International retail sales have landed in Taiwan, and local department store managers find themselves in the trenches battling an invasion of foreign competitors armed with high caliber ideas about marketing.
Sincere Department Store—a name with better connotations than Honest George's Used Cars—opened in Taipei last year. Specializing in imported merchandise from the U.S. and Europe, it is part of a Chinese-owned chain based in Hongkong, where the parent store has operated for 87 years. Taiwan is the company's first Asian overseas investment.
According to Edmond Ma, director and chief manager of Sincere, the principal difference between their operation and typical local approaches to sales is that their store owns 70 percent of the merchandise, while the rest is owned by those who rent selling space in the store and hire their own employees. Most department store operations in Taiwan reverse this percentage. Sincere's system enables them periodically to send buyers abroad in search of the latest fashions, adding to its uniqueness among Taiwan's department stores.
Local department store management has long been troubled by its renters, and vice-versa. It has been difficult to secure cooperation from renters whenever management decides to have promotional sales, since they are the ones that have to cut prices. Management headaches also occur from the uncontrolled hiring and firing of employees done by renters without coordinating with management, making it difficult to maintain a consistent employee training program.
On the side of those who sublet space within large department stores, besides paying the rent, they face picking up bills for advertising and store decorations anytime they are requested by store management. Even more worrisome, they constantly risk piling up excess stock because of less than sophisticated buying methods. Ma says that a shortage of specialized buyers has probably caused local management to be inclined toward a marketing status-quo.
But department stores can operate independently. A few years ago department stores were 100 percent owned by their management. Change came after the renting system was introduced by the Japanese. Management found itself making big money sitting in the landlord's chair, and gradually lost its buying ability.
What difference does all this make to the customers? Probably very little. Local department stores here are full of similar brands and products. Customers can find whatever they want in almost any store. There is not much distinction among them. The greatest differential is sales prices, which often can run three or four times wholesale costs. This has burdened the rental operations anxious to make customer sales. "It is a matter of image," Ma says. "If our department store has something different from the others, we attract more customers. Our displays and store landscaping are both designed by an expert from England, and recently the promotional manager of Bloomingdale was invited here to provide professional advice about Sincere's operation." Ma believes that customers in Taiwan offer a great potential market. All that is needed is the right merchandise and shopping environment.
Another outside threat to local businessmen is "Sino-Japanese technical co-operation." Today's Department Store provides a typical example. The locally owned store has imported management techniques from Sei Bu, a Japanese department store chain. The results have been striking. Today's extensive services for pregnant shoppers and their small children, for example, have no parallel in Taiwan. Moreover, the store has entered the service industry field with its "Cultural Classrooms." These offer free classes like Chinese painting and Chinese embroidery in order to give more "feedback" to their customers.
N. K. Tsai, Today's vice general manager, says that the store is especially particular about the manners of their sales girls. Their slogan is, "Don't just sell the products, but your love too." Also in line with Sei Bu's technical advice, the department store has surveyed customers' shopping routes in the vicinity, their demographic characteristics and buying patterns, the near-by business environment, the design of window displays, and the store's overall image. Tsai is pleased to report that business is steadily improving, and that Sei Bu's professional knowledge is proving helpful. He adds that department store retail business is growing rapidly in Taiwan, and sticking to the traditional way of running businesses simply is not going to work. The daily challenge is to find new methods that will successfully beat the competition. "Chinese are intelligent and hard-working," Tsai says, "but only by being open-minded, listening to new ideas, and being willing to learn from others can we keep up with the world." His comments indicate that the Japanese retailers have not only brought in their way of doing business, but have also instilled additional confidence.
While the Japanese wind is no doubt blowing toward the island, it does not necessarily sway deeply rooted practices. Sunrise Department Store is in the 30 percent of the large retail operations without any foreign cooperation. It insists on running the business on its own strengths, and often brings in fashion designs from abroad and produces them locally for their customers. Jeoffery Tsai, the assistant manager of Sunrise, thinks that the Japanese way of doing business is not necessarily suitable for Taiwan. He says: "For example, one store is training its sales people to give a 90 degree bow to customers—just like the Japanese, polite and friendly. What happens is that after hours of standing they are too tired to smile, and what's left is merely the bow. Besides, Chinese are not used to this kind of service. They'd rather be left alone and ask for service whenever they need it."
"That's why we are not worried about the competition," Tsai continues, "because we know what our customers want. If any business is going to succeed it needs to position itself in the market, set up its own type of operation, and find out where its customers are. We have a wide range of services such as a customer complaint center, computerized information displays, a toll free phone number, and special customer discount cards. These all characterize the uniqueness of Sunrise Department Store."
Tsai is confident that there is a huge local market for department stores: "In America and Japan, this business takes up 60 percent of the consumer market. In Taipei it is only 20 to 30 percent, so it looks very good to me. The important thing is how you run your business—and that you run it your own way."
Joseph Liu, who is vice president of China Rebar Corporation's department store section, is less optimistic about the business: "According to a U.S. survey report, the ratio between the population and number of department stores should be 300,000 to 1. The Taipei area has two million people and there are already 18 large stores, not counting the smaller ones. That is two times more than needed. And in addition, things are not being made any easier by the competition from special boutiques, street vendors who don't pay taxes, and government's warehouses that supply teachers, military and government employees at lower sales prices."
Liu hopes that the government can do something about some of these problems. While controlling the ubiquitous street vendors and rethinking the whole government warehouse issue are government concerns, the most intense competition remains the rapidly growing specialized shops throughout Taiwan. These are becoming increasingly popular, and some department stores are copying their marketing orientations. The "012" Department Store, for example, features a playground area and art lessons for children under 12. Another popular store, Kander's Company, now markets antiques, jewelry, Chinese pottery, paintings and calligraphy in an attempt to target customer demands.
Will specialized department stores replace older, traditional ones? No one can tell at the moment, but the good news is that Taiwan still offers a big, lush apple. Businessmen recognize the rapidly rising standards of living and concomitant shifts in buying patterns. Clear signs of this have been the decision of Sincere Department Store to expand into Taiwan rather than Singapore, and current plans by yet another large Japanese chain to open a new store in 1988. Other investors, including Japan's Sogo and Sei Bu, are known to be investigating the possibilities for further investment in the department store market as well.
An old Chinese saying runs: "In a department store, there are a hundred kinds of shoppers for a hundred kinds of goods." While the traditional method of running a store is to stock it with as much as possible, these days the right way seems to be stocking the right goods for the right customers. As Taiwan's society moves rapidly toward a more specialized workforce with changing buying patterns, it is natural to expect new marketing trends in the department store retail trade. It is equally certain that healthy competition, be it local or foreign, will benefit Taiwan's more affluent and demanding shoppers.