Taiwan Today

La new is not a "new" entry in the high-end, ergonomic shoe market in Taiwan. For seniors, people with foot problems and those who just spend a lot of time on their feet, the La new brand immediately conjures up an image of comfort and health. Recently, however, something new has turned up at selected La new chain stores--home theater systems--and consumers have definitely noticed the change. "What a unique combination," surprised window shopper Jessica Gu says while peering into a La new store. "How can a shoe store sell home theaters?"

However, the decision of the shoe manufacturer and retail chain to stock home entertainment hardware in its stores is not as incongruous as it may first appear. La new is a subsidiary of Merry Yard International Enterprises Corp., which is also the parent company of Da2 Technology Corp., a manufacturer of rear projection televisions. The decision to carry big-screen televisions at retail shoe stores is just the latest departure from conventional wisdom by 58-year-old Merry Yard founder and president Peter Liu. Born in Kaohsiung, southern Taiwan, Liu started Merry Yard as a toy manufacturer in 1982. The company branched out into manufacturing home electronics in 1986, and La new began operations in 1996.

Still, the move to place home entertainment systems alongside shelves stocked with high-end shoes has also led to some bewilderment among competitors. "It's hard to imagine selling home theater equipment in a shoe store," says Joseph Lo, president of the A.S.O shoe store chain, La new's main domestic competitor. "How could they train their sales staff?"

Liu shrugs off such questions. "I am not the pioneer when it comes to diversifying product lines," he says with a smile. "Take Chanel, for example. They began by selling clothing and then moved on to promoting perfume and cosmetics. Why can't I do something similar? Many small and medium enterprises in Taiwan have wracked their brains to search for new market niches and new potential customers. I am just one of those adventurers."

Liu has a history of making decisions that appear unconventional on the surface, but that make good sense upon closer inspection. Merry Yard's move to begin home electronics manufacturing in Mexico in 1986 surprised many in Taiwan, as it came at a time when a large number of locally owned businesses were shifting manufacturing operations to mainland China in order to tap its lower land and labor costs.

"Price competition was the deciding factor when I considered where to set up factories," Liu says. "No matter where consumer goods are manufactured, whether in mainland China or in Mexico, many of them will eventually be sold in the United States. Although the production costs in mainland China are lower than those in Mexico, it costs less to transport products from Mexico to the United States, and there are no import tariffs. These factors have made my products more competitive."

Liu mentions the tariffs because manufacturing in Mexico has enabled his company to benefit from the North American Free Trade Agreement, under which goods manufactured anywhere on the continent can be brought into other North American countries without being tagged with import fees. "The North American Free Trade Agreement created by the United States, Canada and Mexico has enabled businesses to export goods from Mexico to the United States without paying duty," says Lin Su-lin, a senior specialist in the Department of Investment Services under the Ministry of Economic Affairs. "Many Taiwanese businesspeople have set up their offices and factories close to the border between the United States and Mexico thanks to this agreement, which put them in a favorable financial position. Geographically, Mexico is a good location to transport products to the rest of North America, as well as Central and South America. Liu's Merry Yard is an example of the companies taking advantage of this."

Not all of Merry Yard's electronic products wind up in the United States, of course. In Mexico City, its electronic fans are very popular, occupying 70 percent of the market. The fans are sold throughout North America for prices lower than those of counterparts manufactured in mainland China. Liu is proud of his decision not to follow in the steps of other Taiwanese businesses that flocked to mainland China, especially as some businesspeople questioned the potential for making products in Mexico. The considerable revenue and market share of Merry Yard's products in Mexico and elsewhere in North America appear to have justified Liu's strategy.

Instead of focusing on trendy styles, La new's marketing strategy has been aimed at developing a prestigious, high-end brand with a focus on health, high performance and ergonomic design. The company emphasizes its health orientation by inviting customers with toe problems, bunions, tendonitis and bursitis to visit its foot lab in Xizhi City, Taipei County for testing of walking-related problems and ordering custom-made shoes. "Customers are very welcome to visit our lab," says Andrew Chen, the manager of La new's marketing department. "Dr. Pai Chun-shun, the head of the lab, will analyze the shape of a customer's feet as well as their stride, then design the most suitable shoes for him or her." In the lab, Chen introduces visitors to devices that perform 3-D foot scans, computer software that allows technicians to create virtual models of feet, and computer controlled machines that produce the actual models.

Dynamic Comfort

"Dr. Pai, who majored in clinical physical therapy and formerly worked at a hospital in Massachusetts in the United States, has helped La new earn patents there, as well as in Japan, mainland China and Taiwan, because of his invention of the Dynamic Comfort System (DCS)," Chen says. "DCS is used in designing and making soles that improve posture and massage neglected muscles."

After working to continually improve the quality and fit of its shoes for more than 12 years, La new has earned the trust of many customers. "I used to wear Clarks shoes," says Youth Hsieh, a Taiwanese businessman living in Saratoga, California, while paying a visit to La new's flagship store in Tianmu, Taipei City to have his old shoes repaired and purchase new ones. "Now I stick to La new shoes since they fit my feet better. You know, it's very important to wear a pair of comfortable, supportive shoes for people like me who spend a lot of time walking the aisles at international trade shows."

"When we first came to La new as new employees, we were faced with a lot of coursework," says Lin Li-lian, a saleswoman at the La new flagship store. "We received instruction in how the foot functions when walking and standing. It wasn't easy, but I believe that if new employees aren't able to finish the coursework or pass the exams, it will be impossible for them to serve customers. Selling shoes at La new is different from other shoe stores; we go to great lengths to explain the health benefits of our shoes, such as how they protect the sole of your foot and improve your walking gait."

Lin Li-lian is convinced of the benefits of the company's drive to educate consumers. "I've been so touched that many sons and daughters come here to buy shoes as gifts for their parents," she says. "They're concerned about their parents' knees and hips and they seek us out because they know La new has a reputation for comfort and support."

In another somewhat unusual move, in 2004 Merry Yard president Peter Liu decided to purchase a professional baseball team, and the La new Bears now play in the Chinese Professional Baseball League. Operating a team at the highest level of Taiwanese baseball does not come cheap, as Liu has spent at least NT$50 million (US$1.56 million) each year on running the Kaohsiung-based Bears team.

Although operating a baseball team entails an obvious expense, it pays off for La new in the less-obvious area of publicity. The benefits of the strategy become clearer when the home fans can be heard cheering their team on with shouts of "Go! Go! La new Bears," and more so when the chants can be heard when the games are shown on television. "It makes it easy for young men to associate the La new Bears team with the La new shoe company," Lin Li-lian says.

It would be difficult to calculate the exact amount the baseball team's exposure has contributed to La new's bottom line, but there is no question about the shoe company's financial health. With each pair of shoes costing around NT$3,200 (US$100) on average, La new's revenues reached about NT$2.6 billion (US$81.25 million) in Taiwan in 2008.

Most businesspeople are not content with past success, however, and Peter Liu is no exception. When he took a hard look at his shoe business in 2007 and discovered that La new had little potential to expand its sales in Taiwan as it was then configured, Liu decided to reduce the number of stores in the chain from 300 to 160 in order to concentrate on renovating and expanding the strongest ones. Under this plan, La new has enlarged the floor space of selected stores from an average of 99.17 square meters to 165 square meters.

Projecting the Future

Not coincidentally, some of that extra space is now being used to promote Merry Yard's home theater products. The conglomerate's subsidiary Da2 began operations in 2003 in Taiwan and soon began receiving orders to produce cases for rear projection televisions for Japanese companies on an OEM basis. With this experience in hand and connections to Taiwanese flat panel display manufacturers, it was relatively easy for the company to begin selling televisions under its own brand, VEA, in 2008.

Liu is bullish about VEA's prospects. "For NT$139,800 (US$4,312), people can pick up a 56-inch high resolution DLP [digital light processor] television, a 5.1 channel or 7.1 channel home theater speaker system and a 5.1 channel or 7.1 channel digital amplifier for their home," he says. "Can you find a better price for this kind of high quality home theater? By offering affordable, top-notch equipment and the service to set it up for each family, we hope to offer everyone the ability to enjoy music and films in the cozy atmosphere of their own homes. And this is just the beginning--we'll start offering 74-inch DLP televisions later this year."

Seeking a way to both promote VEA's home theater systems and also boost foot traffic in his La new stores, Liu once again defied conventional wisdom with his decision to map out space in selected shoe stores for VEA products. Those who study business are waiting to see whether Liu's adventurous move pays off. "Merry Yard's strategy may be an example of overlapping business distribution channels," says Bei Lien-ti, a professor in the department of business administration at National Chengchi University in Taipei. "It does save the expense of setting up a distribution channel for selling VEA products. In addition, many customers of La new shoes are men working in the public and private sectors, and men are typically interested in home theater products. The financial status of La new customers is also good, so they are the right target group to sell the theater products to. However, it's still too early to judge whether Merry Yard made the right choice, as they just started down this road. We have no idea if consumers are interested in shopping for very different categories of products that are mingled together in the same store."

Consumers like window shopper Jessica Gu, meanwhile, are still a bit baffled by the change. "It's a big stretch to link La new shoes with home theaters," Gu says. "Some of my relatives are loyal to La new's healthy shoes, but this is a brand that has nothing to do with home theaters."

Peter Liu, however, is familiar with the second-guessing that sometimes accompanies business decisions, and responds by saying that in time, customers will get used to the unusual pairing. "It's natural for businesses to diversify their offerings," he says.

In the view of Taiwan's business community, Liu's move appears a bit bold. However, while his strategy may seem unconventional, there is business logic behind it, as Liu explains that VEA, a relative newcomer in the field of home theaters in Taiwan, has garnered valuable publicity by offering its products in La new stores. For Liu, with an established chain of retail locations and a relatively new line of home theater products, the unusual pairing makes sense. In the end, he may have hit upon a genuine breakthrough in a changeable and somewhat unfavorable economic environment. Liu's business decisions may seem crazy to some, but given Merry Yard and La new's established success, it is more likely that he is crazy like a fox.

Write to Tso Lon-di at londi@mail.gio.gov.tw