The Attractiveness of the Brazilian Market for UNIQLO's Entry - Case Study Example

GLOBAL MARKETING EXECUTIVE SUMMARY This marketing plan presents UNIQLO’s market position and suggests its entry strategy into Brazil as a new market. The plan is divided into the following key sections: company analysis, analysis of the product, scope of the Brazilian market, and suggested entry mode strategy. UNIQLO’s brand is mainly is mainly targeted for young people in Brazil since people aged below 29 years comprise 60 per cent of the country’s population. To reach this target group, the marketing campaign will use television and Internet advertisement and promotion. Pricing strategy will involve keeping the process low to attract consumers away from major competitors such as Marisa and Lojas Renner. Government bodies that work with apparel industry players in Brazil include ABRAVEST and ABIT. Products also have to be labelled in compliance with MERCOSUR requirements. The suggested market entry strategies include acquisitions and mergers, franchises and joint venture partnerships. 1. INTRODUCTION UNIQLO is a trendy clothing operator headquartered in Japan, having been established in 1984. The company’s name stands for Unique Clothing warehouse and reflects the fact that much of each store’s stock is kept on the floor where customers are able to interact with it. It specialises in fast fashion, i.e., clothing that is fashion-forward, moderately priced and constantly changing in style and colour (Plunkett 2008). This specialisation is in line with the company’s brand message that “UNIQLO is a modern Japanese company that inspires the world to dress casual” (UNIQLO 2011). This paper analyses the company’s market position and suggests its entry strategy into the Brazilian market 2. COMPANY ANALYSIS UNIQLO is officially Japan’s leading clothing retail chain. It currently has 845 stores in Japan and 292 stores in other markets overseas (USA, UK, China, Thailand, France, Hong Kong, Japan, Korea, Malaysia, Philippines, Russia, Singapore and Taiwan). Consolidated sales of the company increased 13.2% year on year (to August 2012) to ¥ 928.6 billion, while its operating income expanded 8.7% to ¥ 126.4 billion and net income increased by an impressive 31.8% to ¥ 71.6 billion.  The UNIQLO brand is known for its strong visual identity and international market presence as seen above, which gives it a strong competitive advantage (Kaputa 2012, p. 87). 3. THE PRODUCT Local and traditional brands dominate the apparel and fashion industry in Brazil, which is the fifth largest apparel market in the world. With over 60 per cent of the country’s population aged below 29 years, the apparel market has been expanding at a rate of 7 per cent a year, based on the McKinsey Quarterly Report of July 2011 (Thomas White International 2012). Fashion-conscious Brazilians are profoundly swayed by clothing brands endorsed by local celebrities. Therefore, how the UNIQLO brand will be perceived will determine how the brand is accepted by the population. The major challenge will be to convince the population, and especially the young people, to try the new and foreign brand being introduced in Brazil. 4. THE BRAZILIAN MARKET i. Geographic locations/demographics/transportation Brazil is a large country with an area of 8,511,965 km2 and a population of 194,463,000 (Euromonitor International 2011). The country’s consumer expenditure increased from US$ 1,455,808.6 in 2011 to US$ 1,516,970.3 while annual disposable income grew from US$ 1,552,364.5 to US$ 1,622,826.6 in the same period (Euromonitor International 2011). Annual population growth was 0.87 per cent while females comprised 50.8 percent of the population (Trading Economics 2012). Although transport is good in some areas [for instance there were 18,275 mile of railroad, 1,071,821 mile of highway roads, an a vast waterway system by 2006 (Adekola & Sergi 2007, p. 189)], the average transport infrastructure is rated 3.8 out of 7 on the World Economic Forum survey, below the world average of 4.3 (Nexus Infrastructure 2011, p. 3). The communication system is good and Brazil is the seventh country worldwide in Internet usage. There were 10,098,000 Internet users as of June 2009 (Internet World Stats 2012). As mentioned above, apparel shoppers, mostly youths, prefer clothing brands endorsed by local celebrities. ii. Distribution Since transport can be a major challenge, UNIQLO will launch its operations in major cities such as Sao Paulo, Rio de Janeiro, Salvador and Brasilia. The company will have its own distribution units or franchises in some cities and consider venture partnerships with local representative firms and distributors in order to access areas which cannot be accessed at the start of the market entry. Nonetheless, any contract should include terms that allow for local production and distribution whether through a new plant, acquisition or joint venture (Landmann & Di Si 2010, p. 2). iii. Advertising and promotion Since most of the target population is the youth, the advertising and promotion campaign will target media are widely used by the target population – mainly TV and social media. According to Shimp (2008, p. 379), no other medium can reach consumers simultaneously through auditory and visual senses than television. Television is significant as a means of reaching the target population because it can be used to demonstrate the product in use, it has an unparalleled intrusion value, it can be used to reach the consumer one on one, and it has the ability to provide entertainment and generate excitement (Shimp 2008, p. 379). Internet advertising and promotion will also be used. The advantage of Internet advertising is that unlike television where commercials forcibly interrupt viewing, Internet viewers can control what they want to see, and can therefore click on an ad to view more information (Stafford & Faber 2005, p. 106). iv. Pricing strategy In order to achieve a sizeable market share in the introductory stage, UNIQLO needs to adopt the strategy of keeping prices lower than the competition in the Brazilian market. According to Paul (2008, p. 223-224), such a move will often result in an instant acceptance of the company’s products from customers of competitive products and the firm will be able to penetrate the price conscious segment of the market immediately. v. Product composition UNIQLO’s major competitors are Marisa and Lojas Renner. These brand names are Portuguese-oriented in tandem with the South American culture. Even the companies’ websites are available in Portuguese although a user can translate them to English. This means that UNIQLO also has to show its online presence by availing its web pages in the Portuguese language. Both Marisa and Lojas Renner have products for a wide range of age groups; UNIQLO will therefore have a competitive advantage if it focuses on providing products for youths – who form the larger segment of the population. vi. Market size Brazil’s apparel market was approximately US$37.2 billion in 2008 and growing at 7 percent. Consumers in Brazil expend more money on clothes than consumers in many other nations. According to the McKinsey Report of 2006, Brazilian buyers are “fond of shopping for clothes” while 79 per cent of respondents from the country “look forward to shopping for clothes” compared to 26 percent and 27 per cent of the respondents from China and Russia respectively (Grail Research 2009, p. 18). The young population which is the main target market is also a key driver for this market given that about 60 per cent of the Brazilian population are people under 29 years. vii. Government participation in the marketplace Brazil is a mixture of government control and free market (Adekola & Sergi 2007, p. 189). The government agencies that govern and regulate the apparel and fashion industry in Brazil are ABRAVEST (Brazilian Government Association) and ABIT (Brazilian Textile and Apparel Industry Association) (Cultural Exchange; Rupp 2012). In particular, ABIT’s mission is to support sustainable development of the apparel industry in Brazil by representing governmental and international organisations and making the textile sector better known to the public. Depending on the product, the organisations involved in licensing for the apparel industry are ANVISA - Brazilian Health Surveillance Agency; DECEX - Foreign Trade Operations Department; MAPA - Ministry of Agriculture; IBAMA - Brazilian Institute of the Environment and Renewable Natural Resources; and MEX - Ministry of Defence (Office of Textiles and Apparel (OTEXA) 2012). There are also requirements to label products in accordance with MERCOSUR (Common Market of the South) requirements (OTEXA 2012). 5. ENTRY MODE STRATEGY Brazil is one of the countries that offer the most exciting opportunities with rapidly growing middle classes that are yearning for consumer goods. The possible market entry strategies for the Brazilian market include acquisitions or mergers, forming franchises, and joint venture partnerships (Bhatia 2008, p. 71). Acquisition is possible; because there are many small apparel retailers in Brazil which can be acquired as a starting point for UNIQLO’s operations in Brazil. Mergers with renowned firms are also possible although the disadvantage of this arrangement is that it will leave UNIQLO without the requisite knowledge to operate in the new market. UNIQLO can also use franchises in Brazil to sell its products and pay them a commission or franchise fees. The advantage of adopting a franchise scenario is that franchisees generally possess a better knowledge of the local market than the franchiser (Gauzente & Dumoulin 2010, p. 256). In this case, UNIQLO will not be exposed to the challenges of entering the Brazilian market on its own. A joint venture will also present similar advantages. 6. CONCLUSION The Brazilian market is attractive for entry by UNIQLO because of the large population size the vibrant economy. The country has a rapidly expanding middle class which yearns to consumer new product offers. Young people form a large section of the population and these are a good target for the market entry strategy. Reaching the target population can be done through TV and the Internet given that many people have access to the Internet. Since transport can be a challenge due to the huge size of Brazil, it is recommended that UNIQLO’s operations be focused in the main cities at the start. There are number of organising involved in the apparel industry and labelling of products has to conform to MERCOSUR requirements. Finally, UNIQLO can adopt a number of entry strategies including acquisitions and mergers, franchising and joint venture partnerships. 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