Case Study_TESCO Homeplus

78 | www.SERIWorld.org

Case Study: TESCO Homeplus

TESCO Homeplus: Adding Creativity to the Discount Retail Store Business

RETRO-BEnCHmARking

When TESCO, Britain's global retailer, opened a new store offering household goods and elec-tronic products in Manchester, England, in Oc-tober 2005, customers soon realized that they were in for a new kind of shopping experience.

First, the Manchester store’s 4,700-square-meter layout covered two floors rather than a single


KIM Jin-Hyuk

floor and had a moving walkway, allowing cus-tomers to travel between floors. In England, the tendency had been for discount stores to have a single floor, as multiple floors were viewed to be inconvenient. The second attention grabber was the difference in design and content. Only a small part of the store was dedicated to fresh produce, a TESCO hallmark. Instead, most of product lineup consisted of non-food items such as clothing, kitchen utensils, bedding, industrial

April 2009 | SERI Quarterly | 79

KIM Jin-Hyuk

products, and toys. The goods were also dis-played differently. For example, cosmetics were arranged by brand name, while bedding and chinaware displays were charmingly decorated, unlike other TESCO stores. Wooden tiles gave the flooring a sophisticated look, and the interi-or was lit brightly with lighting set up over each display stand. The lighting was showcased in a variety of shapes and sizes instead of standard florescent lamps. The ceiling, painted white, was cleanly finished.

Even the store’s name incorporated a departure. After careful deliberation, TESCO’s head office made the somewhat surprising decision to add “Homeplus” to the store’s name, reflecting its heavy emphasis on non-food, household goods.

What happened was a wholesale adoption by TESCO of know-how that had been accumu-lated in running its Homeplus store, a joint ven-ture with Samsung Corporation, in Korea. The two-floor layout, product line selection, product display, and even the name of Homeplus were all imported from the Korean store. The know-how of store management accumulated in the Korean operation had been recognized as supe-rior in efficiency and taken on board whole. So, what were the management secrets of Samsung TESCO – the Korean operation – that even a global retailer like TESCO could learn from?

Jumping into a Crowded market SectorIn 1997, Samsung Corporation opened its first three retail stores, including Homeplus Taegu. However, the 1997-98 Asian financial crisis put the new operation in serious difficulty by May 1999. The company decided to seek foreign in-vestment. At the same time, TESCO PLC was seeking ways to expand in Asia after successful-ly gaining a foothold in Thailand. On May 1, 1999, Samsung TESCO was launched. TESCO PLC injected more than US$200 million into Homeplus and Samsung provided US$40 mil-lion worth of goods.

Even if the financial crisis had not occurred, the aisles were not clear for Samsung Corporation’s push into retail. E-Mart, Korea’s first discount retailer, had a six-year head start on Homeplus, while deregulation opened the door for Wal-Mart in 1997. In 1998, the US retail giant opened in Korea by purchasing four local stores and

A nightview of Homeplus Sangdong,Bucheon



planned the quick construction of six brand new stores. Lotte and LG, two more formidable Korean retailers, also joined the rush into the Korean discount market along with French re-tailer Carrefour. In total, there were 12 dis-counters in Korea by 2000 and Homeplus ranked No. 12 in terms of number of stores and sales before the TESCO deal.

Korean customers are considered by many to be the hardest in the world to please and are a highly demanding customer group in that they want both the low prices of discount stores, and the high level of service typical of department stores. Wal-Mart and Carrefour, the two main competitors for the top spot in the global dis-count industry, were unable to meet the de-manding requirements of Korean customers, and eventually had to withdraw from the Kore-an market. Korea was even called the grave of global retailers at one time. Samsung TESCO expanded rapidly despite the tough conditions. It opened five stores in 2000 and seven more be-tween 2001 and 2003.

Not only did Samsung TESCO break through the KRW 1 trillion mark (US$664 million) in sales two years after opening the first store in 2000, but it hit new highs of around US$1.4 bil-lion and US$2 billion, respectively, in sales in the shortest time in discount industry. In four years, the company jumped from 12th to sec-ond in the discount retail segment.

As of April 2008, Samsung TESCO had 66 large off-price chain stores and 73 express supermar-kets, with total sales estimated at US$4.05 bil-lion. With such extensive market reach, Sam-sung TESCO is currently aiming for the No. 1 slot among major discounters within the next few years. Of all the countries that TESCO en-tered, Korea was the only one where stores did not operate under the TESCO name. Instead, stores were simply called “Homeplus” in the Ko-

rean market. The impetus behind Samsung TESCO’s impressive growth consists of five dis-tinct elements.

‘Value Store’Jumping into a Red Ocean as a latecomer, Sam-sung TESCO prepared a fresh concept. At the time, other discount warehouse stores empha-sized two strategic features to market them-selves: a wide variety of products and low pric-es. However, this strategy required trade-offs. The stores lacked interior designing and sold in bulk, which enabled the stores to negotiate

Korean customers are considered by many to be the hardest in the world to please and are a highly demanding customer group in that they want both the low prices of discount stores, and the high level of service typical of department stores.

Raja Nazirin

Highlight


KIM Jin-Hyuk

wholesale price reductions. At first, customers were attracted to the low prices, but complaints eventually swelled.

Management at Samsung TESCO was very alert to these complaints. Reacting decisively to consumer demands, Homeplus executives de-cided to create a completely new discount mar-ket through brand positioning analysis. This led to the new concept of a “Value Store,” which implied a store that provides customers with a new, higher level of value.

The “Value Store” concept was introduced through the Ansan store on August 30, 2000. It was the first store to use the brand name of Samsung TESCO Homeplus. Shoppers were all surprised by the layout: All the products were displayed on the second and third floors, while the first floor was occupied by a culture center and food court, a sharp contrast to competitors who crammed their shelves. The new store had unusually put a high priority to the comfort and convenience of customers.

The Ansan store was an immediate success. Sales doubled those of nearby competitors, ex-ceeding management expectations and redefin-ing the discount retail industry. With the suc-cess of the “Blue Ocean” strategy of finding and leading a new market, Homeplus leapt from the bottom of the first-generation discount market segment to the top of the second-generation dis-count market segment. Subsequent Homeplus stores offered services ranging from a nursery to financial products such as insurance and loans.

‘Artience’ Homeplus’ marketing edge was eventually lost as rivals imitated the concept in their subse-quent store openings. The adoption of Home-plus’ innovations by its rivals turned the Blue Ocean into a Red Ocean. This led Samsung

TESCO to try to create a new Blue Ocean through another transformation. Homeplus’ third-generation discount store integrated emo-tion and culture. It was characterized by “Artience,” the integration of art and science. While the second-generation discount store fo-cused on convenient living, the third-generation store counted on its advanced artistic, cultural, and health service to appeal to the emotions of customers.

Opening on September 1, 2007, Homeplus Jam-sil in southern Seoul introduced the next gener-ation store with four concepts – Art, Well-be-ing, Touching, and Hi-tech – to appeal to customers’ eyes and hearts. The entire fourth floor was an art gallery: 3,636 square meters of space that is not operated or intended to gener-ate revenue. This was unheard of for a discount store in Korea or abroad. The exhibition space was devoted to finding and supporting new art-ists, including students. The store also con-tained a culture center, which offers evening and weekend courses. The purpose was not to grab customers, but become a local center for continued education. It was unprecedented to find a store offering fresh produce and organic foods and also provide a fitness club, sauna and

A TESCO Homeplus store on opening day

Raja Nazirin

Highlight

Raja Nazirin

Highlight



golf driving range. Finally, a high-end wine bar allowed customers to enjoy their purchases in the store itself.

Scientific Approach to Distribution Homeplus is also famous for retaining informa-tion and communication technology. The stores introduced a self-checkout system and a smart card system which automatically counted prod-ucts in a shopping cart, for the first time in dis-count industry.

The main upgrade to the third-generation dis-count store was its scientific approach to distri-bution. For example, the Jamsil store intro-duced an automatic queue counting technology with the aim of eliminating waiting in checkout lines. Automatic sensors detected the number of shoppers and ordered standby cashiers to go to their cash registers when needed.

The self-order and self-pay system in a food court was another distinguishing change. Through the product positioning system, by which customers could find the location of prod-ucts with a touch screen, and an auto product-supplement system, easy and convenient shop-ping was introduced in the discount industry.

TESCO headquarters in England quickly saw

the benefits of adopting high-tech in running its stores. Indeed, during 2002-03, Samsung TES-CO sent around 70 experts of this high-tech man-agement system to transplant it in TESCO’s op-erations in other countries.

Customer-Focused management Homeplus stores can be recognized at a glance, even from far away, thanks to its symbol, in-spired by London’s iconic Big Ben clock tower next to the British Parliament. Homeplus has its own philosophy that all of its stores are the cus-tomers’ parliament, and that Homeplus makes its decisions according to its customers’ opin-ions.

The philosophy of the customers’ parliament is not just a matter of design or a simple slogan. TESCO PLC shared its 80 years of experience in conducting and analyzing customer surveys with its Korean partners. Today, Homeplus places great importance on seven types of cus-tomer surveys conducted 200 times annually. One of them, the “price image” survey, tries to identify customers’ emotional response to the price of an item, as well as their opinion of ac-tual value of the products. Homeplus thus lis-tened to the customers’ voices, which competi-tors had failed to heed attentively, employing many consumer surveys and elaborate analysis.

1 RFID Cart 2 Homeplus Culture Center 3 Green Store 4 Homeplus Art Gallery

1 2 3


KIM Jin-Hyuk

Based on the results, they were able to create new stores with the new concepts that custom-ers wanted.

‘Synbaration’ and global managementThe pairing of Samsung and TESCO meant two distinctive corporate cultures had to be bridged, as Asian corporate culture stresses per-sonal connection, self-sacrifice and teamwork while Western business culture emphasizes ra-tionality, individual expectations, principles, and transparency.

To reconcile the differences, Samsung-TESCO launched “synbaration,” combining the Korean word synbaram and English word “rational.” Synbaram expresses the high spirits or high emotion that leads a person to over-achieve. This is reflected in the unique tradition of pre-senting a new supervisor with a pair of shoes and a chair. The shoes represent the practice of field management, and the chair engraved with the supervisor’s name symbolizes the dignity and the self-respect of a community leader.

Another important combination is “glocal,” melding global and local management. This re-flects the idea that Samsung will pursue local-ization while making the greatest possible use of the advantages of a global corporation. The emblematic case of glocal management is the combination of British store management with Korean-style format and techniques of dealing with customers. A major factor behind the fail-ure of Wal-Mart and Carrefour in Korea was the lack of localization.

Another example of glocal management is that Korea is the only foreign market in which TES-CO relies on a local person to be CEO. Other se-nior executives also are Korean. Korean-style at-tention and approach to customers is ensured but the system for operating the network of Home-plus stores is influenced by British methods.

The pairing of Samsung and TESCO meant two distinctive corporate cultures had to be bridged, as Asian corporate culture stresses personal connection, self-sacrifice and teamwork while Western business culture emphasizes rationality, individual expectations, principles, and transparency.

4



OngOing CHAllEngES

Homeplus rose to become Korea’s second-larg-est discount chain around 10 years after its first opening. In the meantime, Wal-Mart and Car-refour folded their operations in Korea. Ana-lysts said both companies were slow to expand in Korea, costing them both market share and the ability to obtain the best prices from suppli-ers. However, even in the absence of the two in-ternational behemoths, Homeplus has plenty of competition from industry leader E-Mart, Lotte Mart and other domestic retailers. Korean con-sumers are also considered especially demand-ing and capricious, and relentless effort is re-quired to keep pace with fast-changing consumer moods, fads and demands.

Samsung TESCO has been able to grow quick-ly as it reacted more quickly to the changing de-mands of its customers. And it is now applying a greater effort to its social contribution activi-ties. Homeplus is not only a retail chain but the

Homeplus has taken a keen interest in environmental management. It carries out the nation's largest grass-roots environmental education for children through its

“e-Paran Children's Environmental Education Program.”

|Figure 1 Number of Stores and Sales of Samsung TESCO Homeplus

Source: Samsung TESCO IR Report 2008. 12

Sales (Unit: Million Euro)

Num

ber o

f sto

res

2000 2002 20031999 2001 2005 2007 20082004 2006

146

7

2128

14

42

66

110

31

52

332

750

2

1,277

1,745

2,081

2,5692,882

3,257

4,169


KIM Jin-Hyuk

carbon dioxide produced by the company. This includes the carbon footprint of corporate vehi-cles and employees on business trips. Through this program, Homeplus hopes to cut its 2006 level of carbon emission in half by 2020.

To transform from a good company to one that is admired and respected by giving back to the community through continuing social contri-bution; this is the forward-thinking goal of Samsung TESCO Homeplus, which possesses the gene of challenge and creativity.

KIM Jin-Hyuk is a Research Fellow at Samsung Economic Re-search Institute. His research focuses on the retail and service industries. Contact: [email protected]

world’s largest lifelong education institution as well. A total of US$186 million was invested for culture centers, and the annual operating costs amount to US$18 million. Some 3,600 instruc-tors are responsible for 340 courses on average per store, and as many as 650,000 people annu-ally are being given an opportunity to pursue lifelong education.

Unlike some other discount stores or depart-ment stores which operate culture centers only in main downtown stores for the primary pur-pose of attracting customers, Homeplus runs culture centers in every store nationwide. Each store has a culture center of around 400 to 660 square meters. The combined total area of all culture centers nationwide is over 28,000 square meters. This is equal to the size of three stores. Recently, TESCO Thailand has shown an inter-est in adopting the culture center operation of Homeplus into its own operation.

Homeplus is also eagerly participating in shared management through volunteer work and a co-operative bazaar. By holding a sharing bazaar of Homeplus stores nationwide, products of 310,000 worth US$2.3 million were donated in 2000. A “moving-store” of Homeplus, which operates a bazaar that tours around the coun-try, is now in its fourth year. Also, in conjunc-tion with the 75 beautiful stores across the na-tion, a Homeplus Day is held with employees. In addition, Homeplus has taken a keen interest in environmental management. It carries out the nation’s largest grass-roots environmental education for children through “e-Paran Chil-dren's Environmental Education Program.” Im-plementing training programs of 15 sessions for eight years, 15,000 children have participated in the program. This effort, which is devoted to in-novative ways of reducing greenhouse gas emis-sions, has gained widespread attention and is designed to measure and control the amount of

Documents

Case Study_TESCO Homeplus