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Moving Victoria’s Secret to Germany Page 1 Introduction This report describes the opportunity for Limited Brands for the international expansion to Germany with its largest brand, Victoria’s Secret. Limited Brands sells lingerie, personal care and beauty products, apparel and accessories through its Victoria's Secret, Pink, Bath & Body Works, C.O. Bigelow, La Senza, White Barn Candle Co. and Henri Bendel brands. The company's products are available in North American stores, as well as online in about 40 other countries worldwide. (Limited Brands, 2007). To best take advantage of the expansion of Victoria’s Secret into Germany, as the first subsidiary outside North America, the task force team suggest to start with one store in Cologne, a city known for fashion in Germany, and then further expand throughout Germany with additional stores in Berlin and Hamburg. The divisions moved will include the store and a warehouse, in order to facilitate distribution in Germany. As Victoria’s Secret is now only available through the online channel in many European countries, the expansion to Germany is a good basis for further expansion all over Europe. Foreign Country Analysis: Economic Environment Germany is a member of the European Union, and its economy is very strong. As many other economies in the world are struggling, the German economy continues to grow. Experts had predicted that the German economy would decline, but it has had an upward trend. This makes it a great market for Victoria’s Secret products. As economies grow, the spending on consumer goods also grows. This will facilitate our business perfectly as it will allow Victoria’s Secret to make considerable investments without the risk of an unstable economy. Retail in Germany is the third largest economic sector (HDE 2001). This economy is important when planning to add two more stores in the near future. We must take advantage of the increased consumer spending, and establish our stores while that spending is high. Germany also has favorable relationships with many established nations, as well as emerging nations with high populations. These relationships will facilitate tourism, trade, and increased spending between nations. People from nearby countries will have the option of traveling to Germany without restrictions, and being patrons at our stores. Germany’s central location and its workforce make it very attractive to our business. The workforce is highly qualified and has a reputation for quality work. The German economy is very stable, and the inflation rate is considered low by worldwide standards. Foreign Country Analysis: Cultural Environment Every country’s culture varies based on its system of norms and values that are followed. Germany’s values and norms are formed through a variety of factors including political and economic viewpoints, social structure, and the country’s main religion, language, and education (Hill et al. 2007, page 191). It has been noted that German fashion is characterized as a classic everyday wear with a less sporty emphasis than Americans and is seen as inappropriate to appear sloppy or untidy in public. Germans are known to be conscientious, sparing, and systematic. Its culture is predominantly made up of Protestant, Catholic, Jewish, and Muslim religions (German Culture, 2008). The country’s constitution guarantees freedom of faith and religion, in which many communities are seen as independent public law corporations. Good initial opportunities for everyone are a key prerequisite for education and achievement. The free cost of schooling is key to democratizing education and also broadens the possibilities for socially disadvantaged classes to receive the same opportunities. This classical education puts strong emphasis on Germany’s heritage in music, history, and art.

Transcript of s Secret to Germany Page 1rachelslininger.weebly.com/uploads/1/2/3/6/... · Works, C.O. Bigelow, La...

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Moving Victoria’s Secret to Germany Page 1

Introduction

This report describes the opportunity for Limited Brands for the international expansion to

Germany with its largest brand, Victoria’s Secret. Limited Brands sells lingerie, personal care

and beauty products, apparel and accessories through its Victoria's Secret, Pink, Bath & Body

Works, C.O. Bigelow, La Senza, White Barn Candle Co. and Henri Bendel brands. The

company's products are available in North American stores, as well as online in about 40 other

countries worldwide. (Limited Brands, 2007). To best take advantage of the expansion of

Victoria’s Secret into Germany, as the first subsidiary outside North America, the task force

team suggest to start with one store in Cologne, a city known for fashion in Germany, and then

further expand throughout Germany with additional stores in Berlin and Hamburg. The divisions

moved will include the store and a warehouse, in order to facilitate distribution in Germany. As

Victoria’s Secret is now only available through the online channel in many European countries,

the expansion to Germany is a good basis for further expansion all over Europe.

Foreign Country Analysis: Economic Environment

Germany is a member of the European Union, and its economy is very strong. As many other

economies in the world are struggling, the German economy continues to grow. Experts had

predicted that the German economy would decline, but it has had an upward trend. This makes it

a great market for Victoria’s Secret products. As economies grow, the spending on consumer

goods also grows. This will facilitate our business perfectly as it will allow Victoria’s Secret to

make considerable investments without the risk of an unstable economy. Retail in Germany is

the third largest economic sector (HDE 2001). This economy is important when planning to add

two more stores in the near future. We must take advantage of the increased consumer spending,

and establish our stores while that spending is high. Germany also has favorable relationships

with many established nations, as well as emerging nations with high populations. These

relationships will facilitate tourism, trade, and increased spending between nations. People from

nearby countries will have the option of traveling to Germany without restrictions, and being

patrons at our stores. Germany’s central location and its workforce make it very attractive to our

business. The workforce is highly qualified and has a reputation for quality work. The German

economy is very stable, and the inflation rate is considered low by worldwide standards.

Foreign Country Analysis: Cultural Environment

Every country’s culture varies based on its system of norms and values that are followed.

Germany’s values and norms are formed through a variety of factors including political and

economic viewpoints, social structure, and the country’s main religion, language, and education

(Hill et al. 2007, page 191). It has been noted that German fashion is characterized as a classic

everyday wear with a less sporty emphasis than Americans and is seen as inappropriate to appear

sloppy or untidy in public. Germans are known to be conscientious, sparing, and systematic. Its

culture is predominantly made up of Protestant, Catholic, Jewish, and Muslim religions (German

Culture, 2008). The country’s constitution guarantees freedom of faith and religion, in which

many communities are seen as independent public law corporations. Good initial opportunities

for everyone are a key prerequisite for education and achievement. The free cost of schooling is

key to democratizing education and also broadens the possibilities for socially disadvantaged

classes to receive the same opportunities. This classical education puts strong emphasis on

Germany’s heritage in music, history, and art.

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Moving Victoria’s Secret to Germany Page 2

When living and working in Germany, adherence to rules, laws, and procedures are defined

structurally, consequently resulting in low flexibility and spontaneity. This means Victoria’s

Secret’s expatriate managers would be wise to provide German employees with a highly detailed

company handbook that discusses everything they need to know regarding rules and standards

while working, company expectations, and expected goals for employees to achieve. German

employees are very task oriented and less relationship focused, so managers will need to instill

the high importance that will be placed on always helping customers in the store before

continuing with store upkeep or assigned tasks. Customer service is a vital key to any business,

especially when operating in an international company and culture. Germans are also known to

be very individualistic but also want the best for the store. Business ideas and concepts are often

communicated among the mangers and employees, which can sometimes slow progress (Gorrill).

Germany is also very keen on punctuality which means that managers should not have a problem

with employees showing up late, or not at all, to work. Personal rank and status of individuals are

often based on their achievements and titles (Gorrill). This will not only affect how employees

will treat and respect their bosses, but also how employees treat store customers. When

Victoria’s Secret provides training for the employees, this idea will need to be presented and

given situational examples of how to address this issue. When doing business in Germany,

private matters are usually not discussed and indirect communication is seen as insincere

(Gorrill). Employees will need to be trained on what type of ‘small talk’ will be considered

acceptable when helping customers within the store and what will be unacceptable.

Foreign Country Analysis: Political and Legal Environment The German political environment works off of the system of Fundamental Law. It is a system

run by a parliament, and a president is elected every five years. The German system in

considered to be very fair, and will aid in an easy transition into the country. Germany and the

United States have close business ties, and the German government gives numerous incentives to

companies who want to invest in or move to Germany. These incentives are in cooperation with

the German states and the European Union. Germany is also moving away from large amounts of

taxation, and tax neutrality has been established. The more the taxes subside, the easier the

transition from the United States to Germany will be. The average corporate tax in Germany has

been reduced to less than 30% (Invest In Germany). Germany has a Foreign Trade and Payments

Act in place which has an underlying welcoming and open attitude. In order to acquire a place of

business, a building permit will need to be acquired. Attention will be given to follow the

Planning and Building Regulations Laws. These determine whether the business is a good fit to

the surroundings, and what may be done with the design to fit the company’s needs. Germany

also uses an Environmental and Emission Standard Law. This law will not have much affect on

our business, because we will not be using any types of industrial systems.

Germany rivals the United States with a number of patents and the laws that protect those

patents. Victoria’s Secret will not be using a product that will infringe on any German patents,

and therefore no attention will be needed in this area. Germany is a constitutional state, and its

courts are very effective and efficient. If Germany encounters any legal problems with our

company or any other companies, there is an assurance that the problems will be handled swiftly

and in a fair manner. Germany recently brought forth a directive beginning January 1st 2010,

stating that all standards in Germany must be in metric form (BUYUSA.gov). Victoria’s Secret

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will need to make sure that everything is in Metric form and conform to this recently adopted

reform.

Foreign Country Analysis: Communication Patterns

German businesspersons are individuals that work out of self-interest, but can also be found to

compromise while keeping the welfare of their community in mind. They tend to focus on

objective facts and the analysis of gathered information to make decisions. German

businesspersons are also heavily oriented towards planning and the achievement of milestones.

This will be great for Victoria’s Secret’s German employees working for higher sales/profits, but

may interfere in other areas such as communicating effectively with customers. With their

approach to work, they look at accomplishing tasks before building interpersonal relationships

with their clientele. Victoria’s Secret will need to identify a proper middle line that will help sell

the products while maintaining respect and sincerity to the customers.

These beliefs create a communication style that is direct possibly to the point of

seeming confrontational. However, individuals should not feel as though they are under attack

when an issue arises. Rather, foreign businesspersons should realize that their counterparts are

simply striving to solve the problem at hand. Further, German businesspersons tend to leave

their personal lives out of work. “First names are generally only used with family and close

friends and colleagues” (Gorrill). This and overall formality in communication applies to all

aspects of German business and communication. Flows of communication tend to be hierarchal

as they flow from senior to subordinate. Negotiation processes tend to be detailed, slow, and

complete once the documents have been signed. In other words, foreigners should avoid making

themselves look suspicious to German businesspersons by continuing negotiations after the

paperwork has been signed.

In conclusion, Germany’s culture and style of communication appears to be fairly similar

to that of the United States’. However, when it comes to formality, directness, and structure, the

German businessperson is generally a step above that of the American businessperson.

Business Plan: Main Strategic Intent and Business Objectives

To successfully expand into Germany by renting retail space for three new Victoria’s Secret

stores, the task force group has generated a detailed strategy to reflect the current and future

market. Victoria’s Secret’s approach depends on two main factors: pressures for cost reduction

and pressures for local responsiveness. Due to the fact that Victoria’s Secret will be serving

more of a niche market with it being a specialized lingerie store compared to the many retailers

there carrying various products of different natures all in one location, there will not be high

pressures for cost reduction. However, pressures for local responsiveness will be very high

because there will be differences in consumer’s tastes, industry trends, business practices,

distribution channels, and infrastructure than in the United States. The company’s clients will be

mostly international, so the need to adopt and customize its products to meet local demands such

as color and size alterations, marketing techniques, and store design will be essential in obtaining

long term success. These two factors have led the task force group to choose a localization

strategy, focusing on profitability by customizing Victoria’s Secret’s products as a beneficial

match to German tastes and preferences in the market (Hill et al. 2007, page 191). The visual

representation of Victoria’s Secret’s strategy is shown in Appendix A. The German retail market

is somewhat dynamic and with increased competition likely in the future, Victoria’s Secret will

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Moving Victoria’s Secret to Germany Page 4

need to localize its product offering while continuously striving to be efficient and gain some

scale economies.

The plan to rent and establish three Victoria’s Secret Stores, the first being in Cologne, Germany

is financially feasible and strategically valuable for the company. Victoria’s Secret’s first five

years of profitability is represented in Table 1; although full details have been omitted (See

Appendix B):

Table 1: Sales, Costs, Profit Analysis

2009 2010 2011 2012 2013

Total Sales $3,600,000 $3,675,000 $7,350,000 $11,025,000 $11,025,000

Total Costs $4,154,837 $3,691,027 $7,412,167 $11,048,038 $11,031,879

Total Profit -$554,837 -$16,027 -$62,167 -$23,038 -$6,879

In creating the sales/costs/profit table, the task force group determined what Victoria’s Secret’s

overall sales, operating expenses, costs, and profits would include over a 5 year time span from

the years 2009 to 2013. Overall sales were calculated by the average sales amount per square

foot in the typical Victoria Secret store. It will be placed on a higher frequency street in Cologne,

Ehrenstrasse, where a higher percentage of sales will occur compared to the average U.S. store.

An approximate 40% sales amount was added for this particular location, while a 19% sales tax

was deducted from total sales. Operating expenses include the following categories. Rent is

based on the average rent on the street of Ehrenstrasse in Cologne for a current retail outlet

(Specialists in German Retail Property). For future stores in years 3 and 4, a similar rent amount

was assumed for a street with a corresponding frequency rate. Rent varied slightly due to

possible inflation or addition of extra stores. Inventory costs are based on the total amount of

articles transported to U.S., divided by the 5 brands under Limited and the total number of

Victoria’s Secret stores. This number was multiplied by the average price of a lingerie article to

get the total yearly inventory amount. Victoria’s Secret will bring two U.S. managers; hire one

manager in training and one floor manager from Germany, and seven part-time hourly

employees in the first, third, and fourth year. The cost of employees was calculated out of a study

done within the textile industry, TW-Gehaelterstudie Textilwirtschaft, and adjusted accordingly

throughout the next four years when new stores were added. For recruitment and training, costs

were figured for a week of training before opening, assistance from employment agencies, and

advertising for applicants.

Advertising and Marketing costs included the need to translate the American Victoria’s Secret’s

website into German, obtaining R&D services from Pricewaterhouse Competence Center Retail

and Consumer Consulting firm, printing and sending of the catalogue, and the various channels

of advertising needed (Deuscher Direktmarketing Verband). A considerable amount will be spent

to launch the new line/products in the first year and increase the expense with the opening of

each new store. In order to implement and apply with all legal issues, lawyers from a German

legal service, Pricewaterhouse Legal Services, will be hired. Expense for this will be high the

first year due to unknown territory information and increase in years 3 and 4 due to the opening

of new stores. We will use Limited’s current logistics company to ship Victoria’s Secret’s

products manufactured in Sri Lanka to Germany. The cost per container size and the

approximate weight of the products are known, in which we estimated the amount of space and

time needed to transport the products. Additional costs are factored in due to increases in

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Moving Victoria’s Secret to Germany Page 5

fuel/resource prices. Costs increased in years 3 and 4 due to increased levels of inventory for

each new store. Insurance costs include liability and inventory insurance. A website using our

employee count and inventory data were used to calculate these amounts (Beliebte Kategorien).

Store fixtures, signs & equipment, software, and store supply costs were determined through

research of online prices of these products and from a similar retail store’s data under Limited

(Limited Brands). Costs for licenses, permits, and registration costs are based off a current

German industry business example through Pricewaterhouse Legal Service’s website. The

decision was made to rent a warehouse in Germany the first year to have for all 5 years, in which

data was gathered from a German warehousing website for the amount of rent per square meter.

Warehousing costs increased as the second and third stores opened due to increased inventory

levels. After calculating the overall sales and operating expenses, the total profit for each year

was determined. Moving Victoria’s Secret to Germany would be a good investment and research

shows that the German lingerie market is continued to grow and expand. Even through

considerable amounts of first year start-up costs and adding two new stores in the 3rd

and 4th

year, profits show a steady incline over the five year period, and it is forecasted that increasing

sales and steady growth will enable Victoria’s Secret to become profitable in terms of long term

goals and profits.

Business Plan: Entry Strategy Choice

Before determining the best entry choice for Victoria’s Secret, the task force group first

addressed three basic decisions a firm must make when expanding in foreign countries: which

market to enter, when to enter the market, and on what scale (Hill et al. 2007, page 251). As

noted earlier, the company plans to enter Cologne, Germany in the year 2009 through a small

scale entry. For this expansion, a wholly owned subsidiary is most appropriate due to the setting

up of a new operation in Germany. This entry mode can help the company gain location and

experience curve economies, while helping to alleviate some of the threats proposed during the

KT analysis (see Appendix C). This will also allow the company tight control over all the

operations within the country; the ability to build the desired culture, determine routines, and the

ability to transfer products, skills, competencies, and know-how to the new subsidiary (Hill et al.

2007, page 269). These will provide great advantages to the localization strategy that as can be

seen in the KT table, could help overcome some associated risks; higher costs and learning how

to do business in a new culture. It works to the company’s advantage to be able to find and rent

stores in a timely manner, make all operations decisions such as hiring local managers for

knowledge and expertise within the market, what products to sell, the culture to create within the

stores, and be able to obtain all the profits.

Business Plan: Organizational Structure Analysis

The organizational structure of Victoria’s Secret will refer to its division of the organization, the

location of decision making responsibilities, and the creation of integrating mechanisms when

coordinating activities (Hill et al. 2007, page 202). Vertical differentiation determines where the

power of decision making takes place in the organizational structure. Victoria’s Secret has

chosen a mix of decentralization and centralization strategies with the vast majority following

decentralization, corresponding with the localization strategy. This will allow Victoria’s Secret’s

top management to focus on critical issues revolving around the company’s overall strategies and

financial decisions, while allowing the foreign subsidiaries greater flexibility to respond to

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Moving Victoria’s Secret to Germany Page 6

changes in Germany’s culture and environment. Expatriate managers will have increased

motivation to give more to making the business successful due to more individual freedom and

control over the store. They will also make better informed decisions with the help of German

managers and employees compared to only managers at home. Lastly, more control will be

implemented by establishing autonomous and self contained subunits that can be held

accountable for performance. Activities such as advertising and marketing, legal issues,

operating activities, production, R&D, and some HR functions will be mostly decentralized. The

expatriate managers in Germany will need to assess how much inventory to keep in stock and

order according to the size of the store, transportation costs, and current demand for the product

by German consumers. R&D will need to be conducted to determine German consumers’

desired styles, tastes and preferences, and come up with new innovative products for future sales.

Pricewaterhouse Coopers Legal Service will provide legal assistance while Pricewaterhouse

Competence Consumer Service will guide them with various market trends, marketing and

advertising, and finding the best location at the best price.

Victoria’s Secret will continue to keep some aspects of the company centralized. One important

reason for this is to make sure that activities between all activities and divisions are well

coordinated. Essential decisions affecting various divisions’ financial stability and strategic

decisions need to stay consistent with organizational objectives, avoiding costly duplication of

activities throughout subunits. The three main divisions of Victoria’s Secret, Intimate Beauty

Corp., Victoria’s Secret Direct, and Victoria’s Secret Stores, will create and maintain overall

division objectives and strategies for expatriate mangers in Germany to maintain (See Appendix

D). However, the processes expatriate managers and German employees use to perform the

activities in order to maintain the objectives and strategies may be altered due to cultural or legal

differences. In regards to horizontal differentiation, Victoria’s Secret will follow a worldwide

product divisional structure. For a visual representation of what this may look like, refer to

Appendix E. The headquarters located in the United States will retain responsibility for the

overall strategic development and financial control, while the German subunits will be self-

contained autonomous entities with control over their own value creating activities. As

mentioned above, Victoria’s Secret contains three main divisions that will help ensure

coordination between the U.S. headquarters and the German subunits. The German stores will be

responsible for enhancing and developing value creating activities in Germany through their

marketing and advertising, R&D, human resource development, lowering costs, and increasing

profits. Successfully performing these activities will allow Victoria’s Secret to realize location

and experience curve economies. One challenge will be for the product divisions and the

expatriate managers to communicate closely and allow flexibility to still apply local

responsiveness to the German consumers and market.

The need for coordination will be relatively low because the German Victoria’s Secret stores will

have a lot of control and flexibility with a majority of their activities and operations. Since there

is not a large need for coordination, Victoria’s Secret will have very few integrating mechanisms

needed. There will be three stores created by the end of the five year time period within

Germany, which means managers between these subunits will need to keep in direct contact

when questions or issues may arise. There may be slight variances between the different store

locations, but most activities will be able to be performed similarly. Since this is the case, these

managers can provide beneficial feedback and will be good resources for each other when

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Moving Victoria’s Secret to Germany Page 7

managing each new store. With Victoria’s Secret following a localization strategy, there tends to

be low performance ambiguity, interdependence, and costs of control since each store is

independent from one another and can be judged on its own merits (Hill et al. 2007, page 223).

Incentives will be linked to performance metrics at each Victoria’s Secret subsidiary.

Organizational culture will be low due to the amount of low coordination and integration within

a localization strategy.

To see and understand how Victoria’s Secret structure and strategy correspond, see Appendix F.

This representation will reveal the need for a mixture of centralized and decentralized activities,

a worldwide product divisional structure, and the minimal need for coordination and integrating

mechanisms.

Business Plan: Human Resource Management

Victoria’s Secret has chosen to follow a polycentric staffing approach when managing stores in

Germany. Expatriate managers will occupy key positions at corporate headquarters along with

each subsidiary for one year, while German managers and employees will be recruited from a

German location. This will allow managers and employees to pursue the greatest amount of local

flexibility and is relatively inexpensive to implement (Hill et al. 2007, page 293). Expatriates

will be expected to uphold the rules and values of The Limited, while also conforming to local

mores and folkways. The rules and values of The Limited will be enforces as they are in the US,

however conformance to local mores and folkways will be assessed on a subject by subject basis.

Two expatriates will be necessary in the start-up of the first store. They will hold the high

responsibility of organizing and coordinating the start-up, along with hiring management and

retail employees for Victoria’s Secret Germany. Expatriates will work in coordination with the

German management, a pre-chosen marketing firm, and a lawyer toward the successful

completion of a pre set time table (Refer to Appendix G).

Training will be provided for expatriates entering Germany and for local recruits. The chosen

expatriates must be fluent in the local language. Prior to leaving the US, expatriates will

participate in a two week course covering all aspects of the business plan and preparing

them/assessing their readiness for the international project. Training of local management will be

the responsibility of the expatriates. Prior to opening of the first store, a local manager must be

chosen and trained on all aspects on the Victoria’s Secret brand; being instrumental in the

development of local strategy. Upon the success of this first manager, responsibility will be

given for the training of the management of future store locations. Local hires are to be trained

by respective local management. Local managers will be informed of the training methods of

The Limited, and adjustments compensating for local norms will have been made in coordination

with expatriates. Employee training will require a minimum of one week of in store education so

that each employee has a standardized understanding of their respective responsibilities.

Expatriate compensation and benefits will continue to be handled as they are in the US. Raises

and bonuses for expatriate status will be applied on a subjective basis. Insurance coverage for

dependants will continue during the expatriates’ time outside the country. All health costs of the

expatriate will be covered a foreign insurance provider. Local managers and employees will be

compensated in strict accordance with German law. Management will be paid a salary which will

be decided in negotiations during the hiring process. All other employees are to receive pay

based on an hourly rate to be determined by management. Extra hours will be compensated

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Moving Victoria’s Secret to Germany Page 8

either financially or through additional vacation days. Overtime compensation through additional

time off will require a prior contractual agreement.

Expatriate performance will be based on progress as based on a pre-set time table. The points of progress are as defined in Appendix G. In the event that expatriates should fail to reach their

goals, the situation will be assessed at its specific point of progress and a corrective action plan

will be implemented. Corrective action is at the discretion of The Limited’s foreign investment

team and may consist of re-evaluating deadlines or financing and removal/replacement of

expatriates. If issues arise with local management or employees, the corrective action will be

decided at the discretion of the expatriates. Employees are allowed to work 48 hours per week

(or 8 hours/6 days). Special consideration must be made for the fact that the labor laws and

benefits in Germany are a bit less business friendly than in the US. Examples of special

considerations would include Sunday work, breaks, vacation and public holidays, sick leave, sick

pay, maternity, and employment of disabled persons.

Business Plan: Business Communication Strategy

The aspects of communication in Germany, which were outlined in the Communication Patterns

part in the Foreign Country analysis, will have a considerable impact on Victoria’s Secret’s

Communication Strategy. Compared to the US, Germany has a higher low-context and more

explicit communication culture. For the communication this means that expatriates have to be

trained to say more precisely what they mean and express their position directly and explicitly

(Hodgetts-Luthans-Doh, 2005). For successful negotiation, it is critical to be well prepared and

follow the established protocol during business meetings in order to build and maintain business

relationships (Kwintessential). It also has to be considered that humor is not appreciated during

business meetings (Hodgetts-Luthans-Doh, 2005). Germans are suspicious of promises that

sound too good to be true and any exaggerated presentations (Kwintessential). A small margin

should be integrated in the opening bid for unexpected developments since Germans like

negotiations that are realistic early on. In the decision making process, Germans are likely to

need more time than Americans to deliberate and confer with responsible colleagues (The

German Negotiator, 2001).

The method of addressing somebody is an important indicator of the relationship between two

people, in which expatriates will be trained in this field and policies will be established. There is

always the choice between "Du" ("you" familiar) and "Sie" ("you" formal) when addressing

somebody. “Sie” is used with anyone who is not a close friend or a family member (Schaupp,

2007). This means for any communication outside the company with suppliers, partners and

customers, the formal “Sie” has to be chosen. For the communication within the company, the

decision has to be made determining if the communication style of the US will be maintained.

But as a localization strategy is pursued, formal communication, using “Sie” is recommended. It

is likely that employees will start to use more informal communication due to the rather young

age and branch of business, but communication with the management will remain formal.

As Victoria’s Secret stores will only be in certain locations and not spread all over Germany,

advertising should be done on a regional basis by using flyers and posters in the city centers and

malls. According to the German communication style, advertising has to be direct and down-to-

earth. The research showed that competitors like H&M have posters all over the cities showing

women only wearing lingerie. In order to draw the attention of customers on our products the

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advertising and marketing strategy has to be adapted to local customs. In order to address the

German customers, the expansion should be supported by a local advertising company. Findings

showed that Pricewaterhouse Competence Center Retail & Consumer Consulting has experience

in the lingerie business and would be beneficial to employ them to plan the strategic marketing.

Advertising can strongly benefit from an already existing modeling contract with Heidi Klum,

since she is from Germany and is well known to the population. Engaging her in our first

marketing campaign will greatly facilitate the market entry of Victoria’s Secret.

Business Plan: Ethical Concerns

As a company, Victoria’s Secret is committed to conducting business in accordance with the

highest standards of business ethics and complying will all applicable laws, rules, and

regulations. The responsibility to do what is right for our business, our stakeholders, and the

global community helps guide the principles, actions, and demonstrate core values (Social

Responsibility). When making and distributing the employee handbook during the training

week, Victoria’s Secret will include a commendable section including the company’s codes of

ethics for different levels throughout the organization. This will include responsibilities of the

company, managers, and employees, how to live up to the code, reporting violations, and

consequences for unethical actions. Victoria’s Secret should concentrate on allowing high levels

of open communication between the expatriate managers, German managers, and German

employees; permitting employees faced with ethical decisions to openly communicate ideas and

concerns as a group. To portray the importance of ethics within the company, comments and

concerns will be addressed in 360 degree performance evaluations with employees and

managers. Victoria’s Secret will also maintain all of its efforts and accomplishments dealing

with social responsibility on the Limited Brands website for company employees as well as the

public to see at all times.

Victoria’s Secret supports many community programs that help to empower women, nurture

children, and enhance educational efforts. Great lengths have been taken to associate the value

of diversity within the company and its community programs. Especially in the devotion to

education, Victoria’s Secret is committed to enriching the cultural arts (Social Responsibility).

German people have long upheld cultural traditions in social aspects such as the arts, music, and

history. German managers and employees will play a vital role in educating and informing

American managers on these traditions, as well as the best way to implement and portray these to

the public. It is believed that vibrant cultural art corresponds to a diverse community, which will

help expose many different perspectives that entertain, educate, and challenge people’s way of

life. Victoria’s Secret is currently active in its “Think Pink” campaign for breast cancer

awareness in the United States, in which all proceeds are given to the American Cancer Society.

Victoria’s Secret will follow the same approach in Germany with the German Cancer Society,

especially the Breast Cancer Action program (Die Brustkrebsaktion 2007/2008). The task force

group believes these programs will correspond well with Germany’s culture and ideals for social

responsibility.

Recommendations

The proposal of Victoria’s Secret entering into Germany is seen as profitable move for the

Limited company and should be highly considered. The German retail industry is becoming

more competitive in nature, however due to Victoria’s Secret’s specialized product offerings in a

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Moving Victoria’s Secret to Germany Page 10

niche market, the task force group believes this will be a suitable time and location to sustain the

business profitably. The current economic situation in Germany is showing improvements in

industry growth and is promoting the idea of free enterprise through a social market economy.

When competing in business internationally, Victoria’s Secret will need to be well educated and

willing to adapt to the unique differences in various aspects of German culture and business

etiquette ideals. It will be essential to provide German managers and employees with rules,

standards, and structures that will be a guide in providing excellent customer service while

increasing the company’s profitability. Germany is also a welcoming location due to its political

encouragement with foreign business corporations.

Finally, the business plan outlines the recommendations that the task force group believes will

grant Victoria’s Secret success. By following a localization structure, Victoria’s Secret will be

able to differentiate its products by variances in customer’s tastes, preferences, and market

trends. With placing itself in a niche market, there will not be high cost pressures and will

attempt to obtain location and experience curve economies. Victoria’s Secret’s success will thus

be largely obtained through the knowledge of Germany’s culture and business experience

provided by the German managers and employees. Another characteristic to its success is its

location on a highly traveled and highly shopped street in Cologne, Germany the first year of

operation. Most of the German stores will be decentralized, providing each unit the flexibility to

make decisions based on its location and market opportunities, while the overall corporate and

financial objectives will remain centralized. Pricewaterhouse Competence Consumer Service

will provide advantages through its many services providing knowledge in consumer

preferences, lower cost locations, marketing and advertising strategies, and market trends. A

worldwide product divisional structure will be followed, allowing many of the stores to be self

contained entities and have control over most value creating operations. The task force group

also recommends a polycentric approach in order to best attract managers and employees with

knowledge about German business and culture. The United States will occupy key positions at

headquarters while having German managers and employees at each foreign subsidiary.

Expatriate managers will only remain in Germany one year to oversee operations and then return

home and leave German managers in charge. Expatriate managers will need to be informed and

trained for differences in German business and culture, as well as developing a training program

for new German managers and employees. Each German subsidiary must be formally trained

and informed about the differences in etiquette with customers and other professionals.

Victoria’s Secret must also continue its commitment in Germany to its social responsibility and

ethical codes of conduct as in the United States. The expansion into Germany will not only

promote profitable growth for the Limited, but also encourage growth in German communities

through its various cultural programs initiated.

By following these recommendations and entering the German market with an open mind and

the ability to adjust to cultural and other country differences, all parties involved will be mutually

benefited. Victoria’s Secret will increase its profitability, gain insight into a new type of market,

and gain experience for future global expansion efforts. There will be many benefits that

accumulate through the expansion process in Germany, in which a greater understanding of its

culture and environment will help Victoria’s Secret cope with associated risks that may evolve.

The task force group believes there is no reason to suspect anything but growth and profitability

from this new exhilarating prospect.

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References

"Beliebte Kategorien." Finanz Service Online. 2008. Finanz service Online. 6 Apr 2008

<http://www.finanzserviceonline.de/>.

“Business Guide to Germany”. Invest in Germany. <http://www.invest-in-

germany.com/homepage/business-guide-to-germany/>.

"Deutscher Direktmarketing Verband e.V.." Deutscher Direktmarketing Verband. 20 Feb 2008.

DDV. 6 Apr 2008 <http://www.ddv.de/english/english_about_us.pdf>.

"Die Brustkrebsaktion 2007/2008." Die Brustkrebsaktion 2007/2008. January 2008. Deutsche

Krebsgesellschaft e.V.. 5 Apr 2008

<http://www.krebsgesellschaft.de/index.php?seite=ba07_brustkrebsaktion_info&navigati

on=6072>.

“EU Standards”. BUYUSA.gov. <http://www.buyusa.gov/germany/en/standards.html>.

German Retail Federation. 2001 HDE <http://www.einzelhandel.de/servlet/PB/-

s/1yd948d1296z7j1jph53svwuzig1855uw7/menu/1063765/index.html>.

“Germany as an Economic Hub”. Thomas Straubhaar, Facts About Germany

<http://www.tatsachen-ueber-deutschland.de/en/economy/main-content-06/germany-as-

an-economic-hub.html>.

"Germany Culture." Maps of World.com. 2008. MapXL. 4 Apr 2008

<http://www.mapsofworld.com/germany/germany-country-and-germany-states/germany-

culture/index.html>.

"Germany - Language, Culture, Customs and Business etiquette." Kwintessential Cross Cultural

Solutions. 5 Apr 2008 <http://www.kwintessential.co.uk/resources/global-

etiquette/germany-country-profile.html>.

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Gorrill, Jodie. "A German Culture Overview." 2007. Communicaid Group Ltd. 5 Apr 2008

<http://www.communicaid.com/%5Ccross-cultural-training%5Cculture-for business-and-

management%5Cdoing-business-in%5CGerman_business_culture.php>.

Hill, Hodgetts, Luthans, Doh, (2007). International Management Mgmt 414. McGraw-Hill/Irwin.

Limited Brands. 2007. The Limited . 5 Apr 2008 <http://www.limitedbrands.com/index.jsp>.

Schaupp , Gretchen . "Mind your manners." Mind your manners. December 2007. Language

Institute TREFF. 5 Apr 2008 <http://www.german-business-etiquette.com/>.

"Social Responsibility." Limited Brands. 2007. Limited Brands. 5 Apr 2008

<http://www.limitedbrands.com/social_responsibility/index.jsp>.

"Specialists in German Retail Property." Kemper's. 2008. Kemper's. 6 Apr 2008

<http://www.kempers.net/index.php?spath=101&lan=1&cbox=&bestell=&PHPSESSID=

e807b5b3baeae81bb160d50b8c1dc3e6>.

The German Negotiator. 2001. LEC-Online-Lehrverbund . 5 Apr 2008 <http://www.zmk.uni-

freiburg.de/ss2000/texts/gesteland%20germany.htm>.

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Moving Victoria’s Secret to Germany Page 13

Appendix A: Visual Representation of Strategy

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Appendix B: Expanded Sales, Costs, and Profit Analysis

2009 2010 2011 2012 2013

Sales $3,600,000 $3,675,000 $7,350,000 $11,025,000 $11,025,000

Operating Expenses

Sales Taxes $684,000 $698,250 $1,396,500 $2,094,750 $2,094,750

Rent $643,797 $643,797 $1,287,594 $2,027,961 $2,068,520

Inventory $1,080,000 $1,134,000 $2,268,000 $3,337,200 $3,370,572

Wages $394,400 $433,840 $867,680 $1,206,864 $1,267,207

Advertising $82,500 $82,500 $165,000 $247,500 $259,875

Insurance $40,140 $40,140 $80,280 $120,420 $120,420

Recruitment and Training $25,500 $7,500 $33,000 $58,500 $22,500

Transport Costs $225,000 $236,250 $472,500 $708,750 $715,838

Marketing Expenses $750,000 $300,000 $630,000 $990,000 $900,000

Legal Support $150,000 $45,000 $105,000 $120,000 $90,000

Store Fixtures, Signs & Equipment, Software, Store Supplies $25,500 $21,000 $46,500 $72,000 $63,000

Licenses, Permits & Registration Costs $9,000 $1,500 $10,500 $12,000 $4,500

Warehouse (Rent Cost) $45,000 $47,250 $49,613 $52,093 $54,698

Total Profit -$554,837 -$16,027 -$62,167 -$23,038 -$6,879

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Appendix C: KT Table

Identify Concerns Set Priority Next Steps Plan Involvement

Threats &

Opportunities

Separation & Clarification of Concerns

Current Impact

Future Impact

Time Frame

Highest Priority

Action Needed Help Needed

Market Size

Opportunity to sell to

untapped buyers. H H M- 1

Need to develop market

research. Find a consulting firm to

help evaluate the

industry, determine target

segments, best location, and current

market trends.

Need to have local expertise in all

areas of the retail consumer textiles industry. Contact Pricewaterhouse

Competence Center Retail &

Consumer service.

Market Expansion

There is low competition in stores carrying

only lingerie and beauty

products specifically.

Competition does exist through

department stores carrying various other products in combination with

lingerie.

H- M M+ 2

Take advantage of current trends by

creating a large customer

base through various marketing

and advertising techniques, building

consumer relationships,

and portraying value through the

product/service.

Plan for rivalry and potential

competitors. Use

Pricewaterhouse Competence

Center Retail & Consumer consulting firm to

help build a strategic

management plan and stay ahead of

competition.

Niche Market Appeal

We plan to differentiate our

products to create a unique sense

of value to present/potential

consumers.

M+ M+ M 3

Emphasize a considerable amount

of finances into R&D. Use

Pricewaterhouse Competence Center Retail & Consumer

service to assist with financing and areas

most needed of research.

Need to complete a thorough customer

analysis and determine current industry trends. Can apply for

national/local R&D loans/grants to

help with funding. Provided by

various state and federal

government organizations/ departments.

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Consumer Acceptance

Need to appeal to the

consumerswithin the German textile market. Need to

develop customer acceptance of the store, brand, and

products that Victoria's Secret

has to offer.

H+ L- H+ 4

Find a local marketing/consulting firm to help develop a strategic business plan to coordinate

various techniques to appeal to

consumers.

Hire services from Pricewaterhouse

Competence Center Retail &

Consumer service.

Production Costs

Will need to determine the

best mode of transportation

to maintain reasonable

transportation costs. Determine

manufacturing location, distance from Germany,

and what mode of transportation will

be the best fit.

M- M+ M+ 5

The Intimissimi line and many other Victoria Secret

products are made in Sri Lanka. Need to determine lowest

cost mode of transportation.

Look into a firm that can help with

the logistic planning.

Research shows that Limited owns its own logistics

company that we will use in

Germany and Sri Lanka.

Location

Finding space in already

established malls or shopping

areas. Locate appealing site high customer

interaction but with

reasonable rent/costs.

H L+ H- 6

Create good public relations with other

businesses and industry

professionals.

Use Pricewaterhouse

Competence Center Retail&

Consumer service to find the best locations at the

best prices.

Government Restrictions

Employment Laws M L H+ 7

Conduct legal research for any

restrictions that the company

might come across when starting up a store in Germany.

Find a legal consulting firm and

a lawyer to help guide the company

through any legal/governmental procedures while

starting up the business. Will use

Pricewaterhouse Coopers Legal

Services.

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Warehousing Costs

Will need to build/rent a

warehouse at a reasonable

distance from the store location to

contain the necessary

inventory stock.

L- M- M 8

Operational Planning. Use

Limited’s present logistics company to

help determine essential details for the optimum

location, transportation mode,

and supply chain solutions.

Outsource manufacturing and production to Sri Lanka. Will rent a warehouse in

Germany location to keep

satisfactory inventory levels.

Government Restrictions

Do legal research on decency laws that may need

attention.

L L- M 9

Consult with a Legal Service to determine any legal or political

restrictions when advertising/marketing

the store and product.

Hire a lawyer from Pricewaterhouse Coopers Legal

Services.

Employment

Finding the needed amount of skilled workers to

create the necessary selling environment for Victoria's Secret

products.

L+ L L 10

Will need to determine the best and most reliable way to advertise, recruit, and train

employees.

Get advice from local

employment agencies,

such as the German Federal

Employment Agency.

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Appendix D: Company Architecture

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Appendix E: Worldwide Product Division Structure

Victoria’s Secret’s

Headquarters

Victoria’s Secret

Beauty

Victoria’s Secret Direct

Victoria’s Secret

Stores

Victoria’s Secret

United States

Victoria’s Secret

Germany

Functional Unit Functional Unit

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Appendix F: Strategy and Structure

Strategy

Structure & Controls

International Global

Standardization Transnational

Vertical Differentiation Decentralized

Some Centralization Mixed Centralization

and Decentralization

Horizontal

Differentiation

Worldwide Area

Structure

Worldwide Area

Division Structure Informal Matrix

Need for Coordination

Moderate High Very High

Integrating

Mechanisms None Many Very Many

Performance

Ambiguity Moderate High Very High

Need for Cultural

Controls

Moderate High Very High

Low

Low

Few

Low

Worldwide

Product

Division

Core

Competency

Centralized,

rest

Decentralized

Localization

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Appendix G: Timetable for Germany’s Victoria’s Secret Startup

Timetable for Germany’s Victoria's Secret Startup

Arrival End of month 1 End of month 2 End of month 3 Store opening

and beyond

Hiring Begin Search for

management Begin employee

search

Have hired assistant manager

and employees

Hiring is complete minimum of two weeks prior to

opening

Marketing Meet with

marketing firm Begin advertising

Advertising strategy in full swing

Advertising strategy in full swing

Strategy Research, plan, and implement market strategy

Work with manager and marketing firm on market strategy

Strategy is developed and is

implemented

Strategy is developed and is

implemented

Prepare the venture for long

term success

Training Develop German training strategy

Begin training of manager and prep employee training

plan

Begin training assistant manager

and finish employee training plan

Employees have had two weeks of

training and managers are

ready

Store

physicality's

Work with marketing firm on store design and

layout

Work with manager and marketing firm on store design and

layout

Store setup has begun

Store is ready to open