Luxury: Licensing loses appeal over perception gaps

Apparel companies are abandoning the licensing model, as they seek to align their brand with a global image.

Brand dilution is forcing luxury fashion houses to rethink licensing arrangements
Brand dilution is forcing luxury fashion houses to rethink licensing arrangements

Enter a Japanese department store today and you are likely find Burberry Black Label and Burberry Blue Label—lines not produced anywhere else in the world.

In 1970, Sanyo-Shokai licensed the UK-based Burberry brand. From design to production to retail, the company then developed its own Burberry label, sold only in Japan. The two lines are produced at a more accessible price point than Burberry’s more luxurious collections elsewhere—and, although financially beneficial for both Sanyo-Shokai and Burberry, are at odds with the core brand.

No longer. In June this year, Burberry terminated its license contract five years earlier than it was due to expire. In the late 1990s Burberry transformed itself from a premium brand to a luxury brand but Sanyo-Shokai’s offerings had lagged behind.

Burberry’s name gave Sanyo-Shokai soaring sales; Sanyo-Shokai’s licensing fees boosted Burberry’s income. Yet a mash-up of different quality and core design values emits a confused, inconsistent message to consumers. As such, Burberry wants to stake direct control over its Japan operation, bringing it back in house and the brand back in line with its global image.

The brand is not alone. Global apparel companies have traditionally used licenses to enter new markets in Asia. But now fashion licensing appears to be on the decline. In 2010, Burberry bought back its franchise operations in China for £70 million (US$109 million) with the aim of “unifying the brand.” In Hong Kong, listed apparel retailer Dickson Concepts says it will not be renewing its license to sell US menswear brand Brook Brothers.

“Licensing often creates a gap in pricing and brand perceptions between the original brands and licensed products—often sold at lower prices in respective countries, causing deterioration of the brand value in the long term,” explains Euromonitor research analyst Yuiko Mitani. As luxury brands attempt to take more control, an increasing number of luxury brands have started to prohibit licensing, she adds.

Licensing has been a way to build brand awareness and distribution in regions in which the mother company has limited local knowledge, resources, or contacts. 

“First and foremost, it allows for shared risks,” says Manfredi Ricca, chief strategy officer EMEA and Latin America at Interbrand. “Secondly, it usually provides greater go-to-market speed, for instance if the licensee has an existing access to distribution. Third, a licensing agreement can be originated by the ambition to enter a new category without having to build the know-how in-house.”

Cherry Dai, engagement manager at Smith Street Solutions, says the model has had its day. “Ten or 20 years ago, licensing was a great idea to  build brand awareness, but things have changed a lot,” she says. The prevalence of ecommerce means consumers are able to cross check prices and cherry pick products online. Meanwhile, shopping tourism is on the rise, especially in Asia. 

In 2014, 2.5 million Chinese visited Japan, marking an 83 per-cent increase on the previous year. Many came with the intention of spending money on products—last year the Chinese spent $164 billion abroad. With Burberry Black Label and Burberry Blue Label increasingly visible to foreign shoppers, Burberry has decided that its brand equity must be safeguarded, even if the initial result is a dip in profits. 

Long-term, however, gaining full control provides scope for a better overall global strategy. Its crucial for brands to oversee the supply chain from start to finish. This, says Ricca, is “increasingly seen as vital to create an authentic luxury brand”. 

“If a brand wants to be known in the marketplace for its craft and excellence, licensing is obviously a contradiction,” he says.

It may be tempting to enter into expanding regions with a partner, but the move can dilute the brand. Michelle Froah, managing director of Brandable, says building a global brand calls for consistency. “You need to ensure that you have one, definitive global brand champion who is the guardian of the brand’s equity,” she says. “It is also important to hear and internalise the many voices from around the globe, the brand champion must be the authority on what is on or off equity.”

Challenges involved in breaking licensing agreements include having to invest heavily in a foreign country and shouldering that risk alone. Burberry is not only giving up lucrative royalties but will have to provide significant capital. It must now rebuild its luxury business in Japan, while reducing the existing number of stores.

Worse off is Sanyo-Shokai. Despite the introduction of Mackintosh London and Mackintosh Philosophy, brands which will replace Sanyo-Shokai’s Burberry-branded shop fronts, Sanyo-Shokai will “struggle”, says Mitani. “The company estimates its sales to drop by 14 per cent in 2015 and by 11 per cent in 2016 year-on-year.”

Meanwhile, the successful Burberry Blue Label and Black Label will continue to be produced and sold; from next year, however, without the Burberry name or distinctive check pattern. As for Burberry, new Japanese advertisements are drumming home that it is a British brand. In soft muted colours, with flashes of the famous check, the advert shows the handmade production of an iconic trench coat in the Castleford factory. Alongside it are the words: “Made in England.”

Our view: The onus is on brands to work with responsible partners to maintain standards. 


Related Articles

Just Published

7 hours ago

Tech Bites: Week of October 3, 2022

News from Maxis, Twilio, Dentsu and more.

7 hours ago

Coca-Cola sponsors COP27: Buying its way into ESG ...

SOUNDING BOARD: By cashing in on Coca-Cola's cheque, is COP27 inviting conversation and giving an opportunity for reflection or is the climate change summit becoming a part of the greenwashing problem?

7 hours ago

Women to Watch 2022: Haylie Craig, Colenso BBDO

As a seasoned creative, Craig is a fierce advocate for bold, inclusive work for the betterment of others—particularly those in the queer community.

12 hours ago

Cadbury Celebrations illuminates a hawker's Diwali

Watch the film conceptualised by Ogilvy here.