2015
ENG
Cia. Hering Day 2015 - Agenda
8:30 OPENING
9:00 CHANNELS
9:50 COFFEE BREAK
10:20 PRODUCT AND BRANDS
11:10 PHSAP² PROJECT
11:40 Q&A
11:25 FINANCIAL MANAGEMENT
OPENING Fabio Hering
How did we get here?
Diagnostic 2013
Organizational model evolution focused in brands
Cia. Hering Day 2013
Focus on Product
Collection
Basics relaunching
Collection improvement
New fronts
Launch of Hering for you
DZARM. relaunch
Cia. Hering Day 2015
Multi-channel
New e-commerce platform
Supply
Improved selling process
Focus on VM
2
Structure
Fabio Hering CEO
Edson Amaro Brand Officer
Ronaldo Loos Commercial Officer
Moacyr Matheussi Supply Officer
Brands Commercial Supply Backoffice
Edgar Filho Industrial Officer
Frederico Oldani CFO and IRO
Alessandra Morrison People and Org. Officer
Marciel Costa Administrative Officer
Andrea Hering manag.
Rodrigo DZARM. manag.
Rachel H. for you manag.
TBD Children manag.
3
Strategic vision
Organizational processes and efforts should be linked to vectors
VEC
TOR
S
Style and product development as a competitive advantage
Consumer at the business’ core
Multichannel distribution strategy
Strong brands in casual lifestyle
Channel -
Related Initiatives
Product - Related Initiatives
Purpose
4
CHANNELS
Multichannel organization
Multichannel distribution model with high capillarity
82 OWNED 12.4% of sales
725 FRANCHISE 37.5% of sales
05 WEBSTORES
STORE NETWORK
18,263 MULTIBRAND
48.2% of sales
1.9% of sales
807 stores
642 stores 88 stores 73 stores 03 stores 01 store
Source: Number of stores related to 3Q15. Sales participation over the past 12 months. 6
STORE NETWORK
Store Refurbishments
Supply
VM
Service Level
Store Network | POS management
SSS improvement from 4 POS management fronts
POS Management
8
POS management| Store Refurbishments
2007 Project 2015 Project
New refurbishment model (retrofit):
Cost reduction – approx. 60% of the current Refurbishment period reduced from 40 to 20 days
Refurbishment incentivized plan in 2016:
Subsidy and funding
Project prior 2007
New refurbishment plan considers significant number of stores in 2016
9
POS management| Supply Front Improved Supply and VM through assortment recommendation based on new stores’ clustering model
Supply recommendation implemented to Hering Store chain from 2015 High Summer collection on
Focus on network adherencee and model evolution for 2016
S
up
ply
Performance Purchase volume
Assortment Variety / Depth
#ItemColor
Point of sale i.e. HS store
Region Southeast
Sq. meters 275
Turnover 1.2
Total Performance R$ 1,710,572
Fashion Performance R$ 1,199,649
Basic Performance R$ 510,923
VM – fashion wall 6
#ItemColor fashion 442
#ItemColor Female -Top 139
#ItemColor Female -Bottom 54
#ItemColor Female - Complete 37
#ItemColor Male -Bottom 59
#ItemColor Male -Top 110
#ItemColor Others 43
# ItemColor basic 282
Clu
ster
10
POS management| Visual Merchandising Cleaner VM and better shopping experience aligned to the new Supply Model
Product Availability, cleaner VM
Product variety
Stock-outs, leftovers
Current VM Fashion Wall - 4 or 6 units
per ItemColor
12 - 15 ItemColor per fixture
Previous VM Fashion wall - 3 units per ItemColor 21 ItemColor per fixture
11
POS management| Service Level S&OP Project - improved service level to the channels with reduced inventories in the company
Channels Impact:
Improvement in delivering/supply => coordinated delivery by fixtures and cycles considering different supply sources
Cia. Hering Impact:
Leftovers Reduction => integrated planning between Sales, Demand and PPC (Production Planning and Control)
12
Store Network | Priorities in 2016
Improve profitability of store operations - Network sustainability
Sales SSS growth
Margin Increase inventory turnover and reduce markdowns – supply front
Expenses Occupancy costs renegotiation Efficiency in store service / processes
Man
age
me
nt
Too
ls
Ne
w B
I - s
tore
s
13
Store Network | Satisfaction survey
High level of satisfaction of Cia. Hering franchisees network
Overall Satisfaction
Would you open another store? Would you recommend the franchise?
Source: Instituto da Qualidade- Oct / 2015 Research conducted with franchisees of Hering Store, Hering Kids and PUC networks.
Definitely yes
Probably yes
Definitely yes
Probably yes
Maybe yes, maybe no
Definitely no
Probably no
Maybe yes, maybe no
Definitely no
Probably no
Very satisfied
Satisfied
Neither satisfied, nor insatisfied
Insatisfied
Very insatisfied
14
MULTIBRAND
Channel Management
Qualified Multibrand
North/Northeast
Plan
Multibrand | Channel Management
Distribution management based on three fronts
ManagementDistribution
16
Multibrand | Management Model Management Model Evolution in order to improve effectiveness of distribution network coverage
Service model of sales representatives
Information Management
Coverage revision (redistribution, smaller areas per representative)
Showroom efficiency (model standardization)
17
Multibrand | Qualified Multibrand
Intensify migration of traditional multibrand to Qualified
Current phase – qualified multibrands base shielding
Next movement – increase base of qualified multibrands
Traditional Multibrand
# Clients: 95%
Average purchase/year: R$ 50 thousand
Sales: 84% of the channel
Qualified Multibrand
# Clients: 5%
Average purchase/year: R$ 230 thousand
Sales: 16% of the channel
18
Multibrand | Qualified Multibrand Main pillars of Qualified Multibrand
POS Material
Training
Priority in Serving
Differentiated Commercial Policy
Brand Application
Re
lati
on
ship
P
OS
19
Multibrand |North/Northeast Plan
Clear opportunities to gain market share in North/Northeast regions
Entry opportunity. Regions have opportunities in areas not covered.
Market Share. Market Share opportunities through representatives and mix of products suitable for the region.
Sales team Number of sales representatives (from 23 to 44)
Management
Team Reformulation
Increase number of showrooms (from 12 to 20) per collection
Logistics Change of logistics operators (regions N/NE)
Productivity Service model review by geographic area
20
E-COMMERCE
E-commerce Growth plan enabled by new platform
Implementation of SAP/Hybris plataform concluded in 3Q15 for 5 webstores Robuster platform More stable Unified checkout
Greater transactions capacity Including peaks, as Black Friday
Brand Experience Stores with individualized experiences by brand
New Features Search for a specific size, purchase of complete look, etc. Increase browsing time
www.hering.com.br
www.heringkids.com.br
www.puc.com.br
www.heringforyou.com.br
www.dzarm.com.br 22
Traffic acquisition
Strong investment in online environment
Conversion rate improvement Improving browsing experience Inclusion of dressed pictures and videos Activation of virtual change room
Assortment
Use the channel for product pilots Leverage information for product development
Omnichannel Other channels integration
E-commerce | Growth
Opportunity
5% of sales in the
coming years
23
Channels | Key messages
Improve SSS through POS efficient management
Refurbishments plan advances quickly in 2016
WEBSTORES
STORE NETWORK
MULTIBRAND Management Model evolutes
N/NE Plan and Qualification
Growth based on the new platform
Boost Growth
24
PRODUCT AND BRANDS
Brand management
Structures dedicated to each brand management
Edson Amaro Brand Officer
Merchandising Collection planning Style
Visual Merchandising
Communication and Marketing
Brand Management Pillars
Andrea Hering manag.
Rodrigo DZARM. Manag.
Rachel H. for you manag.
TBD Children manag.
Áureo Plan. and demand manag.
$$$
26
Product
Extended Product Approach
Product
Store
Brand
+
+
27
Product
Products as a competitive differential
What consumers takes home is the ‘value for money’
Evolutionary leap
28
Value
for money
De
sign
Product | Value for money
Product evolution through new product development model – Product Lifecycle Management (PLM)
PLM
29
2013: opportunity to increase woven fabric
We grew in woven fabric, but fell in knit
Greater differentiation
Boost technological capacity and R&D
Key to ensure brands accessibility
Exercise leadership and protagonism
Product | Knit 3.0
Opportunity in resume growth in knit without giving up the gains obtained in woven fabric
2016: knit leverage
Co
mp
any
sale
s (R
$)
30
HERING
Source: Quanti, Bain & Co Research, 2015 Note: 2015 numbers are slightly different from Hering Day 2013 numbers due to broader scope of this research.
Visited Etimulated
Recall Top of mind
% of respondents
Purchased Purchased more
frequently Favourite
brand
55%
55%
68%
61%
27%
39%
Hering | Brand strength
Brand indicators remains strong, opportunities in increasing conversion rate remains
32
Hering | Opportunities
Product, product, product Good value in all price ranges Better experience in stores
Combination of Initiatives in Product and Store – P&S
33
Children Fashion
PUC E HERING KIDS
Children I Where are we?
Different actions taken to ensure product differentiation (extended view) for each brand – branding, style guide and new communications strategy.
Good results obtained in 2015 SSS growth in all 2015 quarters
Transition team made in 2015 – positive effects expected from Autumn/16 collection on
Building competitive advantage from focus on product
35
Children I Opportunities
SSS growth from product developments
Adjustments in distribution network,
with possible stores closing
Sustain growth based on the propper value proposition
Opportunities in network expansion
in several geographies
Market share gain through combined strategy between brands and new segmentation model
Store Network
Multibrand
36
HERING FOR YOU
Hering for you I Brand proposition
Line for sports and casual sport fashion for the daily routine
FITNESS • Essential clothing for contemporary woman who needs to be beautiful and well dressed without giving up comfort
• A versatile and timeless closet, which goes from Saturday afternoon walk to a working meeting
Panties and bras with comfortable modeling
LINGERIE
Pajamas, sweatshirts and accessories to sleep and relax
PAJAMA
Everything for the beach and swimming pools: bikinis, swimsuits and accessories
BEACH
Dresses contemporary women daily lives who want to be beautiful and well dressed without giving up comfort
38
Three owned stores pilot in relevant malls in SP
Present in multibrand, at 4,000 sales point. Exclusive representatives network for the brand
Good feedback among opinion-makers and consumers
Hering for you I Where are we?
Brand launched in 2014 and still maturing
Female brand. Values the woman and her times.
Communication and positioning slightly above Hering’s target
39
‘For you’ line with sales performing better than expected, with opportunities to increase line’s offering and greater supply of differentiated products (premium)
Opportunity in distribution for specialized multibrands not fully explored yet
Pilot stores still maturing: adjustments in assortment, VM and store operations in 2016 aiming future network expansion
Hering for you
Differentiated value proposition, expansion model under construction
40
DZARM.
DZARM. | Business plan
Synergy among pillars ensures consistency, focus and differentiation
Exclusive structure dedicated to the brand to support 2020 business plan Structured processes for operational efficiency gains
New Business Plan structured in four pillars: brand, product, communication and channels
BR
AN
D
PR
OD
UC
T
MK
T/C
OM
MU
NIC
ATI
ON
CH
AN
NEL
S
PEOPLE
PROCESSES
42
“
DZARM. | Brand
- Tradition and Quality - more than 20 years on the market.
- Strong awareness in Brazil’s countryside (3,500 multibrands).
DZARM. believes that every woman is powerful by nature and want to be noticed wherever she goes. DZARM. wants to help women expressing
all their power in a natural way.
- Attributes: POWER + SENSUALITY + NATURALLY
- Target: young women, Class A/B from 18 to 35 years.
New Value Proposition strengthens distinctive brand positioning
”
43
Curatorship: portfolio organized by occasions of usage: DAY, WORK and PARTY.
Total Look: complete solution.
Product differential: modeling, printing, jeans, dresses, tailor items and knit.
Price – good value for money
DZARM. | Product
(average price of R$ 140.00)
Complete portfolio for all occasions of usage with great value for money
70 : 20 : 10 COMMERCIAL COMMERCIAL WITH
INNOVATION
CONCEPTUAL
Products’ innovation model
44
4x investment increase in communication
Focus on AWARENESS + DIFFERENTIATION
Alessandra Ambrósio –2015/16 ambassador
Curatorship: D’ GIRLS – bloggers / Glamurama
Special actions: opinion-makers, fashion magazines, special events
DZARM. | Marketing and Communication
4 MEDIA PILLARS
DIGITAL MAGAZINES OOH / CINEMA TRADE (POS)
Strong 360º integrated communication plan
45
Sophisticated and Contemporary store design
Translates Sensuality and Power in finishing details,
lighting, equipment, etc.
Curatorship: organized by use occasions: Day,
Work and Party.
Stores
Pátio Higienópolis – Sep/15
Shopping Eldorado – Dec/15*
DZARM. | Channels
Flagship Stores Increase presence and brand experience in the main capitals
* Estimated 46
1st Wave – Light Franchise
Focus on cities with less than 500,000
inhabitants
"Light“ Business Model with lower set up cost
Stores with smaller surfaces (approx. 50 sq.
meters)
2nd Wave – Flagship Stores Franchise
Model under final adjustments
Focus on capitals
DZARM. | Channels
Franchise Expansion via franchise model from 2016 on to strengthen brand presence
47
Premium Boutiques
Special corners to strengthen brand presence
Multibrand Clustering
Increasing investment in POS materials in a segmented way
DZARM. | Channels
Number of clients
Sale
s (R
$)
Channel multibrand segmentation in order to deliver better brand experience and strengthen POS presence
3,500
Multibrands
48
PHSAP² PROJECT
SAP Implementation System, already used by the Company for other processes, will be extended to other areas in 1Q16
Ecosystem E-commerce
Order Entry Textile
Operation Factions Control
Production
Stores
Product Develop.
Payroll
Accounting
Financial Purchases
Fiscal
Logistics
Invocing
Ordering process
Receiving Products
50
SAP Implementation
Critical factors in the implementation: Technology, People, Processes and Transition Plan
PEOPLE AND PROCESSES TECHNOLOGY
Pré ‘Go-Live’ Supply Plan; Showcases delivery - Winter/16; Involved teams mobilization;
Post ‘Go-Live’ Resumption of goods movement; Billing resumption; Billing evolution as planned (ramp-
up)
TRANSITION PLAN
Technological solution Ready and stabilized since mar/15 Successfully tests conducted: Adversity scenarios Non core scenarios Score above recommended
Trainings Empowering people in the new technology and processes
250 Groups
800 People
90 Courses
14,800 training hours
3 ‘Go-Live’ Simulations Relation Multiplier/user
51
SAP Implementation
Assessment of SAP Company on the Project's readiness for 'GO-LIVE'
Quality Gate SAP – 05 (Realization) sheduled for Dec. 10th
Go-Live readiness comparison with SAP customer base Updated on Nov. 20th
Worst Readiness
Best Readiness
Tests
Trainings
Simulations
Change management
Business Readiness
Scope management
52
SAP Implementation
Implementation schedule foresees project closure in March/16
‘Go-Live’ with assisted operation during the month
Operation normalization, but still monitored by the project team
Project closure, with operations conducted by the company normally
Jan
Mar
Feb
53
FINANCIAL MANAGEMENT
81.7 78.6
190.0 208.7
123.7 166.8
46.3 82.0
58.5 43.5
131.1 76.6
31.2
69.6
47.5 63.5 72.2 96.6
159.3
230.3
295.9 315.7 327.0 339.9
2009 2010 2011 2012 2013 2014
CaPEX
Working Capital
FCF
FCO - Ex ResFinanceiro
Financial Management| Cash Flow
Strong cash flow despite increasing investments needs (CapEx and Working Capital) over the last years
CapEx Reduction and Inventories Normalization tends to benefit cash generation in 2016
In R$ million
CFO – Ex Fin. Result
55
Financial Management| Capital Structure Conservative capital structure appropriate to the current macroeconomic scenario
24.4
61.0
164.9 168.8
116.3
158.6
2009 2010 2011 2012 2013 2014
Net Cash In R$ million
56
Financial Management| Shareholder’s Return
Cash generation converted into shareholder’s return (interest on capital, dividends and share buyback)
81.7 78.6
190.0 208.7
123.7
166.8
19.7
82.4
171.6
261.9
138.5 157.7 24%
105% 90%
125% 112%
95%
2009 2010 2011 2012 2013 2014
FCF
Dividends + ShareBuyback
Ratio
In R$ million
57
Share Buyback
Financial Management| Priorities in 2016
Focus on results normalization and cash generation
Result
Resume revenue growth through P&S strategy- Product and Store Margins recovery - leftovers reduction and Product Fronts Strict expenses control
Cash Generation
CapEx Reduction Inventories normalization post SAP ‘go-live’
Financial Management Conservatism
58