Luxury Brands Go It Alone

Discussion
Jul 27, 2005
George Anderson

By George Anderson


The demand for luxury goods is strong but not all manufacturers feel as though they are getting the attention they deserve from the department store retailers that sell their products. That’s part of the reason they’re going it alone; opening their own branded shops and selling directly to consumers.


According to a report on the Ad Age Web site, Coach, for example, has reduced the amount of business it does with department stores from 15 percent of its business in 2000 to 11 percent today. Demand for its handbags and accessories have been so strong that the manufacturer plans to open 350 of its own branded outlets over the next several years.


Coach is not alone in seeking a state of independence from its department store customers. Others, such as Polo Ralph Lauren, Guess and Liz Claiborne, have done the same.


Lauren, for example, plans to open up to 85 stores annually over the next five years.


The luxury brands, reports Ad Age, are “frustrated by an inability to control pricing and brand display” and they are “tired of competing with retailers’ proliferating private-label lineup.”


NPD Group says that, in apparel, private label now makes up 37 percent of retail sales compared to 25 percent ten years ago.


Going against the trend, the luxury goods retailer Saks (see RetailWire 7/13/05 Saks
Bucks Store Brand Trend
) recently announced it was moving away from private label.


“The discontinuation of our private label brand is consistent with our merchandising strategy, permitting us to focus our resources on unique, upscale merchandise from our most productive designers,” said Ronald Frasch, vice chairman and chief merchant of Saks Fifth Avenue Enterprises.


Moderator’s Comment: On the whole, is it a good or bad move that luxury brands are opening their own retail outlets and reducing the business they do
with department stores? Do you see more luxury brands following Coach and others in opening their own shops and reducing their dependence on department stores?

– George Anderson – Moderator

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12 Comments on "Luxury Brands Go It Alone"


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Don Delzell
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Don Delzell
15 years 6 months ago
I could be wrong, but I believe this is cyclical. If memory serves, luxury brands have ventured into retail before, using many of the same business reasons as mentioned by the moderator. With very few exceptions, these forays have proven unprofitable and of limited duration. Manufacturers are generally not good at running retail operations…and vice versa for retailers being not good at manufacturing. The exceptions are places like Limited Brands and Federated where entire organizations, distinct from the retail operational structure were created to manage and perform the manufacturing function. If luxury brands intend to be successful at retail, as opposed to building retail outlets as advertising expenses (see Nike’s public statements in regard to their retail operations), they must treat the retail operation as a distinct entity. Systems, processes and people all need to be chosen based on the key performance criteria for a retail operation. Is it possible to be fully integrated? Absolutely. As a quick insight, take a look at the requirements and processes of building a manufacturer’s assortment as opposed to… Read more »
Mark Lilien
Guest
15 years 6 months ago

Nieman-Marcus bought significant minority interests in several luxury brands in order to share in their growth and solidify the brands’ commitment to NM. This is an excellent strategy, open to all department store companies, but used rarely, except by NM.

If a luxury brand can improve its financial results by opening their own stores, they’ll recruit experienced people to help them do it. Department store retailing is a very mature sales channel and the number of department store firms is declining.

Gene Hoffman
Guest
Gene Hoffman
15 years 6 months ago

Luxury brands are striking while the iron is hot! We are living in an era where a greatly increasing number of people with discretionary incomes want what they perceive is the best — no matter the cost. Luxury brands from Rolls and Ferrari to Coach and Godiva want unfettered access to this growing audience and they believe they can merchandise to it better than being in a part of a department store’s assortment. I expect to see the trend to self-retailing by luxury brands to increase in the foreseeable future.

Al McClain
Guest
Al McClain
15 years 6 months ago

Sure, it’s great for luxury brands to open more of their own outlets and reduce dependency on the declining department store business, but they need to be careful not to overdo it. Things go in cycles, and some department stores will bounce back, and when the pendulum swings the other way they may need them. And, there will always be a core group of shoppers who actually like the browsing and “what’s on sale” environment of the department store.

Peter Fader
Guest
15 years 6 months ago

I agree with Don’s overall sentiment. Everyone thinks they can be a retailer; it looks easy from an outsider’s perspective. These luxury brand manufacturers think that they are “master marketers” since they were able to build successful brands, so why shouldn’t they be able to extend their expertise to the retail domain? But as any reader here knows, there’s a huge difference between building a brand and running a retail operation.

So most of these operations will fail, but the firms will declare victory under the (dubious) claim that they further strengthened and extended their core brands. I can see the “Mission Accomplished” banners…

Ron Margulis
Guest
15 years 6 months ago

The basis on how to judge whether a brand can support a retail store banner is not the strength of the brand itself, but rather the resources, expertise and experience that brand applies to the retail endeavor. By understanding the market and executing to plan, even marginal brands can succeed in retail. Conversely, without smart retail marketers leading the effort, even great brands will not succeed in retail (just look at Gateway).

Ben Ball
Guest
15 years 6 months ago

The perils of retail operations aside, this is an excellent move for not only luxury retailers but others as well. The equation is dead simple. In the quest for economic value added, the battle is for share of “consumer franchise.” Consumer franchise is a combination of brand franchise and outlet franchise. If you own neither, you become a contract packer or a real estate play (read Kmart). If you own one or the other, you can win. If you own both, you win big.

Doug Fleener
Guest
15 years 6 months ago

As the former director of retail for Bose Corporation, I have a lot of experience in balancing retail direct stores with indirect distribution. We always believed at Bose that we needed both channels of distribution. Having direct stores keeps the indirect channel from having too much control in the relationship, especially as it came to cherry picking the lines. The indirect stores were important as they have a large customer base that the manufacturer may never be able to reach.

I work from time to time with manufacturers that are considering a retail strategy. Many underestimate the costs, both capital and organizational focus, that is associated with a direct strategy. What is appealing is the ability to talk directly to the consumer and control your own message and presentation.

I believe that luxury brands should balance the different channels and do their best to leverage the strengths and opportunities of each.

David O'Neil
Guest
David O'Neil
15 years 6 months ago

I agree with Ron’s comments regarding the organization’s commitment and execution of the brand strategies that will determine the company’s success. At the end of the day, the consumer makes the choice to believe in the company’s (manufacturer’s or retailer’s) brand proposition or not. It is the execution of the brand strategies that will determine if a retailer or manufacturer will be successful. Therefore, a well run organization that has a well thought out strategy applies the same degree of focus and resources on the new business as they do on their existing business and executions against that strategy will be successful, be it a manufacturer moving into the retail space or a retailer moving into the manufacturing space. We have witnessed many retailers fail because they “do not know how to retail,” just as we have seen manufacturers disappear as well.

We will always be able to site examples of manufacturers that are successful with their retail stores business as well as those that are not.

Go Coach.

Santiago Vega
Guest
Santiago Vega
15 years 6 months ago
Suggesting that a luxury brand will most likely not be successful at running a retail operation is neglecting the history of some of the world’s most influential luxury names such as Cartier, Louis Vuiton, among others. Luxury brands are expert marketers that know how to communicate their image and brand equity to their clients and the public in general. Owning and growing their retail operation is certainly an important way to do so, but they recognize that over-exposure can hurt them. Growth in these kinds of companies doesn’t come solely by expansion of their distribution network or geographical reach. It comes from constant innovation: a constant launch of new and exciting products that cater to the brand’s niche of customers. The article here is talking about fairly young brands; some that aren’t even luxury brands and some that have recently or are trying to make the jump to that category. For Coach, it may be appropriate to reduce and ultimately eliminate its presence in department stores since it has a relatively low percentage of sales… Read more »
Robert McMath
Guest
Robert McMath
15 years 6 months ago
Somehow I thought this was the reason for the strip malls, which seemed to market individual brands…sometimes with seconds, and sometimes with their own merchandise which was not available to regular retailers! Unfortunately, given the present atmosphere in the retail market, the more “luxury” undercuts the regular stores, the fewer there will be for them to market through. Look at all those takeovers and now joint operations like Kmart/Sears. Having been in the field years ago of marketing quality products through department stores primarily, and playing their game of taking the manufacturer for all it would give, I can understand where some brands that can do it want to go it alone. Only if you give enough, could you get the attention you deserved, ala Marshall Field’s and our being asked to fund a clerk to specifically push our line or be left sitting on the shelf! I admit I am glad I am no longer in that field — every year, it got harder and harder to make a buck. And today, with the… Read more »
heather scott
Guest
heather scott
15 years 6 months ago

I believe that when any distributor takes on the responsibility of retailing direct to the consumer, there are risks involved. If though, we are talking about true luxury brands such as Coach, Ralph Lauren, Louis Vuitton, Marc Jacobs, brands that are out of reach price wise for the average consumer, then I see no problem with them becoming independent retailers.

Department stores, for the most part, are for consumers looking for a ‘deal’, not necessarily what’s new and a luxury. Those who can actually afford these brands and can afford to buy more than just key chains and scarves want ambiance and an experience, all of which most department stores can not provide.

Stand-alone stores have the potential to build an even stronger brand, by creating a curiosity and need in a consumer to see a specialty store. Case in point – a little store named Tiffany’s.

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