Plans are Nothing, Planning is Everything
(Dwight D. Eisenhower 1890-1969; American general and president)
Groningen, January 2004 D.E. Dunning Studentnumber: 1138421
Faculty of Management and Organization Specialization: International Business
Rijks Universiteit Groningen The Netherlands
Company Supervisor: Guiding Professors:
Erik Schaap Drs. D.P. Tavenier
Drs. H.P. van Peet
Preface
This research report is the result of a five-month internship at Hunkemöller Denmark. In writing this preface my thoughts go back to the beginning of April 2003, when I went for a get in touch conversation to Hilversum and met Erik Schaap, the country manager of Hunkemöller Denmark. This conversation was very friendly, comfortable and stress-free, but serious when necessary. In a way this conversation marked my whole period in Denmark, which I experienced as very pleasant.
During my stay in Denmark I wrote my master thesis on the location strategy for Hunkemöller Denmark. As my personal interest match with the issue of international expansion, and the dynamic environment of the retail sector is fascinating, I consider myself very lucky for getting this opportunity. During my stay in Denmark I also got the chance to see a country where I have never been before. Furthermore, it was interesting to see how the daily operations in a large international company take place.
I also would like to use this preface to thank some people of Hunkemöller Denmark. A word of thanks goes out to Erik Schaap, Lars Jensen, Anette Petersen and Charlotte Christensen, who besides their contributions to the report also gave friendship. This meant a lot to me.
Furthermore I would like to thank Mr. Tavenier and Mrs. van Peet of the University of Groningen for their helpful insights.
Emiel Dunning
Groningen, January 2004
Management Summary
Hunkemöller Denmark has been growing rapidly over the last two years, from the initial situation in 2001 with ten shops towards the number of eighteen shops at the end of 2003. Thus far, the location strategy of Hunkemöller Denmark can best be described as random or ad hoc. Most of the time, in considering the opening of a new shop, the decision is based on personal experience and the ‘feeling’ of the country manager. There is no well thought out plan about the number, and the location of new shops, they are just opened whenever there is a good opportunity for it. Resulting from this emergent strategy it’s hard to make a planning about the growth pattern of the number of shops; in line with this it’s also hard to plan a sufficient organization structure to facilitate the expansion. This was the primary input for the research objective of this thesis: The formulation of a location strategy for the management of Hunkemöller Denmark.
Hunkemöller is part of the portfolio of companies owned by Vendex KBB. The
management of Vendex KBB formulates the strategy for the different business units of the company; Hunkemöller is part of the business unit fashion. For the business unit fashion the objective set by Vendex KBB is: to prepare for further internationalisation.
However, for objectives to be of value they should be measurable and there should be timetables for accomplishment. The objective as formulated by Vendex KBB is not measurable and doesn’t have a timetable for accomplishment. The problem is that the poor objective set by the management of Vendex KBB for the business unit fashion leads to a situation in which it’s hard for the management of Hunkemöller to translate its vision into objectives and a long term planning. The vision to become thé European bodyfashion brand is never translated into objectives and a long term planning regarding sales revenue, profitability, market share or number of shops. Despite the lack of adequate formulated objectives, it’s obvious for the countrymanager that in order to become thé Danish bodyfashion brand an increase in the number of shops will have to take place. In the retail sector an expansion strategy of a chain in general means that new locations have to be found. Therefore, in order to become thé Danish bodyfashion brand a well thought out location strategy seems necessary.
The first step in developing a location strategy for Hunkemöller Denmark was a study on the Danish retail environment. The most outstanding features of the Danish retail
landscape are: the hourly labour costs, the competitive conditions and the still ongoing process of concentration in the non-food sector. High salary costs and tough competitive conditions make it difficult to compete in the Danish market and put pressure on the margins. The second step consisted of an area analysis in order to find attractive areas or cities in Denmark. In the evaluation of an area the most important factor to consider is the sales forecast. The sales forecast is necessary to determine the sales and profits that can be made at a location and thereby if the location will adhere to the objectives. Based on the competitive and economic saturation levels I developed a management
information system to determine the sales revenue at a potential location. The third step
was a site evaluation in which shops were analysed on their physical conditions and their cost level. It turns out that the retail structure and the size of a location are unimportant factors in making a sales estimation. On the other hand high pedestrian flow, good accessibility and visibility are prerequisites for a shop to achieve its market potential.
Important are the differences in cost structure between a city center and a shopping mall location. In general, shopping mall locations tend to have higher salary costs, advertising costs and housing costs; this is caused by the long opening hours and the obligations set by the holders of the shopping malls. As a result the break-even level of a shopping mall location is higher. Based on the information system and the break-even levels, I came to the conclusion that in Denmark ten shops can be opened. Furthermore, it seems that building shops in Sealand and in city centers will probably lead to the best results in terms of sales revenue and profit.
Resulting from the increase of the number of shops, the span of control of the country manager became too wide. As in the years to come the number of shops will increase even more, delegation of supervision over some of the shops to an area manager seems necessary.
Table of Contents
Chapter 1: An introduction into the research project 7
1.1 Introduction 7
1.2 Hunkemöller History 7
1.3 International Expansion 7 1.4 Introduction to the problem 8 Chapter 2: Formulation and Clarification of the research topic 11
2.1 Introduction 11
2.2 Problem Analysis 11
2.3 The Problem Definition 12
2.3.1 Research Objective 12 2.3.2 Research Questions 12 2.3.3 Conceptualisation of the problem 13 2.3.4 Sub-Questions 14 2.3.5 Constraints and Delimitations 16 2.4 The Research approach 17 2.5 Information Sources 17
Chapter 3: Market Analysis 19
3.1 Introduction 19
3.2 The Environmental Factors 19 3.3 The Economic Conditions 20
3.4 The Legal Conditions 21
3.4.1 Urban Planning 21 3.4.2 Opening Hours 22 3.5 Demographic Conditions 22
3.6 The Danish Customer 24
3.7 The Competitive Environment 24 3.7.1 The Structure of Retail Trade in Denmark 24 3.7.2 The Competitors 25 3.8 Summarized Remarks 27
Chapter 4: Area Analysis 29
4.1 Introduction 29
4.2 The Location Evaluation Process 29
4.3 Economic Conditions 31
4.4 Competitive Conditions 32
4.5 Summarized Remarks 36
Chapter 5: Site Evaluation 37
5.1 Introduction 37
5.2 The Site Evaluation Process 37 5.3 Pedestrian Flow and Accessibility 38 5.4 Retail Structure 39 5.5 Site Characteristics 42
5.6 Costs Factors 44
5.7 Summarized Remarks 50
Chapter 6: The Location Strategy 51
6.1 Introduction 51
6.2 Initial List of Potential Locations 51 6.3 The Potential Locations 53
6.4 Geographic Expansion 56
6.5 Summarized Remarks 58
Chapter 7: The Organization Structure 59
7.1 Introduction 59
7.2 The Growth Pattern 59
7.3 The Position Structure 59
7.4 The Procedure Structure 61
7.5 Summarized Remarks 64
Chapter 8: Conclusion 65
8.1 Conclusion 65
8.2 Recommendations 66
Appendix 1 68
Appendix 2 70
Appendix 3 72
Appendix 4 73
Bibliography 76
List of Figures 78
1. An introduction into the research project 1.1 Introduction
This chapter provides an orientation into the research that has taken place in Denmark for Hunkemöller. It covers the introduction of the problem the management of
Hunkemöller is having with its fast growing operations in Denmark. I will start this chapter telling something about Hunkemöller and its history. After this I will describe the expansion of Hunkemöller, finally the management problem will be discussed.
1.2 Hunkemöller History
For over more than a hundred years Hunkemöller is the specialist for women lingerie.
With the opening of their first shop in Amsterdam, Wilhelm Hunkemöller and his wife Josephina Lexis established the company in 1886. In 1933 Hunkemöller had twenty-four shops, and short before the outbreak of the Second World War they had thirty-seven stores. After the war, in which at a certain moment materials weren’t available and five stores were destroyed, the company grew further. This growth continued till the Twiggy- look and the Dolle Mina’s became fashionable. The sudden appearance of feminism lead to a sharp decrease in the quantities of bra’s sold. The company tried to shift to other products but that effort failed. As a result, in 1974 the company was sold to Vendex.
During this period Hunkemöller became a market leader in the Netherlands, Belgium and Luxemburg.
At the moment the company owns hundred and twelve stores in the Netherlands (from which thirty seven are franchises), sixty in Belgium and Luxemburg and forty-three in Germany. The shops have a broad mix of bra’s, pyjama’s, swim suits, panties and
peignoirs for a large variety of women. In the Hunkemöller shops most of the sales come from selling their own brand, about 80 percent of the collection is made by their own designers. Hunkemöller has always got a solid image, in the current advertisement and commercials the company puts forward that their products are suitable for all women, no matter what age or size; ‘Hunkemöller for anybody’ is the slogan.
1.3 International expansion
Within Vendex KBB, the business unit Fashion was growing with ‘double digits’ during the years 2001 and 2002. Last year the business unit Fashion was performing very well with a growth in sales of 9.4%. This growth in sales reflects the good performances and potential for all fashion stores of Vendex KBB. The business unit Fashion contains three international formulas: Hunkemöller, M&S Mode and Claudia Sträter. As most fashion formulas have leading positions in the Benelux market, a European expansion seems to be the only option to raise the sales and carry out the potential these stores have.
Therefore in the years to come Vendex KBB will execute a strategy, which aims at
expanding the Hunkemöller, M&S Mode and Claudia Sträter formulas further in Europe.
Within the business unit Fashion, Hunkemöller achieved the highest sales revenue growth. In all six countries where the formula is active above average growth rates were achieved with roughly the same number of shops. Now a day the company is busy expanding in Germany (since 1989), France (2001) and Denmark (2001).
1.4 Introduction to the problem
As mentioned, Hunkemöller is part of the portfolio of companies owned by Vendex KBB. The management of Vendex KBB formulates the strategy for the different business units of the company. Consequently, the strategy as executed by Hunkemöller flows from decisions made by Vendex KBB. Within Vendex KBB six business units can be
distinguished:
• Vroom & Dreesman
• Bijenkorf
• Hema
• Fashion
• DIY
• Hard Goods
The figure on the next page provides a visual presentation of the strategy levels within Vendex KBB.
Hunkemöller is part of the business unit fashion. For the business unit fashion the
objective set by Vendex KBB is: to prepare for further internationalisation.1 However, according to Berman & Evans (1992) for objectives to be of value, they should be measurable and there should be timetables for accomplishment. The objective as formulated by Vendex KBB is not measurable and doesn’t have a timetable for accomplishment. What is meant with the preparation for further internationalisation? Does this mean that new shop locations have to be found? Or that the back office must be ready for further expansion?
The content of the objective at corporate level for the business unit fashion is not sufficient for strategy formulation at the business level.
1 Jaarverslag 2002
The below figure illustrates the levels of strategy within Vendex KBB.
Corporate- level
Business- level
Functional- level
Figure 1. The levels of strategy within Vendex KBB
According to Mason & Meyer (1990) the process of planning a retail strategy begins by identifying the company's overall mission. The mission is: 'what the firm plans to accomplish in the markets in which it will compete for customers it wants to serve'. In this definition it becomes clear that the mission of the firm is a statement of the scope of operations in product and market terms. In corporate documents I have found that 'to take care, cherish and surprise the female body using bodyfashion' encapsulates the mission of Hunkemöller. However, as the mission is timeless and is concerned with the way the Hunkemöller is managed today, Hunkemöller also formulated a vision. A vision is more associated with an objective.
'Vision refers to a future state, a condition that is better…than what now exists'.2 The vision Hunkemöller formulated is to be thé European bodyfashion brand.
2 Campbell, A., and Yeung, S., Creating a Sense of Mission, Longe Range Planning, Pergamon Press Ltd.
Oxford, England, 1991.
Vendex KBB Corporate Plan
Business Units Department Stores - Hema - V&D - Bijenkorf
Business Units Specialty Stores - Fashion - DIY - Hard Goods
M&S Mode Hunkemöller
Claudia Sträter
Financial Strategy Marketing
Strategy Human
Resource Strategy Store
Location Strategy
Flowing from the vision Hunkemöller should have formulated objectives. However, the vision to become thé European bodyfashion brand is never translated into measurable terms like sales revenue, number of shops, or EBIT margin. As a result it’s difficult to formulate objectives and develop a strategy on how to become thé European bodyfashion brand. Does this mean that the company should be market leader in all European countries, be located in city centers and/or shopping malls, in big cities and/or small cities? Should the
European position be achieved by making an acquisition like in Denmark, or autonomous growth like in France?
The problem is that the poor objective set by the management of Vendex KBB for the business unit fashion leads to a situation in which it’s hard for the management of Hunkemöller to translate its vision into objectives and a long term planning. There is no well thought out plan about how to achieve the position of becoming thé European body fashion brand. This also explains the title of the paper: ‘Plans are nothing, Planning is everything’.
The ‘plan’ to become thé European bodyfashion brand need to be translated into a planning.
2. Formulation and clarification of the research topic 2.1 Introduction
This chapter will be concerned with the formulation and clarification of the research question. A problem analysis will be given, in which the problem is translated into a more tangible starting point. Furthermore, the problem definition and the theoretical
framework will be shown and explained.
2.2 Problem analysis
In 2001 the decision was taken by the Dutch head office to start expanding the Hunkemöller formula in Denmark. Hunkemöller initially started their operations in Denmark with only ten shops. In 2001 the company took over a small Danish lingerie chain: DarlingCherie. At the moment the number of shops increased to eighteen and at the end of 2004 the number will be nineteen. The expansion of the number of stores in Denmark tended to be informal, and sometimes not more than just an idea. Shops were opened when there was an opportunity for it. That kind of expansion was satisfying and useful to learn some insights about the Danish lingerie market. However, today’s concern of the country manager relates not so much to testing the market anymore. Since the opening of a new shop is costly and location decisions cannot be changed easily, the countrymanager is of the opinion that more attention should be paid to the sales revenue and profitability of new locations. Thusfar the vision to become thé European bodyfashion brand is never translated into a planning for Hunkemöller Denmark. It’s not clear what the long term planning is concerning the number of shops, the sales revenue and the
profitability. This leaves the countrymanager in a position in which it’s difficult to decide what performance indicators are most important: the sales revenue, the EBIT or the growth of the number of shops. Basically it’s not very clear what the long-term objectives for Hunkemöller Denmark are, although an important objective will be making profit other objectives can be just as important. The top priority objective for Hunkemöller Denmark is unclear.
The management of the Hunkemöller headquarters should outline what they exactly mean with becoming thé European bodyfashion brand and formulate objectives in terms like market share, sales revenue, profitability, and the number of shops for Hunkemöller Denmark. Regardless of the content of these objectives, all objectives should be stated in measurable terms with timetables for accomplishment. According to Berman & Evans (1992) all retail companies are concerned with objectives concerning:
• Sales
• Profit
Sales objectives are concerned with the volume of goods sold. Sales growth and market share are the sales objectives most often used by retail companies. As the objective is to become thé European bodyfashion brand, it’s important for the countrymanager to see how this is translated in terms of market share or the number of shops in Denmark. With
profitability objectives, Hunkemöller should seek to attain at least a minimum level of profits from its Danish operations.
Besides the fact that the vision is not measurable, it doesn’t have a timetable. When should Hunkemöller be the thé Danish bodyfashion brand and when should the market share of xx percent or the number of xx shops be achieved. The last two years shops were opened occasionally when the opportunity was there. This resulted in a situation in which it was hard to predict how fast the number of shops would increase. As a result it was difficult to plan an appropriate organization structure that fits the size of the organization.
The objectives that will be chosen for Hunkemöller Denmark will greatly influence the expansion in Denmark. Is there going to be a strong focus on sales revenue growth, on EBIT growth or the growth of the number of shops in order to become thé Danish bodyfashion brand. Despite the lack of adequate formulated objectives, it’s obvious for the countrymanager that in order to become thé Danish bodyfashion brand an increase in the number of shops will have to take place. In the retail sector an expansion strategy of a chain in general means that new locations have to be found. Therefore, in order to become thé Danish bodyfashion brand a well thought out location strategy seems necessary.
2.3 The problem definition
According to the literature from De Leeuw (1996) a good problem definition consist of a research objective, a research question and limiting conditions. The research objective discusses the relevance of the research, and the research question formulates the main question of the research, which is linked to the goal and is defined in concrete terms. The limiting conditions indicate the restrictions of the research.
2.3.1 Research objective The objective of this research is:
The formulation of a location strategy for the management of Hunkemöller Denmark.
The location strategy should show where, when and how many new Hunkemöller shops can be opened in Denmark and their sales and profit potential.
2.3.2 Research Question
This leads to the following research question:
Where, when and how many Hunkemöller shops can be opened in Denmark?
2.3.3 Conceptualisation of the problem
In this sub paragraph I will link the management problem to a theory in order to ensure that the appropriate factors in formulating a location strategy are being studied.
As described in the problem analysis, the problem for Hunkemöller Denmark seems to be that it’s unclear where, when and how many new shops will be located in Denmark. In order to provide Hunkemöller with a list of potential locations the literature about the retail location decision process provide useful insights in solving the problem. Therefore, a model regarding the location decision process for retail organizations serves as the theoretical framework of this research. According to this model in analysing potential retail locations three steps should be taken:
1. A market analysis should shed light on the Danish market in general 2. An area analysis should identify interesting areas or cities
3. A site evaluation should identify the appropriate location site.
After undertaking these three steps a sales forecast for different locations can be made, and an assessment on interesting locations. This should result in a plan for the number of shops, which can be opened in Denmark.
Figure 2. The Location Decision Process
Source: Derived from Mason, J.B. and Mayer, M.L., Modern Retailing, Theory and Practice Homewood, Boston, 1990, fifth edition.
This model should enable to answer important questions like:
How many Hunkemöller shops can be built next years?
In what cities should they be built?
What is the sales potential of a specific site?
What costs can be paid for a location?
Area Analysis
Site Evaluation
Sales forecasting
Store Assessment
Market Analysis
The market analysis and the area analysis will approach the location decision process from a macro perspective. They will be concerned with the determination of the ‘treshold’; the minimum number of inhabitants required achieving at least break-even sales revenue. In the site evaluation the location decision process will be approached from a micro
perspective. This analysis will be concerned with location specific features and will focus on the costs associated with different locations.
2.3.4 Sub-questions
In order to answer the research question, I have divided it in sub-questions.
By dividing the research question into sub questions, an answer to the research question can be found in a systematical way.
The research contains two steps; Diagnose and Design based on the literature of De Leeuw (1996). Although the ‘Diagnose’ phase is prevailing in my research, I will also make a proposal on how to ‘Design’ a location strategy and organization structure.
Diagnose
Design
Figure 3. The research design
Preliminary Screening
• Mission
• Objectives
Location research
• Market Analyses
• Area Analyses
• Site Evaluation
Determine the sales forecast
Determine the number of stores
Design a location strategy and future organization structure for Hunkemöller Denmark
The research question led to the following sub-questions:
1. What market conditions should be considered in the formulation of a location strategy for Hunkemöller Denmark?
This analysis will shed light on the outstanding factors to consider in opening a new Hunkemöller shop in Denmark, a model made by Ghosh (1990) about environmental factors affecting the strategy of retail companies is being used as framework. Furthermore literature from Danish authors and websites is used to collect information on economical, geographical, and legal conditions. Based on these conditions a picture should emerge whether the Danish market is interesting for Hunkemöller to expand.
2. What area conditions are indicators for location attractiveness for Hunkemöller Denmark?
In Chapter 3 I will examine different areas and cities in Denmark on their attractiveness for the location of a shop. I will evaluate the locations where
Hunkemöller opened a shop during 2001. The literature used to evaluate the areas is the literature about economic and competitive saturation levels from Mason &
Meyer (1992). In this chapter it should become clear what the influence is of the economic and competitive conditions on the sales revenue of a shop.
3. What site conditions are indicators for location attractiveness for Hunkemöller Denmark?
In Chapter 4 I will consider the physical features of ten different Hunkemöller shops. The objective will be to determine which site conditions lead to successful Hunkemöller shops in terms of sales revenue and profit. A checklist for the evaluation of retail locations from McGoldrick (1990) will be used; this list will be completed with particular features for Hunkemöller Denmark by the
countrymanager.
4. Where should the expansion of new Hunkemöller shops in Denmark take place?
Based on the results of sub-questions 2 and 3 Chapter 5 will present a list with locations, which might be interesting for Hunkemöller to open a new shop. In order to determine how the expansion should take place I used the literature from Mason & Meyer (1992) on geographical expansion. Finally this chapter should result in a location strategy, which will reflect the growth and expansion objectives for the coming years.
5. What are the consequences of the location strategy for the organisation structure of Hunkemöller Denmark?
The location strategy as designed after sub-question 4 will describe where, when and how many new shops in Denmark will be located. In Chapter 6 I will describe
the associated changes in organization structure in order to cope with this growth;
a new structure will be designed. Furthermore I will describe the process of strategy formulation for Hunkemöller and its consequences. The theory of Robey (1982) will be used to describe the growth pattern of the organization, the
literature from De Wit & Meyer (2001) was used to analyse the strategy formation process.
2.3.5 Research Limitations
The limitations of the problem definition that apply on this research are summarized below.
Vendex KBB is listed on the stock exchange
As Vendex is listed on the stock exchange it should give its shareholders a forecast for the coming year. This means all the business units should make a calculation on the expected sales revenue and costs. For Hunkemöller this means that the expansion budget is more or less fixed, this can work as a restriction on the number of shops that can be opened during a year. The location strategy and its growth objectives should be designed in line with the available budget for the expansion in Denmark.
Hunkemöller Denmark could only once provide information about the shops with a time period of one year: 2002.
As Hunkemöller entered Denmark in the middle of 2001 and started with the rebuilding of the old DarlingCherie shops and selling their old collections the information on margins and sales revenue of this year could not be used in the research. As the results for whole 2003 were not known during my research I couldn’t use these results either. I decided to compare shops only on a time period of at least one year in order to ensure the validity of the research and only compare shops on the same time period in the same year.
The location strategy of Hunkemöller Denmark should fit the overall strategy The Hunkemöller formula puts restrictions on the location strategy. According to the corporate brochure3 all shops should be located at top locations in cities and shopping malls. Furthermore, all shops should be state of the art, meaning that it’s not possible to cut costs on store design and interior. It’s not possible to ignore these restrictions concerning the locations because the combination of all marketing mix variables together makes the Hunkemöller concept.
3 Corporate Brochure 2003
2.4 The Research approach
The research can be classified as practical research because a client specific problem is the subject matter. The countrymanager of Hunkemöller Denmark would like to know
where, when and how many shops can be opened and what their sales and profit potential will be. Examining the knowledge product the research will have to create, the research can be labelled as policy-supportive research. The objective of this type of research is the creation of specific knowledge that is useful in a specific situation for a particular client.
This is policy-supportive research because the countrymanager of Hunkemöller Denmark wanted me to investigate the expansion opportunities in the Danish market. This means that only a particular type of knowledge will be created: the location strategy, in a specific situation: Denmark, for a particular client: the countrymanager Hunkemöller. The data collection methods used during the study can be described as in part desk research and in part field research.
2.5 Information Sources
To answer the sub-questions I used different information sources. I will give the data sources used for each of the different sub-questions.
• In Chapter 3, the market analysis of Denmark, I used documents concerning the legal, economic, and demographic conditions. Secondary information such as research papers, reports and statistics were used. Information on the competitive conditions was found on the homepages of the competitors and during an informal unstructured interview with the countrymanager in which topics as price, product, promotion and place were discussed.
• In Chapter 4, the area analysis, I used internal documents that contain information on the Store results. Furthermore, information found on the website of
Denmark Statistic was used to collect information on population numbers and socio economic characteristics. In analysing the competitive and economic conditions books about retail marketing and retail management were used.
• In Chapter 5, the site evaluation, I used internal documents that contained information on the physical condition of the shops and on their expenses.
Furthermore informal unstructured interviews were conducted with the countrymanager and the flow controller. With the countrymanager it was discussed which specific features of a potential location are important for Hunkemöller, especially the rent level and the visibility of locations were discussed. With the flow controller the cost structure of different shops was discussed, cost categories that were discussed: the salary costs, the depreciation, the general expenses, the advertising costs and the housing costs. Furthermore retail-marketing literature was used to find important factors to consider in evaluating a retail site. Ten shops were visited to evaluate their site
characteristics.
• In Chapter 6, the location strategy, I used information from the website of Denmark Statistic regarding population numbers and economic conditions. I
used literature about retail logistics and retail locations in order to design the geographical expansion.
• In Chapter 7, the organization structure, I used literature about organization structure to analyse the company’s growth and to describe the organization structure and strategy process. An informal interview with the countrymanager about how he spends his time doing things served as input to determine the optimal span of control.
3. Market Analysis 3.1 Introduction
In the problem analysis, I have outlined that despite the lack of adequate formulated objectives, it’s obvious for the countrymanager that in order to become thé Danish bodyfashion brand an increase of the number of shops will have to take place. This means that new shop locations have to be found; a location strategy seems necessary. In order to formulate a location strategy the environment should first be scanned on opportunities and threats. This chapter will examine some outstanding trends in Denmark that affect the operations of Hunkemöller and should be kept in mind in the development of new shop locations. I will answer the sub-question: What market conditions should be considered in the formulation of a location strategy for Hunkemöller Denmark?
The objective of this chapter is to get an understanding of the environmental factors affecting the operations of Hunkemöller Denmark.
3.2 The Environmental Factors
The European environment in which Hunkemöller is operating cannot be seen as one and the same. The pattern of customer demand changes among different countries, as does the economic, competitive, legal, technological and demographic conditions.
Therefore a prerequisite in developing a location strategy for Hunkemöller Denmark is an analysis of the major elements and trends in the Danish environment. Without this
analysis, opportunities are likely to be missed and threats be unseen.
Derived from a model made by Ghosh (1994) about environmental factors affecting the strategy of retail companies, I have made the figure on the next page. As shown in Figure 4, the environment of Hunkemöller can be viewed as comprising two layers. The first layer is called the macro environment. The macro environment consists of the political, social, technological, and economic forces surrounding the organization, and over which management has little or no control. The second layer is called the operating environment and consists of competitors and customers. The closer the environmental factors come to the middle the more directly they influence the overall strategy.
A successful location strategy for Hunkemöller Denmark should be adjusted to the macro and operating conditions in Denmark. Information on the environmental factors can be used in planning shop locations and in planning the further expansion.
Figure 4. External environmental factors affecting Hunkemöller's strategy Source: A.,Ghosh, Retail Management, The Dryden Press, second edition, 1990.
In the coming paragraphs I will examine the macro and operating environment for Hunkemöller Denmark. I will only discuss those conditions, which are outstanding for Denmark. For that reason I will restrict my analysis to only a few exceptional situations and not take into account for example the technological conditions.
3.3 The Economic Conditions
In this paragraph the Danish hourly labour costs are discussed. The term hourly labour cost refers to the expenditure by employers in order to employ workers. Ideally for Hunkemöller, the labour costs accounts for about 20 percent of the sales revenue.
However, in Denmark the hourly labour costs account for an average of 25 percent of the total sales revenue. This is in part caused by the fact that the hourly labour costs in
Denmark are high. The hourly labour costs for retail trade around Europe are:
Competition
Customers Strategy
Technological Conditions
Legal Conditions
Economic Conditions
Demographic Conditions
Macro
Operating
Denmark € 25.22 Germany € 21.45
France € 21.10
Nederland € 19.48
Figure 5. Average hourly costs for employees working in retail trade Source: Eurostat, Labour Cost Survey 2000.
The minimum monthly wage in the retail sector is DKK 13,020. For comparison it should be noticed, that the unemployment benefit is approximately DKK 11,000. As most other factors in the Danish labour market, the minimum wage is a result of an agreement rather than legal regulation. Most employers will adhere to the minimum wage, even if their businesses are not covered by the collective agreement. Therefore, it is fairly safe to assume that the minimum wage mentioned above is indeed the real minimum wage. I have summarized the following facts on a full time 37 hours workweek:
DKK/Month DKK/Hour Minimum wage above 18 years
Unskilled workers 13,020 81,21
Skilled workers 14,520 90,56
Figure 6. Compensation according to the HK/Handel agreement Source: HK/Handel agreement 2000.
In comparing the minimum wage for an eighteen year old in other countries, this is € 7,35 an hour in the Netherlands, and € 6,85 in Belgium. The Danish minimum wage in Euros is about € 10,80, which is 46 percent higher compared to the Netherlands. Most
employees of Hunkemöller receive the minimum wage or a mark up on the minimum wage, as a result the salary costs for Hunkemöller Denmark are high in comparison to the Netherlands and Belgium. Another outstanding figure in salary costs are the sack
compensations, which are in Denmark among the highest in Europe; three month salaries against an average of two months in the EU.
3.4 Legal Conditions
In this paragraph I will discuss the developments in urban planning and opening hours deregulation.
3.4.1 Urban Planning
Denmark has a long and extensive tradition of urban planning. The structure of planning laws has had a considerable impact on the structure of retail trading in Denmark. The importance of planning laws will almost certainly have an even greater influence on the sector in the future, as the mobility of customers increases, and other regulative measures such as opening hours legislation are relaxed.
The urban planning process is important for the development of retail trade, as an area normally has to be defined as a commercial zone, in order to make it possible to open new shops in the area. Shops can only be established in rural zones or industrial zones under very special circumstances. In principle, urban planning is the responsibility of the local authorities (kommuner), which therefore have the greatest influence in the location of shops. However, the minister of Miljø- Energi has actively tried to work against the concentration of the retail sector. The policy has been to protect shops in the city centres and in the villages, and to prevent the establishment and expansion of large shopping malls in the suburbs. Therefore, the minister has issued a general stop on construction of new suburban shopping malls and major developments of retail trade outside the city centres. (Miljø- Energiministeriet, 1999)
This general stop is to a large extend a response to a few local authorities that build large centres and shopping malls in their towns, which would create jobs and growth.
However, it has been the general trend that such concentrated shopping centres
‘cannibalise’ turnover from neighbouring towns and rural areas, increase traffic, and don’t create new jobs. How effective the policy will be in achieving its goals have to be seen; at the moment the biggest shopping centre of Scandinavia is being built in Copenhagen, recently a large one opened in Arhůs and the plans to develop one in Odense are getting more and more serious. As in Denmark retail sales take place in city centers but also in large commercial areas outside the cities it seems that for Hunkemöller that in order to capture large market share and become the number one or two in the Danish market presence in city centers as well as shopping malls seems necessary.
3.4.2 Opening hours
The regulation of opening hours has traditionally been very strict in Denmark. However, in the light of a growing willingness in parliament for a total abandonment of regulation the government introduced a new law in 1995. This law, which is in effect today, sets no limits on opening hours on weekdays, stating only that shops have to close at 17.00 on Saturdays and stay closed on Sundays. In general shops are only open till 17.30 on
weekdays and 14.00 on Saturdays, the shops and supermarkets in shopping malls are open until 21.00. Consequence of the long opening hours in shopping malls for Hunkemöller is that the absolute amount spend on salary costs is high in shopping mall locations.
Keeping in mind that the shops don’t sell many goods after 18.00, the high salary costs at these locations put pressure on the cost structure. © (Parts of 3.4.1 and 3.4.2 are quoted by permission from the Danish National Institute of Social Research)
3.5 The Demographic Conditions
The urban distribution pattern will be discussed in this paragraph. The urban distribution pattern in Denmark was partly shaped during the middle ages and partly during the urbanization phase. Copenhagen enjoys the special status as the capital; the political centralization in the 17th century guaranteed the city a dominant position in the country, and it prospered dramatically during the industrialization. With approximately 30% of
Denmark’s population living in and near the capital, Copenhagen assumes the same national position as Paris and London. Denmark’s urban distribution pattern can thus best be described as mono centric unlike the pattern in the Netherlands, Belgium and Germany, which have several equal centres as opposed to a single dominant city.
In addition to Copenhagen, the provincial centres include the towns of Århus, Odense and Aalborg. These are the only four places in Denmark with more than 100,000
inhabitants. They are centrally located within their own regions and are home to the main services, including universities, national newspapers, television and radio stations, as well as the headquarters of many national and international companies. There are 60 towns in Denmark with between 10,000 and 100,000 inhabitants. These are all regional centres and often serve as administrative centres in their area. There are 435 smaller towns and large villages with between 1000 and 10,000 inhabitants. They often serve a smaller
surrounding area with retail trade and services. Furthermore, some of these towns and villages are home to secondary schools. In the smaller towns (under 1000 inhabitants) there is seldom anything other than a local grocery, school or kindergarten. In the below
Figure 7, a European comparison is illustrated between how the population in Europe is distributed between the cities and rural areas. As can be seen, in the Netherlands and Belgium only 5 percent of the population lives in rural areas, the other 95 percent lives in densely populated or intermediate areas, on the other hand in France and Denmark the percentage of rural population is about 40 percent. For Hunkemöller the urban
distribution structure of Denmark implies that besides shops in the four cities with more than 100,000 inhabitants shops will have to be located cities with less than 100,000 inhabitants as well in order to cover the Danish market. Furthermore as 30% of the population lives in or near Copenhagen, presence in this area seems to be a prerequisite to achieve a strong position in the Danish market.
Percent
80
60 40 20
0
B DK F NL
Densely populated areas Intermediate areas Sparsely populated areas
Figure 7. The quantification of urban areas in the Belgium, Denmark, France and the Netherlands around 1990. Source: Eurostat, Relative prices for services in EU, 2000.
3.6 The Danish Customer
In this paragraph I will examine the Danish customer, I will discuss the geographic distribution of income in Denmark. Although, there are many problems associated with the forecasting of customer income in the long term because of changes in economic or fiscal policy, it still provides valuable information. Customers’ buying habits are in general strongly related to customer income. The average family income in 2003 was DKK 319,000 (€ 42761, 14). The highest incomes were recorded in the municipalities just outside Copenhagen, the South of Funen and Bornholm had the lowest averages, Northern Jutland was also below average. For Hunkemöller this means that the most attractive locations in terms of customer income are in and near the Copenhagen area.
Figure 8. The geographic distribution of income in Denmark Source: Denmark Statistical Yearbook, 2002.
3.7 The Competitive Environment
In this paragraph I will discuss the structure of the Danish retail sector and look at the competitive environment of Hunkemöller.
3.7.1 The structure of retail trade in Denmark
In general the Danish retail trade sector has followed the international trend towards fewer and larger shops. From 1982 to 1992 the total number of shops in Denmark fell by 37 percent, compared to a European average of 17 percent. Denmark, however, still has a relatively large number of shops per person in comparison with other countries. In
Denmark there are 10.1 shops per 1000 inhabitants, while in Germany this number is 8.4.
In general it's expected, that the number of shops in retail will fall by 15 to 20 percent or a total of 3,000 to 4,000 shops over the next ten years. This trend, however, covers some
variation between the different sectors. In general the trend seems to be that there is only a modest fall in the number of shops selling food and other every day items, whereas shops selling more specialised and longer lasting goods will experience heavier
concentration.
The most serious changes are expected for the specialised shops. They have until now accounted for by far the largest number of shops and also a substantial part of the
employment in the sector. The specialised shops have not undergone changes to the same degree as the everyday commodities shops, but this is expected to happen in the future.
Until now gross profits in the specialised shops sector has been around 40 to 50 percent, this is not likely to be the same in the near future. A likely scenario is that the specialised shops will split into two groups: One that will have a strategy based on price
competitiveness, and go through the same process of concentration as the everyday goods sector. The other group will probably specialise even more and make their strategies centred on adding value to their products through service. (Erhvervsmisteriet, 1998) 3.7.2 The Competitors
Hunkemöller competes directly with the other lingerie chains in Denmark. In addition, it’s also competing with the supermarkets and hypermarkets depending on the range of non-food products they carry. The supermarkets and hypermarkets increased their ranges of non-food products the last decade, in order to fight the effects of price competition in food retailing. As most supermarkets and hypermarkets now sell underwear, bra’s, bath, swimwear clothing etc., they compete with the lingerie stores, or at least to some extent.
Mason & Meyer (1990) made a distinction between two types of competition; intratype and intertype competition.
- Intratype Competition
Direct competition between two similar types of retail stores, such as two department stores, convenience stores or specialized stores is called intratype competition. The closer two or more stores locations, and the more similar their products and services, the greater the intensity of competition between them. In order to reduce the impact of competition, stores can differentiate themselves on the bases of price, products, place and promotion.
On intratype level Hunkemöller competes in Denmark with:
- Change of Scandinavia
Change tries to offer a combination of design, functionality and price, whether it is lingerie, beachwear or nightwear. Danish designers design the collection. The company exists for more than 60 years and is expanding in Denmark since 2001. They have a basic assortment that is available during the whole year. (This can be compared with Never Out of Stock assortment of Hunkemöller). Change is an international player with shops in most European countries. In Denmark they own eleven shops located in the bigger cities, the rest of the shops are franchises. They sell functional as well as fashionable lingerie and
swimwear, and have no specific customer group.
- Femilet
Femilet is a Danish company that exist for over more than 75 years. Their products are designed in Ilkast, Denmark. Femilet’s product concept is based on a combination of functional offering, a good quality and a broad and width collection. They offer lingerie and swimwear and a small assortment of nightwear. At the moment they own eleven shops in Denmark. The rest of the shops are franchises. Their shops have an expensive character, and the goods they sell are expensive compared to Hunkemöller. The price level, and the assortment make it a nice shop for adult women between 25 and 50 years.
- Fleur
Fleur operates 56 shops in the whole country under the name Fleur BodyShop or Wunderwear. They sell lingerie and swimwear under their own brand name. Fleur not only sells the house brand but international brands as well. (Triumph, Bjørn Borg, Esprit, Chantelle, Fila etc) They offer fashionable products against keen prices. Over the whole collection they are not as price competitive as Hunkemöller. They sell international brands next to their own collection; this gives their own collection an improved image.
They try to attract young customers as well as older ones.
- Intertype Competition
Competition in Denmark is not limited to rivalry among lingerie chains. As mentioned there is an ongoing trend of supermarkets and hypermarkets adding non-food items to their assortment. Competition among different types of retail institutions selling similar merchandise is called intertype competition. The level of intertype competition is increasing as supermarkets and hypermarkets are adding more and more BodyWear to their assortment. In Denmark intertype competition between Hunkemöller takes place with:
- Kvickly
Kvickly is a department store that also sells food. On the official site they call themselves
’varehuse’ what is a good description. The stores can be seen as warehouses, which also have a large food assortment. The chain is operating in the whole country and has shops located in or near the centres of the cities. They sell lingerie and swimwear against prices that are comparable with the lowest price line of Hunkemöller.
- Føtex
Føtex is a supermarket that is to a large extend comparable to Kvickly, they can best be described as 50 percent food and 50 percent non-food. The chain operates through the whole country, and is also located in or near city centres. They sell lingerie and swimwear;
their prices are comparable to those of Kvickly.
- Bilka
Bilka is a large hypermarket located just outside the cities in commercial areas. The shops are extremely large, and carry a large assortment food and non-food. The chain got eleven shops in Denmark.
- H & M
H & M is a store that we also know from the Netherlands. The store carries a large assortment of women cloths and related articles. They are considered to be cheap and fashionable at the same time, as part of their assortment they sell underwear, nightwear, lingerie and swimwear. The shops are located in shopping malls and city centres.
- Magasin
Magasin is a shop that can best be compared with ’de Bijenkorf’ in the Netherlands. They sell a broad assortment with a variety of articles. In general it’s an expensive shop. The things they sell are most of the time well known brands. They have shops located in the larger cities.
Hunkemöller is facing both intratype and intertype competition in Denmark; there are a lot of shops and supermarkets selling lingerie. The opportunities to differentiate for Hunkemöller are limited as chains like Fleur and Change are offering more or less the same products against the same prices. Adding up the fact that supermarkets are taking more and more market share this immediately brings up the question whether the Danish lingerie market is an attractive market for Hunkemöller to start its European expansion.
3.8 Summarized Remarks
In this chapter I examined the impact of country specific factors on the location strategy of Hunkemöller Denmark. This provided the relevancy of answering the sub-question:
What market conditions should be considered in the formulation of a location strategy for Hunkemöller Denmark?
The economic conditions:
Compared to other European countries Denmark has high hourly labour costs The legal conditions:
Long opening hours of the shops in the shopping malls The demographic conditions:
Only four cities with more than 100,000 inhabitants 30 percent of the Danes are living in or near Copenhagen The Danish Customer:
The highest average incomes are earned in Sealand, the lowest in South Funen and North Jutland.
The competitive conditions:
The Danish retail sector consists of many specialist retailers, and is highly fragmented, especially in the non-food sector.
In addition to the intratype competition between Hunkemöller and Fleur, Change and Femilet, there is also intertype competition between Hunkemöller and Kvickly, Føtex, Bilka, H&M and Magasin.
Resulting from this environmental analysis Hunkemöller should consider whether further expansion into Denmark is the best option to become thé European bodyfashion brand. The high salary cost in combination with the sometimes long opening hours of the shops leads to pressure on the sales revenue. High cost can only be compensated by high sales revenue; however Hunkemöller Denmark is facing intratype and intertype competition leading to a situation in which it’s hard to differentiate on product or price. As there are regional differences, in economic, customer and competitive conditions in Denmark it’s still possible that attractive locations can be found in the Danish market, therefore it’s necessary to make an analysis on area level as well.
4. Area Analysis 4.1 Introduction
As mentioned in the previous chapter, in considering the further expansion of Hunkemöller shops in Denmark attention should be given to the environmental conditions. However, gross data, like in the previous chapter can be misleading.
Therefore, I will evaluate the macro and operating conditions at the area level. This should result in a list with environmental conditions that are indicators for the
attractiveness of a city or region. This information should improve the decision-making concerning the new locations in Denmark and give information about where, when and how many shops can be build in Denmark. An answer should be given to the sub- question: What area conditions are indicators for location attractiveness for Hunkemöller Denmark?
The objective of this chapter is to determine which environmental conditions at area level are indicators for a successful location of a Hunkemöller shop in Denmark.
4.2 The location evaluation process
At the moment the country manager receives and uses a variety of ratios and control devices in evaluating new shop locations. The key figures and measures he receives for each location are:
Size of the trading area The nearby competition Purchasing Power Index Market Size stated in Euros
Though these measures are useful to make comparisons between alternative locations, these measures don’t present the information that is essential for decision-making concerning the expansion in Denmark. In order to be relevant and determine the attractiveness of a location, these figures must be compared against some sort of standard. A standard, which can rank locations according to their attractiveness, would allow the country manager to answer strategic questions like:
How many new Hunkemöller shops should be built in the next years?
In what cities should they be built?
When should they be built?
In evaluating a location, the most important feature to analyse is the sales forecast. The sales forecast is necessary to determine the sales and profits that can be made at a location and thereby if the location will adhere to the objectives. Furthermore, because of its fixed nature, the amount of the investment, and the length of lease agreements, the shop location is one of the most important elements in the expansion process. This provides the relevancy for the development of a management information system for the
estimation of the sales revenue. An effective management information system can create considerable value by providing timely and accurate information about the sales forecast at a potential location. According to Laudon & Laudon (2000) one of the main functions
of a management information system is organization control. Organization control is the activity of ensuring that the organization is on track toward achieving its objectives.4 With the
development of a management information system that can forecast the sales potential, the countrymanager will be able to judge whether a location will be able to meet the objectives.
Location Sales NFS
Odense 318,972 80
Vejle 298,111 60
Frederikshavn 264,027 69
Randers 441,291 113
Lyngby 552,383 70
Viborg 346,374 100
Aalborg 321,003 55
Kolding 273,571 84
Rosengard 397,444 125
Svendborg 335,088 105
Figure 9. Sales, Net Floor Space and Sales per square meter.
Source: Copied from Store results 2002
The presented differences in sales revenue provide an interesting background regarding the development of a management information system. As can be seen in Figure 8, the sales revenue is ranging from € 264,027 (Vejle) to € 552,383 (Lyngby), although it should be kept in mind that the shops have different sizes that can explain some of the
differences. According to Ghosh (1990) a location policy should consist of a regional analysis that measures the variation in economic potential and the level of competition.
By studying these levels the countrymanager could rank areas according to their
competitive and economic potential for new shops. By calculating the competitive and economic levels for the current shops and linking them to their sales revenue it’s possible to use the information on the competitive and economic conditions to examine the relationship with the sales revenue. In the development of a management information system for the sales revenue I will use the results from the shops that are opened for more than a year, as presented in Figure 9.
However, some critical remarks will have to be made regarding the development of such a management information system:
- A timetable of one year is short; it’s not known how the sales revenue will develop as it’s hard to predict if customers will be loyal to the Hunkemöller shops.
- There are only ten shops studied in the research
4 Atkinson, A., Kaplan, R., Young, W., Advanced Management Accounting, Prentice Hall, 1998.
4.3 Economic Conditions
The following data were found on customer income in the cities in which Hunkemöller had a shop in 2002.
City Average Income Sales
Lyngby 266.7 552,383
Vejle 213.5 298,111
Viborg 212.6 346,374
Kolding 211.3 273,571
Aalborg 199.1 321,003
Randers 194.6 441,291
Odense 194.1 318,972
Frederikshavn 192.2 264,027
Svendborg 191.3 335,088
Figure 10. Average income of men and women in the ten cities Source: Danmark Statistic 2002
Lyngby has by far the highest average income and also the highest sales revenue. The average personal income is lowest in Svendborg and Frederikshavn, followed by the bigger cities Randers and Odense. In relating the differences in average income to the sales revenue the outcomes were contradicting. Shops located in a region with a low average income such as Svendborg, Randers and Odense have higher sales revenue than some shops located in higher income areas, the average income doesn’t seem to be a good indicator for a sales forecast.
Although the average income is an important economic indicator, it’s also important to assess local unemployment levels. There can be major differences in unemployment rates between cities. As the unemployment rate is an important indicator of economic stability and well being in a region this is also an important indicator to consider in the evaluation of an area. Especially a combination of low average income, high unemployment rates, and a small population can be an indicator that the region is not attractive enough to enter. For the regions in which Hunkemöller has shops in 2002 the unemployment are shown on the next page.(Figure 11) There are large differences in the average
unemployment levels between regions, ranging from 3.3 percent in Lyngby to 11 percent in Frederikshavn. As becomes clear there doesn’t seem to be a relation between the unemployment rate and the sales revenue. However, remarkable is the fact that
Frederikshavn, the place with the highest unemployment rate (11%), also has the lowest sales revenue of all. This could imply that in relative small cities (Frederikshavn has only 24,309 inhabitants) unemployment plays a role in the level of sales revenue. In the bigger cities a high unemployment level can perhaps be better compensated with (still) a large amount of people who have a job or people who are attracted by the city. This is less in Frederikshavn, which hasn’t got a large number of inhabitants, and doesn’t attract a large numbers of people from outside besides those living and working there.
