ICSC European Outlet Conference

Outlet Expansion: Generating

Profit from New Territories

13-14 June 2013 Radisson Blu Hotel Hamburg Airport, Hamburg, Germany

ICSC European Outlet Conference

OUTLET STORES –OWN OPERATED VS. PARTNER MANAGED

Dr. Sven KromerKurt Salmon Germany

KURT SALMON INTRODUCTION

Global presence: 24 offices in Europe, Americas, Asia

Network of more than 1,600 professionals

Apparel is our heritage, retail our passion

Full set of advisory services from strategy to operations

Thought leader on retail best practices, e.g. Act Vertical,

and 1-to-1 Retailing

Work with the leading retailers & brands around the globe

ATTRACTIVE LIQUIDATION MARKET

Total DomesticConsumerExpenditure

Retail Sales Core Categories

Liquidation Market

Offline Liquidation Market

€169 bn€169 bn

€15 bn€15 bn

€12 bn€12 bn

€1.317 bn€1.317 bn

13%

Source: Kurt Salmon Analysis 2012

€160 bn€160 bn

€13 bn€13 bn

€8 bn€8 bn

€1.018 bn€1.018 bn

9%

80%

16%

8%

63%

WITH APPAREL LEADING IN MARKET SIZE

2% 3%1%2%

7%5%7%4%

7%6%7%5%

19%

8%5%

7%

17%15%

Apparel

29%

45%

Recre-

ation

Consumer

Electronics

Home

Hard

Goods

Acces-

sories

Furniture Media Footwear Home

Soft

Goods

Auto

Parts

GER UK

Split of Liquidation Market be Category

Source: Kurt Salmon Analysis 2012, based on retail values

AND SHARE OF LIQUIDATION BUSINESS

4%

8%

6%

4%

12%

9%

10%

5%6%6%6%

5%

10%

7%

5%5%

8%8%

Apparel

10%

14%

Consumer

Electronics

Furniture Recre-

ation

Acces-

sories

Home

Hard

Goods

Media Footwear Auto

Parts

Home

Soft

Goods

GER UK

Share of Liquidation Market (% of total market) by Category

Source: Kurt Salmon Analysis 2012, based on retail values

OUTLETS AS RETAIL CHANNEL - APPAREL

17%23%

8%

10%

36%12%

39%

55%

UKGER

Other Offline Channel

Liquidation

Ful Price Channel

Instore Liquidation

Branded Factory

Outlet Liquidation

Online Channel

Liquidation

€2.3 bn

€0.6 bn

Share of Liquidation Sales by Chanel - Apparel

Split of Branded Factory Outlet Sales - Apparel

30%

55%

70%

45%

UKGER

Liquidation

Sales

Made to

Outlet

Total: €4.3 bn €1.7 bn

Source: Kurt Salmon Analysis 2012, based on retail values

DEVELOPMENTS IN OUTLET BUSINESS

Increased competition from Online-Liquidation Channels

Lack of availability of space in more attractive FOC locations

Strict regulation rules with long decision making processes for new / extended FOC space

Growing liquidation market, while full price offline market shrinking

Integrate off- & online channels (order => delivery => return)

Increase “freshness” of brands and assortment (e.g. w/ brands’ pop-up stores)

Further extension of liquidation goods through “made-to-outlet” assortment

Challenges OpportunitiesBrand View

BUSINESS OPERAT. MODEL PROS & CONSS

peed

of E

xpan

sion

Distributor

Licensing

l (+) Clear identity & full control by the brandl (-) Higher requirements on own mgmt.

l (+) Commitment of partner to businessl (-) Higher investment neededl (-) Difficult to manage conflicting opinions

l (+) Exist. partner’s retail infrastructure & market knowhowl ( ) Vital to define degree of control over franchiseel (-) Might be difficult to find franchisee only for outlet

l (+) Fast and broad distribution, least brand resourcesl (-) No control on distribution (price, brand image, channels, disposal)l (-) Highly dependent on partner‘s traffic

Franchise

Joint Venture

Control / Capital Investment

Own Operated

l (+) Proven, existing retail format & infrastructurel (-) Less control of licensee than in franchise model

l (+) Exist. partner’s retail infrastructure & market knowhowl (-) Less complex set up for brands in secondary marketsl (+) More attractive for potential partners

Concessionor Agent

Relevancefor Outlet

FRANCHISE MODEL DIFFERENCES

Source:

Indicator Influencing Franchise Controlling Franchise

Assortment Planning Partner has discretion regarding exact product assortment

Brand dictates mandatory ranges and provides some optional ranges

Merchandise Management Partner specifies replenishment quantities Brand advises on merchandise mgt. & replenishment

Fixturing/Store Planning/Initial

Set up

Fixturing specified by brand, bought & installed by partner

Fixturing supplied by brand, paid for by partner

Stock Ownership Partner buys stock on reg. WHS terms Brand shares risk with partner

Location Partner has existing retail location Brand specifies retail location and partner provides suitable property

Entry Fees Partners pays fees Shared fees

Staff/Staff Training Staff are exclusively recruited, trained / paid by partner Staff training supplied by brand at their cost

Visual Merchandising Partner responsible for visual merchandising within specified guidelines

Regular advice/guidelines provided by brand

Operating Manual No operating manual partner responsible for all store operation processes

Guidelines issued regarding format and presentation

Advertising/POS

Material/Promotions

Advertising permitted at local level by partner who pays for POS material

Brand may fund some local advertising and POS material shared with partner

Markdown Management Mark downs planed and decided by partner, based on pre-seasonal experience

Recommendations for mark downs based on lifecycle management

Systems Partner provides all hard- and software Brand specifies all hardware and software

Logistics/Distribution Partner pays all distribution costs Distribution costs are shared between brand & partner

Level of control : Low High

IMPLICATIONS FOR OUTLET BUSINESS

Franchise model for outlets today still more an exception

Growth of “Made to outlet” can increase attractiveness for partner

Close control of the franchisee by the brand required to not risk any dilution of the brand

One option: use franchise partners who already successfully co-operate in the full price segment

Alternatively: use franchise partners in countries, where the brand has no retail presence, leverage cross-country capabi-lities of the partner

ICSC European Outlet Conference

OUTLET STORES

MANAGEMENT THROUGH

AN INDEPENDENT OPERATOR

Giovanni Mazzoleni G.M.O. - Germany Mode Outlets GmbH

G.M.O. Gmbh - organization

Firenze SEDE

Noventa Braccialini

Fidenza Braccialini

Barberino Trussardi

Firenze Unopuntozero

Vicolungo Braccialini

Zweibruecken Marlboro Trussardi Armani

Diesel Kid La Martina

Pollini

Wertheim Trussardi

Ingolstadt Trussardi

Neumunster Pollini

Batavia Marlboro

Roermond Trussardi

Pollini

Parndorf Trussardi Armani

Braccialini

Mendrisio Braccialini Trussardi

G.M.O. Gmbh - organisation

General Direction

Brand Manager

General Direction

Logistic Marketing Area

Manager

Visual Inspection

New projects

Staff

ADVANTAGES FOR THE BRAND

FROM WORKING WITH AN OPERATOR

TEST CENTERS NEW MARKETS

MORE OUTLETS

PARTNER IN THE CENTER SYNERGIC

LOWERING OF THE COST

SIMPLICITY (LEGAL ADMIN STAFF)

ICSC European Outlet Conference

Outlet Expansion: Generating

Profit from New Territories

13-14 June 2013 Radisson Blu Hotel Hamburg Airport, Hamburg, Germany