Glocalization
There are a number of strengths from which Eagle Jeans can build. One is that they have a strong customer base among Chinese-Americans, which provides enough revenue for the company to subsist. This is a luxury and allows them to explore other markets. The stores in New York are bringing in $3 million per year, which sounds like a good number, and is 10% of the total for all Japan. As another point of strength, the product is of high quality. This is reflected in the price so the jeans are not great value, but there is usually a market for high-quality product. Whether a consumer believes that jeans labeled “Made in China” are of high quality is debatable. An American consumer might accept “Made in Japan” as a sign of quality, but “Made in China” often carries the opposite connotation. So there could be a weakness in there. The sales staff is another strength. The strategy of hiring sales staff to cover not only English but also Korean, Japanese and one or more Chinese languages is a strong tactic that has been successful for Eagle. The staff are also very well-trained.
A notable weakness is that the company is highly-centralized, with decision-making for the American market located in Japan. This requires a lot of communication between Koji and his bosses, which takes time away from his other duties. Moreover, Japanese managers do not necessarily have any idea what works in America — at best, they are applying a strategy suitable for the Japanese market to the American market, which is a mistake. Another weakness not being considered much here is the product — jeans that fit well on Asian bodies don’t usually fit well on others. The thing about clothes is that they have to fit well and look good on people in order to spur and sustain demand. If Eagle jeans do not fit nor look good on a non-Asian, that may explain why the company is having trouble selling to other demographics. This plays into the inventory issue — they argue that they cannot manage their own production of larger sizes, but then they sell those sizes from other brands. This means they are bringing in other brands to sell jeans to a demo that doesn’t shop at their stores — a waste of space and inventory. A third weakness is arguably the brand itself. Japanese denim has no particular reputation in America — none of the major Japanese brand names are known to Americans. This is true for Eagle as well, despite the apparently American connotations of the name. The reality is that this brand has to engage in brand-building in order to justify to consumers that its high prices. Another weakness is that sales in the U.S. have plateaued, but the returns are not strong enough to finance further growth. The brand is essentially at a standstill in the American market.
There is a substantial opportunity to expand the brand beyond the Chinese-American market. There are many other demographics that Eagle can target in order to increase sales, each of which can be considered to be an opportunity. In addition, there are other expansion opportunities. Even just catering to the overseas Chinese market, Eagle can do well in Toronto, Vancouver, London and other cities with substantial populations of this target demographic, in addition to many cities in the U.S. where Eagle does not currently operate. There are further opportunities in online retailing, and wholesaling, and there is some support among senior management to pursue these sorts of opportunities.
In terms of threats, competition has to be first. The denim market is saturated at virtually all price points. Making matters worse for Eagle, the U.S. market has a multi-tiered retail system that often results in high-end brands being sold at discounts, either store-branded (Nordstrom Rack, Saks Off Fifth) or third-party discounters (Marshall’s, etc.) . American consumers did not necessarily do their clothes shopping on major shopping streets at full price. Asian-Americans may see paying more as prestigious, but a lot of Americans would not dream of paying full price for anything.
Based on this SWOT analysis, it would seem that neither strategy is exactly perfect. The SWOT analysis technique is best used to allow strategy to flow from the SWOT. The SWOT implies that the company needs to make adjustments to the product in order to grow into other demographics — the current product does not appeal to people who do not have an Asian body type. The other implication here is that the company needs to promote the brand better. Koji is right that the service distinguishes the brand, but this will only be meaningful if the product is good. The Japanese managers definitely lack appreciation for the service component. The reality is that any premium-priced product not only needs to be an exceptional product but it also needs to be an accompanied with high-end service. The two go together, and both should be emphasized when building the brand. But the service does create an opportunity for better exposure, as it is a meaningful way for the company to differentiate itself in what is an incredibly competitive marketplace; Koji is right about that. He just needs to remember that for $200, you have to sell both the sizzle and the steak, and that means having a product that Americans want to buy. Japanese management needs to be less intractable on this issue, especially if they are unwilling to promote other brands. If you want to make real money in America, you actually have to sell something Americans can use.
The PR Agent
The PR Agent is not really the biggest issue that Koji is facing, but at $5,000 per month the agent is not good value. The agent’s work so far has been good, but the current need is for somebody who can make mainstream media contacts happen. This agent is not able to do this. It actually does not matter if the agent is the problem, or if the constraints regarding the focus on service are the problem — either way, nothing is happening to justify any further $5,000/month expenditure. If there comes a time when central management loosens its stance on promoting the service, or if Koji decides to go rogue on this issue, then the issue of the agent can be revisited. In the meantime, it does not appear as though Eagle is getting adequate ROI on the agent to justify keeping the agent. The agent’s contract should be terminated.
Management Style
The key concept of glocalization reflects the idea that a company can operate globally, but that there should be local market strategies, a high degree of customization for local markets in order to ensure that the product and its marketing appeal to local tastes (Roudemetof, 2005). Glocalization in business reflects the need for companies that wish to thrive in all markets to adopt a blend of global and local characteristics (Svensson, 2001). The underlying logic of this can be seen in some of the elements of this case. Headquarters is running this company purely as a Japanese company. Not only are they maintaining the high degree of centralization, but they are making decisions that would make sense for the Japanese market. This makes their strategy local to Japan, and not even global. A global strategy would have to be one that can be applied across many nations — the current strategy does not even work on that level. Moreover, it is not local to the U.S., either, something that is a significant constraint on the performance of the Eagle Jeans USA subsidiary. Thus, the management style is not congruent with either the global or the glocal approach, and at least one of those would have to be adopted. Preferably, it would be the glocal approach, and the failure to adopt this approach is in part responsible for the subsidiary’s mediocre level of performance and failure to gain significant traction outside of the Chinese-American niche.
Los Angeles
The Los Angeles store failed for a few different reasons. The high cost of the managers — paying both salary and their living expenses — was one reason, and the accounting of some of these costs was unorthodox to say the least. The store also underperformed because there was no walk-by traffic; it was a destination store that for anyone outside of the Japanese community was not in a destination. Thus, there was little opportunity to build other markets, because LA has strong ethnic enclaves that are distant from one another. Payroll at 48% of sales is virtually a guarantee that the store will not be profitable. Another issue was the management. Both managers were hired in part to find a successor and failed — maybe they were insufficiently-motivated.
Some of these issues could have been avoided. The accounting of the manager salaries was weird, very inconsistent. Hiring managers who had to be paid all those living expenses, cars and the rest was a poor decision that automatically increased costs, and hiring inexperienced people doubtless held the sales back. Koji also should have understood the differences between that location and his New York locations — nobody is driving long distances in LA traffic just for a pair of jeans. LA is a very different market than New York and Koji simply didn’t take the time to understand what that meant for the business. Had he, the decision might have been different.
Thus, the mistakes made in LA could definitely have been avoided. Had the company undertaken a more careful examination of retail success factors, it may well have decided a different market, one with foot traffic like San Francisco, or at the very least a different location in LA, would be more appropriate. But the entire LA venture was ill-conceived and even more poorly-executed. Management in Japan have to take some of the responsibility for that, too. They were the ones who paid to send a manager from Japan and pay all of her expenses in addition to her salary, which handcuffed the ability of the store to turn a profit right from the beginning. Further, they hired this manager and then she wasn’t the one who hired the staff, compounding things. Was Koji in charge of the store or the manager from Japan? There were so many own goals scored by Eagle with the LA store that it is almost impossible to tell if it could have succeeded.
Closing the Store
The decision of whether or not to close the store is simple mathematics. It costs $54,000 to close the store, which is on track to lose $58,000 in Year 4. There are 18 months remaining on the lease, which implies a loss of around $87,000 at that rate. Thus, it is cheaper to close the store than to continue operating it for the next 18 months. The major issues at the store — the high cost of the manager and its lousy location — are intractable. Moreover, sales have plateaued. There is no upside to maintaining that store, and it is cheaper to buy out the lease. Thus, Koji should buy out the lease as it is cheaper than not buying out the lease.
The wild card in that is that Japanese managers tend to have long-term time orientation (MacLachlan, 2010). If the LA stores fits with some greater brand-building vision for the U.S. market, then management back in Japan might prefer to stick with the store. That said, however, there is no clear vision for this market. Koji did not perform well with his approach to the LA store — he didn’t even do a foot traffic count, and his long-term vision for LA and the U.S. market in general is basically non-existent. Did Koji even visit the store after it started falling short of expectations? If this store is to be part of a greater vision for the U.S. market, Koji is not the guy to run this effort. So if he is the person in charge, the store should be closed.
References
MacLauchlan, M. (2010). Challenges of doing business in Japan. Communicaid. Retrieved October 18, 2015 from https://www.communicaid.com/cross-cultural-training/blog/challenges-of-doing-business-in-japan/
Roudemetof, V. (2005). Transnationalism, cosmopolitanism, and glocalization. Current Sociology. Vol. 53 (1) 113-135.
Svensson, G. (2001). Glocalization of business activities: A glocal strategy approach. Management Decision. Vol. 39 (1) 6-18.
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