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Turning Around a Global Footwear & Apparel Brand in China

The business operated a mixed model - owned and operated brick & mortar retail as well as franchised stores - in China in the outdoor sportswear/fashion space and was (and is) a globally well-recognised brand with one iconic style. The China business, however, was struggling. Awareness was low in the target consumer demographic, there was no e-commerce presence, retail was unprofitable and franchise partners were universally losing money and heavily over-inventoried. It had been through a period of rapid expansion driven by poor quality sales into the struggling franchise channel and over-expansion of owned and operated retail into poor locations or sub-optimal space. Investors, however, had come to expect significant quarterly growth and improving profits.

Like all significant issues, we had to eat the elephant one spoonful at a time, so we broke it down into its component parts and solved for each in a way that was consistent with and supportive of the overarching strategy as a whole.

  • Illusory growth based on poor quality sales (sell-in focus, poor quality expansion driving top-line growth)

The sales team had been driven very hard to push sell-in to the accounts - over time this got harder and harder as sell-through faltered, inventory built up and partner cash flow struggled. More and more was offered to partners to take in product - not all of it written down or in line with established trade terms. We had to shift their mindset, and up their skill-sets in most cases - to take into account sell-through and partnership profitability. We also had to fundamentally alter our reporting of the business in account reviews to take a more balanced scorecard approach.

  • Poor quality partners

Some franchise partners had to be exited. For a business that had less than 200 stores at the time, the account number was far too high. Many partners operated 1-3 locations. This led to a very high-maintenance, labour-intensive work environment for the sales team. Also, many of these "mom & pop" operators were not able to run a retail outlet effectively and getting them up to speed in that respect would have not paid back. Ultimately, we rationalised the customer portfolio to less than twenty partners - all of whom were professional retail operators. This also allowed us to get productive and professional feedback on the brand and its offering, which led to significant improvements in how the brand showed up in the market place. Pricing was a particularly important output of this refinement.

  • Brand recognition

Whilst it was a global brand, recognition in China was very low. The brand had a broad product offering across footwear, apparel and accessories. Stores and marketing tended to reflect this. We took the view that, with a limited marketing budget, we were better off focusing our spend. We opted to "be famous for one thing" and build out from there. To this end we created story-telling marketing campaigns focused on the iconic product. Awareness, intention to buy and, in the end, revenue all improved significantly as these "story-telling" ads gained more and more traction.

  • Inefficient retail space

Another bi-product of the broad assortment was that all stores were over assorted and too big. Resultantly, productivity was low and rental ratios were disproportionate to the revenue and AGM. We embarked on a program whereby store sizes and SKU counts were reduced. O&O B&M four-wall contribution climbed above 20% for the newly configured stores. We also instituted a far more rigorous store approval process involving local traffic and demographic analysis building, via the retail sales equation, to a robust P&L forecast. No more wishful thinking or "fingers in the air" guesstimates!

  • Lack of local market input into GTM strategy

The brand had been running a "one size fits all" approach in pursuit of production & design efficiencies, but this had gone too far and the pursuit of this goal meant local input was being ignored. Whilst brands must be globally consistent, they must also be market-right. We hard-wired our key account merchandising teams to our seasonal reviews and GTM development process at key points to ensure we got their feedback and, where possible and appropriate, incorporated it.

  • Highly political culture with decision-making focused at the very top

The culture of the business unit was also broken. Decision-making had gotten more and more concentrated in three (yes, three) people at the top. Such a draconian, top-down approach had utterly disenfranchised the teams and affected morale and engagement negatively. There was no quick, silver bullet to this but over time, by creating more inclusive operating leadership groups and empowering front line managers we went a long way to addressing this.

  • Launching E-commerce

Lastly but definitely not least we went after EC. Not just as a revenue generator but also as a powerful marketing tool. We avoided becoming overly reliant on Singles Day ("11/11") as that can become an unprofitable addiction. We were also careful to carefully coordinate with offline retail to avoid damaging that channel and upsetting franchisees. As far as possible we also opted for a segmentation strategy which helped us side-step any significant cannibalisation of our channels.

The result, within three years, was a doubling of revenue whilst maintaining profits, reducing inventory and the establishment of a sustainably profitable franchise business.

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