Case Study: TESCO Homeplus

TESCO Homeplus: Adding

Creativity to the Discount
Retail Store Business
KIM Jin-Hyuk

Retro-benchmarking
When TESCO, Britain's global retailer, opened
a new store offering household goods and electronic products in Manchester, England, in October 2005, customers soon realized that they
were in for a new kind of shopping experience.
First, the Manchester stores 4,700-square-meter
layout covered two floors rather than a single
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floor and had a moving walkway, allowing customers to travel between floors. In England, the
tendency had been for discount stores to have a
single floor, as multiple floors were viewed to be
inconvenient. The second attention grabber was
the difference in design and content. Only a
small part of the store was dedicated to fresh
produce, a TESCO hallmark. Instead, most of
product lineup consisted of non-food items such
as clothing, kitchen utensils, bedding, industrial

KIM Jin-Hyuk

A nightview
of Homeplus
Sangdong,
Bucheon

Even the stores name incorporated a departure.

After careful deliberation, TESCOs head office
made the somewhat surprising decision to add
Homeplus to the stores name, reflecting its
heavy emphasis on non-food, household goods.
What happened was a wholesale adoption by
TESCO of know-how that had been accumulated in running its Homeplus store, a joint venture with Samsung Corporation, in Korea. The
two-floor layout, product line selection, product
display, and even the name of Homeplus were
all imported from the Korean store. The knowhow of store management accumulated in the
Korean operation had been recognized as superior in efficiency and taken on board whole. So,
what were the management secrets of Samsung
TESCO the Korean operation that even a
global retailer like TESCO could learn from?

Jumping into a Crowded Market Sector

products, and toys. The goods were also displayed differently. For example, cosmetics were
arranged by brand name, while bedding and
chinaware displays were charmingly decorated,
unlike other TESCO stores. Wooden tiles gave
the flooring a sophisticated look, and the interior was lit brightly with lighting set up over each
display stand. The lighting was showcased in a
variety of shapes and sizes instead of standard
florescent lamps. The ceiling, painted white, was
cleanly finished.

In 1997, Samsung Corporation opened its first

three retail stores, including Homeplus Taegu.
However, the 1997-98 Asian financial crisis put
the new operation in serious difficulty by May
1999. The company decided to seek foreign investment. At the same time, TESCO PLC was
seeking ways to expand in Asia after successfully gaining a foothold in Thailand. On May 1,
1999, Samsung TESCO was launched. TESCO
PLC injected more than US$200 million into
Homeplus and Samsung provided US$40 million worth of goods.
Even if the financial crisis had not occurred, the
aisles were not clear for Samsung Corporations
push into retail. E-Mart, Koreas first discount
retailer, had a six-year head start on Homeplus,
while deregulation opened the door for WalMart in 1997. In 1998, the US retail giant opened
in Korea by purchasing four local stores and
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Case Study: TESCO Homeplus

planned the quick construction of six brand

new stores. Lotte and LG, two more formidable
Korean retailers, also joined the rush into the
Korean discount market along with French retailer Carrefour. In total, there were 12 discounters in Korea by 2000 and Homeplus ranked
No. 12 in terms of number of stores and sales
before the TESCO deal.
Korean customers are considered by many to
be the hardest in the world to please and are a
highly demanding customer group in that they
want both the low prices of discount stores, and
the high level of service typical of department
stores. Wal-Mart and Carrefour, the two main
competitors for the top spot in the global discount industry, were unable to meet the demanding requirements of Korean customers,
and eventually had to withdraw from the Korean market. Korea was even called the grave of
global retailers at one time. Samsung TESCO
expanded rapidly despite the tough conditions.
It opened five stores in 2000 and seven more between 2001 and 2003.
Not only did Samsung TESCO break through
the KRW 1 trillion mark (US$664 million) in
sales two years after opening the first store in
2000, but it hit new highs of around US$1.4 billion and US$2 billion, respectively, in sales in
the shortest time in discount industry. In four
years, the company jumped from 12th to second in the discount retail segment.
As of April 2008, Samsung TESCO had 66 large
off-price chain stores and 73 express supermarkets, with total sales estimated at US$4.05 billion. With such extensive market reach, Samsung TESCO is currently aiming for the No. 1
slot among major discounters within the next
few years. Of all the countries that TESCO entered, Korea was the only one where stores did
not operate under the TESCO name. Instead,
stores were simply called Homeplus in the Ko80 | www.SERIWorld.org

Korean customers are

considered by many to be
the hardest in the world
to please and are a highly
demanding customer
group in that they want
both the low prices of
discount stores, and the
high level of service
typical of department
stores.

rean market. The impetus behind Samsung

TESCOs impressive growth consists of five distinct elements.

Value Store
Jumping into a Red Ocean as a latecomer, Samsung TESCO prepared a fresh concept. At the
time, other discount warehouse stores emphasized two strategic features to market themselves: a wide variety of products and low prices. However, this strategy required trade-offs.
The stores lacked interior designing and sold in
bulk, which enabled the stores to negotiate

KIM Jin-Hyuk

wholesale price reductions. At first, customers

were attracted to the low prices, but complaints
eventually swelled.
Management at Samsung TESCO was very
alert to these complaints. Reacting decisively to
consumer demands, Homeplus executives decided to create a completely new discount market through brand positioning analysis. This led
to the new concept of a Value Store, which
implied a store that provides customers with a
new, higher level of value.
The Value Store concept was introduced
through the Ansan store on August 30, 2000. It
was the first store to use the brand name of
Samsung TESCO Homeplus. Shoppers were all
surprised by the layout: All the products were
displayed on the second and third floors, while
the first floor was occupied by a culture center
and food court, a sharp contrast to competitors
who crammed their shelves. The new store had
unusually put a high priority to the comfort
and convenience of customers.
The Ansan store was an immediate success.
Sales doubled those of nearby competitors, exceeding management expectations and redefining the discount retail industry. With the success of the Blue Ocean strategy of finding and
leading a new market, Homeplus leapt from the
bottom of the first-generation discount market
segment to the top of the second-generation discount market segment. Subsequent Homeplus
stores offered services ranging from a nursery
to financial products such as insurance and
loans.

TESCO to try to create a new Blue Ocean

through another transformation. Homeplus
third-generation discount store integrated emotion and culture. It was characterized by
Artience, the integration of art and science.
While the second-generation discount store focused on convenient living, the third-generation
store counted on its advanced artistic, cultural,
and health service to appeal to the emotions of
customers.
Opening on September 1, 2007, Homeplus Jamsil in southern Seoul introduced the next generation store with four concepts Art, Well-being, Touching, and Hi-tech to appeal to
customers eyes and hearts. The entire fourth
floor was an art gallery: 3,636 square meters of
space that is not operated or intended to generate revenue. This was unheard of for a discount
store in Korea or abroad. The exhibition space
was devoted to finding and supporting new artists, including students. The store also contained a culture center, which offers evening
and weekend courses. The purpose was not to
grab customers, but become a local center for
continued education. It was unprecedented to
find a store offering fresh produce and organic
foods and also provide a fitness club, sauna and

A TESCO Homeplus store on opening day

Artience
Homeplus marketing edge was eventually lost
as rivals imitated the concept in their subsequent store openings. The adoption of Homeplus innovations by its rivals turned the Blue
Ocean into a Red Ocean. This led Samsung
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Case Study: TESCO Homeplus

golf driving range. Finally, a high-end wine bar

allowed customers to enjoy their purchases in
the store itself.

Scientific Approach to Distribution

Homeplus is also famous for retaining information and communication technology. The stores
introduced a self-checkout system and a smart
card system which automatically counted products in a shopping cart, for the first time in discount industry.
The main upgrade to the third-generation discount store was its scientific approach to distribution. For example, the Jamsil store introduced an automatic queue counting technology
with the aim of eliminating waiting in checkout
lines. Automatic sensors detected the number
of shoppers and ordered standby cashiers to go
to their cash registers when needed.
The self-order and self-pay system in a food
court was another distinguishing change.
Through the product positioning system, by
which customers could find the location of products with a touch screen, and an auto productsupplement system, easy and convenient shopping was introduced in the discount industry.
TESCO headquarters in England quickly saw

the benefits of adopting high-tech in running its

stores. Indeed, during 2002-03, Samsung TESCO sent around 70 experts of this high-tech management system to transplant it in TESCOs operations in other countries.

Customer-Focused Management
Homeplus stores can be recognized at a glance,
even from far away, thanks to its symbol, inspired by Londons iconic Big Ben clock tower
next to the British Parliament. Homeplus has its
own philosophy that all of its stores are the customers parliament, and that Homeplus makes
its decisions according to its customers opinions.
The philosophy of the customers parliament is
not just a matter of design or a simple slogan.
TESCO PLC shared its 80 years of experience
in conducting and analyzing customer surveys
with its Korean partners. Today, Homeplus
places great importance on seven types of customer surveys conducted 200 times annually.
One of them, the price image survey, tries to
identify customers emotional response to the
price of an item, as well as their opinion of actual value of the products. Homeplus thus listened to the customers voices, which competitors had failed to heed attentively, employing
many consumer surveys and elaborate analysis.

1 RFID Cart 2 Homeplus Culture Center 3 Green Store 4 Homeplus Art Gallery
1

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KIM Jin-Hyuk

The pairing of Samsung

and TESCO meant two
distinctive corporate
cultures had to be
bridged, as Asian
corporate culture stresses
personal connection,
self-sacrifice and
teamwork while Western
business culture
emphasizes rationality,
individual expectations,
principles, and
transparency.

Based on the results, they were able to create

new stores with the new concepts that customers wanted.

Synbaration and Global Management

The pairing of Samsung and TESCO meant
two distinctive corporate cultures had to be
bridged, as Asian corporate culture stresses personal connection, self-sacrifice and teamwork
while Western business culture emphasizes rationality, individual expectations, principles,
and transparency.
To reconcile the differences, Samsung-TESCO
launched synbaration, combining the Korean
word synbaram and English word rational.
Synbaram expresses the high spirits or high
emotion that leads a person to over-achieve.
This is reflected in the unique tradition of presenting a new supervisor with a pair of shoes
and a chair. The shoes represent the practice of
field management, and the chair engraved with
the supervisors name symbolizes the dignity
and the self-respect of a community leader.
Another important combination is glocal,
melding global and local management. This reflects the idea that Samsung will pursue localization while making the greatest possible use
of the advantages of a global corporation. The
emblematic case of glocal management is the
combination of British store management with
Korean-style format and techniques of dealing
with customers. A major factor behind the failure of Wal-Mart and Carrefour in Korea was
the lack of localization.
Another example of glocal management is that
Korea is the only foreign market in which TESCO relies on a local person to be CEO. Other senior executives also are Korean. Korean-style attention and approach to customers is ensured but
the system for operating the network of Homeplus stores is influenced by British methods.
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Case Study: TESCO Homeplus

Ongoing Challenges
Homeplus rose to become Koreas second-largest discount chain around 10 years after its first
opening. In the meantime, Wal-Mart and Carrefour folded their operations in Korea. Analysts said both companies were slow to expand
in Korea, costing them both market share and
the ability to obtain the best prices from suppliers. However, even in the absence of the two international behemoths, Homeplus has plenty of
competition from industry leader E-Mart, Lotte
Mart and other domestic retailers. Korean consumers are also considered especially demanding and capricious, and relentless effort is required to keep pace with fast-changing consumer
moods, fads and demands.
Samsung TESCO has been able to grow quickly as it reacted more quickly to the changing demands of its customers. And it is now applying
a greater effort to its social contribution activities. Homeplus is not only a retail chain but the

Number of stores

|Figure 1

Homeplus has taken

a keen interest in
environmental
management.
It carries out the nation's
largest grass-roots
environmental education
for children through its
e-Paran Children's
Environmental Education
Program.

Number of Stores and Sales of Samsung TESCO Homeplus

4,169

Sales (Unit: Million Euro)

3,257

110

2,882
2,569
2,081
66

1,745
52

1,277
42

750
28

332
146
2
1999

31

21
14

7
2000

2001

Source: Samsung TESCO IR Report 2008. 12

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2002

2003

2004

2005

2006

2007

2008

KIM Jin-Hyuk

worlds largest lifelong education institution as

well. A total of US$186 million was invested for
culture centers, and the annual operating costs
amount to US$18 million. Some 3,600 instructors are responsible for 340 courses on average
per store, and as many as 650,000 people annually are being given an opportunity to pursue
lifelong education.
Unlike some other discount stores or department stores which operate culture centers only
in main downtown stores for the primary purpose of attracting customers, Homeplus runs
culture centers in every store nationwide. Each
store has a culture center of around 400 to 660
square meters. The combined total area of all
culture centers nationwide is over 28,000 square
meters. This is equal to the size of three stores.
Recently, TESCO Thailand has shown an interest in adopting the culture center operation of
Homeplus into its own operation.

carbon dioxide produced by the company. This

includes the carbon footprint of corporate vehicles and employees on business trips. Through
this program, Homeplus hopes to cut its 2006
level of carbon emission in half by 2020.
To transform from a good company to one that
is admired and respected by giving back to the
community through continuing social contribution; this is the forward-thinking goal of
Samsung TESCO Homeplus, which possesses
the gene of challenge and creativity.

Homeplus is also eagerly participating in shared

management through volunteer work and a cooperative bazaar. By holding a sharing bazaar
of Homeplus stores nationwide, products of
310,000 worth US$2.3 million were donated in
2000. A moving-store of Homeplus, which
operates a bazaar that tours around the country, is now in its fourth year. Also, in conjunction with the 75 beautiful stores across the nation, a Homeplus Day is held with employees.
In addition, Homeplus has taken a keen interest
in environmental management. It carries out
the nations largest grass-roots environmental
education for children through e-Paran Children's Environmental Education Program. Implementing training programs of 15 sessions for
eight years, 15,000 children have participated in
the program. This effort, which is devoted to innovative ways of reducing greenhouse gas emissions, has gained widespread attention and is
designed to measure and control the amount of

KIM Jin-Hyuk is a Research Fellow at Samsung Economic Research Institute. His research focuses on the retail and service
industries. Contact: jhkim@seri.org

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