Burberry, Dunhill Among Western Luxury Brands That Bought Back Control Of China Retail Operations
Burberry hopes to have over 100 franchises in China within the next five years
A developing trend we’ve been watching over the past several months is that of major global luxury brands buying back direct control of their China operations from their local business partners. Last month, Burberry became the latest fashion house to buy out its Chinese franchises in an effort to unify its brand identity and marketing strategy, and in recent years other top brands like Dunhill have bought back franchises or ended partnerships with local retail partners to assume direct control over company direction in China.
This week, Beijing Business Today (北京商报) looks at the trend of foreign luxury brands “burning bridges” with their Chinese retail partners, pointing out that many companies see this as a critical move to ensure expansion in China is done in a more controlled manner that won’t damage the brand’s exclusive image.
From the article (translation by Jing Daily team):
The article notes that Burberry’s decision to “burn bridges” with Kwok Hang mainly came down to the company’s new strategy of strictly controlling China expansion and keeping a tight lid on operations to cut down on counterfeits. Later, the article looks into some of the other motivations that have led major brands to cut ties with their Chinese retail agents, pointing out that many local franchisees have diluted brands through hasty expansion into immature markets:
The article goes on to say that many observers see brands buying back franchises as a means to keep a bigger piece of the profits in the world’s fastest-growing luxury market. Pointing out that China is expected to become the world’s largest luxury market within five years, and that mainland China is home to 140 individuals worth more than 10 billion yuan (US$1.47 billion), the author writes that with the Chinese luxury market growing so quickly and becoming so important, “not only will retail agents look to control more profits, they’ll also have even more right for their voice to be heard.”
Presumably, part of the reason more luxury brands want to gain direct control is to nip this development in the bud and ensure their retail agents don’t start demanding more say in the company’s China strategy. However, this seems a bit hyberbolic.
Concluding, the article looks at the trend of major brands taking the initiative to localize for the Chinese market, calling out recent examples like Hermès’ soon-to-be-launched sub-brand Shang Xia and the China-only brand announced late last year by Levi’s. Initiating active localization strategies, rather than relying on passive marketing, is another reason many brands want full control of their direction in the China market.