All about franchising an international luxury brand

Gucci London

Those who are familiar with the mass market franchising will find franchising in luxury very different.  Actually, some luxury brands from the fashion, accessories and jewelry sectors consider the franchising agreement as a long term exclusivity agreement for a certain duration and territory and with a minimum agreed turnover and performance target.

For instance, there are luxury brands which do not charge a royalty fee or an annual fixed fee, limiting themselves to the revenues from the sales. While a mass market brands would accept to sign a franchising agreement without having a first location agreed, luxury brands only sign an agreement once a location is secured.

In luxury, the duration of a franchising agreement varies from 5 to 8 years and there is also an agreed timing which varies between 3 to 4 years regarding the changing of the store fittings and furnishings.

The initial investment is very high, most of it being made in the fittings and furnishings of the store. The cost varies from EUR 2.000 to EUR 12.000 per sqm and it is entirely supported by the franchisee. For the top luxury brands, these figures and non negociable and all furnishings and fittings need to be purchased from the brand. Some smaller brands accept that part of the concept to be produced by the franchisee locally according to the specifications of the architects and designers of the brand.

Due to the very high initial investment, a luxury franchised business is likely to reach the break even after 4 or 5 years from setting up the business. Mention should also be made that the mark up varies between 2,3 % and 3,2 % which is usually defined specifically for each geographic area. Another important aspect is related to marketing, the franchisee is expected to contribute with 5% to 8% of its annual turnover to the international marketing budget of the brand.

The average surface of a location in an emerging Eastern European market is 250 sqm for a fashion and accessories brand and 100 sqm for a jewelry store.

The ideal profile of the luxury brands franchisee

- previous experience in retail (ideally luxury) is a must

- dedicated and experienced team of staff

- financial solidity

- very good understanding of the luxury consumer (existing databases)

- strong motivation to franchise a certain brand in a certain market

Luxury brands which do not franchise: Louis Vuitton

Luxury brands which offer franchising for a very limited number of countries: Prada, Hermes, Chanel, Ralph Lauren (full store concept)

Luxury brands which usually expand with franchising with the exception of the major capital cities: Giorgio Armani, Dolce Gabbana, Christian Dior, Tiffany’s, Cartier, Saks Fifth Avenue, Harvey Nichols etc

For further details, please contact CPP Management Consultants Ltd