Japanese franchises cut loose by overseas brands after serving their purpose

July 20th, 2014 by Philip Brasor & Masako Tsubuku

Burberry outlet run by Sanyo Shokai in Matsuzakaya department store in Okachimachi.

Burberry outlet run by Sanyo Shokai in Matsuzakaya department store in Okachimachi.

According to Asahi Shimbun’s online magazine Webronza, the U.K. apparel maker Burberry has decided to end its long-standing licensing agreement with Japan’s Sanyo Shokai in order to develop its own retail outlets in Japan. Sanyo first signed the agreement in 1965, and since then has made Burberry one of the most consistently successful foreign brands in Japan by tailoring the company’s line to Japanese bodies and tastes. Though Burberry’s famous tartan check pattern is at the heart of Japan’s love for the brand — owning a Burberry scarf was, for a time, a rite of passage for Japanese high school girls— Sanyo’s main achievement was making the Burberry trench coat a timeless fashion favorite.

In 2006, an American, Angela Ahrendts, became the CEO of Burberry and worked to return the company to its roots as a high-end brand. She downplayed the tartan check pattern, reducing its use to only 10 percent of the product line, and concentrated more on new, original designs. From 2006 to 2013, when Ahrendts left to become senior vice president of retail and online at Apple, the company doubled its sales revenues and tripled its stock price. One of Ahrendts’ main concerns was doing away with all the licensing agreements the company had with regional companies. She bought out the Spanish franchise and opened directly owned stores in Spain that have become just as successful if not more so than the franchise business.

As it stands, of Burberry’s ¥349 billion annual sales, only ¥18.5 billion comes from franchises, or 3 percent, but after Spain was cut loose, Japan accounts for 60 percent of all franchise business. Burberry obviously thinks it can make more money dealing directly with Japanese consumers, specifically high-end Japanese consumers, since an imported Burberry trench coat costs as much as ¥230,000, while the trench coats that Sanyo makes under its Black (men) and Blue (women) Burberry labels only cost half as much.

Sanyo isn’t the first Japanese company that has worked hard and long to successfully popularize a foreign brand among domestic consumers only to be let go by the foreign licensor. Adidas did the same thing with Descente in 1998, and Mercedes Benz eventually took over Japanese sales of its cars from Yanase, who no longer has the import license for Mercedes, only a sales license. However, in Yanase’s case the situation was the opposite of Sanyo’s. Yanase cultivated Mercedes as a brand only for the well-to-do (leading to the old joke about the cars being the exclusive property of doctors and yakuza), but Mercedes wanted to cater more to middle class buyers and started opening their own showrooms in Japan.

The luxury Belgian chocolatier Godiva, now owned by a Turkish company, is also discontinuing its long-standing licensing arrangement with a Japanese company, the tea importer Kataoka Bussan. Starting in 2015, Godiva will start selling its chocolates at directly owned stores in Japan.

Some franchises suffer more than others. At least half of Sanyo’s ¥106 billion annual sales comes from Burberry products, which it sells in 300 dedicated department store outlets, so the loss of that business is a serious setback. The advantage of this model to the overseas brand is incalculable in that, for years, Sanyo took care of all promotion, building the brand to where it is now. For what it’s worth, Burberry by far sells more trench coats in Japan than any other apparel maker, domestic or foreign.

The reason these franchises can do this is Japanese consumers’ distinct identification with brands, which accounts for some unusual distribution deals, especially for brands that are considered exclusive. The problem for Japanese makers who also count on brand identification is that it seems to be a one-way street.

Japanese brands don’t have the traction overseas that they once did. Sanrio has made Hello Kitty famous worldwide, but mainly by giving the trademark to anyone who pays for it. If you buy the rights to Hello Kitty, you can do anything you want with the name and the image. That’s good for licensing, but now the company wants to make money from sales, and the transition has proved to be more difficult than Sanrio thought.

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