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UNITED ARROWS LTD.

2013 13th Porter Prize Winner Apparel Retailer
UNITED ARROWS LTD. has succeeded in developing the “select shop” business on a large scale. It carries high-quality products, purchased items as well as original products.
UNITED ARROWS LTD. (hereafter, UA LTD.) is Japan's largest "select shop" apparel company, with sales of 100 billion yen (US$ 1 billion) and 220 stores. The term "select shop" refers to apparel retailers that carry both original products and purchased products. Examples of well-known select shops are Colette of France and the U.S. apparel retailer Opening Ceremony. Industry observers have noted that it is very difficult to expand select shops from several stores to a chain encompassing hundreds of stores because, for select shops, merchandising is the key to success, and the degree to which merchandising is successful depends largely on the owner.

Unique Value Proposition

UNITED ARROWS LTD. targets customers who are interested in fashion, rather than those who give priority to utility or price. Calling this segment a "trend market," UA LTD. considers it to be "a half-step ahead of mainstream customers."
   UA LTD. has 17 different brands, targeted at different price ranges. At the highest end (in terms of price), it operates the Chrome Hearts brand of silver accessories and leather goods. In the second-highest price range in the trend segment, it has two brands: UNITED ARROWS, and BEAUTY&YOUTH UNITED ARROWS. In the middle price range in the trend segment, it has the UNITED ARROWS green label relaxing brand, offered in a price range that is 30% lower than UNITED ARROWS brand items.
   Under each brand, UA LTD. offers a wide range of products, and covers everything from men's and women's formal and casual clothing to silver and leather accessories, as well as general merchandise. (The only exception is Chrome Hearts. UA LTD. is the importer and retailer of this established overseas brand.) In terms of fashion taste, UA LTD.'s brands cover the spectrum of classic, mode, elegance, natural, and basic styles.
   This value proposition is unique because most apparel brands focus on a particular customer segment (targeting a specific gender, age range or fashion taste). UA LTD. manages its brands according to price range. (Its brands span the mid-price to middle-to-high price ranges). Each brand selects its target segment according to price and fashion taste, and offers a broad product line to meet various customer needs.
   UA LTD. provides customers with a fun shopping experience that celebrates the joy of living while also imbuing a spirit of richness. The three key sources of satisfaction for UA LTD. customers are: "Great Service (customer service)," "Great Products (the merchandise)," and "Great Environment (the stores)." Customers choose UA LTD. brand items because the products are "a half-step ahead" of the prevailing taste in fashion, and because of the superior customer service in stores. The company declares "It's All About The Customer," and provides finely tuned customer service. At the same time, the company spends considerable amounts on interior design to create a sophisticated shopping atmosphere while providing facilities, spaces, and environments that deliver genuine comfort and a sense of fun.
   UA LTD.'s corporate policy is to "Create a New Japanese Standard." In other words, the company endeavors to create new standards for the Japanese lifestyle. It seeks to offer world-class value by seamlessly combining Japanese culture and traditions with those of the west. In line with this corporate philosophy, UA LTD. offers a wide product lineup and proposes a lifestyle that "stays a half-step ahead."

Unique Value Chain

UNITED ARROWS LTD.'s value chain is unique in its visualization and standardization of operations throughout the entire value chain. Activities range from the procurement of purchased products and the manufacturing of original items to store deliveries and inventory clearance. Its value chain is unique in terms of the merchandising and in-store sales activities, because of the wide range of items UA LTD. offers.

Merchandising: UA LTD.'s product development policy calls for a "Trad Mindset." In other words, a deep respect for history and heritage, coupled with an innovative approach, which drives the creation of new traditions. In line with this product development philosophy, the company's basic product policy is defined. Then, the basic policies for product development, merchandising philosophy, and the product cycle are determined. In each season, the company develops a company direction, which defines the merchandising of all the brands. Each brand director sets the brand direction in accordance with the company direction, so that all the brands from UA LTD. propose a unified theme to customers.
   UA LTD. has internalized the design function (clothing design, materials development, and pattern creation) to maintain the high quality of its original products. Designers accompany buyers on their trips overseas to research fashion trends. The company keeps samples of materials and designs in the Creative Resource Center, and in a separate "atelier" designers can develop samples.
   UA LTD. tries to control the ratio of original products to purchased products to achieve a targeted proportion that is set for each brand. The in-house developed "MD Platform" management system facilitates the development of weekly merchandising plans for one year (52 weeks) and the control of inventories. The MD Platform management system shows scores on key performance indicators, and indicates the business results in progress charts. This is undertaken for all brands, to enable comparisons across brands. Such data helps the company to make the decision to increase production of strong-selling products or to reduce the inventory of slow-selling products.
   This process is complemented by communication between the front line and headquarters, with merchandising frequently adjusted to meet evolving market needs. Tools for facilitating communication between the store sales staff, designers, buyers and merchandisers include a detailed weekly report from each store (this report contains an analysis incorporating a well-defined methodology); meetings held each week, month and season; periodic visits to stores by employees from the headquarters; and teleconferences between store staff and employees from the headquarters.

Manufacturing: UA LTD. outsources the manufacturing function, but has an internal production manager. It has developed a "Manufacturing Platform" management system for selecting factories, planning materials procurement, and controlling manufacturing costs. This platform has enabled the company to integrate information regarding the suppliers and manufacturers handling the various brands, and has also made possible company-level optimization.

Logistics: UA LTD. collaborates with logistics service providers who specialize in apparel to control the supply chain. The company's four logistics centers operate 24 hours a day. At these centers, price tags are put on the products, product quality is monitored, and inventory is managed. The company keeps store inventory at a minimum. Those products having been reported as "sold" that day (up until 11 p.m.) will be delivered to the store before it opens the next day (except in some locations).

Store operation and in-store sales activities: UA LTD. formulates a basic sales policy, which covers all in-store sales activities. The policy defines the cycle of trust-based relationships with customers, customer relationship management, and in-store merchandising, and specifies the control items and processes involved in store operation.

Channel development: UA LTD. identifies new retail channels with growth potential and opens stores more quickly than its competitors. For example, it was the first among leading select shops to open stores in "Lumine" shopping complexes adjacent to train station buildings and ZOZOTOWN, an online fashion mall, at a time before they had achieved popularity and strong earnings results.
   The company is trying to create a seamless shopping experience across real and online stores. Customers can check on product availability at real stores through the company's online store. Inventory information is updated every ninety minutes, and customers can also access inventory information at real stores. Customers who are unable to decide whether to buy a certain product can get the product number from in-store sales staff. Later on, they can easily locate that product and purchase it through the online store. The company's online sales, which accounted for 11.2% of total sales in the year ended March 2013, far exceeded the online sales of competitors.

Marketing: UA LTD. is more unique and stronger on advertising activities than its competitors. It relies primarily on TV commercials, train ads, magazine ads, and twitter ads. UA LTD. has won numerous awards for its commercials and advertisements.

Human resource management: UA LTD.'s human resources philosophy centers on the concept of "Creative Merchants," who are responsible for ensuring the harmonious integration of customer service, business, and creative mindsets. These individuals must also master the complexities of a wide range of fields, while simultaneously cultivating specialized expertise in a single area.
   UA LTD. has created the title of "Sales Master" to motivate and develop sales staff. Only a few individuals have been selected as Sales Masters from among 3,000 members of the sales staff after thorough screenings. The company also holds "The Tabaya Grand Prix," which is a role-playing competition among representatives of the company's brands. Only one member of the sales staff can represent a brand. This competition serves as a vehicle for sharing the best practices as well as creating a sense of camaraderie.
   Tabaya University, the company's in-house university, provides training programs that place an emphasis on "service, products and environment." For example, training program participants learn about in-store sales, including measuring techniques, knowledge of quality indicators, and consumer behavior. The in-class learning at Tabaya University is supplemented by in-store training that involves role-playing.
   Sales staff members are evaluated using a set of numerical targets that vary according to the role or department. Evaluation criteria include the individual's total sales performance, the number of customers served, and the purchase conversion ratio. The details that show an individual's progress are monitored closely. Qualitative information such as thank-you letters from customers are also taken into consideration.
   In 2007, UA LTD. granted full-time employee status to all those part-time employees wishing to become full-time employees. (The majority of part-time employees work inside stores.) The company reinforced the thinking among employees that "It's All About The Customer," and also increased investment in training for the sales staff.

General management: UA LTD. operates each brand as a business unit. It discontinued ten brands between 2007 and 2009.
   UA LTD. works hard to communicate its management philosophy to its employees. It distributes a "Policy Book" to all the employees, and has employees discuss such questions as "For what reason does UA LTD. exist as a company?" "Why do I work?"

Fit among Activities

At UA LTD., activities are selected and coordinated in order to realize the company's policy: "It's All About The Customer." The focus of these activities is the development of its "Service, Products and Environment." (Please refer to UNITED ARROWS LTD.'s activity system map, which appears at the end of this report.)

Innovation that Enabled Strategy

  • Created "MD (merchandising) Platform" and "Manufacturing Platform" management systems, which enable the efficient management of product development, merchandising, procurement and inventory control.
  • Opened stores in new retail channels, such as train station buildings (Lumine) and online fashion malls (ZOZOTOWN), marking a first among select shops.
  • Achieved seamless integration of its online store and "brick-and-mortar" stores. Customers can check on product availability at a particular shop through the company's online shop. Customers who are unable to make up their minds about whether to buy an item while visiting a UA LTD. store can request the product number and then order that item from the online store.

Trade-offs

  • Does not enter the volume segment where lower prices are given higher priority over fashion.
  • Does not increase the number of stores faster than personnel can be trained, and does not expand beyond the market size.
  • Does not open more new stores in order to sell inventory. Any leftover inventory will be sold at UNITED ARROWS LTD. outlet stores.
  • Does not increase sales of original products beyond a certain percentage of the total sales that has been specified for each brand.
  • Does not rely on part-time employees for store operation. The company communicates its philosophy and policies to the sales staff at UA LTD stores, and supports sales staff members' skill development through training programs.
  • Does not increase stores through franchising. Franchising would reduce the opportunities for direct communication with customers in stores.
  • Does not open stores at premises where the rent is higher than the standard rate set by the company. Keeping rent below a certain level is crucial if the company wants to spend more on its sales staff and on the redecoration of stores.
  • Does not sell products unless they fit its product development policy: "Trad Mindset." Having "Trad Mindset" entails a deep respect for history and heritage, coupled with an innovative approach, which drives the creation of new traditions.
  • Does not have its own factories.
  • Does not have its own logistics.

Consistency of Strategy over Time

UNITED ARROWS LTD. has been focusing on high fashion and high quality since its foundation in 1989, and has not been operating in market segments that do not fit this focus. Its target customers are "people with a strong interest in fashion, and people who want to enrich life with fashion." It has been emphasizing "Service, Products and Environment," and it has been promoting a "Trad Mindset" approach as its product development philosophy.

Profitability

Both return on invested capital and return on sales exceed the industry average by a wide margin.
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Activity System Map

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