Case 4: Heinrich Deichmann GmbH in:

Svend Hollensen, Marc Oliver Opresnik

Marketing, page 344 - 358

A Relationship Perspective

1. Edition 2010, ISBN print: 978-3-8006-3722-5, ISBN online: 978-3-8006-4870-2,

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4. Marketing Mix in the Marketing Planning Process330 Case 4 Heinrich Deichmann GmbH International Expansion of the Shoe Retail Chain – One day in Spring 2010 Heinrich Deichmann, CEO of the DEICHMANN Group, enjoys the nice weather, but at the same time he thinks about the opportunity of penetrating the US shoe market with the retail business of his family … Heinrich Deichmann-Schuhe GmbH & Co. KG ( is a retailer of footwear. The company products include footwear, sport shoes, bags for women, men and children. Deichmann also provides services like shoe tips. The company has 2,300 stores in 17 countries all over the world. Deichmann offers its products through online stores also. Heinrich Deichmann-Schuhe GmbH & Co. KG is headquartered in Essen, Germany and employs about 28,000 people (by end of 2008). Deichmann is engaged in retailing of footwear and accessories. It offers several branded footwear for men, women and children, including leisure shoes, trekking shoes and sports shoes. In addition, it also offers accessories including bags. Deichmann sells under their own retails brands such as Graceland, Memphis One, Janet D., Gallus, Borelli, Falcon and Yorik. A smaller part of Deichmann’s turnover is the sales of global brands like adidas, Puma, Fila and other such brands. The company operates about 2,546 stores under several banners including Deichmann, Roland, Dosenbach, Ochsner, Ochsner Sport, van Haren, Rack Room Stores and Off Broadway. In addition, it also sells its merchandise through website. The company is headquartered at Essen, Germany. The current subsidiaries operate in 19 countries: United States, United Kingdom, Turkey, Switzerland, Sweden, Slovenia, Slovakia, Romania, Poland, Netherlands, Lithuania, Italy, Hungary, Germany, Denmark, Czech Republic, Croatia, Bulgaria and Austria. The company’s overall strategy is to expand its shoe business by answering all consumer demands offering quality shoes at low price. This is in accordance with the well-known slogan of the company ‘Markenschuhe so günstig – Deichmann’ (branded shoes at favourable prices – Deichmann). History 1913: Incorporation/Establishment: The company opened a shoemaker’s workshop in the Borbeck district of Essen. Kapitel_4.indd 330 03.08.2010 13:02:02 Uhr Case 4 331 1919: The company started selling factory made shoes. 1930: The company opened the first shoe store in Borbeck Market shopping centre, Essen. 1973: The company took over the Swiss shoe chain, Dosenbach. 1978: The company opened the central warehouse in Bottrop. 1984: The company took over the American shoe chain, Rack Room Shoes. 1985: The company took over the Dutch shoe chain, vanHaren. 1988: The company took over Messrs. Roland. 1992: The company opened the first outlet in Austria. 1992: The company took over the Swiss shoe chain, Ochsner. 2001: The company opened the first stores in Great Britain and Hungary. 2002: The company took over the American shoe chain, Off Broadway. 2003: The company opened the first shoe stores in Czech Republic and Denmark. 2004: The company opened the first store in Slovakia. 2006: The company opened the first store in Turkey. 2006: The company opened the first store in Slovenia. 2006: The company introduced Gallus shoes in the Deichmann stores. 2007: The company opened the first store in Sweden. 2007: The company opened the first store in Romania. 2007: The company opened the first store in Croatia. 2008: The company opened the first store in Bulgaria. 2008: The company opened the first store in Lithuania. 2008: The company opened the first store in Italy. 2008: The company opened the new Deichmann Flagship Store in Essen. The Deichmann Group After three extremely good years, the Deichmann group in 2008 continued to grow. Currency-neutral Group sales in European countries and the U.S. operating company rose by 6 percent to 3.1 billion euros (previous year: 2.9 billion euros). The number of pairs of shoes sold worldwide rose from 122 to 127 million pairs (+ 4.8 percent). At the end of 2008 the group operated 2,546 Kapitel_4.indd 331 03.08.2010 13:02:02 Uhr 4. Marketing Mix in the Marketing Planning Process332 branches (2,324 in the previous year) and employed 28,100 staff (26,500 in the previous year). Deichmann announced it would aggressively tackle the current economic crisis. This includes, inter alia, that in Germany it is planning about 400 new posts and also wants to increase spending on advertising more. The company wants to invest this year 165 million euros, which should also finance the opening of 284 new branches. This is the largest expansion in recent history. For the first time in 2008, the group has made more than half of its sales outside Germany (50.7 percent). Deichmann in the German market In Germany, Deichmann lifted sales by 2.2 percent to 1.54 billion euros in 2008 (1.51 billion euros in 2007) and thus developed the opposite market trend in the footwear retailing (-2.1 percent / Source : Institute for Business Research). In Germany, the group stood at 69.8 million pairs just below the 70-million mark and has sold 1.25 percent more pairs than the previous year. With an app. 30 % share in the large German market, and some nice market shares also in other European countries, the company is the world’s third largest footwear brand. Selling under the store name, the company sources footwear from manufacturers in Asia and has a presence in men’s, women’s and children’s footwear. In 2008 Deichmann registered 23.5 million customers (around 36 percent of the total population – older than 14 years) in its German stores. The total number of employees rose in 2008 in Germany from 13,700 to around 14,000 people. The number of branches rose to 1,159. The earnings situation of the company remains positive. It also allows Deichmann to continue to fund the expansion of their own accord and refrain from debt. That makes them more independent of the financial crisis. Deichmann is the market leader both in Germany and in Europe and wants to expand, particularly abroad. In 2008, the first stores in Italy and Lithuania have been opened. Also in the motherland of fashion, Italy, the company has already opened 13 stores. In the coming years Deichmann is planning further expansion in Central and Eastern Europe. In Germany, 79 stores were opened and 84 modernized (2008). This more than compensated 27 closures compared in less attractive locations. Across Europe, the group has re-opened in 241 stores. In 2009, Deichmann continued the expansion and modernization in Germany. On the German market Deichmann sees the long term potential for approximately 300 stores. Included in the plan are also cities with a catchment area of 30,000 inhabitants. Deichmann in the Global market The Global footwear market reached US$180 billion in 2008 Kapitel_4.indd 332 03.08.2010 13:02:02 Uhr Case 4 333 External factors Over the years, there has been a steady increase in the number of women in the workforce. Women’s disposable incomes are rising and, with rising incomes women are enjoying greater spending power. Women are spending on themselves, buying their favourite shoes, that dream handbag, or a blouse or shirt that they want. Impulse purchases of clothing and footwear by women all over the world is also on the rise. A greater number of working women with their greater levels of purchasing power is good news for women’s footwear retailers. Women are anticipated to spend more on themselves in the coming years and the women’s footwear sector will be one of the beneficiaries. Globally, the rise in the number of working women is expected to continue, as better childcare facilities and home support systems become available. Women are marrying later in their lives and also starting families later than their parents did. The consumer segment of older, more affluent women will also gain in strength in the future. Manufacturers are likely to find consumers increasingly interested in more comfortable and stylish shoes in the coming years. The two women’s footwear segments will have to be addressed differently with different product ranges. Currently, global per capita spending on footwear is relatively low. On the other hand, per capita spending varied significantly from region to region. In North America, the per capita volume was 4.7 units and in Western Europe it was 3.3. But in Eastern Europe it was 0.6, Latin America was 1 and Asia Pacific was only 0.2. In 2006, consumers in the US spent US$ 26.5 spent per capita on footwear, with US$ 9.7 being spent on men’s shoes, US$ 12.8 on women’s shoes and US$ 4 on children’s shoes. Competitors Sport shoe brands like Nike, adidas, Reebok, New Balance and Puma dominated the world footwear market. These brands have aggressively grown their worldwide distribution networks and have taken advantage of the high-growth markets in Asia. At the same time, they have launched and pushed new high-end products in the more developed markets. The celebrity marketing used by these manufacturers and their relentless advertising have helped the growth in the sport shoe market worldwide. The aspirational value of these brands has led to a strong fusion in the sports and athletic leisure markets. With an approximately 30 % share in the German market, the Deichmann is the world third largest footwear brand, after Nike and adidas. Selling under the store name, Deichmann sources footwear from manufacturers in Asia and has a presence in men’s, women’s and children’s footwear. Kapitel_4.indd 333 03.08.2010 13:02:02 Uhr 4. Marketing Mix in the Marketing Planning Process334 The sports shoe majors have entered into aggressive competition and brandbuilding efforts. However, the market is growing because of price discounting and promotions. Brands have to guard against the impact of low sales margins. A host of low-price, domestic ‘me toos’ will be spawned and these brands will show growth in the short term – especially in a time of economic recession. Competitors Nike Inc. (USA) Nike Inc, with a share of 5.6 % of world footwear retail sales in 2008, is the single largest company in the footwear market. Its Nike brand is also the single largest brand. In the highly competitive sport shoe market, Nike stayed ahead of the competition and enjoyed retail sales growth of nearly 10 % in 2008 among the countries researched. The umbrella brand has become well-known through brand awareness efforts, highlighted by celebrity advertising and store merchandising. At the same time, Nike has used the newly acquired Converse brand to good effect, particularly in markets like Spain and Australia where the brand has seen high growth. Converse has stumbled in Japan, where sales declined by 5 % in 2008, dragging the overall brand down. The Nike brand, on the other hand, has forged ahead and it is doing especially well in the developing economies of China, India and Russia. In Western Europe, the brand has overtaken adidas in the football market. In terms of the countries considered in this report, 40 % of Nike’s 2008 retail sales were came from Nike’s home market, the US. This has not yet proved to be a liability, as the US market has been dynamic, growing at an annual rate of 14 % in 2008. Nike continues to dominate the US market and it is far ahead of rival adidas. adidas AG (Germany) In 2005, Germany-based adidas AG acquired the British brand Reebok. The move was seen as a consolidation of the sports shoe and apparel market. While adidas AG has seen its share grow, it has nevertheless not been able to catch Nike. The two brands continue to operate in all the markets, attempting to complement each other. Much was expected out of the acquisition, but the company is still attempting to integrate and give Reebok a kick-start. Adidas is present in many more markets than Reebok. Geox Spa (Italy) Italian company Geox Spa is an important regional competitor. It has created excitement in the footwear market with its innovative patented shoe. The company’s success is based on a single new product idea: shoes with a perforated rubber sole which has a special waterproof and breathable membrane that allows feet to breathe while, at the same time, protects them and prevents water from entering the shoe. Geox spent nearly 10 % of its 2008 turnover on marketing and advertising, focusing on the benefits of ‘breathability.’ In 2008, the brand enjoyed a 50 % growth in sales in Germany and another 46 % in Spain. The brand is now available in 68 countries. Kapitel_4.indd 334 03.08.2010 13:02:02 Uhr Case 4 335 The US footwear market Sales of footwear in the US grew nearly 3 % in value terms in 2006, to US$47.1 billion. Volume growth was slightly lower at under 2 %, to 1.4 billion pairs. Nike and adidas remain the top brands in the US market, which continues to be dominated by sales of casual and athletic footwear. Nike grew its share in recent years thanks in part to its 2003 acquisition of Converse. Similarly, adidas Group closed its acquisition of Reebok in 2006, increasing its share of the overall market. Jones Apparel Group, which manufactures a variety of different shoe brands, lost share in recent years. The company is strongest in the shrinking department store channel, and was slower to develop shoes that fit into the new sports fusion category. Brand Company 2006 2007 2008 Nike Nike Inc 6.9 7.3 8.1 Reebok adidas America Inc 2.7 3.0 4.2 Jones Jones Apparel Group 2.5 3.0 2.7 Brown Shoe Brown Shoe Co Inc 1.7 2.2 2.3 Sketchers Sketchers USA Inc 1.7 1.8 2.1 New Balance New Balance Athletic Shoe Inc 2.0 2.0 1.9 adidas adidas America Inc - - 1.7 Wolverine Wolverine World Wide Inc 1.5 1.5 1.5 Stride Rite Stride Rite Corp 1.2 1.3 1.5 Timberland Timberland Co, The 1.5 1.5 1.4 Puma Puma AG 0.6 0.8 0.9 K Swiss K Swiss Inc 0.9 0.8 0.7 Madden Women’s Steve Madden Ltd 0.3 0.3 0.3 Madden Men’s Steve Madden Ltd 0.1 0.1 0.1 Private label 7.0 7.0 7.0 Others 69.4 67.6 63.3 Total 100.0 100.0 100.0 Source: Different Trade associations, trade press, company research, trade interviews, Euromonitor International estimates Table 1: The US footwear market – % retail value In terms of distribution channel sales of footwear in the US were fairly evenly split between two major channels in 2006; clothing and footwear specialty stores and mixed retailers, each captured about 40 % of the market. While still small, the internet is a growing presence with more pure e-tailers than the clothing sector. These include Zappo’s,, and Gap’s new Piperlime site. Kapitel_4.indd 335 03.08.2010 13:02:02 Uhr 4. Marketing Mix in the Marketing Planning Process336 Questions 1. What are the main reasons for the rapid growth in Europe of the Deichmann shoe retail chain? 2. What is the difference in the business model of Nike and Deichmann? 3. Please propose a marketing mix that could really open the US-market and help Deichmann to secure a leading position in this market Source: Kapitel_4.indd 336 03.08.2010 13:02:03 Uhr References 337 References Aaker, D. A. (1991) Managing Brand Equity, The Free Press, New York, NY Aaker, D. A. (1990) Brand extensions: The good, the Bad and the Ugly, Sloan Management Review, Summer, pp- 47-56 Aaker, D. A. (1996) ‘Measuring brand equity across products and markets’, California Management Review, vol. 38, no. 3, pp. 102-20 Agrawal, M., Kumaresh, T. 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Implementation and Controlling in the Marketing Planning Process Learning Objectives After studying the section about organizing and implementing the marketing plan you should be able to do the following: describe the structure in the marketing planning process• describe the objectives of marketing implementation and change• describe and evaluate different ways of organizing the marketing • department understand the important issues in implementing the marketing plan• After studying the section about budgeting and control you should be able to do the following: understand why customer profitability is important.• describe the key elements of the marketing control system.• list the most important measures for marketing performance.• explain how a marketing budget is established.• After studying the section about ethical, social and environmental aspects of marketing planning you should be able to do the following: understand why ethical issues are important for the firm’s marketing • planning explain how ethical marketing is related to relationship building• discuss the nature of corporate social responsibility• differentiate among various levels of ‘green marketing’• After studying the section about developing and managing customer relationships you should be able to do the following: discuss loyalty, satisfaction and perception of value as determinants • for development of the CRM strategy. explain how Customer Lifetime Value (CLV) can be measured• describe the major trends and forces that are changing the marketing • landscape in this age of relationships. 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Marketing – A Relationship Perspective

Moderne Grundlange zum Marketing

Das Lehrbuch behandelt eines der wichtigsten und aktuellsten Themenfelder des modernen Marketings. Der Ansatz verbindet dabei den klassischen Ansatz der strategischen Marketingplanung und seiner Instrumente mit dem neuen Ansatz des Relationship Marketing. Der ganzheitliche Ansatz des Buches umfasst dabei die aktuellen Marketing-Grundlagen, Praxisbeispiele sowie anwendungsorientierte Fallstudien und eignet sich somit ideal sowohl für Manager und Entscheidungsträger im Marketing-Bereich, Studenten in Bachelor- und Materstudiengängen sowie Dozenten und Trainer.