cia. hering investor's day 2016_inglês
TRANSCRIPT
1
How we evolved in 2016 2
Execution of key activities in one of the biggest recessions in country's history
Cia. Hering Day 2015
PRODUCT & STORE strategic
fronts (P&S)
Cia. Hering Day 2016
Product
Collection improvements,
mainly from High Summer on
Product Lifecycle Management
(PLM) evolution
Store
Step-up in Shopping
Experience
Hering Store Refurbishment
plan
Supply and VM improvements
DZARM. franchise
launch
Operation
SAP System Implementation
Changes in Engineering
and R&D
Inventories returning to
normal levels
Channel
Technological upgrade and
sales stimulus at webstore
multibrand diagnosis closure
Company
Evolution in Governance and
creation of Strategy
Committee
Strategic Fronts 2016-2017 3
Product and Store remain as priority
Initiatives related to
tore
Initiatives related to
roduct P & S
BRANDS
Value proposition construction 5
Delivering consistency and updates in collections is key factor for consumers and clients (trade)
Branding
Value proposition
Pro
pri
etar
y s
tyle
Pro
mo
tio
nal
ca
len
dar
Sho
pp
ing
exp
eri
ence
Co
mm
un
icat
ion
Mix
an
d p
rici
ng
stra
tegy
Inn
ova
tio
n
Consistency
Product Management 6
Product evolution through new development model - Product Lifecycle Management (PLM)
Design Follow market trends,
understand the consumer and sell-out
data, assessing what works in the store
Innovation and inputs alternatives Develop and bring innovation to the process, introducing new fibers, knit, generating differentiation and competitiveness
Cost Efficiency Look for alternatives in product construction that make feasible what style requests (quality, finish, modeling, etc.), ensuring price and margin strategies
Value for money
Product Management
Organization continues to evolve to better support brand management structures
7
DZARM. Rodrigo
Hering Andrea
Children Romael
Shared team - creates basis and generates synergy between brands
Demand planning
Áureo
Engineering and purchase
DZARM. Hering Children
R&D
20
16
evo
luti
on
s
Brand Management
Edson
Merchandising Collection Planning
Style
Visual Merchandising
Communication and Marketing
Brand Management Pillars
$$$
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Ongoing Programs
Product evolution through programs focusing on perceived quality improvement
• Aims to enhance the perceived quality of products, an attribute
already recognized in all Company’s brands
• From the choice of inputs, suppliers training, production process evaluation, through the delivery the product to final consumer
Study on the consumer profile evolution in partnership with SENAI (Industrial Learning Center) Goals: • How to make products wear even better • Consistency and standardization of measures
Increased conversion Repurchase in webstore and in the traditional channel
Kids market – Where are we? 10
Brands’ combined strategy yields good results
• Combined strategy in kids market by working with two brands of different and complementary profiles and styles
• Approach allows brands to coexist, favoring market share gain in all channels
• In multiband, particulary, the strategy generates competitive advantage by offering a broad portfolio for different occasions of use
Value proposition
To offer differentiated and colorful style for children of classes A and B
To offer casualwear for children of all social classes
Kids market - PUC
End of adjustments in value proposition and distribution network with signs of stabilization
Adjustments promoted in the network distribution, and store closing getting closer to the end. Renewals at key POS.
Product evolutions, aligned with brand’s lifestyle and positioning.
Signs of results stabilization with better results since this year-end.
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Launch of Shop.
Morumbi
+ 350% (jan-nov/16)
Kids market - PUC
We will promote relevant actions to reinforce distinguished brand positioning Co-branding partnerships, such as Liberty For the autumn 2017, one of the most traditional English brands and pioneer in stamping, reinforcing the distinguished brand positioning.
New partnerships in 2017 including renowned stylist signing collection.
Social media
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Liberty and PUC
campaign
330k followers
+ 113% (jan-nov/16)
96k followers
~170 million impacts in 2016
Communication
Kids market - Hering Kids
Sustained growth through value proposition and expansion of the store network
13
Company’s best performance and positive SSS in recent quarters
Good value proposition reflected in product offering, store experience and communication
Next steps
Grow through combined strategy with PUC
Potential to open stores in the next years
Shop. Morumbi SP State
Shop. Cidade
São Paulo SP State High
Summer Collection
2016
400k followers
118k followers
Activation Children’s
Day
Kids market - Hering Kids
Focus on increasing awareness and connecting with consumers in 2016
14
Communication and engagement
Marketing mix: Investments in printed media, online and Pay-TV ~ 185 millions impacts
Activation
‘Mês do Brincar’
Promotional calendar
Cartoon Network
Run SP and RJ
+ 240% (jan-nov/16)
+ 260%
(jan-nov/16)
Social media
Synergy among pillars ensures coherence, consistency and integration in long-term Long-term strategy with short-term impact:
Male line discontinued Greater selectivity in the multibrand channel
Brand can come up with new processes, new business model formats for Cia. Hering
Business plan of own stores focused on brand, product and channel construction
BR
AN
D
PEOPLE
PROCESSES
DZARM. | Business plan
PR
OD
UTO
CH
AN
NEL
PR
OD
UC
T
16
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DZARM. | Brand
DZARM. is for urban women who want to express all their power and self-confidence in a Natural way.
We offer a complete portfolio for all occasions, which reflects the latest trends in cosmopolitan style, with a
great value for money.
Curatorship of current and versatile fashion to keep up with the intense life of modern women.
Target: young women, Class A/B from 25 to 35 years old.
17
DZARM. | Marketing and Communication 18
4 MEDIA PILLARS
Digital Magazines Influencers TRADE (POS)
STRONG GROWTH IN SOCIAL NETWORKS
+ 26% vs 2015.
(642k followers)
+ 128% vs 2015. (140k followers)
Focus on Awareness + Differentiation + Conversion
Integrated Communication Plan
E-commerce as an important platform for the business
DZARM. | Product 19
Complete portfolio for all occasions of usage with great value for money
Product mix more adjusted to the value proposition
Total Look – more than 300 products per collection
Portfolio Structure70:20:10
- Greater focus on key categories: T-shirts; Jeans and 3rd piece
Increase accessibility
Portfolio adjustment by increasing intermediate price ranges
Reinforcement of entry price
Products connected to commercial calendar
Average price of R$ 148.0 (sell-out)
Reduce time to market
- New development process for fast cycle items
- Capsule collection with prompt delivery
DZARM. | Channel – Multibrand Significant drop in revenue due to multibrand closures and greater channel selectivity
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High capillarity: presence in more than 3,000 points of sale (-20% customers vs. 2015) Channel with complementary role: bring revenue without depreciating brand
Strategy
Channel Segmentation Focus on Qualified Multibrands
Expand at Boutiques
Strengthen presence in POS and improve brand experience
More commercial and accessible portfolio Dedicated commercial manager pilot to DZARM. in SP
DZARM. | Channel – Franchise Light 1st pilot store recently inaugurated in Alfenas - MG
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Concept Stores ~45 sq. meters, expansion focus in cities with less than
500,000 inhabitants Lower set-up cost Promising expansion potential
We are HERING We offer a contemporary casual style, with strong recognition in basic,
translated into our proprietary style, generating a unique value proposition to our consumer.
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Are we BASIC? Are we FASHION?
Collection Efficiency
Promotional Calendar
Intensification
Creation Times reorganization by
specialty
Proprietary Style
2016 PRODUCT FOCUS
Collection development process fundamentals
Expected effects starting from 2017
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FOCO EM PRODUTO
• Value for Money consistent in all categories and price ranges
• Collections connected to commercial strategy in stores
• Product variety yielding innovation
Collection Efficiency
PRODUCT FOCUS 25
PRODUCT FOCUS
• Product activation at the point of sale, boosting conversion
• Storytelling creation for each moment of each collection
Promotional Calendar
26
PRODUCT FOCUS
• Dedicated teams to men's and women's collections, mirrored structure at development areas
• Specialization generating consistency and efficiency across several lines
Teams and processes reorganization based on PLM model
27
Proprietary Style
• In-depth consumer study • "Hering filter“ set-up
according to our proprietary style, essentially casual
PRODUCT FOCUS
Nível de Moda regulado para o estilo Hering,
essencialmente casual
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FIRST DELIVERIES 2017
Value for
Money enhancement
Hering Proprietary
Style Consolidation
Jeans Essential
Complement to Hering
Style
BASICS’ territory appropriation,
translating into full range of products
29
MULTIBRAND
Market Context 31
Economic difficulties in the last two years have exerted pressure on the multibrand channel
Net loss of customers
Difficulty in opening new POS
Source: Monthly Trade Survey released by IBGE, sep/16 ¹ Data referring to 'Fabrics, Clothing and Shoes’ group
Sales variation of apparel¹ in Brazil (Brazilian Statistic Bureau – ‘IBGE’)
Source: http://onegociodovarejo.com.br/o-estrago-da-crise-segundo-cnc-varejo-fechou-1669-mil-lojas-entre-2015-e-2016/
National Trade Confederation data
700k retail stores in the country, with at least
one employee
166.9k closed throughout 2015 and in the first half of 2016
-5.2% -6.1%
-8.7%
-11.3% Nominal Sales Volume
Multibrand – Current scenario
Channel’s complexity demands company’s greater sophistication, creating segmentation opportunities
Annual sell-in sales
R$800+ million
Points of sale
~18,000
Sales Representatives
~400
Showrooms per collection
~150 Orders/year
300,000+
Cities
3,000+
States
27
Main challenges
Sales decline in the channel
Restricted knowledge of customers
Differentiated service-level
Set where to invest in POS execution
Map where to grow
Better serve Qualified Multibrand, avoiding conflicts
Increase showroom effectiveness and adherence to collections
Evolve management of sales team
of company’s sales
~45%
32
Data referring to the fiscal year of 2015.
2016 Segmentation Study
Different clients, distinct groups, specific policies
Focus in Basic Focus in Discount Regional Networks Qualified Multibrand Traditional Fashion Sophisticated Fashion
33
+ Concept + Price
2016 Segmentation Study 34 To meet the challenge, it was necessary to elaborate a
segmentation project using several parameters City Size
Region
Typologies Customer
Information
Cia. Hering Performance
Consumer profile
GAP Analysis
Segmentation typologies
Vis
ibili
ty a
nd
C
om
pre
hen
sio
n
2016 Segmentation Study 35
Different customers, distinct groups, specific policies
- Strategic relevance to Cia Hering +
- C
on
sum
pti
on
co
nce
ntr
atio
n
+ C
ity
Size
Segment 7
Segment 5
Segment 6 Segment 2
Segment 3 Segment 1
Segm
ent
8
Qu
alif
ied
Mu
ltib
ran
d
Clu
ster
an
d
clas
sify
Focus in Basic Focus in Discount Regional Networks Qualified Multibrand Traditional Fashion Sophisticated Fashion
+ Concept + Price
Segment 4
Vis
ibili
ty a
nd
C
om
pre
hen
sio
n
2016 Segmentation Study – Action plan 36
We shall implement over the next two years a new business model to the channel, aiming to leverage sales
1. Who demands minimum inventory
2. Who we will invest in VM and activations (banners, stickers, etc.)
3. Who will have differentiated service-level
4. Where will we explore more cross-selling opportunities across all brands
Segment X Y Z W ... Qualified
Multibrand
Exclusive commercial policy ...
Service-level model ...
POS material ...
Serving priority ...
Immediate stock availability ...
Allocation priority ...
Illu
stra
tive
exa
mp
le:
1.
2.
3.
4.
Act
ion
p
lan
1. Who should have priority in supply
2. When will we have prompt delivery
3. How the participation in showroom will be
4. How to allocate better company resources
5.
6.
7.
8.
Vis
ibili
ty a
nd
C
om
pre
hen
sio
n
Clu
ster
an
d
clas
sify
E-COMMERCE
E-commerce – Our brands in the online channel 38
Hering.com.br DZARM.com.br PUC.com.br HeringKids.com.br OutletEspacoCiaHering.com.br
How did we get here? 39
Building a solid technology foundation
1998
E-commerce launch
2008
Relaunch
2009
Launch
2010
Launch
2016
Launch
2012
New platform
2015
Unified platform
Latest 5 years
~ 260% growth in visits
~ 300% growth in
unique visits
~ 200% growth in revenue
~ 140% growth in volume
Business maturity
Robust and flexible
platform
Brands’ digital
presence
Investments in Digital MKT
Unique communication
across the channels
Channel with strong growth in recent years
How are we? 40
With the consolidated platform, in 2016 we started a new stage in digital retail
Source: Google Analytics
* Until 28th, Nov
Launch of Outlet Espaço Hering. More investments in digital media, resulting in traffic increase and revenue growth.
1st Half 2016
2nd Half 2016
Visits New Visitors
Recurring Visitors
+17% +12% +21%
Implemented features:
• Products recommendation in virtual stores and via email
• Personalized campaigns of cart abandonment
• Total look purchase (lookbook)
• Responsive layout to desktop and mobile
• Inclusion of videos in product’s description
• Photos with dressed models
Indicators Jan-Nov/16*
E-commerce in 2017 41
Investments already approved must sustain/accelerate the good sales moment of the channel
To increase
FLOW • Investments in SEO (Search Engine Optimization) > Improve rank
• Higher investment in digital marketing
• APP Hering/mobile
• Create MKT campaigns by Geolocation
• Understand and integrate the cross-channel consumer behavior
• Investment to improve User experience and User Interface (CRO)
> increase conversion rate and consumer engagement
To increase
CONVERSION
To improve
CONSUMER EXPERIENCE
E-commerce: channel consolidation 42
9M15 9M16
1.7% 2.4%
E-commerce sales’ participation
To assure our position as one of the leading brands in Brazil's e-commerce
+ 70 bp
Online traffic increase
Conversion rate improvement
Expansion of logistics
OmniChannel
as strategy to boost both channel’s and B&M results
layout redesign for mobile
to meet new projects and channel growth
advance in integration process with other channels
Opportunity
5% of sales in the coming years
STORE EXPERIENCE
44
The store refurbishment cycle is part of the plan to improve shopping experience
2016 Refurbishment Plan
Designed for a quick conversion of the main POS and revitalization of the oldest ones
2015: 87 stores in the Evolution Project, 13% of total network
2016: Refurbishment Plan launch, estimated in ~100 stores
30-40% reduction in investment
¼ of subsidy of the amount invested
by franchisees
Financing ¾ of total invested
Reduction in the ‘closed for renovation’ days
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Negotiation with suppliers
Savings on items that do not impact customer
Project adjustments to faster execution
To be granted upon store reopening, totaling up to R$
10 mn. Booked in 'Sales Expenses'
Funded by the company, recorded in balance sheet as 'Other Accounts Receivable'
2016 Refurbishment Plan
Shopping center store: example 46
2016 Refurbishment Plan
Shopping center store: example 47
2016 Refurbishment Plan
Street store: example 48
2016 Refurbishment Plan
Renovated stores: more examples 49
Pq. Dom Pedro Sh. Campinas
SP
Itapeti-ninga
SP
Shop. Boulevard BH - MG
Shop. Iguatemi
Florianóp. SC
Barra Shop.
RJ
Catuaí Shop.
PR
4 states
17
2016 Refurbishment Plan - Results
We executed 100 Hering Store renovations in 2016
Remodeled stores remained closed for
renovations, on average, days
Subsidy granted by the company (R$ mn)
* Estimated
50
3 states
4 states
64 stores
4 states
3 states
Renovation dispersion by state Re-openings per month
100 stores
18 states
8 stores
7 stores
3 stores
18 stores
1.2 1.6
6.0
8.8
1Q16 2Q16 3Q16 4Q16E* Feb Apr Aug Sep Oct Dec May
2016 Refurbishment Plan – Hering Store
We prioritized the conversion of the main POS
In 2016 we executed the most ambitious refurbishment plan in company's history, which included the renovation of the main points of sale.
We ended 2016 with ~30% of the base in the new project.
From now on, we enter in a normal cycle of renovations with no incentive program.
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Store Experience – Improvements in VM
The new project presents important evolutions in the setting and VM
52
Presents trends and advises the consumer on the look composition, collaborating to raise cross-
selling and average ticket
Greater use of tables, better location for activation and exhibition of high turnover fashion merchandise.
Opportunity to increase volume and average ticket
Focal point
Fashion
Enhancement table
High turnover
Store Experience – Improvements in VM
The new project presents important evolutions in the setting and store VM
53
Highlight in sales area, with high display capacity favoring self-service. Frontal display addition
Dedicated area to enhance category, with curatorship, allowing better visualization and interaction
with several variants Focal Point jeans
Focal point Basics
STORE OPERATION
Supply 55
Essential in creating better shopping experience
Promotes store organization and mix
standardization
Increase the value perception
Improves brand image
Reduces shrinkage
Supply
Developments made in 2015 and 2016 supply model prevent inventories accumulation in the network
56
2015: Inventory adjustment and markdown strategy revision of past
season items
2016: change in the supply model
Assortment recommendation store by store Emphasis on greater depth
Purchasing strategy per closet/fixture Transitory collections = inventories adjustment
* Purchase valued at MSRP
Purchases and sales of Hering Store network excl. outlets
Fall/16
Winter/16
Spring/16
Fall/16
Winter/16
Spring/16 + fall leftovers + winter leftovers
-0.9%
Biweekly recommendation of basic’s replenishment
Purchase* Sell-out R
$ m
illio
n
Supply
We will evolve in 2017 by evaluating product location in the store since its conception and by improving basics supply management
57
Increase in the frequency of high-turnover basics replenishment
Resupply controlled by the company
Automated basics replenishment
Adoption expansion by the network
It will cover from product planning to in-store application
Purchase evolution/ selection of network assortment
Store management - evolutions 58
Supply initiatives combined to others that support franchisees to manage their operation
Sto
re m
anag
emen
t
and
su
pp
ort
Standardizes team and store processes
Records the visit
Scoring system
Management of improvement points
Generates action plans and monitors it
Generates understanding of best practices
Fast improvement of store experience and VM in the pilot carried out in the South region
Extended to all Brazil from
Feb 1st on
Example: Store – South region
Training in operation management:
• Live training about Store and Financial Management to franchisees and staff
• Development via Portal to store staff, with around 20 thousand impacted in 2016
New Business Intelligence - ‘BI’, to franchisees and staff
Consultant's Electronic Inspection Report ‘ ‘REV’
Outlets
A good alternative for managing past season items 59
7 stores operated by Cia. Hering
~4% of network’s sell-out
Two-digit of SSS growth in 9M16
It will sell more than 1 million items in 2016
Catarina Outlet
SP
Outlet Plus BH
Outlets 60
The space is shared among the Company’s brands, in a structure with low operational cost
Outlets - strategy
The channel can gain even more relevance in the sale of past season items
Best channel to sell past collections
Greater control in the point of sale experience
Good consumer acceptance. Improved experience (vs. traditional clearance channels)
Better margins for the Company
Channel growth, since current stores meet only 10-15% of the Company’s need
Improve Company’s profitability, with average sales margin increase of markdown items
61
Application
Benefits
Opportunities
Store network| Satisfaction Survey
High level of satisfaction of Cia. Hering franchisees network
Source: Instituto da Qualidade – Nov/2016 Research conducted with franchisees of Hering Store, Hering Kids and PUC networks.
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Willingness to open another store (same brand) if it were to invest in retail
Willingness to recommend to whom might invest
Overall Satisfaction
Very satisfied
Satisfied
Insatisfied
Neither satisfied, nor
insatisfied
Very insatisfied
Definitely yes
Definitely no
Probably no
Maybe yes, maybe no
Definitely no
Definitely yes Probably no
Maybe yes, maybe no
Probably yes Probably yes
Management and Operation of store Network
Key Messages 63
Improved store experience as a priority
Store network renovation in progress
Supply initiatives progresses
Support for the franchisee> continuous investments in systems and training
Outlet presents a good opportunity
Healthy and confident franchisees’ network
FINANCIAL MANAGEMENT
Financial Management | Cash Flow 65
Strong cash flow generation this year due to improved working capital and reduced CapEx
in R$ million
Reduction of R$ 76.8 million in working capital and lower investments favored cash flow generation
Cash flow from operations
Financial Management | Shareholder’s Return 66
Historically payout has grown in line with cash generation
in R$ million
Strong cash generation in 2016 tends to translate into higher payout in the year
Share Buybacks
Financial Management | Priorities
We will prioritize operating results normalization and cash generation
Short-term scenario
4Q16 still presents difficulties in sales due to a difficult consumption environment
Higher invoiced volume of High Summer collection in 3Q16* generates sales impacts to the channel in 4Q16
2017 Priorities
Sales growth resumption. Focus on Product & Store
• Markdowns reduction, positively affecting gross margin
• Cash generation and conservative capital structure
67
* As detailed in the 3Q16 release reported on 10/27/2016
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Cia. Hering www.ciahering.com.br
+55 (11) 3371-4848
Investor Relations www.ciahering.com.br/ir
[email protected] +55 (11) 3371-4867 / 4805