ConsumerCurrents: issues driving consumer businesses worldwide 

Profiting from complexity
Less well-performing companies continue to be product-oriented. They may be bringing complex products to the marketplace without being clear whether these are of value to the consumer.

Some of the key features for successfully managing complexity include:

• a coherent vision of the future
• an integrated approach to talent management
• an effective system of managing design and innovation that encompasses products and service offerings to customers
• an understanding that middle managers are architects of the new complexity-exploiting business model
• a balanced approach to operating a global as well as a local ecosystem of business partners.

Luxury retailing in China
Asia is the biggest market in the world for luxury goods with China its fastest growing region. China is third only to the U.S. and Japan in its sales of luxury brands and, therefore, presents huge opportunities for this sector. It also poses challenges:

• intellectual property ― counterfeiting is rife in China
• profitability ― it may take up to a generation for luxury goods retailers to make a profit on their investment
• retail – finding appropriate store locations is difficult
• distribution ― China’s transport infrastructure is still developing
• marketing ― media costs are high in the big Chinese cities and campaigns may not be effective due to Chinese regional differences
• skills ― there is a shortage of luxury retail talent; retention is an issue
• pricing ― luxury brands are 20 to 30 percent more expensive in China due to import tariffs.

Fighting fakes
Commercial counterfeiting and piracy are now estimated to cost the world economy around U.S. $650 billion a year. While many brand-name companies remain reluctant to confront the problem, some are fighting back:

• The Nokia approach ― build a global team to combat counterfeiting and treat the problem under a single portfolio combining both product design and trademarks with the anti-counterfeiting litigation team. Nokia work closely with customs officials to act quickly when counterfeits are seized.
• The Manchester United (MU) approach ― brand protection officers travel with the club to attack counterfeiting at the source. They intercept goods at the point of manufacture, seize the goods and prosecute. MU collaborates with custom and government officials and with brands such as Nike, Adidas and Reebok.

Winning the battle against loss
Stock loss or shrinkage represents a huge loss to retailers, yet it can be accepted as a cost of doing business. It has four main causes:

• process failure
• internal theft from employees
• external theft
• inter-company fraud.

A new approach to dealing with loss is emerging characterized by:

• visual marketing ― designed with loss prevention in mind
• product development ― ensuring stock security has an influence from the beginning of the supply chain
• suppliers ― ensuring suppliers comply with measures to avoid theft and loss
• operational planning ― make loss prevention part of the performance management process.

Brazil’s biofuel boom
Biofuel is set to become a rapid growth industry in the near future as worldwide demand grows for efficient fuels with low emissions. Lessons can be learned from Brazil’s long experience of production and consumption of biofuels. The conditions needed for consumers to change to biofuels are:

• prices must be around 70 percent of the cost of conventional fuels
• alternative vehicles must be attractive
• the product must be delivered conveniently.

Arising out of the 1970’s oil price rises, the biofuel industry in Brazil began ethanol production. It slumped as petrol prices lowered but has grown again steadily and is presently booming. One innovation is the flex-fuel vehicle which can run on gasoline and ethanol. Whether Brazil begins to export biofuels will depend on trade policy outside Brazil.

Asia Pacific retailing
Asia is the world’s most dynamic retail environment. China is growing fast and international retail groups are continuing to enter the market. Japan is beginning to see growth again in the retail sector as consumer confidence begins to improve. India has significant growth in retail and a key development is the government’s recent removal of investment barriers. South Korea is the only retail market not doing so well. This is due to the debt crisis in that region. Of note in the Asia Pacific region is the growth of hypermarkets at the expense of supermarkets and a 19 percent increase in the health and beauty sector.

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