Business strategy of opening stores next to industry leaders

Each day from noon to 1 p.m., employees at the headquarters of the Korean tea cafe brand Chaoreum count the number of customers of the brand’s Daechi store in southern Seoul and the number of those visiting Starbucks next to the tea cafe.

The tea cafe’s operating company, Chaoreum FNB, strategically decided to open its stores near Starbucks store, judging that customers of Starbucks would be their potential customers.

Chaoreum cafe in Daechi is the first store opened under the strategy. The 155-square-meter store is intended to be bigger than its neighboring Starbucks with 105 square meters.

One may wonder why a two-year-old start-up company tries to compete with the world’s most famous coffee brand. Kim Jae-hun, the strategic management team leader of Chaoreum, said, “We believe that presenting our tea cafes along with the industry leader Starbucks’ stores enhances our brand image.” Another reason to open stores next to Starbucks is that 30 percent of its sales come from coffee-based beverages. The tea cafe has 10 coffee-based beverages out of 90 items on its menu.

In many cases, new comers of industries, including the food service, fashion, distribution and food and beverage industries, open their shops next to stores of leading brands of the industry to heighten their brand image by competing shoulder to shoulder with the industry leader. Management experts call this strategy “piggybacking” or “next door strategy.”

Korean fashion brands also often open their stores next to other global brands. LesMore, an affiliate of the Kumgang Shoes Company, acquired two buildings next to ABC Mart, a Japanese shoes compilation store, in Myeongdong to open its stores. The ABC Mart raises the biggest annual sales of 370 billion won (329 million U.S. dollars) in the domestic market. LesMore has the second biggest share with 135 billion won (120 million dollars). Nam Dong-hyeon, the business team leader of LesMore, said, “We’re going to lure customers of the industry leader by opening a bigger shop next to it.”

After opening its store adjacent to Spain-based fast fashion company "ZARA" in Myeongdong last year, SPA brand "8 Seconds" of Cheil Industries has raised the equivalent sales to the former. Encouraged by this performance, the Samsung affiliate plans to advance into the Chinese market in 2014, one year earlier than originally planned. A source at Cheil said, “We’ll compete head-on with global SPA brands such as ZARA and H&M by opening stores beside them in China.”