Giorgio Armani SpA takes a risky bet on Emporio Armani line in Central and Eastern Europe

Despite the unfolding crisis, 2009 has been a very dynamic year for Giorgio Armani SpA having opened 2 monobrand franchised stores of EMPORIO ARMANI (Warsaw and Budapest) and signing 2 agreements for openings in Belgrade and Bucharest. Distribution of the first line Giorgio Armani remains very limited.

As CPP has expressed on several occasions in 2009, this is a very risky strategy taken by Giorgio Armani Group, especially considering all stores are franchised. The Budapest and Warsaw stores have been underperforming compared with direct rival Burberry, present in both capitals. While the Budapest store has an excellent location on the main luxury highstreet Andrassy, the location chosen in Warsaw (Poland) is on mass market retail street Nowy Sviat. The building in Warsaw is also lackluster, the store having a striking interior design compared with the basic exterior which resembles an old residential building in 70′s style. The choice to enter the 2 markets has most likely been motivated by Burberry, yet, we see it very unlikely that Emporio executives have taken into consideration the local luxury consumer is not drawn to brands such as Emporio Armani. The Budapest store will most likely rely over 50% on foreign travellers while the Warsaw store relies more than 80% on locals, Warsaw not being a tourism destination.

Belgrade (Serbia) is the only market which we believe Emporio will be successfull, especially considering the low penetration of luxury brands. However, the highstreet location chosen will very much depend on the development of the entire area. Currently the best performing luxury store is located within the leading Mall which is located downtown Belgrade. As for the Bucharest opening, we believe the opening will also be challenging, this time not because of the potential of the market which is very high but because of the difficulties ahead faced by the chosen franchisee which has 3 other underperforming brands in franchising.

Mention should also be made that Giorgio Armani SpA has already had a sad experience in Central and Eastern Europe, Sofia (Bulgaria) being among the 2 Emporio Armani franchised stores closed in the past 3 years. Like in the case of other openings in Eastern Europe, Emporio Armani executives have rushed to open in Sofia, without a previous feasibility analysis of the market and the chosen local partner, which seemed as the obvious choice at the time of signing the agreement.

We at CPP believe that, in the case of Armani, the best strategy to secure the right positioning, it would have been very important to open a monobrand of the first line in paralel with the Emporio openings. Although much more expensive, the first line is the only Armani line to be produced exclusively in Italy and to reflect Armani’s image (Emporio Armani is 80% produced outside Italy, mainly in Asia) . It is obvious why the first line of Giorgio Armani is avoided by the local luxury retailers due to the costs of the franchise which are three times higher than in the case of an Emporio. Although, apparently, Emporio Armani and Burberry share a similar client target especially considering the pricing, Burberry has the key advantage that it does not make a separation of its lines which are all sold in the same stores.