoffs were too low.  As long as there were opportunities to be had in the US, then Europe, Asia and New Zealand could wait. Eventually in 1997 the group took over the management of ten St Luke shopping centres in New Zealand. In 2000 Westfield Trust and St Lukes Group merged and the New Zealand centres were re-branded as Westfield centres. Attempts to enter the UK market in the 1970s and 1980s were unsuccessful. Lowy expressed considerable frustration with the lack of dynamism in the UK investment houses and lack of planning enthusiasm (Margo, 2000). Not until early 2000 did Westfield finally obtain access with a 75 per cent stake in a centre at Broadmarsh, Nottingham. The firm has made considerable headway since, with seven centres on the books, and is set to open the largest centre in Greater London in early 2008. Westfield briefly entered Asia in 1998 with a ten per cent share of Suria Kuala Lumpur City Centre in Malaysia.  This investment was short-lived, however, with the company withdrawing in 2000 after the Asian currency crisis.”

So why has the firm moved now?

On the Brazil front, the firm is tapping into one of the most exciting and fast-growing large economies in the world.  The firm may see some useful urban similarities to Australia and tthe US (i.e. more ‘wide, open spaces’ in the ‘burbs), and Brazil may also be seen as far less challenging than China and India for example (with much less government intrusion likely).

At the same time the firm may see far fewer prospects in the moribund US economy and its close-to-saturated Aussie home.

Bringing a local, experienced joint venture partner is a very sensible move for a multinational with no experience in the market. While Westfield hasn’t typically hooked up with shopping centre management firms before (preferring instead to court construction firm and funds management partners – i.e. in essence, supply partners), local adaptation is clearly front of mind here. There should also be an appetite for knowledge acquisition on both sides of this equation.

The Italian move looks a little riskier, with patchier economic conditions and a reputation for bureaucratic randomness.  There may be an argument for very localised attractiveness here, as the firm is targeting one of the wealthier and more retail-savvy parts of the nation – Milan (also home to some of the oldest shopping arcades in the world). Indeed, this could also be a brand-building exercise in a city/region with no shortage of brand champions, especially in the luxury and masstige segments Westfield is keen to attract across its empire.

The final piece of this strategic puzzle might well rest on the role of individuals in both constraining and driving choices.

Firm founder Frank Lowy finally handed over the reins to his baby about five months ago (stepping down as Executive Chairman).  His sons appear to stamping their mark on the firm’s future with these two bold (but tentative) moves.

Why Tiger Australia is so toothless

A couple of weeks ago I was contacted by a newspaper journalist seeking some comments on the troubles of low-cost airline Tiger Australia.

The reporter was specifically interested in the likely impact of the current grounding on the firm’s relations with its parent back in Singapore (with a particular focus on the cultural aspect of ‘losing face’).  I offered a few insights – that I couldn’t speak to any cultural dimension, but that HQ clearly was very worried given the group CEO was talking of basing himself in Australia presumably to kick some heads… and that the airline was clearly struggling well before pilots (allegedly) started flying a little recklessly.

These nuggets of wisdom never hit the papers, but I thought I should expand upon the latter point – namely why the firm hasn’t won the hearts or wallets of Aussie flyers.

Low-cost airlines have been a business revelation in the past decade or two.

Innovators like Ryanair and Easyjet, and copycats like Air Asia and Jetstar Asia have sliced enormous costs out of the process of offering international air travel.  This has both sliced into the market share of the older full-service airlines, and also expanded the pie considerably by bringing less wealthy passengers into the market (and also allowing greater frequency of short trips away).

In the typically moribund US domestic market (see Michael Porter’s excellent explanation of why US airlines are typically loss-making – from about the 2 min mark of this video), both Southwest Airlines and JetBlue have been very successful using a low-cost model.

Yet Tiger Australia has been a money pit since kicking off in late-2007. So what is Tiger doing so wrong?

It would seem this a combination of mis-reading the local environment and under delivering on customer value.

Air travel in Australia is an awkward exercise.  While there is little threat of substitutes due to the enormous distances between our major cities (other than Sydney-Canberra driving between mainland capitals takes >7 hours), the fact that there are single airports in pretty much every major city (other than Melbourne’s inconvenient Avalon option).

Low cost airlines typically seek to avoid the high landing costs (and associated parking costs etc for price-sensitive passengers) by using smaller second airports and secondary cities, especially to cross-subsidise those flights that must go through hubs.  In Australia that simply isn’t an option.  The two big local players have very stable and mutually beneficial arrangements with airport management, and upstarts like Tiger are burdened with either tin-shed outhouses or pricey general gates.

The concentration of Australia’s population into a small number of large cities, unlike the more dispersed US markets, has meant Tiger has developed no local monopolies, and struggled to find a niche of consumers willing to sacrifice certainty and convenience for the limited price savings on offer.

At an operational level the firm has also failed to deliver then minimum service required to develop any customer loyalty.  Too many flights are cancelled (and given the infrequent schedule, too long a wait ensues), and the airline is notorious for being close to uncontactable for assistance.

The current grounding of all flights could (and perhaps should) be the end of line for this failed business strategy.