The first thing Patrick Zahn did when he became CEO of KiK was really not much at all. After taking over in January 2016, the company’s former managing director of sales kept true to his innate philosophy: Don’t change things just for the sake of it.
“KiK was already a successful company, so for me it wasn’t like I had a list of 100 things to change,” Patrick explains. “I did my own personal check of small things I could immediately do to make the company better, but with more than 20 years of successful trading, KiK was doing a lot right. So the list wasn’t that big.”
American expansion
That’s not to say that Patrick isn’t thinking big. In fact, his big picture for the German discount store is huge. He plans to expand KiK’s retail presence in Europe to 5,000 stores, an increase of about 1,500. Then, of course, there’s that small matter of conquering the American market. Patrick wants 25 stores in the Midwest of the US as a start, and it’s a job he concedes will be tough, competing against well-established discount juggernauts such as Walmart and Costco. While accepting that KiK’s foray into the marketplace will probably be fraught with mistakes, Patrick remains undaunted. He’s ready to grapple with the challenges one step at a time. And the first step is getting Christmas right.
“Americans have very different tastes at Christmas from Europe,” Patrick says. “I don’t know why, but they even have different colours and we have to respect that. So we would probably go with 70% of our European selections, and the rest would be specific to the Americans.
“The US is a very different market; we will learn a lot and we will make a lot of mistakes.” – Patrick Zahn
“Of course, we want to open up with our business model, but the customer is the most important factor. It makes no sense to say: This is our concept, these are our products, take them or leave them. The customer decides what they want to buy, so we will have to buy from an American importer and offer different things.
“It’s going to be a lot different from opening another store in Europe,” Patrick adds. “For a start, there will be different rules for Customs. Then there is the time difference to negotiate. The US is a very different market; we will learn a lot and we will make a lot of mistakes.”
Customer is king
KiK’s commitment to the customer has been ingrained in the company’s culture since it was founded in 1994 in Düsseldorf by Stefan Heinig and holding company Tengelmann Group. The name, an acronym for Kunde ist König — Customer is King — says it all, with the retail chain determined to keep prices low even in the face of online competition. There are 2,600 stores operating in Germany alone, ranking it among the top 10 largest suppliers to the country’s retail sector, and hundreds more are scattered throughout Austria, Slovenia, the Czech Republic, Hungary, Slovakia, Croatia, Poland and the Netherlands.
Low-priced clothing is the company’s core business, accounting for 70% of sales, with household wares, games, stationery and toys supplementing the range. The formula for maintaining low prices is as simple as the products on offer. Keep them basic and offer them all year round. If it’s high street fashion or sophisticated technology you’re after, KiK is not your store.
Patrick cut his teeth in discount retailing with Aldi and Plus stores, predominantly developing and expanding them into foreign markets. He believes in the principle that large retailers should enjoy around a decade of success in their own countries before dipping a toe into others, a sensible approach considering discount retailers pop up every day around the world somewhere, but often pop down just as quickly. When Patrick joined KiK in 2008, roughly 10% of its stores were operating overseas. He’s tripled that number, unabashedly fearless of competition — and, in fact, rather welcomes it.
“A monopoly is unhealthy, for both the customer and the company,” Patrick declares. “We are great at what we’re doing, and we have a great supply chain, so I am not afraid of our competitors. It is good that more are entering the market, and indeed leading some of the market. That’s normal. It just drives me to look at what they’re doing well and work out how we can improve. I am happy to have competitors because it makes us better.”
“Ecommerce is not an easy business, especially if you have a low price point like ours.” – Patrick Zahn
Ecommerce + traditional trading
Surprisingly, Patrick’s focus on improving KiK doesn’t stretch so much to online shopping. While KiK products have been available online for 3 years, ecommerce accounts for only
2% of the company’s turnover.
“Of course, online shopping is important, but not everything is about sales; it’s about profit,” Patrick explains. “We were swept up in the online excitement and put together a strategy with expectations that online selling would account for 10% of our sales. But we learned that there are drawbacks, particularly for discount stores. Ecommerce is not an easy business, especially if you have a low price point like ours. You have to change your supply chain, you need to ship a certain amount before you can make money, then there are warehouse costs and return costs.
“We didn’t want to lose money, so we changed strategies. Unlike our competitors, we started charging a delivery fee and started making money. Honestly, though, to me it doesn’t matter if we have 5% or 2% in sales; it is just important that we don’t lose money, and of course be ready in case customers decide they only want to buy online.”
Another strategy KiK implemented to enhance its online service and make the shopping experience easier was to allow its customers to return online purchases into the KiK stores. Patrick was convinced that with 3,400 stores dotted around Europe, all boasting more user-friendly opening hours than post offices, a new opportunity was there for the taking.
“So a customer comes to us after work to return the jeans bought online, gets the refund back there in our store, ready to spend that money again,” Patrick explains. “It’s ecommerce mixed with traditional trading.”
All about the shopping experience
Speaking of tradition, Patrick recognises that KiK always relied on its low prices to lure consumers through its doors. There was no real shopping experience, just the grab for a bargain. Décor, the layout of the stores, and service on the floor were largely insignificant until recently when KiK undertook a massive project to renovate. Although he admits KiK had the advantage 2 decades ago by offering great prices, as more and more competition emerged the attraction became not so much about price but all about the shopping experience.
“Previously the only experience in a KiK store was grabbing the product, going to the cashier, and paying a low price,” Patrick admits. “So we decided to improve that experience and are remodelling and upgrading 600 of our stores per year. It is a lot of work, but really something very special, and turnover has already increased by 12%.”
One KiK legacy that will remain unchanged, however — and Patrick insists he will encourage — is to keep stores local. He believes that having a KiK store in the neighbourhood is a unique point of difference from competitors the company enjoys.
“Of course, it’s nice to have stores in city centres, but I really want to fight to keep our stores in the local neighbourhood. That is something unique for KiK to be there, close to our customer.” It makes sense. Customer is king, after all.