Strategic opportunities and challenges
Wolford’s objective as a company is to generate profitable growth and thus sustainably in-crease its value. The quality of Wolford’s products, its sustainable production activities, and its loyal customer base – these are undeniable assets for the company. In recent years, Wolford has made efforts to boost its core competencies and power of innovation and to revitalize its brand. It is not by chance that Wolford is one of the 100 highest-revenue global luxury brands listed in Deloitte’s current report “Global Power of Luxury Goods” (2017).
New store concept offers potential
Typical Wolford customers are self-confident, often have careers of their own, and speak two or more languages. They expect to feel the same exclusivity wherever they come into contact with the brand. Substantial investments, particularly in designing our own boutiques, are needed to ensure an optimal impression at the point of sale. In the 2016/17 financial year, Wolford developed an entirely new store concept and tested this at its proprietary boutique on Berlin’s Kurfürstendamm. The revenue growth of around 13% reported since the store was opened in September 2016 offers strong evidence of the potential in this new concept. At present, however, Wolford is unable to make the investments needed to roll out this new store concept using its own resources.
Wolford also has to continue investing in its online business, especially in its online marketing activities and in linking its online business to other distribution channels. This is an area in which the company has already made some progress in recent years. Visitor numbers at large city locations are falling consistently and luxury good and fashion manufacturers face the challenge of offering a seamless omni-channel shopping experience to match their customers’ increasingly “smart” shopping patterns.
Costly organizational structures
The challenges presented by the market are accompanied by in-house challenges. Having evolved over 67 years, the company’s organizational structures are still overly complex and costly, a factor further exacerbated by the excessive complexity of the IT infrastructure. To cover costs if these structures were to remain as they are, group revenues would have to be around 25% higher. It is clear that growth on this scale is not feasible in the current market, even if Wolford further optimizes its market presence.
Against this backdrop, the management is currently focusing on cutting costs by systematically reorganizing the company’s structures and processes. Achieving profitability based on the company’s current level of revenues – that is the important milestone for now.
Reorganization of processes
To this end, Wolford launched Project NOW at the beginning of 2016 and began implement-ing key parts of the program in the 2016/17 financial year. One of these is the decision to focus all European sales activities in Bregenz. Rather than maintaining independent sales and marketing functions with corresponding administrative structures at nine locations across Europe, the company now has one platform performing these activities for the EMEA region. This supplements the existing sales and marketing platforms in the U.S. and Asia. In parallel, Wolford has centralized its international customer service at its Antwerp location.
Furthermore, Project NOW also involves the process, now largely completed, of relocating manual activities to Slovenia, a country with more favorable cost structures, as well as initial measures to restructure processes at Wolford’s headquarters. The company has streamlined its development structures, for example, and reduced the number of prototypes. Not only that, it is currently introducing a new corporate marketing structure. Alongside these measures, the company plans to introduce new product packaging that is less costly to produce, and also has medium-term plans to insource the online business logistics processes currently performed by two external partners. The company also intends to reorganize its market presence in China in the medium term. Here, Wolford plans to rely on partners in the future and to agree to a master franchise arrangement comparable to the solution in place in Russia.
Building on Project NOW, at the beginning of 2017 Wolford defined further restructuring measures for the second phase. A single-digit number of retail locations is under review, while the rental agreements at 17 proprietary retail locations are to be renegotiated. Wolford is currently checking stocks at its proprietary boutiques and, where necessary, redistributing these in line with requirements, such as increasing product depth or reducing stock holdings at individual boutiques. Furthermore, structures and processes at the company’s headquarters are now being scrutinized on a systematic basis. For this, Wolford has also drawn on external advice since the end of July 2017.