Baleno: Expanding Retail Operations in China

Topics: Retailing, Brand, Department store Pages: 27 (7861 words) Published: April 29, 2015

This case was prepared by
Sherriff T. K. Luk and Ivy
S. N. Chen of the Hong Kong
Polytechnic University as
a basis for class discussion
rather than to illustrate either
effective or ineffective handling of an administrative or
business situation.
Please address all correspondence to Ivy S. N. Chen,
Department of Management
and Marketing, Hong Kong
Polytechnic University, Hung
Hom, Kowloon, Hong Kong.
E-mail: msichen@inet.polyu.
The authors would like to
thank the senior management
of Baleno for their inputs/
comments in the preparation
of this case and the staff of the
Asian Center for Brand Management, Hong Kong Polytechnic University for their clerical support.

Baleno: Expanding Retail
Operations in China
It was a hot and humid Friday afternoon. Samuel Chan,
Marketing Director of Baleno, was preparing for a meeting
with the staff of the Franchising Department. They were to
discuss whether the company should continue to expand its
operations in China through franchising. China had lifted
restrictions on the operations of foreign retailers as part of its WTO agreement. Retailers could now choose where to
locate their stores. They could also open their own stores
without the need for a joint venture partner. Some of Baleno’s competitors had already opened directly managed stores
in key locations. Baleno’s Franchising Department had also experienced severe staff shortage, with some staff leaving to help competitors in their franchising operations. Baleno had also encountered problems with some of their franchised

outlets. Some franchisees had started competing stores in
their territory. The fashion retail market was growing fast and in order to keep pace with demand as well as the actions of
competitors, Baleno needed to find a way to expand its retail network quickly or it would be left behind.
Baleno was established in 1981 by young fashion experts. This group had left senior management positions in Giordano to
set up their own company to promote a full range of casual
wear to Chinese teenagers and youths. At that time, Giordano

© 2009 by World Scientific Publishing Co.

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had developed a successful business model in China and its
business expanded very rapidly. However, the anti-communist
views of Jimmy Lai, then Giordano’s CEO, irked the central government and damaged Giordano’s business. The fashion
market then was not developed and Chinese consumers’
minds were not yet set on any foreign brand. Although some
were aware of Giordano, they had not yet developed a strong
preference towards it. Many Hong Kong retailers were also
preoccupied with the growing Hong Kong market and did
not have the resources to explore the China market. Baleno
saw this as an opportunity.
The company entered China in 1992. Initially, the
management used a similar business model as Giordano did.
A key success factor of Giordano was its ability to pick good locations for its stores. Using the “me-too” approach, Baleno quickly opened stores right next to Giordano’s. This “follower strategy” enabled the firm to enjoy the benefits of low risks, cost efficiency and high traffic.

By 1998, Baleno overtook Giordano in terms of sales
revenue and brand awareness, making it the leader in China’s fashion market. Thus, the “follower strategy” was no longer appropriate. To consolidate its position, Baleno decided to
build a strong brand image which customers would associate
with high quality, value, style and status. It launched a series of marketing communication programs to teach Chinese
youths how to “mix-and-match” casual wear to achieve that individual look. These educational programs would reinforce
the positive image of Baleno. Andy Lau, a popular actor and
singer in Greater China, was engaged as its spokesperson. A
survey conducted by Baleno...

References: 2. China’s GDP grows 11.4 percent in 2007. January 24, 2008.
9. Li & Fung Research Centre 2006. China’s apparel market,
2006, Issue 6
10. Li & Fung Research Centre 2006. Performance of China’s apparel
product sectors, 2006, Issue 7
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