From retail to design to franchise - fastlane model

[Nur]

Charles Wong and his two brothers turn a tiny shoe store in Singapore into an international chain. The story has less to do with footwear than with design.

It was the mid-1990s, and the Wong brothers were running an ordinary women’s shoe store in Singapore, just as their parents had done. Charles & Keith could’ve been any one of hundreds of shoe stores in Singapore or around Asia. It bought its shoes from the same wholesalers as its competitors, and its shoes were made in the same factories in China and Malaysia. Charles Wong, the oldest brother and all of 22 at the time, didn’t see much of a future in this business model.

To break away from the pack, Charles & Keith needed to design its own products. By the end of 1997, the year after the business began, Charles & Keith started doing just that, and within three years all of its shoes were designed in-house. Since then the privately held company has taken off. Today it has 177 shops in 21 countries and is planning to have 500 in five years. Wong says sales totaled $97 million last year and that he expects 30% sales growth for each of the next five years. The footwear isn’t pricey: Shoes sold under the Charles & Keith label range from $20 to $60 a pair, while the more upmarket Pedro label–which also caters to men–retails at anywhere between $30 and $100.

The company doesn’t need to look hard for franchisees. “Every month we have 10, 20, 30 calls and e-mails for franchise [licenses],” says Wong, seated in his office in a stylish four-story building in an industrial park that contains 50,000 square feet of office and warehouse space. “We’ve had to put them on hold–and we’ll see who is more persistent or who is a partner we should work with.” Just across the road the company is putting up another building that’s due to open in 2011, adding 170,000 square feet of floor space to the headquarters.

Wong says the global downturn could slow his company’s growth. But at least one analyst isn’t very worried. “Charles & Keith has the perfect combination of affordability and design,” says Song Seng Wun, an economist and head of research at cimb-gk Securities. He also notes that the company’s target group–women consumers–serves the shoe company well. “They buy shoes every month–recession or not,” he says, noting that despite the downturn there is “still some degree of purchasing power; [the company] will continue to attract women consumers.” The company isn’t ruling out a listing, but there are no plans yet.

Along the way the shoes and accessories brand is also making the designed-in-Singapore category look good. Moving up the food chain to products that are designed and branded–rather than just copied or manufactured on contract–is growing increasingly important for trade-reliant economies such as Singapore’s. Just ask Chew Hua Seng, the chief executive of Raffles Education–a group that owns a network of design schools in the region. He’s been an outspoken advocate of the power of design, and it’s a hot topic among Singapore government policymakers these days. “With a small local market and an export-oriented economy competing with other global products and services, it’s important that Singapore companies embrace design to make their products and services more attractive,” Chew says. “Local companies such as Charles & Keith have incorporated a vibrant design culture into their business model.”

Wong, 35, was learning the shoe business probably before he could tie his shoes. As a kid helping out at his parents’ tiny neighborhood store, he noticed what designs customers liked and disliked–and how reselling shoes acquired from wholesalers may not be the best way to go. “Many times customers gave me feedback on the designs they wanted and I’d feed the comments to my suppliers,” he says. “But they were not able to deliver the designs that our customers wanted. Also, the prices they were offering were not competitive enough.” It was frustrating, he says.

In 1996 Wong ventured out to start his own shoe shop, Charles & Keith–naming it after himself and his next youngest brother. It opened in a business district hotel arcade. Keith, two years younger than Charles, joined the company full-time in 1998 after completing his national service. Youngest brother Kenneth signed on to the company’s design team a couple of years ago after graduating from the Nanyang Technological University, the only one in his family to graduate from university.

The first years saw the two brothers slogging it out as they juggled stocking inventory, designing shoes, tending to the cash register and devising strategy. “Then we decided to work smarter and split up our roles,” says Charles, who is the public face of the company; Keith doesn’t give media interviews. “So Keith did the designing and I did the selling. We wanted to differentiate our brand.” Besides creating their own designs, the company also avoids buying materials from wholesale suppliers in Singapore, preferring to buy directly from China.

A quick flip through the company’s catalog helps explain the brand’s appeal. Lanky models flaunting trendy shoe designs, bags and sunglasses in European photo shoots show the makings of a global brand. Charles & Keith Facebook groups have sprouted up, giving faraway fans venues to rave about the label’s latest offerings. And the company’s young staff–median age, 27–keeps the chain in touch with its market. “Everyone in the company is working so hard, we can’t afford to slow down. We have to keep running,” says Wong.

Today Keith leads a design team of 70–mainly Singaporeans, Malaysians and Chinese–who churn out almost one shoe or accessory design a day for Pedro and more than 1,000 new shoe and accessory designs annually for Charles & Keith. The designers are in China, close to where most of the shoes are made. Designers make regular trips to Europe and the U.S. to attend fashion shows and conduct market research, says Charles Wong. And the company spends 3% of its annual revenue on training the designers, he adds.

For much of its history Charles & Keith employed multiple strategies. It signed up regional distributors as well as taking on some contract manufacturing orders and dishing out franchise licenses. “At that time we were not so focused; we were like a wholesaler cum brand operator,” says Wong. It was only around 2004 that he decided to streamline the business model, selecting key franchise operators to run the overseas stores. “Whenever I meet overseas partners, I learn a lot from them,” he says. “I listen and see what they are doing. They are experienced brand operators who know how to invest in and groom a brand.”

Today there are more Charles & Keith stores in Saudi Arabia than there are in Singapore. Its franchise operator in Saudi Arabia, Fawaz Alhokair Group, runs 22 stores there, alongside the group’s other international brands such as Zara, Nine West, Massimo Dutti and Aldo. “When I went to the Middle East, I said: ‘Wow, the world!’ My Saudi partner has so many brands. The world is so big.”

After entering Saudi Arabia in 2005, Charles & Keith expanded rapidly in the Middle East. It’s now found in Bahrain, the UAE, Jordan, Kuwait, Egypt and Oman. It opened five stores at once last November in Cyprus, and two more are in the pipeline there. “And then we started to dream even bigger–maybe China, India and other countries,” he says. “If we find the right partners, over the next five years we should be able to grow to 500 stores. We have not entered China. We haven’t entered Russia and the U.S.; Europe, we just started. We want to grow without hiccups. I can rush to open stores in ten countries in one year, but if we open in ten countries with ten problems, then it will be really hard for us to grow. We would also like to recruit Japanese and people of other nationalities so that we are better able to understand these overseas markets.”

http://www.forbes.com/global/2009/0511/052-charles-keith-shoes-world-at-their-feet.html

 

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