Retailco. Inc., Case Study

Introduction 3

Situation Analysis 3

Problem Statement 6

Alternatives & Evaluations 7

Recommendations 9

References 10

Introduction

Rick Wang, the managing director of RetailCo. Inc., the master franchisee for the Athlete's Foot in China, was an American born Chinese, who began his career as an account director at Lintas, an international advertising agency. In 1992, he moved to Shanghai where he became the Vice President of marketing for Shanghai Fuller Foods Ltd. By 1997, Shanghai Fuller Foods Ltd was sold to Nestle and Wang decided to leave the company and strike it out on his own.

With the advice from an American friend at Nike, Rick Wang became acquainted with the athletic footwear industry. Wang entered the retail and franchise business by establishing RetailCo Inc, a company established with the intention of managing the retail realities of the athletics footwear sales in China. In 1998, RetailCo Inc opened its first sports and retail store under the US franchise The Athlete's Foot. Early success with the franchise saw rapid growth and included the expansion of stores to other regions in China. RetailCo Inc became one of the first and biggest sports retailers in China, and they were responsible for the athletic specialty stores of Nike, Adidas and Reebok. In fact, RetailCo became the largest Adidas retailer in China.

Wang achieved success at a time when the franchise concept in the Chinese market was new and innovative and the sports market was underdeveloped. Twenty two days after the first store in East China was opened, Wang started an expansion strategy and 40 corporate stores were opened in seven other Chinese cities. The company began to make a profit but by 2001 the company began to experience major problems.

Situation Analysis

Franchising seems to be an attractive mode of entry for global companies that wish to anchor their brand in China without taking much risk. The history of franchising in the Chinese market began in the 1990s with the emergence of KFC and McDonalds. Over the years they worked cautiously and soon aggressively they expanded throughout China. As a result China's franchising market began to develop. Market competition in China was less rigorous than it was in the United States. The athletic footwear industry in China had a few players in the mid 1990s. The demand for high-quality athletic footwear increased as consumers incomes increased. A market research showed that in 1998 one person in Shanghai owned only one pair of athletic shoes but by 2005 they had an average of three pairs of athletic shoes.

China's retail market is characterized by discounts as well as intense competition between domestic and foreign brands. RetailCo Inc became the leading branded sports retailer in China.

China's retail market is growing fast. There are a number of retail stores and brands but the number of quality locations and brands remain very limited. The retail industry in China began to undergo a drastic transformation with all the new regulations on retailing and franchising in China for global companies. Many companies are affected, however, RetailCo Inc is not one of those companies affected because they are a registered Chinese company.

Rick Wang had not followed the entrepreneurial path of franchising and stuck it out on his own with problematic results. After realizing that RetailCo Inc sales volume were decreasing, Wang decided to get expert advice and began to educate himself on the internet where he discovered that the industry leader was the American company: The Athlete's Foot, Inc. Wang's research led him to contact the Athlete's Foot Inc. He believed that by contacting the company he would be able to get some pointers as an experienced retailer. He flew to the company's headquarters in Atlanta and evaluated the company and its teams. He became very impressed with their inventory control system. When Wang returned to China, he immediately started his franchise and retail plan. His first step was to persuade the directors of RetailCo Inc to become a master franchisee of the Athlete's Foot in China. His second step was to negotiate with the American Franchisor on the subjects of sales territory and royalty fees.

On the subject of sales territory Wang suggested separating the Chinese market into regions: East China, North China and South China. Wang believed that the East China area was potentially the most important market in China and so he decided to focus on that area first. Second consideration would be the North China area and after these two regions were penetrated, development would then take place on the South China area. In terms of Royalty he negotiated a good deal getting a monthly royalty of 2.5% of net sales.

After the deal, Wang and six other colleagues underwent training at the Athlete's Foot as to get a better idea on how the system worked. In September 1998, when the first store was opened in East China it was situated in a fashion center which targeted young customers between the ages of 20 and 25. Customers were also attracted to the store design and diverse name-brand products in the store. (The store design and equipment were the same as those stores in the United States).

Every RetailCo Inc store acted in accordance with the standard global Athlete's Foot Inc. Each store was equipped with music, sport videos and fashionable designs that gave a pleasant atmosphere for shopping. All employees provided the best service to the customers. The service staff, were all trained before they began their work. The inventory control system was another advantage for RetailCo Inc. over its competitors. It helped store managers to react promptly to shortages and excess inventory. RetailCo Inc also used a pricing model that utilized aggressive price reductions to manage inventory excess. Also besides the store brands RetailCo Inc also marketed internationally well known brands such as Nike, Reebok and Adidas. Friendly staff, a pleasant shopping atmosphere, availability to internationally well known brands and an excellent inventory control made RetailCo Inc a strong competitor in the Chinese sports retail industry.

RetailCo Inc. put a lot of emphasis on direct and in-store marketing. With direct marketing an aggressive promotion on the Athlete's Foot brand was pushed. The company organized basketball games in order to attract sports customers. They also sponsored many high school basket ball teams as a way to advertising the brand