Swedish fashion & Japanese Kit Kats

Two interesting stories on managing product variety.  The first is from the Wall Street Journal and concerns H&M, the Swedish fast fashion retailer (How H&M Keeps Its Cool, May 10). You might think that a firm whose business strategy is all built around quickly churning out hip, new items would be able to handle all challenges in managing variety. Apparently, though, not all challenges are the same:

Fast-fashion retailer H&M is a bit frosty toward warm climates. The trendy company has stores in 37 countries, but none in Texas. Miami shoppers won’t find a place to purchase H&M’s cheap chic clothes, either. The problem isn’t a lack of demand. It’s that the chain’s Swedish parent company, H&M Hennes & Mauritz AB, isn’t sure how to sell clothes in cities that are always warm. … H&M forged its successful strategy in the season-changing Europe it calls home, says Daniel Kulle, president of H&M U.S. Uncertainty about whether that strategy could survive a transplant to warmer regions means while Toledo has H&M, Dallas has to wait.

That quirky concern has a strategic issue at its root. H&M, the world’s third-largest fashion retailer by revenue, still sells pretty much the same products in its 1,900 stores around the globe. Its planning and allocation systems are geared toward turning over merchandise quickly, not tailoring assortments to individual regions. H&M says it is investing in tools and distribution centers to allocate its goods more effectively.

Taken at face value, this is a supply chain issue. A process optimized for rapidly turning over the product line should be easier to run if the same mix of SKUs is going out to every store.  However, I wonder whether H&M really lacks this capability.  The Swedes have stores in Kuwait and Spain.  I suspect that those stores don’t sell the same mix of items stores in Scandinavia or Germany. It may be that the reasons H&M hasn’t pushed into Dallas or Miami are more related to how they are developing their distribution infrastructure.  It may be more cost-effective to go slow and boost the utilization of a facility before moving on to a new geography. It would then make sense to saturate the Northeast or Midwest before turning to Dallas and Miami.  Alternatively, this could be a question of advertising.  Focusing on colder climes means advertising features parkas and boots going into the winter and allows for a unified campaign across all markets.

The second story is from NPR’s Morning Edition and concerns how Japanese firms roll out a wide array of products that they know will have the life span of a fruit fly (Kit Kat Kaleidoscope: Far-Out Flavors From Japan, May 10). The poster boy (or bar as the case may be) is Kit Kat.  You might think that you know what a Kit Kat is, but the Japanese Kit Kat experience is something else. Among the flavors offered in Japan are wasabi, soy sauce, and cantaloupe. Mmmmm, wasabi…

(For NPR staffer reactions to various flavors go here.  Sample quote “That’s some good use of Yellow No. 5.”) So why would a candy maker churn out so many flavors?

Ms. CRAFT: Yes. As you know, the convenience store is an American creation but the Japanese have taken it to a whole different level. They’re about 40,000 convenience stores in Japan so that there’s so many that rival shops often are located right across the street from one another and that’s why the Japanese convenience stores has become probably the world’s most Darwinian marketplace. The shops are tiny. The sales of every item are monitored with scientific precision. And to win just a few inches of shelf space, every single item has to sell within a few weeks or it’s history. I spoke with an American marketing expert named David Marks and here’s what he had to say about convenience stores in Japan.

Mr. DAVID MARKS (Marketing Expert): So it’s almost like a war zone. Makers have to destroy their competition by creating a product that appeals to the people who are making the decisions at the convenience store of what to put on the shelves.

NEARY: So does that mean that it’s not just Kit Kats that come up with these sorts of strange flavors or marketing packages?

Ms. CRAFT: Yes, that’s true. This is prevalent throughout the Japanese food industry. But the toughest gladiator arena for flavors you might say, is in the beverage industry, something like 1,000 new flavors are unveiled every year giving us wonders like, oxygen-enhanced water or cucumber-flavored Pepsi. …

Mr. MARKS: You know, the root of it is the demand. That has nothing to do with consumers at all, but convenience stores forcing companies to basically make crazy products in order to win shelf space. So again, the goal is to appease the gods of the convenience stores rather than to appease the consumers.

In short, a candy maker’s product planning has been hijacked by its distribution network. If Japanese consumers really respond to rapidly changing flavors (even if they sound more like a dare than a snack), I can see that convenience stores would welcome candy makers competing on who has the freshest and craziest product line. Still I wonder about the costs this imposes on the system.  Not only is there the overhead of constantly concocting new offerings, production must inherently involve relatively short runs and changeovers.  Who is bearing the brunt of those costs?  I suspect that the suppliers have to eat them if there really is such competition to get shelf space.  That said, one wonders whether the supply chain as a whole would be better off without such a large number of short-lived products.