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U.S. retailers are still shopping for the right marketing formula to tap the exploding Asian market, but some believe they are getting close-despite flops such as Kmart Corp.'s recent withdrawal from Singapore and Wal-Mart Stores' retreat from Hong Kong.

The Asian retail market, growing at a record 40% annually in several emerging Far Eastern countries, is tantalizing compared to stagnant U.S. and European sales. Throughout Indonesia, Malaysia, Thailand and elsewhere in the region, middle-class urban consumers are spending more leisure time and more disposable dollars at Asia's many crowded and glitzy shopping malls. Even Asian's growing number of millionaires are finding that they can stay closer to home rather than jet-set to Fifth Avenue or the Champs-Elysees to spend their fortunes.

For retailers not skilled at Asian marketing and its nuances, however, it is very easy to get burned. Singapore, for instance, has seen two major players-Galleries Lafayette and Hong Kong's upscale department store retailer Lane Crawford-pull out of the tough retail market, citing sluggish sales and high property rentals.

Large Japanese departments stores like Takashimaya also have closed their doors in Hong Kong. No wonder numerous U.S. retailers, including Sears, Roebuck & Co., are content to simply stay in their own back yard.

"You have to separate the sizzle from the substance," said one U.S. retail marketer. "You have to ask yourself who are these consumers and how can they be served better by you than the retailers who are already there."

Some highly regarded Asian retailers such as Indonesia's P.T. Matahari Putra Prima and Thailand's Robinson Department Store are already well-entrenched within their markets. In many cases, they know best what sells in their locale.

"The truth is, most U.S. retailers aren't going to bring a lot to the party," said Michael Exstein, retail analyst at Paine Webber.

Not everyone agrees. Indeed, so many foreign and Asian retailers are reaching out to Asia's shoppers that Asia is becoming saturated with malls in the 1990s after massive sales growth in the 1980s. Bigger and fancier shopping malls are springing up along the Pacific Rim like they did during the 1960s rush in America.

The Asian versions tempt shoppers with playgrounds, food courts and entertainment centers-even roller coasters and slot machines. And at many anchor spots, megastores-some as large as 200,000 square feet-offer everything from toasters to hosiery to tanks with live seafood.

The idea is that bigger is better-to a point. Rodney Miles, chairman of the Hong Kong Retail Management Association, noted that shopping center developers are now creating an oversupply of malls. To survive in this keenly competitive environment, retailers must locate in the biggest and newest shopping centers, he added.

Retailers must also get the marketing mix right, beating competitors with high quality merchandise, designer names, value prices and attractive merchandising. More often than not, those than can promote a well-known U.S. or European image also can gain a certain cachet in brand conscious Asia.

Columbus, Ohio-based retailer, The Limited, for example, has found that Victoria's Secret-and its reputation for skimpily clad models in provocative poses-has gained wide visibility among Asians. The Victoria's Secret stores have proven so popular with Asian tourists in the U.S., for instance, that the retailer is now testing a direct mail program of the famous Victoria's Secret catalog in Asia.

Meanwhile, The Gap of San Francisco is opening an initial store in Hong Kong, testing the appeal of its trendy U.S. youth culture image.

Not to be left out, American marketing superstar Calvin Klein is seeking to make his mark in Asia. He and supermodel Kate Moss made a personal appearance in Hong Kong's teeming district of Kowloon to launch a new store in mid-September and announce plans for 30 stores in Asia within the next four years.

Bringing Ms. Moss to Asia helped Calvin Klein capture free column inches in local newspapers, but the company still is taking out full-page ads in English and Chinese newspapers plus outdoor boards in prominent city locations.

Donna Karan Co. has big ambitions for Asia, too. With a Singapore-based joint venture, the fashion design house is opening as many as 29 boutiques in Asia and projecting sales of $300 million-not unrealistic considering that a 1992 venture into Japan now produces $175 million at retail.

European retailers are becoming obsessed with Asia as well. Italian clothing retailer Benetton saw Asian sales rise by 7.6% last year. In the near future, Benetton aims to penetrate China's vast market. Other European retailers trying out Asia are the U.K.'s Marks & Spencer and the Body Shop, both with good locations in major shopping malls from Hong Kong to Jakarta.

But U.S. retailers have a decided competitive edge in Asia, where interest in the American lifestyle and Western products is high. Timberland shoes, known for their rugged, outdoor image, are big sellers in Japan, where 55 Timberland Co. retail outlets have located. Timberland, also with stores in Singapore and Hong Kong, now accounts for 10% of the U.S. parent's $420 million in sales.

Often what works at home also works abroad. Seattle's Starbucks Coffee Co. has learned that it didn't need to launch a massive marketing effort to sell espresso drinks to the Japanese.

"We thought we would sell mostly drip coffee," said Etsuko Mason, a Starbucks manager in Tokyo, "but more customers are used to espresso drinks and a lot of people really like it."

J.C. Penney Co., which has retail partners in Indonesia and the Philippines, is opening 27 stores in Asia that carry the same merchandise as in the U.S. The franchise operations will sell Penney's private label brands such as Arizona and Worthington for Women and recycle U.S. merchandise-related print advertising.

Likewise, when Toys "R" Us first entered Asia in 1981, marketing managers at the Paramus, N.J., headquarters thought they needed to tailor advertising to each country. Now, the giant toy retailer has figured out that its target is simply moms, who, like their U.S. counterparts, are looking for value and selection.

Now the toy retailer is positioning itself as "the world's largest toy store," said Ernie Esperanza, senior VP-marketing and advertising for Toys "R" Us.

He added that Toys "R" Us also has learned that marketing a core concept like gift giving between parent and child crosses international borders readily.

"One of the things we found out is that the consumer is relatively the same," said Mr. Esperanza, even though the selling seasons may be different. "What is very important is that the mother find the right toy and realize she is getting it at a good price and value," he said.

Toys "R" Us has kept its name in English on the logo.

"In fact, in most cases being a strong American company is a plus," he said, better than being "a me-too" retailer in Asia. The toy retailer, with ad agency Quantum Media International, New York, markets itself with the familiar U.S. approach: sales promotion inserts in Sunday newspapers, direct mail catalogs at Christmas and sale-specific TV campaigns.

Unlike Toys "R" Us which owns its own stores, Mrs. Field's has gone the franchise route, entrusting decisions about marketing to individual operators. The company currently has 30 Asian stores in six Asian nations and plans to open 150 stores during the next five years."Each country is different and there are a lot of cultural differences," said Tim Pierce, senior VP of the Salt Lake City-based firm.

Still, franchise owners are required to spend 2% of their revenues on advertising, primarily through point of purchase and couponing, either adopting Mrs. Field's domestic work or developing their own. Cookie recipes are changed by market, too. In Indonesia, for example, large native-grown cashew nuts are added to chocolate chip cookies.

Also customizing products for the retail market is Wal-Mart, which stocks pigeons in the Shenzhen store in China.

However, Wal-Mart hasn't always been so smart. In its initial foray into Hong Kong, for instance, Wal-Mart stocked basketball court backboards, hardly practical for Hong Kong's many tiny apartment dwellers. After about a year in Hong Kong with lackluster sales, Wal-Mart in January pulled out of its joint venture with a Thai conglomerate to concentrate on the larger China market.

But Wal-Mart has a more compelling strategy in mind for Asia, a tactic that has made it a retail giant in the U.S.-low prices.

When Wal-Mart opened a Sam's Club and Wal-Mart store in Shenzhen in August 1996, it was greeted by potential boycott threats from local retailers, fearful that Wal-Mart would put them out of business with cut-throat low prices. Wal-Mart executives downplayed that scenario, but not others.

"If the wave of Western-style general merchandising and retailing takes hold, it will dramatically reduce the cost of goods in this market," said Mr. Exstein, the Paine Webber analyst.

"We're not talking about silk blouses and Gucci loafers here, we're talking about the necessities" at affordable prices.

Eight years ago, he said, Western-style merchandise was very expensive and distribution fragmented. Now, however, retailers are entering the market with plans to offer prices that are significantly lower than anything the market has seen before from the West.

At least one U.S. shopping center developer is spearheading partnerships with retailers that can offer affordable prices in Asia.

"The demand for American goods and American lifestyle is very high," said Allan Davis, president, WPI.KOLL, Asia Pacific Advisors, Newport Beach, Calif. Mr. Davis is asking retailers to forgo traditional U.S. price markups.

"We're asking them to base prices on costs," said Mr. Davis, adding that he believes low prices are what have made Eddie Bauer Inc. successful in Far East markets.

Certainly, Asia presents both opportunities and challenges to the West. What makes the region so inviting, however, is that the leap from rags to riches among Asian shoppers is so sudden.

Contributing: Rebecca A. Fannin, New York, and Jane Blennerhassett, Hong Kong.

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