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During the 1980s, Daidoh Limited was one of many typical apparel makers that had a brand (in our case “New Yorker”) for its products. Our business model was a common one where the division of roles was split up such that “sales” functions were left to the hands of retailers such as department stores, while the Company concentrated on “manufacturing”.
As time passed, however, consumer values and needs rapidly became more diverse and advanced and a gap began appearing between market conditions and product planning in the apparel industry.
The resultant effect was that a large amount of items were returned from Department Stores at the end of every season, creating inefficient conditions. When I was appointed to the post of President in 1989, I quickly realized that it would be difficult to survive in this highly competitive environment doing “business as usual.” I also became keenly aware of the need to reform our operational structure from a “product out” system to a “market in” system.
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During the same time, the international economy was going through a period of tremendous change. The crumbling of the Berlin Wall marked the start of the open international economy. More specifically, it was the beginning of the remarkable development and opening of the Chinese economy. As you all know, the country swiftly climbed up the road of becoming a global manufacturing center and is also now gaining attention as a gigantic consumer market.
In light of the open global economy, I believe that international specialization is inevitable. In the fabric industry, Japan has become a “non-optimal production country” because of the high-cost and aging of skilled workers. These days, I don’t think anybody would doubt that China has replaced Japan as the “optimal production country” for fabric manufacturing. Taking all of this into consideration, I strongly feel that the key to our Company surviving the 21st century is to transfer the management resources we have built up over our 100-year history from “non-optimal production countries” to “optimal production countries.”
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The Daidoh Limited group's philosophy in doing business is “Customer First” and “Quality Oriented”. True to this, we have implemented specific efforts to reinforce the group's two core competences since I became president of Daidoh Limited. In the Clothing Division we have endeavored to become a strong SPA retailer and in the Production Division to remain a strong manufacturer.
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| 1) Evolving Clothing Division into SPA Retailer |
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Practicing “Customer First” has compelled us to remodel our Clothing Division into an SPA retailer (*1).
The wholesaler format we used to follow would keep us trailing behind changing markets and cost us opportunities for marketing and thus for profit. Our ideas for reformatting are hands-on participation in storefront retailing to directly and instantly identify consumer needs and to reflect them into the development and merchandizing appropriate products. This should increase customer satisfaction and thus our profitability.
Starting in this direction, we have switched our setting to display & offer products from “Hiraba” to “Shop” (*2) and then our wholesaler-retailer arrangements, mostly with department stores, from “Itaku” to “Shoka” (*3). Putting sales spaces under our direct control and staffing them appropriately has enabled us to stay updated about market trends and to manage our merchandise efficiently.
Also we have discontinued all established brands found to be less efficient and re-funneled all released resources into our mainstay brand, “New Yorker”. In planning for the development & production of merchandise, our viewpoint has shifted completely from “Sell to Reduce Stock” to “Produce to Replenish Stock” (*4) in order to become a QR supplier. Stagnant inventory and less popular lines of merchandise have been discounted for quick sale in order to keep our storefronts always stocked with fresh merchandise.
All this has contributed to a streamlined planning/production/marketing/inventory disposal sequence, and thus to a markedly improved earning structure.
In gearing up the evolution into an SPA and enhancing the group's strength as a whole, we have separated into independent operations for our three business lines of “Textiles”, “SPA Men's Clothing”, and “SPA Women's & Families’ Casual Clothing”. The corporate restructuring carried out in October 2002 created “MILLIONTEX”, “Men's New Yorker”, and “Ladies’ New Yorker”. This reorganization has enabled us to serve our customers in a more personalized and individualized manner. |
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| (*1） |
SPA is short for Specialty Store Retailer of Private Label Apparel, a brainchild used by Gap, Inc. of the United States in explaining its business model. It applies when a business in the clothing industry single-handedly operates manufacturing/wholesale and retailing, which used to be divided into two different fields, and commonly referred to as “manufacturing retailer”. The SPA format we employ is unique because we are a “manufacturer-turned-SPA” maintaining its own proprietary production capabilities. |
| (*2） |
“Hiraba” is a non-partitioned open space operated by a retailer where the retailer solely handles a mixed layout of merchandise supplied from multiple apparel makers. “Shop” is a partitioned space leased by a retailer to an apparel maker where the maker employing its own sales staff exclusively offers its own brands. “Shop” is also known as “In Shop” if situated in a department store. |
| (*3） |
“Itaku” or consignment is an agreement in which an apparel maker hands over its merchandise to a retailer who undertakes its management and sales. At the end of the consignment, the maker is paid by the retailer for the merchandise sold and takes over the remaining items. During the agreement the ownership of merchandise belongs to the retailer. “Shoka” or sale is an agreement in which a maker handles its merchandise at a space leased from a retailer and each time merchandise is sold, the maker records it in its sales journal and the retailer in its purchase journal. During the agreement the ownership of merchandise belongs to the maker. |
| (*4） |
“Sell to Reduce Stock” is an approach taken when an apparel maker produces the maximum needed amount according to a sales plan before the season begins. The maker first allocates certain volume to each distribution channel and then reduces the remaining inventory by supplying additional volume according to how the merchandise is selling. “Produce to Replenish Stock” or “Sell to Replenish Stock” is an approach taken when an apparel maker produces the minimum required amount initially to introduce into the market. The maker plans and produces the volume required in excess of the initial volume according to market trends and supplies as much as necessary (or discontinues the production determined unnecessary) as the season progresses. Planning & manufacturing of merchandise in the course of the season is called QR (Quick Response). |
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| 2) Relocating Production Division to China to Become Stronger Manufacturer |
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In our pursuit of “Quality Oriented”, Daidoh Limited has continued to hone its unrivaled expertise, in order to maintain our claim as high-quality manufacturer, especially in the field of wool, our strongest forte. In so doing, our sights are set on enhancing the Daidoh Limited group's quality as a whole.
The opening of economies worldwide should accelerate the global division of economic functions, whose inevitable consequence must be deflated prices. We have consistently considered it more important in remaining a strong competitor over the long haul and to maintain the “quality” from which our growth arises than to ease our immediate cost saving burden.
We have concluded that production outside of Japan will still allow us to maintain the standard of quality demanded of a superior manufacturer. This finalized our Production Division's relocation to China. In 1987 we began dispatching the best of our engineering pool to China on missions to carry out exhaustive groundwork until in 1993 we set up “Daidoh Limited (Shanghai) Co., Ltd.” in Songjiang, Shanghai. The First Plant, as we call it now, is an integrated production facility capable of every process from yarn spinning through to sewing. (Please experience a tour of the Plant at the Movie section provided elsewhere on this site.)
During a ceremony to inaugurate the Plant, a distinguished guest, following a tour of the facility, honored us with these encouraging comments, “The product being delivered from this plant should proclaim itself not ‘Made in China’ but ‘Made by Daidoh’”. This has convinced us of the facility's capability of supplying high-quality products.
In 2003 The Second through Fifth Plants had been constructed, and we are satisfied that our initial plan to relocate Production Division's technology and reinforce its organization in China has been complete. The second to fifth facilities are in this order: a branch factory of Daidoh Limited (Shanghai) Co., Ltd. and a knitting plant operated by Daidoh Jardin (Maanshan) Co., Ltd. , both in Maanshan, Anhui, and in the Songjiang Export Processing Zone, Daidoh Limited Clothing (Shanghai) Co., Ltd., which supplies custom tailored suits, and Daidoh Limited Dyeing and Finishing (Shanghai) Co., Ltd., which dyes yarns for knitting.
Our capabilities in China have reached the standard of quality that passes muster in Japan's markets. Now we find ourselves arriving at a stage where we must take a new challenge and take a new leap forward in achieving the world's highest standard of quality required to be a world-class competitor. |
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The Clothing Division's three market-specific SPA subsidiaries in Japan and Production Division's five plants in China have almost completed the infrastructure to meet our near-term requirements. Our mid-range strategy now is to continue to strengthen the “software” of SPA retailing. |
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| 1) Evolving & Enhancing Planning/Merchandising |
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The Clothing Division's merchandising (MD) or product planning has tended to rely upon its tailored clothing, including suits and jackets, and the arranging of wholesale shipments to department stores “Hiraba” spaces and specialty stores. Today we find it increasingly important to evolve further from the effort of becoming the ESA retailer of the New Yorker brand and shifting from “Hiraba” to “Shop”. We should advance onto the road of MD perfection and experiment with the comprehensive planning of the entire Shop space to communicate the product benefits and brand value that New Yorker has to offer to customers.
Japan's economy overall still remains in disarray in the wake of the bubble collapse. Despite this, the marketplace is crowded with brands vying for patronage, and Japanese people as compared globally may remain among the most enthusiastic consumers of apparel. Survival therefore requires us to offer the unique values and styles of clothing that differentiate us from the rest of competing brands.
In view of this, New Yorker beginning with its spring/summer 2004 collection has launched a “HOUSETARTAN” line of merchandize. Our purpose in adopting this tartan pattern is to build a symbol conveying the message from New Yorker of the value that traces back for generations yet retains the trendiness of the brand. That symbol should ensure integrity and continuity in our MD. Future plans include extended lines featuring this pattern(e.g. clothing, accessories, shopping bags and gift boxes). |
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| 2) Enhancing Storefront Sales Force |
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In the continuous effort to firm up the SPA business model, we are going to strengthen the sales force deployed at our “Shops”.
Our “Quality Assurance Service” program adopted ten years ago has proved significantly useful in collecting information about the quality of our merchandise and winning the trust of customers. Now in ensuring ever stronger support from our customers, it is important for the Shops to function as the communicator of our brand value. We believe it imperative to develop an expanding pool of superior human resources measuring up to this job. The basis for such development
will begin with completing a redefined edition of sales instructions commonly applicable to Men's New Yorker and Ladies’ New Yorker. This will serve as a guide in education and training workshops that are to be provided constantly, in conjunction with OJT field education programs, with a view to implementing an ever higher standard of sales service across our Shops. |
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The Daidoh Limited group looks forward to the next ten years as a time to build a solid foundation that will carry us through the 21st century strongly and vigorously. In this vision we place the biggest emphasis on developing and expanding business in China. China, well on the path to becoming the world's center both for production and consumption of goods and services, tops the list of regions we must stay tuned to from both our SPA retailer's and manufacturer's perspectives. |
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| 1) Developing Distribution Channels in China |
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Currently our SPA retailing is geared primarily toward Japan's domestic market. Meanwhile, China is on the path of becoming the world's largest market for consumer goods. Our conclusion has been that we should beat our competition and tackle the new challenge of taking firm root in the continent that promises huge opportunities for earnings.
Based on this belief, we set up “MILLIONTEX-Z・Kerry Center”, a sister operation of Daidoh Limited (Shanghai) Co., Ltd. , in Beijing in August 2000. We experimented with this pilot shop to market ready-to-wear and custom-tailored suits.
In September 2003 we opened in Shanghai “NEW YORKER Huaihai In Store”, the first New Yorker outlet in China, in an effort to get our SPA retailing operations in China into full gear.
This has been followed by two new “MILLIONTEX-Z” shops in Beijing, three “New Yorker” shops as well as a tailored suits shop in Shanghai, and a New Yorker shop in Nanjing, for a total of 6? new openings. We now operate a total of eight outlets in the Chinese market (as of June 2004).
Our product strategy in China reflects heightened income levels and increased dressed-in-western-attire social/formal settings among our key customer base. We intend to supply a higher grade of suits retailing mostly around 10,000 Chinese yuan (one yuan equals about 15 Japanese yen). Our goal is to position our brand into one superior to the highest-grade brands arriving earlier from Europe
that are currently leading us in this field.
We are going to continue the opening of new outlets mainly in China's major cities in order to build a 50-shop network as early as possible. We intend to develop our SPA retailing there, in hopes that ten years hence our overall SPA business will attribute 50% of its revenues to the Japanese market and the remaining 50% to the Chinese market. |
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| 2) Importing & Utilizing World Leading Technology |
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We intend to promote adoption of world-class technology for our network of production facilities in China in order to step up the manufacturing side of our operations, the other of our two core competences. In textile weaving, we have already contracted with an Italian textile designer that will help us plan and manufacture fabrics which are in line with global fashion trends. In sewing, we have tied up with Tenjinyama Limited, reputed for its state-of-the-art sewing skills in Japan, in implementing Italy's hand-tailoring technology. For this purpose, at the Second Plant in Maanshan, Anhui, an expansion to construct a dedicated hand-tailoring line is now in progress.
Combining the hand-tailoring technology with the capabilities of the dedicated custom-tailoring in the Fourth Plant located inside the Export Processing Zone is particularly promising. It may allow us to develop a new field of custom tailoring free of the bottleneck of pricing and lead time otherwise required in hand-tailoring outside the Economic Zone. We are thinking of building a unique business model built around the fact that we cater to tailors worldwide.
We will import from Taylor & Lodge the fine worsted fabric manufacturing technology that has survived the test of time only in the United Kingdom. At the knitting yarn dyeing & finishing Fifth Plant we will undertake outsourced processing services for Italy's top-class brands in order to enhance our skills to match up with world's highest standard of quality.
We believe that the wearing of Western fashion will not become fully integrated in the local Chinese culture without giving people the opportunity to coordinate how they look totally from head to toe using shoes, bags and other accessories. For this reason, we plan to invite European suppliers over to China from that are already known for their superior technology and expertise in the production of such merchandise, outside our range of experience. The idea is to develop markets in China, jointly with such manufacturers who can in turn benefit from the space that we will provide for them to operate and administer labor services.
We call this plan the“Marco Polo Plan”. In the Age of Geographical Discovery, following his return home to Italy from China (under the Yuan Dynasty at the time), Marco Polo, through his “The Travels of Marco Polo”, introduced the then highest levels of culture and civilization to Europe, creating huge influences. Several centuries later, today, Italy supplies apparel in the top echelon of quality and creative imagination in the world. We hope to trace back the route Marco Polo took, serving as the carrier of the Italian culture to China, and hence his namesake plan. |
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The Company utilizes ROE as the main management index for determining our performance. Specifically, we aim to achieve a 10% ROE to improve investment efficiency in relation to shareholders’ equity and increase corporate value.
We have continued to work at improving and strengthening our financial base which forms the basic premise for attaining the above goal. For example, we moved to liquidate operationally idle land and eliminate cross-holding of shares in the early 90s, with the assumption that the Japanese economy would head downhill. At the time, our foresight allowed us to strengthen shareholders’ equity and now, we boast a highly stable 40% shareholders’ equity ratio on both a consolidated and non-consolidated basis. |
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The Daidoh Limited Group positions shareholder returns as one of the most important tasks. In regards to profit sharing, Daidoh Limited:
(1) Aims to enhance profitability and increase stable dividends in a sustainable manner
(2) Has established a dividend strategy that is in sequence with business performance meaning that we aim to take 50% of the remaining amount after taking out the impact of extraordinary income or loss from consolidated net income and setting this aside for dividends. When setting this amount, we fully consider the business environment and the need to reinforce retained earnings.
We also purchase treasury stock in a flexible manner as part of our strategy to maximize the income returned to shareholders. This part of the overall strategy is implemented based on a consideration of long-term investment efficiency. |
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■Message
from the CEO■ |
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