Burberry takes its business in Japan in its own hand
According to a report in WSJ, the Wall Street Journal, for nearly half a century, Burberry outlets in Japan have sold everything from golf bags to miniskirts and Burberry-clad Barbie dolls—the result of a decades-old license agreement that left the British luxury brand’s Japanese business in the hands of a local vendor
Now, Burberry Group PLC is taking sales in Japan, the world’s second-largest luxury market, into its own hands. In June, Burberry ended a 45-year pact with its last Japanese licensee, Sanyo Shokai, one of its longest-running contracts.
In the next two months, the closure of Sanyo Shokai’s shops will shrink Burberry’s presence in Japan to about two dozen outlets from nearly 400 and replace moderately priced items created by the Japanese company with a high-end line of trench coats and scarves that costs up to 10 times more.
“The license has been suffering from overexposure,” says Pascal Perrier, chief executive for Burberry in the Asia-Pacific region. “We will never do that again.”
Burberry’s Japan move caps a decade-plus quest to regain control of its image after years of expansion in foreign markets and licensing agreements left a legacy of disparately branded and priced products, including baseball caps, dog clothes and Scotch whisky.
Luxury names like LVMH Moët Hennessy Louis Vuitton SA’s Celine, as well as Gucci and Yves Saint Laurent—both part of Kering SA —have also moved in the past three years to end licenses that allow products to be sold under their brands.
License agreements gained popularity in the 1980s and 1990s because they gave brands a foothold in foreign markets where they didn’t have distribution networks or local expertise—along with royalties ranging from 2 % to 10 % of each sale. The agreements often gave licensees leeway to develop branded products for the local market. But the deals threatened to tarnish luxury names whose reputations depended on exclusivity.
In recent years, the move to take back licenses is being driven by an increase in the number of consumers buying luxury goods online and on trips abroad, making it more important for brands to control their images globally. While 5 % of luxury-goods sales by value happen online, such sales are growing 20 % annually, according to consulting firm Bain & Co. Tourists this year will account for 55% of luxury sales versus 40 % five years ago, Bain estimates.
“With the globalization of the luxury-goods market and the sophistication of consumers, brands have tried to close down their licenses,” said Mario Ortelli, an analyst for Sanford C. Bernstein.
Japanese department stores have sold Yves Saint Laurent and Celine handkerchiefs and hand towels for about USD 10 in recent years. Such products are often not available in the brands’ own collections.
Yves Saint Laurent said it decided in the past three years to end licenses for handkerchiefs, bed linens, ties and other items that aren’t part of the company’s core business, allowing the company to maintain “full brand consistency world-wide.”
Celine ended licensing agreements for handkerchiefs and hand towels with Japanese companies T. Kawabe & Co. and Nishikawa Sangyo Co. in 2013, the licensees said. Celine declined to comment.
Many luxury brands still license out their names for eyewear, perfumes and cosmetics because they lack the scale and expertise to make these businesses successful on their own, said Luca Solca, head of luxury goods for Exane BNP Paribas.
Still, Kering last year said it would bring in-house its rapidly growing eyewear business, which includes nine brands with license agreements that generate royalties of €50 million ($55.6 million) a year.
Burberry began directly operating its fragrance and beauty business in 2013, after the end of a licensing agreement with Interparfums SA, saying at the time that it saw “significant opportunities to accelerate the growth of this business.”
Burberry is ending Japanese licensing agreements. Here, its products on display in Tokyo earlier this year.
Burberry’s push to take back licenses gained speed after American Angela Ahrendts became chief executive in 2006. The company had “lost its focus in the process of global expansion” and had 23 licensees around the world selling everything from dog outfits to leashes and kilts, she wrote in the January/February 2013 issue of the Harvard Business Review.
Ahrendts handed Burberry’s reins to Chief Creative Officer Christopher Bailey last year when she became head of Apple Inc.’s retail empire.
Perrier, Burberry’s Asia chief executive, said he realizes relaunching the brand in Japan will hurt financially at the beginning, since the Sanyo Shokai deal generated about GBP 500 million (USD 800 million) in sales and GBP 50 million in royalties annually. But Perrier said he expects to replace three-quarters of that income in the next few years by selling higher-margin products. “We are able to say no to some revenue for the sake of the brand,” he said.
Burberry’s Blue Label and Black Label lines, created by Sanyo Shokai, appealed to young Japanese, with women’s shirts priced as low as USD 70, compared with around USD 250 for a cotton blouse from the standard Burberry line. The Blue Label became widely popular among Japanese teens in the late 1990s, after pop singer Namie Amuro wore a miniskirt from the line to announce her marriage and pregnancy. Critics say those more cheaply priced labels hurt the brand’s image globally.
Perrier said Burberry now plans to offer only the highest-end products in Japan—such as its USD 1800 trench coat—and operate only in the most exclusive locations. The goal is to have 35 to 50 directly operated stores by 2018.
How many fans will remain is unclear. At a Burberry kiosk in a department store in Tokyo, one Japanese woman browsing the Burberry Blue Label line said she preferred that line because Burberry’s originals feel too conservative.