Brand marketing in emerging markets – VRICs/Lotte Mart

While Walmart expands in China, Brazil, and Mexico, a Korean conglomerate, Lotte, is aggressively moving forward with the launching of their department stores, discount stores, and supermarkets in emerging markets within the VRIC nations of Vietnam, Russia, Indonesia, and China.

The JoongAng Daily reports that Lee Chul-woo, the president of Lotte Shopping Co., has announced that he aims for Lotte Department Store to be among the world’s top 10 by 2014. In revealing the company’s eight-year plan for the flagship retail unit, he noted that they are currently ranked 13^th in the world, with 2009 revenues of US$7.73 billion.
Lotte’s ambitions extend not only to their department stores, but to their chain of discount stores (or supermarkets), Lotte Mart, as well. An emerging competitor with Walmart, Lotte Mart has 184 branches, about 100 of which are overseas, with more planned globally. They are known for their success in the VRICs, and their expansion in these regions has been bolstered by M&As, especially in China and Indonesia.

According to the Jakarta Post, the Lotte group announced that it would be investing US$870 million in the Indonesian market within four years in order to become a leader in the country’s lucrative retail market. They acquired Makro Indonesia, a Belgium-based warehouse club (cash and carry wholesaler), in 2008, and are moving forward to become one of Indonesia’s top retailers.
Daniel Surya, chairman of dm-IDHolland, IDHolland group, offered some insights. “Makro was acquired by Lotte Mart in Indonesia recently,” Daniel says. “Makro was set to tap into the wholesale retail market with attractive bargains, but this wasn’t successful, as the stores are located far from the city where other players like hypermarkets Giant and Carrefour are more convenient for consumers to reach.” Daniel also mentions that Makro was known as a “low price and large quantity purchase” store, like Walmart or Sam’s Club. In Indonesia, Carrefour and other hypermarkets are located inside the city, often teamed up with shopping malls. To maintain a balance with other small- to medium-sized enterprises, they don’t operate outside of the city .
Lotte Mart’s challenges in the Indonesian market have just begun. True to their word, they recently launched their hypermarket in the Gandaria City Mall, a modernized mall that is the biggest in South Jakarta.

Lotte Mart is also looking to improve their business in Vietnam. Byung-Yong Noh, CEO and president of Lotte Mart Co., Ltd., said that after 18 months of operating their first store in Ho Chi Minh City, they have realized that the Co.opMart store chain, Vietnam’s leading retail store, is a favorite shopping destination for Vietnamese consumers.
Lotte Mart is showing interest in cooperating with Co.opMart’s operator, Saigon Co.op. Lotte Mart launched its first Vietnam branch in 2008; there are currently only two branches. However, they are planning on expanding their business by launching up to 30 retail centers by 2018. Saigon Co.op has 45 Co.opMart retail outlets today, and their plan is to have 100 by 2015. It seems that Lotte Mart has found the right partner for their marketing in Vietnam.
The Lotte group is also planning to build a “Lotte Center” complex consisting of a department store, a hotel, an office space and others in Hanoi, Vietnam, in 2013 as part of their increased investment in the Vietnamese market. Much like Indonesia, this is a key market for them if they are to become a global retailer.

In their “Vision 2018,” the Lotte group has set a target of US$18.9 billion for their retail sales, most of which will come from their overseas stores. Like other economic powerhouses, Lotte is foreseeing that their domestic market will soon be saturated. Becoming a global player is something they need to do, not just something they want to do.

From a branding point of view, Lotte Mart may need to consider making their brand more strategically visible than it is now if they are to become a global brand like Walmart and other international retailers. It will be interesting to see how their big leap to become a global player and retail brand plays out.

Brand marketing in emerging markets – China/Walmart

Since the fall of Lehman Brothers, there has often been talk about the fact that the retail industry has slowed.  However, despite this, the top company in 2010 for both the Fortune US 500 and Global is Walmart.  Although well known for its acquisition of Seiyu, Walmart is actually unfamiliar in Japan. 
The US recession helped boost the discount-specialist Walmart.  However, competitors have begun to do similar things and customers are apparently starting to leave Walmart.  In the slow US market, Walmart seems to be getting help from better conditions outside the country. 

There is an impression that Walmart has had some rough times outside of the US.  It pulled out of both Korea and Germany in 2006.   In Korea, it was sold to Shinseigae department store and in Germany to global competitor METRO Group. 
However, Walmart is doing well in Mexico, Canada, Brazil and China.  Over the past several years it has aimed at expanding business in Latin America and China.　Same-store sales increased 10.6 percent in China, 7.6 percent in Brazil and 4.4 percent in Mexico, giving Walmart plenty to smile about.  

Why is Walmart doing so well particularly in China?  Before it became successful in China, Walmart didn’t just promote “buying American,” but put a lot of effort into localization.  An article written a while back by Gary Gereffi and Ryan Ong for the Harvard Asia Pacific Review said that in order to make sure items were “fresh” to the Chinese consumer, Walmart imported local fresh markets directly into their Walmart stores. 
For Chinese customers, “freshness” means being able to purchase freshly caught or picked items in a market, as opposed to a packaged item sold in a supermarket.  Over 95 percent of the items sold are supplied domestically in China.  Items produced in China are also imported into the US, which has created criticism over employment issues from the American public.  In addition, Walmart has made large donations to Chinese universities, as well as set up China’s first retail focused research facilities.

As its tagline, “Save Money. Live Better.”says, Walmart is famous for being a discount store.   In order to expand among and attract the middle-class Chinese consumers, Walmart is also putting efforts into making its stores feel “upscale.”  Although they don’t go as far as creating a “high-end” environment, they increase the quality of the displayed items.  This movement to focusing on the upmarket is something being talked about not only in China, but also in the US. 

Recently, Walmart has been increasing plans to open Sam’s Club stores in China.  The first store opened in 2002 in Shenzhen.  Currently there are 3 stores (Walmart China’s website says 3, the media says 4) and there are plans to open shops in Shanghai in December 2010 and Dalian in 2011.  Unlike with Japan or Korea, there seems to be more confidence in opening large size stores in China. 
According to Walmart China’s website, the number of stores including Sam’s Club has surpassed 189.  They site talks about the company’s contribution to China including giving employment opportunities to 50,000 people.  *Considering the employment problems in the US, it is something that can’t be helped even if criticized. 

Where does Walmart China go from here? Walmart is focusing not only on expansion, but also not forgetting to take actions to be “green” and eco-friendly.

From 2005 Walmart set some overall goals including the following:
1)     To be supplied 100 percent by renewable energy
2)     To create zero waste
3)     To sell products that sustain the world’s resources and environment
(Source: Walmart China Factsheet – Walmart China website)

Along with its top 200 suppliers, Walmart has made promises to make improvements in the energy efficiency of its factories.  Walmart has also promised to reduce its greenhouse gas emissions from its global supply chain by 20 million tons by the year 2015. 
Even in China, “green” activities are being promoted and there are goals to head toward building low-carbon supermarkets.  Although the content is a little unknown, there are promises to build new stores that use less energy and save more water.  Overall, by the year 2013 Walmart is aiming to reduce its greenhouse emissions by 20 percent of its 2005 levels.  By using LED lights and energy-saving refrigeration, there are apparently actual results.   

Besides these initiatives, Walmart has also created its Direct Farm Program and announced plans to sign contracts with 1 million farmers in China by the year 2011.  The same program is also being setup in Mexico and India. Green activities in a number of Walmart China stores are being promoted along with the Chinese government. 

Looking at Walmart China’s recent movements and trends, it seems as if the company is aiming to strengthen its global supply chain even further, however, as we touched upon in an earlier blog entry, it seems as if there is some relationship with the building of eco-cities. 

In 2008, Walmart revamped its logo design and changed its name from Wal-Mart to Walmart.   The day when “Walmart” becomes the pronoun for the next generation’s global supply chains and global retailing is likely not too far away.

Eco-branding: Eco-cities

What is an eco-city?

In 1987, Richard Register introduced the term “eco-city,” also known as sustainable city, in his book Ecocity Berkeley: Building Cities for a Healthy Future.  The basic premise of an eco-city is to create a place where people can live productive and healthy lives while having minimal impact on the environment.  In order to achieve this goal, eco-cities incorporate various technologies and practices to reduce or eliminate the environmental impacts and costs.  An eco-city is generally self-sufficient, providing its own power, water, etc. with renewable energy sources rather than relying on outside areas or resources.  Other practices common in eco-cities include composting, recycling or converting waste to energy; producing low amounts of pollution; using land efficiently; planting more trees and increasing green spaces; improving public transportation; or decreasing urban sprawl.   

Today the eco-city concept is spreading around the world and becoming more and more popular.   Below are a few examples of some of the world’s eco-cities. 

Europe: Sweden

The Hammarby Sjostad eco-city, located just south of Stockholm, was originally supposed to be an Olympic village.  However, after Sweden lost its bid for the 2004 Olympics, the once polluted industrial area was developed into a successful eco-city.  There are strict environmental requirements for all buildings and infrastructure in the city.  It has also been designed to support public transportation including bicycles and carpools instead of cars.  Emissions in the city have been reduced by 30 to 40 percent and no harmful materials or chemical products are used in buildings.  Also, the city is said to produce half of its own energy through renewable fuels, reusing waste heat, biogas and energy efficiency.  Hammarby features ample parks and water to improve biodiversity and also the quality of life for residents.  What is unique about this eco-city is that the majority of the environmental goals are built-in, meaning that even if citizens are not eco-friendly in the beginning, they will become so just by living in the city. 

Middle East: UAE

Abu Dhabi is currently developing the world’s first zero-carbon city, Masdar City, located 17 kilometers outside of Abu Dhabi.  This eco-city will be constructed without using polluting technologies or fossil fuels.  Once completed, it will be home to 50,000 people, 1,000 businesses and a university.  It will also be powered by renewable energies such as solar and wind power.  Developers plan to use the desert heat to their advantage by using solar technology to power the entire city.  Despite its location in the middle of the desert, Masdar City will be cool.  Much like an ancient Arab city, a wall will surround Masdar and streets will be narrow so that buildings will shade each other.  There will be no tall buildings or skyscrapers and wind towers will create a breeze.  Within the city no cars will be allowed to reduce air pollution. Citizens will either walk or use an underground transportation system, the Personal Rapid Transit or “podcars,” which will drive using magnetic lanes to take passengers to any destination they wish.  Masdar City is being built by the Abu Dhabi Future Energy Company and is expected to cost between $15 and $30 billion dollars (paid for by the Abu Dhabi government).   

Asia: China

China is pushing to dominate the world in clean energy and the country is investing billions of dollars to become greener and more energy efficient.  Currently, there are around 30 eco-cities being developed around the country.  One example is the Tianjin Eco-City, located 150 kilometers east of Beijing.  A collaborative project between China and Singapore, Tianjin will serve as a model that can be reproduced in other areas of the country.  With an expected completion date of 2020, the city is expected to be a sustainable and resource efficient city for 350,000 Chinese to live and work.  The city will be eco-friendly with ample green space, wetlands and biodiversity.  Because there is little rain in the city’s location, Tianjin will get most of its water from sources like desalinated water.  The city will also focus on reducing and reusing waste and reducing carbon emissions.  Residents will move around using a new light-rail system as well as buses and trams.  Socially, the city will be designed so that people of different generations, income levels, etc. can easily live together and interact, another important aspect of an eco-city.  The project recently received a $6.16 million donation from the Global Environment Fund that will be used to help establish legislative, institutional, financial and monitoring systems, as well as green transportation and architecture.   

Future of eco-cities

According to UN Habitat, 70 percent of the world’s population will live in urban areas by the year 2050.  This means that building eco-cities will become more and more important not only in developed countries and cities, but also in less developed areas, especially emerging countries.  New and innovative technologies and strategies, as well as support and cooperation from businesses, governments and citizens will be essential in making these cities successful over time.

Real estate businesses in Japan by Asian countries

For Japanese companies, once known (and sometimes hated) for foreign takeovers and buying up foreign real estate, things have changed.  Today it’s foreign companies and individuals who are coming to Japan and purchasing Japanese real estate and businesses.  The struggling Japanese economy has taken a toll on the real estate market, which has seen prices fall up to 30 percent.  Japan is now considered a bargain for foreign investors.  In addition, it has become more and more difficult for even major Japanese companies to get long term financing from banks, which means many have turned to foreign investors to help them both at home and abroad.  All of these trends have made the Japanese market quite attractive to international buyers, especially those from China and other nations with money to spend.  While many Japanese are resistant or apprehensive to selling companies and real estate to foreigners, they realize that they must sell in order to survive and gain access into foreign markets. 

China

Having recently surpassed Japan as the world’s second largest economy, China and its citizens have the money to spend not only at home, but also abroad.  The number of Chinese visitors to Japan has skyrocketed in recent years as many cash-rich Chinese come to Japan to shop for not only electronics and cosmetics, but also Japanese companies and property.  As Japanese property prices have fallen, many Chinese have purchased homes and property in Japan, often paying cash.  Properties are also often purchased for cheap prices at court-ordered auctions following foreclosures. 

Real estate companies in Japan have noticed an increased interest in the Japanese market from Chinese buyers and some companies are holding seminars (attracting hundreds of participants) for wealthy Chinese.  These seminars explain more about Japanese real estate and show Chinese buyers that Japanese property is much cheaper than Shanghai or Beijing (where prices have skyrocketed), is of high quality, and that owners can make money by renting.  The low-interest rate and low financing costs in Japan, as well as increasingly overseas-buyer-friendly policies of Japanese banks, make the market extremely attractive.  In addition, according to an article in the China Daily, Japan’s developed infrastructure and legal system, along with its unrestrictive policies on foreign national property purchases and its pro-landlord environment in the rental market draw investors from overseas.

Wealthy Chinese have been buying real estate for personal use and for investment purposes not only in cities, but also the countryside of Japan.  Even in the northern island of Hokkaido, many Chinese have purchased vacation homes for prices around 30 million yen.  Chinese buyers are also purchasing upscale accommodations such as resorts or hotels because domestic demand for them has fallen in recent years.  Buyers are often interested in purchasing investment properties and then renting them out since Japanese rents have not fallen as much as property prices.  Chinese are also interested in purchasing, renovating, and then selling properties to other Chinese businesses. 

Singapore

Investments from Singapore into the Japanese real estate market have increased in recent years as well.  Many companies see the struggling Japanese market and low prices as a huge opportunity.  Furthermore, they are attracted to the built-to-suit logistics properties around the nation that can generate stable rent.  For foreign investors, Japanese logistics properties are attractive because of Japan’s advanced technology and manufacturing capabilities, as well as the growing demand for online services and shopping.    

Some examples: In 2008, a Japanese real estate fund sold the Tokyo Westin hotel to Singapore’s Government Fund.  The slowing Japanese economy means that consumers are spending less and the Japanese hospitality industry has suffered.   Other companies from Singapore have invested in residential as well as hospitality properties, including business hotels around the capital city of Tokyo.  Also, property developers from Singapore and Southeast Asia have expanded business in Japan over the past several years and now operate a variety of properties in Japan including shopping malls, rental apartments and other commercial investments.  Recently, Mapletree Investments, a Singaporean real estate firm, announced plans to launch an 80 billion yen Japanese property fund to expand in business-related properties including data centers, research and development facilities, and office buildings outside central Tokyo and major cities.