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Homeplus Deepika

Homeplus has grown to become the second largest retailer in South Korea, but faced many challenges establishing itself in the market. It struggled with localization, strong manufacturers, saturated discount store competition, and changing policy/consumption trends. However, Homeplus overcame obstacles by establishing value stores with diverse low-priced products, expanding into the successful super-super market segment, and achieving a high personal brand ratio to gain pricing power over manufacturers. While the retail market remains dynamic, Homeplus' strategic solutions have enabled its continued growth in South Korea.
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0% found this document useful (0 votes)
84 views10 pages

Homeplus Deepika

Homeplus has grown to become the second largest retailer in South Korea, but faced many challenges establishing itself in the market. It struggled with localization, strong manufacturers, saturated discount store competition, and changing policy/consumption trends. However, Homeplus overcame obstacles by establishing value stores with diverse low-priced products, expanding into the successful super-super market segment, and achieving a high personal brand ratio to gain pricing power over manufacturers. While the retail market remains dynamic, Homeplus' strategic solutions have enabled its continued growth in South Korea.
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 10

Email Draft:

To: Managing Director ([email protected])


CC: All (Stakeholders / Management Team)
Sub: Business Review – Homeplus

Dear Charles,

It gives us a great pleasure to welcome to Korea and we hope you enjoy your new adventure
and achieve a great success with Tesco and Homeplus.

It gives me an immense pleasure to look back and reflect on all the hardships that our company
has faced through the years and the strength that it took from all of our employees to make this
brand one of the biggest retailers in the world market.

Please find attached consolidated report in order to provide an overview of Homeplus business,
its opportunities, challenges & strategic approach. I believe it will be excellent resources for you
to catch up with our role in the Korean market. Furthermore, our team will be able to meet you
at the monthly management meeting by the end of this week. I hope you will take the time to
meet with our team, which includes myself and our direct managers, to achieve a better
understanding of the company.

Feel free to revert back for any questions. Thanks!

Regards,
Seung-hun Lee
Chief Executive Officer
Cell: +82 11 1111 1111

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Homeplus – Journey, Challenges with the Pestle Analysis

Table of Contents
Sr.no Content Pg.no
1. Summery 3
2. Introduction 3
3. - Business review 5
- Challenges 6
- Strategic Solutions 8
- Key to Success 9
4. Conclusion 9

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Homeplus - Executive Summary:
A retail industry giant: Homeplus – Challenges over years effectively encountered strategical
implementation of strong solutions allied with future prospects of the company

Homeplus – Introduction:
Tesco, the multinational retailing giant, was founded by Jack Cohen in 1919 when he opened a
market stall in the East End of London and the brand name Tesco appeared in 1924 when
Cohen started to sell tea products named Tesco Tea. The name comes from the initials of T.E.
Stockwell (TES), who was the tea supplier, and CO from Jack’s surname. By year 2000, Tesco
had become the biggest retail store in the United Kingdom, with a market share of around 30%.
Tesco started to seek international expansion at the beginning of the 1990s as a key part of its
growth strategy and eventually it was one of the fastest growing retailers in the world, mainly
due to its rapidly growing international business and became one of the top retailors of the
world.

By 1997, the Korean Retail Market was trying to come out of the financial crisis and Korean
government deregulated its retail market after the Asian financial crisis of 1997. Previously, the
Korean retail sector had been very difficult to enter for foreign retailers. However, the crisis
induced the Korean government to change its policies from protectionism toward liberalization
due to pressures for economic reforms.

As a result, Tesco decided to invest in the Korean Retail Market due to the rapid growth of
middle-income families. Tesco chose a joint venture with the Samsung Group as its
market entry strategy to gain access into South Korea in 1999, and launched a new brand
‘Homeplus’. Homeplus's management implemented a number of policies aimed at localizing
the business, combining localized marketing with a globalized management and
administrative system.

Homeplus initially encountered a number of challenges, including cultural differences, language


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barriers, communication issues, and mainly the negative nationalistic sentiments among
domestic buyers. Homeplus have grown quickly and become the second-largest retailer in the
Korean market in less than a decade, and have a network of 124 discount stores and 27,874
employees. Homeplus is exploring the potential of the Korean retail market valued at USD 196
billion in 2011.

This report includes an overview of Homeplus in Korean retail market and also provide a brief
overview of current market shares, market trends, and competition, as well as uncover sources
of future market growth for the Korean retail market. This report also assists in identifying
hidden potential in the most recent retail audit data, as well as providing comprehensive
solutions that Homeplus should consider for developing expansion and acquiring or maintaining
their growth in the Korean retail market.

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Homeplus – Business review:
Homeplus, known as a retail giant, even though it came across many minor and major
challenges during the initial stage and the mid years of establishment, it also achieved below
mentioned achievements in the Korean retail market:

 Homeplus ranked as second-largest retailer of Korea with 124 discount stores and
27000+ employees.
 Being a key driver in the evolution of the Korean retail market: switching the retail format
from department stores to discount stores after the 1990s, and innovating the online
shopping experiences of consumers with advanced technology thanks to the mixed
"Glocal" power of investment on both financial, operation, and management, product-
selection wisdom from Tesco, and local advantages from Samsung.
 Homeplus stores were successfully established as "value stores", by offering the low-
priced and diverse products.
 Having the highest Personal brand ratio of 28 percent in 2011, Homeplus gained a
competitive advantage over local chaebol-affiliated manufacturers, giving Homeplus
greater control over price, margin, and product selection.

 The number of SSMs in Korea more than tripled between 2003 and 2010. With a total of
258 SSM outlets in 2010, Homeplus successfully led the market segmentation of super-
super market (SSM) among the big three retailers, exploring the potential of the lower-
income market previously owned by convenience stores of other retailers.
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Homeplus – Challenges:
As mentioned earlier, Homeplus also came across many minor and major challenges during the
initial stage and the mid years of establishment. Please find below listed challenges that were
faced during the Homeplus establishment-

1. Localization: The warehouse type stores such as Walmart and Carrefour had very
limited offerings of fresh food items and Korean-style food such as kimchi, a traditional
and highly popular dish based on fermented vegetables were available only at their local
stores. This resulted in slow growth of these companies as the consumer behavior
strongly pointed towards fresh buys in short amount of spans. The stakeholder
management that was involved in these two giants which relied more on expatriate
management which did not flourish for a longer period of time.

2. Dominance of Manufacturers: In Korean retail environment, manufacturers had very


strong bargaining power over retailers. This was due to the most best-selling products
were provided by a few dominant manufacturers controlled by chaebols. These
manufacturers had strong market power and the leverage to pose credible threats to
discontinue business with retailers that did not accept their prices and other terms of
doing business.

3. Challenges in Retail Format: The large discount store market in Korea was almost
saturated with a total number of 415 outlets in 2010, mostly from the big three retailers.
The growth rate of sales and stores of these discount stores began to show signs of
decline from 2003 and there were not many good business sites left for a large
discount store to settle in Korea.

4. Policy changes in the National Assembly: Due to the SSM retail channel, the local
stores were affected and they forced the local entrepreneurs to file a petition against
these giants. It was estimated that these small stores had a revenue loss of up to 42.2
percent. Hence the Korean Government took this into consideration and issued a new
bill:

a. A required permission from a local government for these giants to open up a SSM
within 500 meter of a local store
b. Law in March 2012 forced large retailers to close their stores on second and fourth of
Sunday every month.
c. Another bill was passed which gave a right to the small owner to demand a
temporary closure of the SSM if proven that they are being harmed from it.

5. Consumption trend: Korean consumption trends were changing rapidly. Homeplus and
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other local retailers were competing in an environment that was becoming increasingly
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dynamic and complex. Customers had started to use various new channels for
consumption, especially through online and smart phone orders.

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Homeplus – Strategic Solutions:
Even though, there were many minor and major challenges mention above, CEO Lee & his
team introduced brilliant solution which are listed below to overcome these challenges-

1. Solution for Localization:


 Since TESCO had ventured up with Samsung they emphasized on making things Glocal
(Global+Local). Localized marketing with globalized management which resulted in
availability of fresh produce.
 Also, they emphasized that the company and its managers should not be indifferent to
local stakeholders when trying to achieve globalization. Turning Homeplus stores into
“Value stores “for the customer.

2. Dominance of Manufacturers:
 Samsung’s local network played a very big role in the solution to this challenge which
helped Tesco make their biggest investment to buy out 36 discounted stores for 1.95
Trillion won.
 Employee training and education was strengthened with many Corporate Social
Responsibilities
 Value added stores were set up across Korea
 Private brand (PB) products with high margins and shortened distribution processes
were being sold.

3. Challenges in Retail Format:


 The SSM (Super Super Markets) were introduced to tackle this challenge in many
residential neighborhoods.
 Value stores were established.
 The number of SSM’s nearly tripled from 2003 to 2010, which gave Homeplus an edge
over their competitors.

4. Policy changes in the National Assembly:


 Set up a team solely dedicated to seeking permissions for SSMs in case the first bill gets
passed until they find a long-term solution.
 Plan the store locations in such a way that they are accessible to multiple localities and
support them with delivery.
 Set up a centralized delivery system that connects SSMs with customers and using
which they can get delivery from anywhere.

5. Consumption trend:
 Offer online delivery services with inventory in the SSMs even on the days the stores are
closed.
 Set up a delivery service for faster and efficient delivery by Homeplus.
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Homeplus – Key to Success:
 Importance of cultural acceptance: As per the market demand, updating or altering
the localization process.
 Analyzing Consumer behavior: The consumer behavior plays a major role to guide us
in the right direction and to identify and analyze the same becomes an important priority.
 Customer Experience: Implementing loyalty programs for customer retention and be
with the current trends of customer experience will benefit in the long run.

Homeplus – Conclusion:
1. What was Tesco’s strategy to enter the Korean market? In what way did it help them in
comparison to its competitors?
Tesco chose a joint venture with the Samsung (One of the largest business group) Group as its
market entry strategy to gain access into South Korea in 1999, and launched a new brand
‘Homeplus’.

2. What were the difficulties faced by Tesco in the Korean market venture?
How did Homeplus overcome it?
As TESCO was a foreign brand, the local consumers had strongly opposed. In order to win over
the audience and their needs, Tesco had to analyze the consumer behavior and demand for the
local products in the market.
Therefore, the Homeplus was purely established to bridge the consumer retailer gap by various
‘localization strategies’ and adopting a different approach that went by the name ‘Glocal’
(Global+Local).

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3. What were the strategies applied by Homeplus to get rid of customer bias against
foreign companies? How did Homeplus compete with the ‘Chaebols’?
Firstly, Homeplus introduced the ‘Glocal (Global+Local) strategy’ for marketing needs and also
appointed a local employee from Samsung and giving him the liberty to choose the kinds of
goods that needs to be displayed, to understand the local market and increased the sale of PB
products.
Also, introduced the advanced training programs for the employees that established to create
value for customers to earn their lifetime loyalty.

4. How is Homeplus planning to compete with the upcoming challenges in the Korean
market?
Due to the transformation of policies and the bills that were introduced by the Korean
government assembly, will be a major challenge in the future:
According to the new bill:
a. A required permission from a local government for these giants to open up a SSM
within 500 meter of a local store
b. Law in March 2012 forced large retailers to close their stores on second and fourth of
Sunday every month.
c. Another bill was passed which gave a right to the small owner to demand a
temporary closure of the SSM if proven that they are being harmed from it.

And the solutions for these challenges are:


1. Set up a team solely dedicated to seeking permissions for SSMs in case the first bill gets
passed until they find a long-term solution -
2. Offer online delivery services with inventory in the SSMs even on the days the
stores are closed.
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3. Set up a delivery service for faster and efficient delivery by Homeplus—something that
the other small stores lack and get more involved in the community and build connections with
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the locals. If possible, give franchise rights to the locals.

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