Moving Victoria’s Secret to Germany Page 1 Introduction This report describes the opportunity for Limited Brands for the international expansion to Germany with its largest brand, Victoria’s Secret. Limited Brands sells lingerie, personal care and beauty products, apparel and accessories through its Victoria's Secret, Pink, Bath & Body Works, C.O. Bigelow, La Senza, White Barn Candle Co. and Henri Bendel brands. The company's products are available in North American stores, as well as online in about 40 other countries worldwide. (Limited Brands, 2007). To best take advantage of the expansion of Victoria’s Secret into Germany, as the first subsidiary outside North America, the task force team suggest to start with one store in Cologne, a city known for fashion in Germany, and then further expand throughout Germany with additional stores in Berlin and Hamburg. The divisions moved will include the store and a warehouse, in order to facilitate distribution in Germany. As Victoria’s Secret is now only available through the online channel in many European countries, the expansion to Germany is a good basis for further expansion all over Europe. Foreign Country Analysis: Economic Environment Germany is a member of the European Union, and its economy is very strong. As many other economies in the world are struggling, the German economy continues to grow. Experts had predicted that the German economy would decline, but it has had an upward trend. This makes it a great market for Victoria’s Secret products. As economies grow, the spending on consumer goods also grows. This will facilitate our business perfectly as it will allow Victoria’s Secret to make considerable investments without the risk of an unstable economy. Retail in Germany is the third largest economic sector (HDE 2001). This economy is important when planning to add two more stores in the near future. We must take advantage of the increased consumer spending, and establish our stores while that spending is high. Germany also has favorable relationships with many established nations, as well as emerging nations with high populations. These relationships will facilitate tourism, trade, and increased spending between nations. People from nearby countries will have the option of traveling to Germany without restrictions, and being patrons at our stores. Germany’s central location and its workforce make it very attractive to our business. The workforce is highly qualified and has a reputation for quality work. The German economy is very stable, and the inflation rate is considered low by worldwide standards. Foreign Country Analysis: Cultural Environment Every country’s culture varies based on its system of norms and values that are followed. Germany’s values and norms are formed through a variety of factors including political and economic viewpoints, social structure, and the country’s main religion, language, and education (Hill et al. 2007, page 191). It has been noted that German fashion is characterized as a classic everyday wear with a less sporty emphasis than Americans and is seen as inappropriate to appear sloppy or untidy in public. Germans are known to be conscientious, sparing, and systematic. Its culture is predominantly made up of Protestant, Catholic, Jewish, and Muslim religions (German Culture, 2008). The country’s constitution guarantees freedom of faith and religion, in which many communities are seen as independent public law corporations. Good initial opportunities for everyone are a key prerequisite for education and achievement. The free cost of schooling is key to democratizing education and also broadens the possibilities for socially disadvantaged classes to receive the same opportunities. This classical education puts strong emphasis on Germany’s heritage in music, history, and art. Moving Victoria’s Secret to Germany Page 2 When living and working in Germany, adherence to rules, laws, and procedures are defined structurally, consequently resulting in low flexibility and spontaneity. This means Victoria’s Secret’s expatriate managers would be wise to provide German employees with a highly detailed company handbook that discusses everything they need to know regarding rules and standards while working, company expectations, and expected goals for employees to achieve. German employees are very task oriented and less relationship focused, so managers will need to instill the high importance that will be placed on always helping customers in the store before continuing with store upkeep or assigned tasks. Customer service is a vital key to any business, especially when operating in an international company and culture. Germans are also known to be very individualistic but also want the best for the store. Business ideas and concepts are often communicated among the mangers and employees, which can sometimes slow progress (Gorrill). Germany is also very keen on punctuality which means that managers should not have a problem with employees showing up late, or not at all, to work. Personal rank and status of individuals are often based on their achievements and titles (Gorrill). This will not only affect how employees will treat and respect their bosses, but also how employees treat store customers. When Victoria’s Secret provides training for the employees, this idea will need to be presented and given situational examples of how to address this issue. When doing business in Germany, private matters are usually not discussed and indirect communication is seen as insincere (Gorrill). Employees will need to be trained on what type of ‘small talk’ will be considered acceptable when helping customers within the store and what will be unacceptable. Foreign Country Analysis: Political and Legal Environment The German political environment works off of the system of Fundamental Law. It is a system run by a parliament, and a president is elected every five years. The German system in considered to be very fair, and will aid in an easy transition into the country. Germany and the United States have close business ties, and the German government gives numerous incentives to companies who want to invest in or move to Germany. These incentives are in cooperation with the German states and the European Union. Germany is also moving away from large amounts of taxation, and tax neutrality has been established. The more the taxes subside, the easier the transition from the United States to Germany will be. The average corporate tax in Germany has been reduced to less than 30% (Invest In Germany). Germany has a Foreign Trade and Payments Act in place which has an underlying welcoming and open attitude. In order to acquire a place of business, a building permit will need to be acquired. Attention will be given to follow the Planning and Building Regulations Laws. These determine whether the business is a good fit to the surroundings, and what may be done with the design to fit the company’s needs. Germany also uses an Environmental and Emission Standard Law. This law will not have much affect on our business, because we will not be using any types of industrial systems. Germany rivals the United States with a number of patents and the laws that protect those patents. Victoria’s Secret will not be using a product that will infringe on any German patents, and therefore no attention will be needed in this area. Germany is a constitutional state, and its courts are very effective and efficient. If Germany encounters any legal problems with our company or any other companies, there is an assurance that the problems will be handled swiftly and in a fair manner. Germany recently brought forth a directive beginning January 1st 2010, stating that all standards in Germany must be in metric form (BUYUSA.gov). Victoria’s Secret Moving Victoria’s Secret to Germany Page 3 will need to make sure that everything is in Metric form and conform to this recently adopted reform. Foreign Country Analysis: Communication Patterns German businesspersons are individuals that work out of self-interest, but can also be found to compromise while keeping the welfare of their community in mind. They tend to focus on objective facts and the analysis of gathered information to make decisions. German businesspersons are also heavily oriented towards planning and the achievement of milestones. This will be great for Victoria’s Secret’s German employees working for higher sales/profits, but may interfere in other areas such as communicating effectively with customers. With their approach to work, they look at accomplishing tasks before building interpersonal relationships with their clientele. Victoria’s Secret will need to identify a proper middle line that will help sell the products while maintaining respect and sincerity to the customers. These beliefs create a communication style that is direct possibly to the point of seeming confrontational. However, individuals should not feel as though they are under attack when an issue arises. Rather, foreign businesspersons should realize that their counterparts are simply striving to solve the problem at hand. Further, German businesspersons tend to leave their personal lives out of work. “First names are generally only used with family and close friends and colleagues” (Gorrill). This and overall formality in communication applies to all aspects of German business and communication. Flows of communication tend to be hierarchal as they flow from senior to subordinate. Negotiation processes tend to be detailed, slow, and complete once the documents have been signed. In other words, foreigners should avoid making themselves look suspicious to German businesspersons by continuing negotiations after the paperwork has been signed. In conclusion, Germany’s culture and style of communication appears to be fairly similar to that of the United States’. However, when it comes to formality, directness, and structure, the German businessperson is generally a step above that of the American businessperson. Business Plan: Main Strategic Intent and Business Objectives To successfully expand into Germany by renting retail space for three new Victoria’s Secret stores, the task force group has generated a detailed strategy to reflect the current and future market. Victoria’s Secret’s approach depends on two main factors: pressures for cost reduction and pressures for local responsiveness. Due to the fact that Victoria’s Secret will be serving more of a niche market with it being a specialized lingerie store compared to the many retailers there carrying various products of different natures all in one location, there will not be high pressures for cost reduction. However, pressures for local responsiveness will be very high because there will be differences in consumer’s tastes, industry trends, business practices, distribution channels, and infrastructure than in the United States. The company’s clients will be mostly international, so the need to adopt and customize its products to meet local demands such as color and size alterations, marketing techniques, and store design will be essential in obtaining long term success. These two factors have led the task force group to choose a localization strategy, focusing on profitability by customizing Victoria’s Secret’s products as a beneficial match to German tastes and preferences in the market (Hill et al. 2007, page 191). The visual representation of Victoria’s Secret’s strategy is shown in Appendix A. The German retail market is somewhat dynamic and with increased competition likely in the future, Victoria’s Secret will Moving Victoria’s Secret to Germany Page 4 need to localize its product offering while continuously striving to be efficient and gain some scale economies. The plan to rent and establish three Victoria’s Secret Stores, the first being in Cologne, Germany is financially feasible and strategically valuable for the company. Victoria’s Secret’s first five years of profitability is represented in Table 1; although full details have been omitted (See Appendix B): Total Sales Total Costs Total Profit Table 1: Sales, Costs, Profit Analysis 2009 2010 2011 2012 $3,600,000 $3,675,000 $7,350,000 $11,025,000 $4,154,837 $3,691,027 $7,412,167 $11,048,038 -$554,837 -$16,027 -$62,167 -$23,038 2013 $11,025,000 $11,031,879 -$6,879 In creating the sales/costs/profit table, the task force group determined what Victoria’s Secret’s overall sales, operating expenses, costs, and profits would include over a 5 year time span from the years 2009 to 2013. Overall sales were calculated by the average sales amount per square foot in the typical Victoria Secret store. It will be placed on a higher frequency street in Cologne, Ehrenstrasse, where a higher percentage of sales will occur compared to the average U.S. store. An approximate 40% sales amount was added for this particular location, while a 19% sales tax was deducted from total sales. Operating expenses include the following categories. Rent is based on the average rent on the street of Ehrenstrasse in Cologne for a current retail outlet (Specialists in German Retail Property). For future stores in years 3 and 4, a similar rent amount was assumed for a street with a corresponding frequency rate. Rent varied slightly due to possible inflation or addition of extra stores. Inventory costs are based on the total amount of articles transported to U.S., divided by the 5 brands under Limited and the total number of Victoria’s Secret stores. This number was multiplied by the average price of a lingerie article to get the total yearly inventory amount. Victoria’s Secret will bring two U.S. managers; hire one manager in training and one floor manager from Germany, and seven part-time hourly employees in the first, third, and fourth year. The cost of employees was calculated out of a study done within the textile industry, TW-Gehaelterstudie Textilwirtschaft, and adjusted accordingly throughout the next four years when new stores were added. For recruitment and training, costs were figured for a week of training before opening, assistance from employment agencies, and advertising for applicants. Advertising and Marketing costs included the need to translate the American Victoria’s Secret’s website into German, obtaining R&D services from Pricewaterhouse Competence Center Retail and Consumer Consulting firm, printing and sending of the catalogue, and the various channels of advertising needed (Deuscher Direktmarketing Verband). A considerable amount will be spent to launch the new line/products in the first year and increase the expense with the opening of each new store. In order to implement and apply with all legal issues, lawyers from a German legal service, Pricewaterhouse Legal Services, will be hired. Expense for this will be high the first year due to unknown territory information and increase in years 3 and 4 due to the opening of new stores. We will use Limited’s current logistics company to ship Victoria’s Secret’s products manufactured in Sri Lanka to Germany. The cost per container size and the approximate weight of the products are known, in which we estimated the amount of space and time needed to transport the products. Additional costs are factored in due to increases in Moving Victoria’s Secret to Germany Page 5 fuel/resource prices. Costs increased in years 3 and 4 due to increased levels of inventory for each new store. Insurance costs include liability and inventory insurance. A website using our employee count and inventory data were used to calculate these amounts (Beliebte Kategorien). Store fixtures, signs & equipment, software, and store supply costs were determined through research of online prices of these products and from a similar retail store’s data under Limited (Limited Brands). Costs for licenses, permits, and registration costs are based off a current German industry business example through Pricewaterhouse Legal Service’s website. The decision was made to rent a warehouse in Germany the first year to have for all 5 years, in which data was gathered from a German warehousing website for the amount of rent per square meter. Warehousing costs increased as the second and third stores opened due to increased inventory levels. After calculating the overall sales and operating expenses, the total profit for each year was determined. Moving Victoria’s Secret to Germany would be a good investment and research shows that the German lingerie market is continued to grow and expand. Even through considerable amounts of first year start-up costs and adding two new stores in the 3rd and 4th year, profits show a steady incline over the five year period, and it is forecasted that increasing sales and steady growth will enable Victoria’s Secret to become profitable in terms of long term goals and profits. Business Plan: Entry Strategy Choice Before determining the best entry choice for Victoria’s Secret, the task force group first addressed three basic decisions a firm must make when expanding in foreign countries: which market to enter, when to enter the market, and on what scale (Hill et al. 2007, page 251). As noted earlier, the company plans to enter Cologne, Germany in the year 2009 through a small scale entry. For this expansion, a wholly owned subsidiary is most appropriate due to the setting up of a new operation in Germany. This entry mode can help the company gain location and experience curve economies, while helping to alleviate some of the threats proposed during the KT analysis (see Appendix C). This will also allow the company tight control over all the operations within the country; the ability to build the desired culture, determine routines, and the ability to transfer products, skills, competencies, and know-how to the new subsidiary (Hill et al. 2007, page 269). These will provide great advantages to the localization strategy that as can be seen in the KT table, could help overcome some associated risks; higher costs and learning how to do business in a new culture. It works to the company’s advantage to be able to find and rent stores in a timely manner, make all operations decisions such as hiring local managers for knowledge and expertise within the market, what products to sell, the culture to create within the stores, and be able to obtain all the profits. Business Plan: Organizational Structure Analysis The organizational structure of Victoria’s Secret will refer to its division of the organization, the location of decision making responsibilities, and the creation of integrating mechanisms when coordinating activities (Hill et al. 2007, page 202). Vertical differentiation determines where the power of decision making takes place in the organizational structure. Victoria’s Secret has chosen a mix of decentralization and centralization strategies with the vast majority following decentralization, corresponding with the localization strategy. This will allow Victoria’s Secret’s top management to focus on critical issues revolving around the company’s overall strategies and financial decisions, while allowing the foreign subsidiaries greater flexibility to respond to Moving Victoria’s Secret to Germany Page 6 changes in Germany’s culture and environment. Expatriate managers will have increased motivation to give more to making the business successful due to more individual freedom and control over the store. They will also make better informed decisions with the help of German managers and employees compared to only managers at home. Lastly, more control will be implemented by establishing autonomous and self contained subunits that can be held accountable for performance. Activities such as advertising and marketing, legal issues, operating activities, production, R&D, and some HR functions will be mostly decentralized. The expatriate managers in Germany will need to assess how much inventory to keep in stock and order according to the size of the store, transportation costs, and current demand for the product by German consumers. R&D will need to be conducted to determine German consumers’ desired styles, tastes and preferences, and come up with new innovative products for future sales. Pricewaterhouse Coopers Legal Service will provide legal assistance while Pricewaterhouse Competence Consumer Service will guide them with various market trends, marketing and advertising, and finding the best location at the best price. Victoria’s Secret will continue to keep some aspects of the company centralized. One important reason for this is to make sure that activities between all activities and divisions are well coordinated. Essential decisions affecting various divisions’ financial stability and strategic decisions need to stay consistent with organizational objectives, avoiding costly duplication of activities throughout subunits. The three main divisions of Victoria’s Secret, Intimate Beauty Corp., Victoria’s Secret Direct, and Victoria’s Secret Stores, will create and maintain overall division objectives and strategies for expatriate mangers in Germany to maintain (See Appendix D). However, the processes expatriate managers and German employees use to perform the activities in order to maintain the objectives and strategies may be altered due to cultural or legal differences. In regards to horizontal differentiation, Victoria’s Secret will follow a worldwide product divisional structure. For a visual representation of what this may look like, refer to Appendix E. The headquarters located in the United States will retain responsibility for the overall strategic development and financial control, while the German subunits will be selfcontained autonomous entities with control over their own value creating activities. As mentioned above, Victoria’s Secret contains three main divisions that will help ensure coordination between the U.S. headquarters and the German subunits. The German stores will be responsible for enhancing and developing value creating activities in Germany through their marketing and advertising, R&D, human resource development, lowering costs, and increasing profits. Successfully performing these activities will allow Victoria’s Secret to realize location and experience curve economies. One challenge will be for the product divisions and the expatriate managers to communicate closely and allow flexibility to still apply local responsiveness to the German consumers and market. The need for coordination will be relatively low because the German Victoria’s Secret stores will have a lot of control and flexibility with a majority of their activities and operations. Since there is not a large need for coordination, Victoria’s Secret will have very few integrating mechanisms needed. There will be three stores created by the end of the five year time period within Germany, which means managers between these subunits will need to keep in direct contact when questions or issues may arise. There may be slight variances between the different store locations, but most activities will be able to be performed similarly. Since this is the case, these managers can provide beneficial feedback and will be good resources for each other when Moving Victoria’s Secret to Germany Page 7 managing each new store. With Victoria’s Secret following a localization strategy, there tends to be low performance ambiguity, interdependence, and costs of control since each store is independent from one another and can be judged on its own merits (Hill et al. 2007, page 223). Incentives will be linked to performance metrics at each Victoria’s Secret subsidiary. Organizational culture will be low due to the amount of low coordination and integration within a localization strategy. To see and understand how Victoria’s Secret structure and strategy correspond, see Appendix F. This representation will reveal the need for a mixture of centralized and decentralized activities, a worldwide product divisional structure, and the minimal need for coordination and integrating mechanisms. Business Plan: Human Resource Management Victoria’s Secret has chosen to follow a polycentric staffing approach when managing stores in Germany. Expatriate managers will occupy key positions at corporate headquarters along with each subsidiary for one year, while German managers and employees will be recruited from a German location. This will allow managers and employees to pursue the greatest amount of local flexibility and is relatively inexpensive to implement (Hill et al. 2007, page 293). Expatriates will be expected to uphold the rules and values of The Limited, while also conforming to local mores and folkways. The rules and values of The Limited will be enforces as they are in the US, however conformance to local mores and folkways will be assessed on a subject by subject basis. Two expatriates will be necessary in the start-up of the first store. They will hold the high responsibility of organizing and coordinating the start-up, along with hiring management and retail employees for Victoria’s Secret Germany. Expatriates will work in coordination with the German management, a pre-chosen marketing firm, and a lawyer toward the successful completion of a pre set time table (Refer to Appendix G). Training will be provided for expatriates entering Germany and for local recruits. The chosen expatriates must be fluent in the local language. Prior to leaving the US, expatriates will participate in a two week course covering all aspects of the business plan and preparing them/assessing their readiness for the international project. Training of local management will be the responsibility of the expatriates. Prior to opening of the first store, a local manager must be chosen and trained on all aspects on the Victoria’s Secret brand; being instrumental in the development of local strategy. Upon the success of this first manager, responsibility will be given for the training of the management of future store locations. Local hires are to be trained by respective local management. Local managers will be informed of the training methods of The Limited, and adjustments compensating for local norms will have been made in coordination with expatriates. Employee training will require a minimum of one week of in store education so that each employee has a standardized understanding of their respective responsibilities. Expatriate compensation and benefits will continue to be handled as they are in the US. Raises and bonuses for expatriate status will be applied on a subjective basis. Insurance coverage for dependants will continue during the expatriates’ time outside the country. All health costs of the expatriate will be covered a foreign insurance provider. Local managers and employees will be compensated in strict accordance with German law. Management will be paid a salary which will be decided in negotiations during the hiring process. All other employees are to receive pay based on an hourly rate to be determined by management. Extra hours will be compensated Moving Victoria’s Secret to Germany Page 8 either financially or through additional vacation days. Overtime compensation through additional time off will require a prior contractual agreement. Expatriate performance will be based on progress as based on a pre-set time table. The points of progress are as defined in Appendix G. In the event that expatriates should fail to reach their goals, the situation will be assessed at its specific point of progress and a corrective action plan will be implemented. Corrective action is at the discretion of The Limited’s foreign investment team and may consist of re-evaluating deadlines or financing and removal/replacement of expatriates. If issues arise with local management or employees, the corrective action will be decided at the discretion of the expatriates. Employees are allowed to work 48 hours per week (or 8 hours/6 days). Special consideration must be made for the fact that the labor laws and benefits in Germany are a bit less business friendly than in the US. Examples of special considerations would include Sunday work, breaks, vacation and public holidays, sick leave, sick pay, maternity, and employment of disabled persons. Business Plan: Business Communication Strategy The aspects of communication in Germany, which were outlined in the Communication Patterns part in the Foreign Country analysis, will have a considerable impact on Victoria’s Secret’s Communication Strategy. Compared to the US, Germany has a higher low-context and more explicit communication culture. For the communication this means that expatriates have to be trained to say more precisely what they mean and express their position directly and explicitly (Hodgetts-Luthans-Doh, 2005). For successful negotiation, it is critical to be well prepared and follow the established protocol during business meetings in order to build and maintain business relationships (Kwintessential). It also has to be considered that humor is not appreciated during business meetings (Hodgetts-Luthans-Doh, 2005). Germans are suspicious of promises that sound too good to be true and any exaggerated presentations (Kwintessential). A small margin should be integrated in the opening bid for unexpected developments since Germans like negotiations that are realistic early on. In the decision making process, Germans are likely to need more time than Americans to deliberate and confer with responsible colleagues (The German Negotiator, 2001). The method of addressing somebody is an important indicator of the relationship between two people, in which expatriates will be trained in this field and policies will be established. There is always the choice between "Du" ("you" familiar) and "Sie" ("you" formal) when addressing somebody. “Sie” is used with anyone who is not a close friend or a family member (Schaupp, 2007). This means for any communication outside the company with suppliers, partners and customers, the formal “Sie” has to be chosen. For the communication within the company, the decision has to be made determining if the communication style of the US will be maintained. But as a localization strategy is pursued, formal communication, using “Sie” is recommended. It is likely that employees will start to use more informal communication due to the rather young age and branch of business, but communication with the management will remain formal. As Victoria’s Secret stores will only be in certain locations and not spread all over Germany, advertising should be done on a regional basis by using flyers and posters in the city centers and malls. According to the German communication style, advertising has to be direct and down-toearth. The research showed that competitors like H&M have posters all over the cities showing women only wearing lingerie. In order to draw the attention of customers on our products the Moving Victoria’s Secret to Germany Page 9 advertising and marketing strategy has to be adapted to local customs. In order to address the German customers, the expansion should be supported by a local advertising company. Findings showed that Pricewaterhouse Competence Center Retail & Consumer Consulting has experience in the lingerie business and would be beneficial to employ them to plan the strategic marketing. Advertising can strongly benefit from an already existing modeling contract with Heidi Klum, since she is from Germany and is well known to the population. Engaging her in our first marketing campaign will greatly facilitate the market entry of Victoria’s Secret. Business Plan: Ethical Concerns As a company, Victoria’s Secret is committed to conducting business in accordance with the highest standards of business ethics and complying will all applicable laws, rules, and regulations. The responsibility to do what is right for our business, our stakeholders, and the global community helps guide the principles, actions, and demonstrate core values (Social Responsibility). When making and distributing the employee handbook during the training week, Victoria’s Secret will include a commendable section including the company’s codes of ethics for different levels throughout the organization. This will include responsibilities of the company, managers, and employees, how to live up to the code, reporting violations, and consequences for unethical actions. Victoria’s Secret should concentrate on allowing high levels of open communication between the expatriate managers, German managers, and German employees; permitting employees faced with ethical decisions to openly communicate ideas and concerns as a group. To portray the importance of ethics within the company, comments and concerns will be addressed in 360 degree performance evaluations with employees and managers. Victoria’s Secret will also maintain all of its efforts and accomplishments dealing with social responsibility on the Limited Brands website for company employees as well as the public to see at all times. Victoria’s Secret supports many community programs that help to empower women, nurture children, and enhance educational efforts. Great lengths have been taken to associate the value of diversity within the company and its community programs. Especially in the devotion to education, Victoria’s Secret is committed to enriching the cultural arts (Social Responsibility). German people have long upheld cultural traditions in social aspects such as the arts, music, and history. German managers and employees will play a vital role in educating and informing American managers on these traditions, as well as the best way to implement and portray these to the public. It is believed that vibrant cultural art corresponds to a diverse community, which will help expose many different perspectives that entertain, educate, and challenge people’s way of life. Victoria’s Secret is currently active in its “Think Pink” campaign for breast cancer awareness in the United States, in which all proceeds are given to the American Cancer Society. Victoria’s Secret will follow the same approach in Germany with the German Cancer Society, especially the Breast Cancer Action program (Die Brustkrebsaktion 2007/2008). The task force group believes these programs will correspond well with Germany’s culture and ideals for social responsibility. Recommendations The proposal of Victoria’s Secret entering into Germany is seen as profitable move for the Limited company and should be highly considered. The German retail industry is becoming more competitive in nature, however due to Victoria’s Secret’s specialized product offerings in a Moving Victoria’s Secret to Germany Page 10 niche market, the task force group believes this will be a suitable time and location to sustain the business profitably. The current economic situation in Germany is showing improvements in industry growth and is promoting the idea of free enterprise through a social market economy. When competing in business internationally, Victoria’s Secret will need to be well educated and willing to adapt to the unique differences in various aspects of German culture and business etiquette ideals. It will be essential to provide German managers and employees with rules, standards, and structures that will be a guide in providing excellent customer service while increasing the company’s profitability. Germany is also a welcoming location due to its political encouragement with foreign business corporations. Finally, the business plan outlines the recommendations that the task force group believes will grant Victoria’s Secret success. By following a localization structure, Victoria’s Secret will be able to differentiate its products by variances in customer’s tastes, preferences, and market trends. With placing itself in a niche market, there will not be high cost pressures and will attempt to obtain location and experience curve economies. Victoria’s Secret’s success will thus be largely obtained through the knowledge of Germany’s culture and business experience provided by the German managers and employees. Another characteristic to its success is its location on a highly traveled and highly shopped street in Cologne, Germany the first year of operation. Most of the German stores will be decentralized, providing each unit the flexibility to make decisions based on its location and market opportunities, while the overall corporate and financial objectives will remain centralized. Pricewaterhouse Competence Consumer Service will provide advantages through its many services providing knowledge in consumer preferences, lower cost locations, marketing and advertising strategies, and market trends. A worldwide product divisional structure will be followed, allowing many of the stores to be self contained entities and have control over most value creating operations. The task force group also recommends a polycentric approach in order to best attract managers and employees with knowledge about German business and culture. The United States will occupy key positions at headquarters while having German managers and employees at each foreign subsidiary. Expatriate managers will only remain in Germany one year to oversee operations and then return home and leave German managers in charge. Expatriate managers will need to be informed and trained for differences in German business and culture, as well as developing a training program for new German managers and employees. Each German subsidiary must be formally trained and informed about the differences in etiquette with customers and other professionals. Victoria’s Secret must also continue its commitment in Germany to its social responsibility and ethical codes of conduct as in the United States. The expansion into Germany will not only promote profitable growth for the Limited, but also encourage growth in German communities through its various cultural programs initiated. By following these recommendations and entering the German market with an open mind and the ability to adjust to cultural and other country differences, all parties involved will be mutually benefited. Victoria’s Secret will increase its profitability, gain insight into a new type of market, and gain experience for future global expansion efforts. There will be many benefits that accumulate through the expansion process in Germany, in which a greater understanding of its culture and environment will help Victoria’s Secret cope with associated risks that may evolve. The task force group believes there is no reason to suspect anything but growth and profitability from this new exhilarating prospect. Moving Victoria’s Secret to Germany Page 11 References "Beliebte Kategorien." Finanz Service Online. 2008. Finanz service Online. 6 Apr 2008 <http://www.finanzserviceonline.de/>. “Business Guide to Germany”. Invest in Germany. <http://www.invest-ingermany.com/homepage/business-guide-to-germany/>. "Deutscher Direktmarketing Verband e.V.." Deutscher Direktmarketing Verband. 20 Feb 2008. DDV. 6 Apr 2008 <http://www.ddv.de/english/english_about_us.pdf>. "Die Brustkrebsaktion 2007/2008." Die Brustkrebsaktion 2007/2008. January 2008. 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Moving Victoria’s Secret to Germany Appendix A: Visual Representation of Strategy Page 13 Moving Victoria’s Secret to Germany Page 14 Appendix B: Expanded Sales, Costs, and Profit Analysis Sales Operating Expenses Sales Taxes Rent Inventory Wages Advertising Insurance Recruitment and Training Transport Costs Marketing Expenses Legal Support Store Fixtures, Signs & Equipment, Software, Store Supplies Licenses, Permits & Registration Costs Warehouse (Rent Cost) Total Profit 2009 2010 2011 2012 2013 $3,600,000 $3,675,000 $7,350,000 $11,025,000 $11,025,000 $684,000 $643,797 $1,080,000 $394,400 $82,500 $40,140 $25,500 $225,000 $750,000 $150,000 $698,250 $643,797 $1,134,000 $433,840 $82,500 $40,140 $7,500 $236,250 $300,000 $45,000 $1,396,500 $1,287,594 $2,268,000 $867,680 $165,000 $80,280 $33,000 $472,500 $630,000 $105,000 $2,094,750 $2,027,961 $3,337,200 $1,206,864 $247,500 $120,420 $58,500 $708,750 $990,000 $120,000 $2,094,750 $2,068,520 $3,370,572 $1,267,207 $259,875 $120,420 $22,500 $715,838 $900,000 $90,000 $25,500 $21,000 $46,500 $72,000 $63,000 $9,000 $45,000 $1,500 $47,250 $10,500 $49,613 $12,000 $52,093 $4,500 $54,698 -$554,837 -$16,027 -$62,167 -$23,038 -$6,879 Moving Victoria’s Secret to Germany Page 15 Appendix C: KT Table Identify Concerns Threats Separation & & Clarification Opportunities of Concerns Market Size Market Expansion Niche Market Appeal Opportunity to sell to untapped buyers. There is low competition in stores carrying only lingerie and beauty products specifically. Competition does exist through department stores carrying various other products in combination with lingerie. We plan to differentiate our products to create a unique sense of value to present/potential consumers. Set Priority Current Impact H H- M+ Future Impact H M M+ Time Frame M- M+ M Next Steps Plan Involvement Highest Priority Action Needed Help Needed 1 Need to develop market research. Find a consulting firm to help evaluate the industry, determine target segments, best location, and current market trends. Need to have local expertise in all areas of the retail consumer textiles industry. Contact Pricewaterhouse Competence Center Retail & Consumer service. 2 Take advantage of current trends by creating a large customer base through various marketing and advertising techniques, building consumer relationships, and portraying value through the product/service. 3 Emphasize a considerable amount of finances into R&D. Use Pricewaterhouse Competence Center Retail & Consumer service to assist with financing and areas most needed of research. Plan for rivalry and potential competitors. Use Pricewaterhouse Competence Center Retail & Consumer consulting firm to help build a strategic management plan and stay ahead of competition. Need to complete a thorough customer analysis and determine current industry trends. Can apply for national/local R&D loans/grants to help with funding. Provided by various state and federal government organizations/ departments. Moving Victoria’s Secret to Germany Consumer Acceptance Need to appeal to the consumerswithin the German textile market. Need to develop customer acceptance of the store, brand, and products that Victoria's Secret has to offer. Production Costs Will need to determine the best mode of transportation to maintain reasonable transportation costs. Determine manufacturing location, distance from Germany, and what mode of transportation will be the best fit. Location Finding space in already established malls or shopping areas. Locate appealing site high customer interaction but with reasonable rent/costs. Government Restrictions Employment Laws H+ M- H M Page 16 L- M+ L+ L H+ M+ H- H+ 4 5 6 7 Find a local marketing/consulting firm to help develop a strategic business plan to coordinate various techniques to appeal to consumers. Hire services from Pricewaterhouse Competence Center Retail & Consumer service. The Intimissimi line and many other Victoria Secret products are made in Sri Lanka. Need to determine lowest cost mode of transportation. Look into a firm that can help with the logistic planning. Research shows that Limited owns its own logistics company that we will use in Germany and Sri Lanka. Create good public relations with other businesses and industry professionals. Use Pricewaterhouse Competence Center Retail& Consumer service to find the best locations at the best prices. Conduct legal research for any restrictions that the company might come across when starting up a store in Germany. Find a legal consulting firm and a lawyer to help guide the company through any legal/governmental procedures while starting up the business. Will use Pricewaterhouse Coopers Legal Services. Moving Victoria’s Secret to Germany Warehousing Costs Will need to build/rent a warehouse at a reasonable distance from the store location to contain the necessary inventory stock. Government Restrictions Do legal research on decency laws that may need attention. Employment Finding the needed amount of skilled workers to create the necessary selling environment for Victoria's Secret products. L- L L+ Page 17 M- L- L M M L 8 Operational Planning. Use Limited’s present logistics company to help determine essential details for the optimum location, transportation mode, and supply chain solutions. Outsource manufacturing and production to Sri Lanka. Will rent a warehouse in Germany location to keep satisfactory inventory levels. 9 Consult with a Legal Service to determine any legal or political restrictions when advertising/marketing the store and product. Hire a lawyer from Pricewaterhouse Coopers Legal Services. Will need to determine the best and most reliable way to advertise, recruit, and train employees. Get advice from local employment agencies, such as the German Federal Employment Agency. 10 Moving Victoria’s Secret to Germany Appendix D: Company Architecture Page 18 Moving Victoria’s Secret to Germany Page 19 Appendix E: Worldwide Product Division Structure Victoria’s Secret’s Headquarters Victoria’s Secret Beauty Victoria’s Secret Direct Victoria’s Secret United States Functional Unit Victoria’s Secret Germany Functional Unit Victoria’s Secret Stores Moving Victoria’s Secret to Germany Page 20 Appendix F: Strategy and Structure Strategy Localization International Global Standardization Transnational Vertical Differentiation Decentralized Core Competency Centralized, rest Decentralized Some Centralization Mixed Centralization and Decentralization Horizontal Differentiation Worldwide Area Structure Worldwide Product Division Worldwide Area Division Structure Informal Matrix Need for Coordination Low Moderate High Very High Integrating Mechanisms None Few Many Very Many Performance Ambiguity Low Moderate High Very High Moderate High Very High Structure & Controls Need for Cultural Controls Low Moving Victoria’s Secret to Germany Page 21 Appendix G: Timetable for Germany’s Victoria’s Secret Startup Timetable for Germany’s Victoria's Secret Startup Arrival End of month 1 End of month 2 Hiring Begin Search for management Begin employee search Have hired assistant manager and employees Marketing Meet with marketing firm Begin advertising Advertising strategy in full swing Strategy Research, plan, and implement market strategy Work with manager and marketing firm on market strategy Strategy is developed and is implemented Training Develop German training strategy Begin training of manager and prep employee training plan Begin training assistant manager and finish employee training plan Store physicality's Work with marketing firm on store design and layout Work with manager and marketing firm on store design and layout Store setup has begun End of month 3 Store opening and beyond Hiring is complete minimum of two weeks prior to opening Advertising strategy in full swing Strategy is developed and is implemented Employees have had two weeks of training and managers are ready Store is ready to open Prepare the venture for long term success