European Research Studies

“Carolina Herrera” Internationalization Strategy: Democratic Luxury or Maximum Exclusiveness?

Abstract:

1. Introduction

To answer this question, Spanish fashion retailer Carolina Herrera’s (hereinafter CH) internationalization process and strategy are going to be analysed as a case study. For that purpose, three elements of marketing strategic planning will be used, such as the Benchmarking, segmentation and positioning and finally the Marketing-mix, viz., marketing variables that the Company has to reach this potential market. Because Brand plays a determining role in the firm’s internationalization and in penetrating international markets (Malhotra, Peterson and Kleiser, 1999), the role played by Brand as a transmissive vehicle of internationalization strategy is analysed in this study.

The first brand that STL launched onto the Spanish market in 1998 was Purificación García, with men and women’s collections, aiming at the market segment with a medium-high purchasing power and which also demands quality and design apparel.

On the other hand, fashion designer Carolina Herrera, signed in 2000 a commercial licensing contract with STL to start up the worldwide expansion of her firm and planning the inauguration of stores in Europe, the United States, South America and Asia in the medium term. CH aimed primarily at the market segment with high purchasing power, offering great quality and exclusive design products. Nowadays, the CH brand is the flagship of the company located in Ourense (Spain). Over a thirteen-year period, STL has opened 305 stores in 23 countries worldwide and 102 points of sale for the PG Brand in three countries.

The textile Company owns a commercial licensing contract for both brands. Under this contract, STL is in charge of the global design, tailoring, distribution and management of the two brands. Control of the overall procedure, including design, production and distribution is from central headquarters in Ourense.

Due to its business experience and to the abolition of quotas on textile exports in 2005, the company has reorganized its production process, getting rid of the tailoring and dressmaking activities. So, following Berkeley and Steuer (2000); and Keenan, Saritas and Kroener (2004) there is a clear example of product subcontracting of the labour intensive parts of the production process to third countries with lower wages costs.
2.2. The Business and Management Model: “One Company, Two Brands”

Dealing with two fashion projects set in different market segments such as PG and CH has forced the company to lay down two different marketing strategies for the two brands. The company has tackled possible cannibalization between CH and PG by differentiating brands, particularly by product, image and target market.

Fashion companies are becoming much more flexible and vertically organized (Samiee, 1995), and are adopting new technology to increase productivity and development (Berkeley and Steuer, 2000). In fact, the business strategy followed by STL lies in its unified, quasi-integrated and global management model, which provides the company with great control over the production process, distribution and commercialization, as well as great flexibility and speed in adapting production to market needs in the short term.

This enables the company to have a large degree of verticalization, meaning that different stages of the value chain are integrated, such as the design, patterning, distribution and store management. Its flexible structure, as well as its customer orientation and the advanced information technologies used, allow a flexible and swift response to the customers’ demand and excellent market orientation. Even though it cannot be called a ‘Just-in-time production system’, it does fall into the quick response system, because it allows a rapid response to changing customer demands (Castellano, 1993, 2002) and makes the productive and commercialization system more flexible.

That way, the management method used by the company is quasi-integrated management of design, production and distribution, which allows adjusting production to real demand and removing production channel intermediaries. As remarked on previously, this integrated and global business management model gives production control to the company. This management model is backed by an advanced IT system, which every day processes all information from the stores to central headquarters, which provides daily monitoring of articles sold at each point of sale.

2.3 The CH Brand Internationalization Process: Motives, Market Selection and Entry Process
2.3.1 The Carolina Herrera Brand’s Internationalization Process

A trend observed in recent decades in the textile, clothing and fashion sector consists of the sector’s increasing internationalization, as well as the appearance of new international rivals (Akehurst and Alexander, 1996; Bonache and Cerviño; 1997; Cerviño, 1998; Guillén, 2006).

In this extremely competitive setting, CH opened its first store in Ourense in 2001. International expansion began in 2002 with the inauguration of the Miami store (USA). In 2010 the company operated in 23 countries and international sales accounted for 60% of total sales, with the United States and South America by far the most important markets. The reason for commencing international growth in North American market was due to the fame fashion designer Carolina Herrera attained in this market, where she continues with her haute couture company ‘Carolina Herrera New York’. The company continued to expand in Mexico and South American countries, likewise because of the fame the fashion designer had in those markets, due to her Venezuelan status.
2.3.2 Internationalization Motives

Previous literature has classified retail internationalization reasons into ‘push’ factors, those that encourage the company to search for international opportunities, and ‘pull’ factors, those that involve attractive conditions in foreign markets (Alexander, 1995; Treadgold and Davies, 1988). The limited growth opportunities in the domestic market had been the main influence in Carolina Herrera’s international expansion decision. So, as Treadgold (1990) remarked, the perception of non-existent opportunities in their domestic markets, linked to the business opportunities perception in new international markets is the most important motivating factor.

Thus, ‘pull’ or motivating factors for CH are brand awareness in foreign countries such as the United States or South American countries, uniformity of consumption patterns throughout the different countries ‘sharing a unique fashion culture’, the existence of consumer groups that demand design and quality fashion in different countries and finally, the abolition of barriers to export and import, and the development of IT.

McGoldrick (1995) and Hutchinson, Alexander, Quinn and Doherty (2007); contribute with a third group of factors related to company organization, which are the qualifying or empowering factors. CH’s expansion in New York, specifically the store on Madison Avenue that opened in 2010 and upcoming openings in Paris and Tokyo, are only justified on image and status reasons, because these capital cities are considered ‘fashion capitals’ and are extremely competitive.

Quinn et al. (2009) also mentions the inhibiting factors, that hinder internationalization. The first stage of internationalization is characterized by physical and cultural distance, perceived risk and lack of experience. Administrative barriers in South American countries (export trade barriers in countries like Mexico, Colombia, Venezuela or Argentina) and the different season in the Southern hemisphere in South America were inhibiting factors, as well as the cultural distance in the Middle East and the geographical distance in Asia.

The notion of physical distance and level of uncertainty a company has to certain foreign markets have been cited as a critical factor in deciding where to carry out international expansion (Dupuis and Prime, 1996; Evans, Treadgold and Movondo, 2000). However, previous research has shown that some retailers overcome physical barriers due to their products and particularly desirable brands (Fernie, Fernie and Moore, 2003; Moore, 1998). Many authors have pointed out that this is the situation of fashion retailers that sell exclusive brands (Laulajainen, 1992; Lewis and Hawksley, 1990; Moore, 2001).

Carolina Herrera’s internationalization process in no way follows the classic ‘stages model’ (Cavusgil, 1980; Bilkey and Tesar, 1977; Johanson and Wiedersheim-Paul, 1975), starting their expansion in closer geographical and cultural markets, followed by more distant ones. Carolina Herrera carries out what author Treadgold (1990) calls Disperse internationalization. Thus, the expansion process began in the United States, a geographically and culturally distant market, and it was the popularity of the fashion designer in this country that was the key factor in market choice.

In this first stage of ‘cautious expansion’, between 2002 and 2004, CH expanded in the North American market, especially in large cities with a large Hispanic population such as Miami, New York, Las Vegas, San Diego, Houston, South Coast and Dallas. In 2010 expansion continued with the ‘image’ store opening on Madison Avenue in New York, which was a strategic company decision to create brand awareness and international prestige. 2010 also saw the Orlando Outlet (Florida) open for logistics reasons.

The second stage in the expansion process, in 2005, focused on Mexico, followed in 2006 and 2007 by the Middle East (Kuwait, Qatar, UAE, Bahrain, Saudi Arabia and Lebanon). From 2006 to 2009 growth focused on South America: Panama, Colombia, Venezuela, Aruba, Argentina, Costa Rica, Brazil, while at the same time point of sales continued to open in new cities in Mexico, like Puebla, Monterrey, Los Cabos and Cancun.

European expansion began in 2009, starting with London and Warsaw openings and continued with Paris in 2010. Having overcome the continuous export barriers in South American countries, the company planned brand expansion in countries such as the Dominican Republic, Ecuador, Chile and Uruguay. It was also in 2010 when the company attempted to conquer the Asian markets, such as Japan and China, searching for local partnerships and agreements with commercial partners well established in this area. The company is now planning to open in cities like Tokyo, Osaka, Seoul, Kuala Lumpur, Hong Kong and Taipei. A summary of the countries where the company has already entered, as well as chronological development and the entry method used in each country is shown in Table 1 (Market Entry Strategies).

Table 1: Market Entry Strategies