Reference no: EM13222

Company background

From small beginnings in Hong Kong 1981, Giordano International Limited expanded throughout the Asia Pacific region to become one of its most well-known and established apparel retailers.  By 2005, it employed over 11,000 staff in over 1,700 shops operating in 30 territories in Greater China, Japan, Korea, Southeast Asia, Australia, India and the Middle East.  Giordano specializes in casual clothing for both men and women, and operates under the brand names "Giordano", "Giordano Ladies", "Giordano Junior" and "Bluestar Exchange".  In 2005, sales of HK$4,413million (up from HK$4,003m in 2004), delivered after tax profits of HK$431m (HK$418m in 2004).

As early as the 1980s, Giordano realized that it was difficult to achieve substantial growth and economies of scale if it operated only in Hong Kong. The key was to expand, both in the region and beyond. Moreover, after surviving the Asian economic crisis of 1997-1999, Giordano has also been endeavoring to move up-market to avoid the fierce price competition prevalent in the discount sector.  However, as it moved into new segments and territories, Giordano had to consider how to adapt its marketing and operations strategies to suit these different markets.

Giordano was originally founded as a wholesaler for Hong Kong-based manufactured clothing going to the USA.  However, in 1983 it scaled back its wholesale operation and set up its own retail shops in Hong Kong.  It soon expanded into Taiwan through a joint venture and in 1985 opened its first retail outlet in Singapore. Until 1987, Giordano sold exclusively men's casual apparel. When it realized that an increasing number of women customers were attracted to its stores, Giordano started selling unisex casual apparel.  It began to re-position itself as a retailer of discounted casual unisex apparel with great success; its sales more than quadrupled from HK$712 million in 1989 to HK$3,479 million in 2001.  A willingness to try new ways of doing things and learning from past errors was an integral part of management at Giordano. The occasional failure represented a current limitation and indirectly pointed to the right decision for the future.  

Operations

Besides the willingness to accept mistakes, Giordano's success is also firmly grounded on its dedicated, well-trained and ever smiling sales force. Its front-line customer-service workers are its heroes. Stringent selection procedures ensure that only candidates matching its strict requirement are employed.  Training workshops further test the service orientation and character of new employees before they make it into the shops. Giordano has extended its philosophy of quality service to its overseas outlets.  Its Singapore operations, for example, have achieved ISO 9002 certification.  This obsession with providing excellent customer service is exemplified by an insistence that even office employees work in a store for at least one week as part of their training. For Giordano, investment in service meant investment in people. The company also offers one at the most attractive salary packages in the industry, which helps ensure low staff turnover and an eager-to-please sales force.   Managing its human resources has become an even greater challenge to Giordano as it expands into global markets. For example, its recruitment, selection and training practices may require modifications in countries with different cultures, education and labor regulations.  Also, policies for expatriate staff helping to run Giordano outside of their home country need to be considered.

Giordano believes that its flat organizational structure and relaxed management style help it to react speedily to market changes on a day-to-day basis.  There are no separate offices for higher and top management in Giordano; rather their desks are located next to their staff's, separated only by shoulder-high panels. This closeness allowed easy communication and speedy decision-making. Speed also enables Giordano to keep its product development cycle short.  Similar demands for speed are also expected of its suppliers.

Giordano's home base, Hong Kong, is flooded with retailers, both big and small. Although many retail outlets in Hong Kong compete almost exclusively on price, Giordano has long believed that there are other key factors for success to beat the dog-eat-dog competition prevalent in Asia.  Giordano has looked to western retailers to benchmark key aspects of its activities: (1) computerization (from The Limited), (2) a tightly-controlled menu (from McDonald's), (3) frugality (from Wal-Mart), and (4) value pricing (from Marks & Spencer).

Giordano has achieved great success with a distinctive competitive advantage based on value-for-money and service.  Its commitment to excellent service has been reflected in a long list of service-related awards.  Giordano was ranked number one by the Far Eastern Economic Review, for being innovative in responding to customers' needs, for eight consecutive years from 1994-2001.  Its stores and employees in Hong Kong and Singapore have been frequent winners of customer service awards in those cities.  To ensure that every store and individual employee provides excellent customer service, performance evaluations are conducted at each store twice every month, while individual employees are evaluated once every two mouths.  Shoppers can nominate individual employees for the monthly "Service Star" in each store.  In addition, every store is evaluated by mystery shoppers.  Based on the combined results of these evaluations, the "Best Service Shop" award is given to the top store. Customer feedback cards, available at each store, are posted at the office for further action.

Giordano is able provide value-for-money merchandise through the careful selection of suppliers, strict cost control and by resisting the temptation to increase retail prices unnecessarily.  For example, in markets with expensive retail space, Giordano maximizes sales from square foot of store by not having a storeroom, replenishing stock from a central distribution center. Giordano uses IT to skillfully manage its inventory and forecast demand. When an item is sold, the barcode information, identifying size, color, style and price is recorded by the point-of-sale cash register and transmitted to the company s main computer.  This information is used to compile the stores order for the following day. Orders are filled during the night ensuring new inventory is on the shelves before the store is opened for business. Another advantage of its IT system is that information is disseminated to production facilities in real time. This allows customers' purchase patterns to be understood and this provides valuable input to its manufacturing operations.  This close integration enables Giordano to minimize the retailer's twin nightmare of slow-selling items being stuck in the warehouse and fast-selling popular items that are out of stock.  Savings from more efficient inventory holding can then be passed to customers, thus reinforcing Giordano's value-for-money philosophy.

When a business becomes successful, there is always a temptation to expand into more products and services to meet customer needs.  However, Giordano has retained its belief in keeping stores simple, managing inventory carefully and getting the best out of limited resources.  Whilst its stores typically have no more than 100 items, with about 17 core items, other retailers typically have 200 or 300 items.  Giordano believes that merchandizing a wider range of products makes these retailers much slower to react to market changes.

The Asia apparel industry

The apparel industry was severely hit by the Asian economic crisis from 1997 to 1999, resulting in dramatic restructuring and consolidation.  Many retailers reduced the number of shops in their chains, or closed down completely. Almost everyone in the industry implemented cost-cutting measures while at the same time cajoling reluctant customers with promotional strategies. Yet, there was a silver lining, as the more competitive firms were able to take advantage of lower rentals and the departure of weaker companies. Some firms, including Giordano, worked towards strengthening their positioning and brand image to compete better in the long run.  Some retailers also explored opportunities, or accelerated their presence in markets that were less affected by the Asian crisis - mostly in markers outside Asia.

Until recently, Giordano's main competitors for low-priced apparel were Hang Ten, Bossini, U2 and Baleno. United States-based Hang Ten and Italian-based Bossini were generally positioned as low-price retailers offering reasonable quality and service. While Hang Ten and Baleno were more popular among teenagers and young adults, Bossini had a more general appeal.  These companies also focused on different markets. For instance while Hang Ten was only strong in Taiwan, Baleno was increasing strong in China and Taiwan. On the other hand, Bossini was very strong in Hong Kong and relatively strong in Singapore but had little presence in Taiwan and China.

The squeeze of the retailing sector caused by the crisis, had pushed formerly more upmarket firms such as Esprit and Theme to compete for Giordano's value-for-money segment. Esprit is an international fashion lifestyle brand, selling a wide range of women's, men's and children's apparel, foot wear accessories and other products.  Esprit's good quality and value-for-money offering placed it in direct competition with Giordano.  Theme originally served a niche in the Hong Kong market, for high-quality, fashionable ladies business wear, although it subsequently expanded into casual wear. Theme had expanded from a single store in l986 to a chain comprising over 200 outlets throughout Asia Pacific, competing directly with Giordano Ladies. A threat from US-based The Gap was also looming. The Gap was already in Japan, and was expected to expand into the rest of Asia. 

In general, although these firms had slightly different positioning strategies and targeted dissimilar but overlapping segments, they all competed in a number of similar areas.  In the years after the crisis, industry analysts predicted that opportunities would continue to be driven by value. However, the retailing environment was becoming more dynamic, a change that was perhaps led by growing sophistication of tastes and rapid advances in the media, communications and logistics environment. Giordano's response to these trends would be the key to its ability to compete in the future, especially as these trends seem to commoditize its current competitive edge in IT, stock control and logistics.

Marketing

Giordano has been able to distinguish itself from its competitors with its high-quality service and cost leadership that together provided great customer value that none of its competitors have been able to match. In a study by Interbrand on top Asian brands, Giordano was Asia's highest-ranking general apparel retailer. However, Giordano was still far off being a world label.  As a spokesman on consumer insights for advertising agency, McCann- Erickson said, "It is a good brand, but not a great one. Compared to other international brands, it doesn't shape opinion".

In the past 4 to 5 years, Giordano has begun to reposition its brand, shifting slowly away from its low pricing strategy to one of margin enhancement.  Giordano's relatively mid-priced positioning worked well during the Asian economic crisis, when its inexpensive yet contemporary looking outfits appealed to Asia's frugal customers. 

However, this position has become inconsistent with Giordano's attempts to gradually re-market its core brand into a trendier label.  In order to continue to cater to the needs of customers who favored its value-for-money positioning, in 1999 Giordano launched a new product line Bluestar Exchange (BSE), to cater to the needs of its budget-conscious customers (similar to The Gap's Blue Navy). The good market responses to this new line triggered plans to expand to up to 20 Bluestar stores in Hong Kong, 15 in Taiwan, 2 in Singapore and 100 in Mainland China.

Giordano's willingness to experiment with new ideas could also be seen in its introduction of the sister brands, Giordano Ladies and Giordano Junior. Giordano Ladies with its line of smart blouses, dress pants and skirts is a venture into mid-priced women's fashion.  Aiming at the executive woman, the company was hoping to target the fatter profit margins enjoyed in the more upscale niches of women's clothing.  This, however, brought them into direct competition with more than a dozen established brands, including Theme and Esprit.  Initial market feedback was that whilst there were no complaints about the look or quality of the line, Giordano failed initially to differentiate its new clothing line from its mainstream product line. Nevertheless, it persisted in its efforts and has since made a success of Giordano Ladies, which now has outlets in Hong Kong, Taiwan, China, Indonesia and the Middle East.  Giordano Ladies offers a highly personalized service, with for example, staff being trained to memorize names of regular customers and recall past purchases.

Giordano has now cast its sights on markets beyond Asia, driven partially by its desire for growth and partially by its desire to reduce its dependence on Asia in the wake of the 1998 economic meltdown.  As part of its globalization process, Giordano already has outlets in Australia in Brisbane, Melbourne and Sydney. It plans to add new outlets to existing stores in Germany and Japan.

While the crisis had made Giordano rethink its regional strategy, it was still determined to enter and further penetrate new Asian markets. This led to the successful expansion into mainland China.  Since entering in 1992, China had become particularly important to Giordano.  By 2001 it had overtaken Hong Kong to become Giordano's main market; its 680 outlets accounting for about 45% of its total operations. China is also the main manufacturing base for Giordano; it makes 80% of all its clothes there. This helps it achieve higher than industry average gross margins.  China's consumer market is expected to grow rapidly as incomes rise.  Some analysts estimate that China's leisurewear retail sector will nearly double between 2004 and 2010, to be worth US$58 billion. However, this is a crowded market, with more than 2,000 brands of casual cloths according to some estimates, with newcomers like Zara of Spain and Japan's Uniqlo also joining in. Giordano has enjoyed a good level of growth in China. In 2005, for example, sales grew by 6%, although this was less than the company's overall 10% sales gain. Giordano has continued to open new stores, particularly in China's second and third tier cities.  However, this has been at the expense of sales per square foot, which has been falling since 2000.  Analysts project retail growth for Giordano ranging from 3% to 6% per year through 2008. Giordano has also been rolling out its brand segmentation strategy across China. For example, Giordano Ladies is targeted at more affluent working women in big cities like Shanghai and Beijing and BlueStar Exchange for more price-sensitive consumers.  Giordano had also opened up more stores in Indonesia in Jakarta, Surabaya and Bali.  It would also increase its presence in Malaysia, refurnishing its outlets and converting some of its franchized stores into self-managed stores to improve their profitability.

Giordano's success in these markets would depend on its understanding of them, and consumer tastes and preferences for fabrics, colors and advertising. In the past, Giordano had relied on a consistent strategy across different countries, with common marketing and operations strategies, with local managers only allowed limited tactical discretion (e.g. promotional campaigns) in their respective countries. Each country's performance (e.g. sales, contribution, service levels and customer feedback) was monitored by regional headquarters (e.g. Singapore for South-East Asia) and at head office in Hong Kong. Weekly performance reports were made accessible to all managers.

Future issues

Giordano was confronted with some important issues as it prepared for the next five years.  Although it had been extremely successful, the question was how it could maintain this success. In the past it seemed to have a clear understanding of the core competencies that formed the basis of its competitive advantages.  However, as it moved into new market segments and territories it needed to consider whether these would be sustainable, or whether strategic adaptations to its operations and marketing strategies be required.

Tasks

1. Critically assess the extent to which Giordano's operations strategy contributes to the company's competitive success.

2. What are the most significant operations management challenges for Giordano as it expands into new market segments and territories?

3. What advice would you give to Giordano regarding how best to adapt its operations strategy to the challenges you identified in your answer to q.2?

4. The case refers to "employee monitoring".

Using specific examples, explain how reporting using MISs and related tools can enable Giordano to monitor employee performance appropriately.

Include one example of how such summary level monitoring might FAIL TO identify a problem at a more detailed level.

5. Giordano wish to understand their many different types of customers and their preferences, but their regular reporting mechanisms do not answer the creative questions of the marketing management.

Critically assess how they could analyse customers' preferences and related competitive threats, with the use of data mining and warehousing.