Many international luxury brands are buying out their Chinese franchises to increase profits by operating the stores directly, to the latter’s ire
July 16, 2013 Leave a comment
Luxury brands reclaiming Chinese franchises, to the latter’s ire
Staff Reporter
2013-07-15
Chinese franchisee owners and retailers told Moneyweek that “the franchise business in China is becoming tough but it is not so bad that it will vanish.” With China’s luxury market still having growth potential, many international luxury brands are buying out their Chinese franchises to increase profits by operating the stores directly. The weekly reported that when the country’s luxury market was relatively immature, franchise stores were the most effective way for high-end brands to tap into the market. The brands and the franchisees were in a mutually beneficial relationship until the franchisees were forced to surrender their control over the franchise stores. In 2010, British luxury fashion house Burberry bought out its Chinese franchises for some ￡100 million (US$149 million) from its franchisee partner. Although the Chinese franchisee received a large sum for the buyout, the efforts the company had put into boosting the brand’s visibility were wasted.In 2008, Swiss luxury brand Bally retrieved its franchise rights in the Greater China from its franchisee Fairton after 28 years of partnership. Fairton had been responsible for promoting the brand’s market presence in China and Hong Kong, training staff and expanding store count.
As the brands grew, the fashion houses became more and more dedicated to product choices, post sales services and brand image. After years of development and sales growth in China, brands were unhappy with some problems that had occurred, such as the sales associates’ services and manners.
The report stated that high-end brands focused more on market visibility, while their franchises cared more about profits.
In January this year, Luxury watch maker Parmigiani Fleurier had renewed its franchise partnership with Sparkle Roll Group, with changes in the terms of the contract. The franchisee was no longer responsible for the brand’s marketing events, a sign that predicted the end of the partnership.
Meanwhile, watch maker Richard Mille established an office in Shanghai that will be in charge of the brand’s marketing and publicity in China.
An unnamed publicist for a luxury brand told the weekly that such brands cared more about staff training and post sales services and all customer complaints were documented and taken into consideration during performance evaluations.
Customer complaints are mostly the reason behind luxury brands’ decision to take control of the franchise stores, the publicist pointed out.
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