Launching with style in the united kingdom

A Major loss

After over ten years of great success in the U.S women clothing retailers, 20something opened two massive stores in the busy downtown shopping centers in London and Bristol. The store openings were a major event as both stores boasted over 50,000 square feet, an enormous investment in U.K. retail store terms, where space is held at a premium. A few years later, after opening three additional stores, the company was forced to write down the value of its lease acquisitions and lease improvements and declared a loss of GBP 50 million.

20Something in North America

20Something first opened its doors in 2001 in San Francisco. Started by a local couple, Ryan and Shelley Comstoke, the successful retail store offered extremely low-priced versions of current fashion trends, targeting women in their late teens through their early thirties, with the most loyal buyers aged between twenty and twenty-five years old. With over three hundred stores in the U.S., 20Something began expanding internationally, first to Canada and then overseas.

The Canadian stores did extremely well, and the retail chain began securing larger properties in key locations across the country. The combination of a large inventory of currently fashionable items and low prices proved highly successful in both the U.S. and Canada. On the heels of the Canadian expansion, the company opened two large retail locations in California, in the same state as its first store. Both locations were multi-level department stores, allowing 20Something to offer menswear, footwear, accessories and intimates for the first time. After launching, both stores experienced record sales for the company. 20Something's executives began planning their first overseas expansion.

Challenging Expansion

The U.K. was the company's first overseas target market. A large number of international brands find success first in London and then expand throughout England. From there, it is common to expand into other areas of the U.K. and into the rest of Europe. 20Something's long-term objective was to have 375 stores open internationally by 2016.

After a highly successful launch, the retailer saw sales decline and then become flat. At the same time, payments on the expensive leases on its massive stores were becoming increasingly difficult to meet without pulling revenue from other stores. The U.K. market had a number of strongly entrenched fast-fashion retailers long before 20Something entered the market. Those targeting the young 20s segment of the population had been operating for many years and could compete with the newly arrived American retailer both in price and in rapid output of new styles.

20Something had also experienced a number of challenges in recent years, which may have affected its uptake in the U.K. As it was churning out new fashion lines based on the latest runway styles, the company came under suspicion for copyright infringement and battled lawsuits both from other retailers and designers themselves. Even more recently, the company was faced with a lawsuit for forcing employees to work long hours without breaks for meals and for failing to compensate employees for all hours worked. The negative media attention resulting from the company's ethical struggles may have affected its success in U.K., well known for highly socially conscious citizens.

After suffering the huge loss of asset value in its U.K. stores, 20Something's corporate team made the decision to commit to 12 more months of operation in the country, and began to assess and repair the damage. The company was beginning to realize it had made a mistake in pursuing the large department store retail sites. Financially, the main challenge it was encountering was one of planning. To accommodate the expensive leases on the large stores, the company's sales had been projected to increase year over year. The negative attention and competition were causing flat or decreased sales at all of its U.K. stores; although a small contingency had been put in place for this, it had been quickly depleted. In addition, the amount of inventory necessary to fill each store took a great deal of resources to maintain, both in employee time and in cost. Although the company had accounted for a large inventory holding in the planning stage, because of the company's lack of experience with the extremely large area of sales space, the amount of inventory required to fill such stores had been somewhat underestimated. In the hopes of decreasing some of its staffing and inventory costs, the company closed entire floors of several stores.

Finally, the cost of setting up and launching 20Something had been more than anticipated due to the gradual rise of the British pound (GBP) over the U.S. dollar (USO), from 1.55 to 1.71 GBP/USD in the year prior to launching the two new stores. When originally costing the setup of the U.K. locations, the 20Something team had accounted for a small rise in the GBP as a protective measure. The difference between its projections and actual values had been significant, resulting in higher costs when purchasing supplies and hiring staff.

The losses it was experiencing weren't restricted to the overseas market. Not only was it reducing the size of its stores in the U.K., the two stores it had opened in California, 75,000 and 90,000 square feet respectively, were both closing. Customers were surprised at the store closings, and lenders and suppliers were becoming nervous. Something drastic had to happen to save the retail chain.

A New Direction

Ryan and Shelley called a meeting of their executive team in the U.S. and began the process of revamping the company strategy. The team agreed it needed to downsize and streamline. From these meetings came the idea for 20Something Boutique. The company would open a new chain of stores in addition to the stores it already had. The new stores would be smaller than the average 20Something stores and would offer fashions at slightly higher prices than the current stores. The new chain would appeal to the older segment of the company's target customer base, offering better quality fashions, a need that had been expressed by the twenty-five- to thirty-year-old customers.

The team agreed the company should continue expanding both chains, and planned to target the rest of the European market, where there was less competition. It would begin by opening one store per target country, setting up scaled-down stores with much less inventory and fewer carrying costs than it had held in previous endeavours. The euro was substantially less expensive than the pound, and the company could use its warehouse assets in the U.K. to assist with stocking the new stores. The team believed it had found a way to turn the company around, but only time would tell if the new strategy would be successful.

questions,(Answers 200-300)

Question1) The company lost a great deal of its worth when it was forced to write down its U.K. assets after a few years of operation. What could the team have done to mitigate this risk?