I remember visiting what was one of the first NikeTown stores in Chicago in the early 90s. It was a veritable temple to sport – the brand as a retail experience and the early days of what was to be called retailtainment. There were a few waves of discontent from existing Nike retailers, suggestions that the brand owner was stealing the bread from the mouths of the very people who helped build the business. But at the time Nike insisted that the NikeTown stores were helping those retailers by providing a showcase and that the independent retail network was always going to be both critical and sell the vast majority of product.
Fast forward to 2001 and Apple open their first two Apple Retail Stores. Again rumbles from the huge network of Apple Resellers who had until then had a monopoly on the retail distribution and servicing of Apple products. Apple told their resellers that they had no plans for that many more stores. Thirteen years later Apple have just north of 400 stores worldwide and the traditional reseller franchise is all but dead.
Owning the crucial interface with customers at point of purchase is a path that many high ticket luxury brands are following – the luxury fashion brands have gone this way in China and other important markets. Mercedes Benz are slated to open a double digit number of company owned dealerships over the next few years. Is their motivation to achieve greater control over how there brand is presented at point of sale or to increase profitability by adding the retail margin to their income?
Leica, the über premium camera brand, started opening wholly owned Leica Boutiques in key cities around the world a few years back. Like Apple these stores are more than just a retail point with training academy, advice desk and even photo studios that owners can hire. Leica needed to shed their rather tired ‘older, wealthy enthusiast only’ image and appeal to a more dynamic customer base. Their existing retail channel was looking tired and old fashioned and the brand had clearly taken the decision that growth would only come if they could lead by example. Interestingly they are now adding coffee bars in their boutiques to encourage owners to drop by – something Harley-Davidson work well to give owners a sense of belonging… and buy some expensive accessories while they are there!
Bang & Olufsen adopted a distribution strategy similar to the automotive retail model. Franchise dealers who invest significantly for the right to represent the brand and sell product in a designated geographical area in return agree to follow a strict set of guidelines regarding corporate identity, store layout, merchandising, pricing and promotional policy.
If you talk to the luxury car brands they’ll tell you their frustration with this model – many long standing dealers often have old fashioned, mass market attitudes to car retailing, a lack of brand training and real product knowledge among sales staff, a lack of long term commitment and vision, and the biggest, similar but often contradictory ambitions between the brand owner and retailer. Many millions spent on new models and brand marketing often falls far short of the promise when the customer walks into the dealership. And the more the retail point looks like it is owned by the brand the less forgiving the consumer is prepared to be and more damaging it is to the brand reputation. However, the car brands need to make the model work as owning their retail network is probably financially and operationally unviable for even the wealthiest of brands.
Bang & Olufsen had a torrid time in sales terms in 2010-2012 – to the point where they are all but dismantling their European retail franchise network. In essence they are buying it back from their franchisees at a cost of DKr100m, and are now investing huge numbers building a directly owned network in BRIC markets. It was no wonder – when I was in the market for a new flatscreen a couple of years back I visited about 4 B&O stores. Devoid of atmosphere, staffed by retail amateurs, no passion for what is still a pretty impressive brand and no prospect follow through. Not one tried to get my name and contact details – and the one who I gave them to didn’t call me back.
However, independent retailers need luxury brands in their product range, and most luxury brands, in the medium term at least, still need retailers to give them geographical coverage. Both parties need to work hard and well together if they are both to prosper.