Luxury Brands: Using Third-Party Distributors

Just taking a step back, when you’re moving into a new market, is there an immediate question as to whether you want to own your distribution or have indirect distribution and how do you make that decision?

Generally speaking, it’s better to go through a third-party distributor, in the early stages. Why? Because there is a level of investment that you need, to enter a market. You need to make your brand known; you need to open an office, you need to hire people; you need to set up logistics, distribution network, after sales service and so on. For most brands, it’s usually beneficial to have someone else to do this expenditure. Obviously, you give them a margin, so they can recoup their investment and make money. They usually have other brands that they distribute, so they can use people from other brands, doing some multitasking and, therefore, lower the costs.

It’s also a learning curve for the brand, through the distributor, for the feedback that you get from their teams, from the frontline staff. Every brand has a learning curve, in any new market. It’s not that you go into a new market, you open a store, with staff from your HQ or from your London team. If you do, usually it’s a failure. There have been many, many failures. So the initial phase is with a distributor, which creates its own set of issues, when you want to get out of that relationship, which I have done, many times in my career. However, it helps the brand to get a foothold in the market. I would say, for the initial period of development of the brand, which can be anywhere between two to 10 years, depending on your brand strength and your key products and capabilities to invest in market, is probably the ideal way to start, in the market.

The distributor is there to make money. The distributor is not there to build your brand, but helping you to build your brand in the market will him to make money. A luxury brand sells products that people don’t need. They want the product, but they don’t need it. What we’re all trying to do, is build a brand equity and build a brand strength and desire. So we want the young people, young female, usually, to desire to buy those products and the distributor is going to invest in communication, invest in retail, invest in teams, in order to build that desire in the market.

What type of relationship do you have with those third-party distributors, in the early days, to build that brand strength, so you can both win?

It’s no different from your own internal team, at the early stage, because they need to understand what you are trying to do. It’s very easy to make distribution mistakes, to position the stores in a different way from the way you want to position your brand. I would say that, from the brand’s perspective, you need to be extremely involved in retail location selection. That’s something that is hard to correct. Many brands have made mistakes and that is something that is very costly, because you have your capex investment, you have your rental contract that will usually last a few years. So to exit and correct that takes a long time and is expensive. The brand management needs to be clear about what it’s out to do and clear about guidelines to translate to the third party, for them to understand where you need to be located.

Then you work jointly, to select the best possible location and to invest in the best possible location, for your brand. So a close relationship, early on, in order to select those retail stores, to some extent, the training of the retail staff, obviously. But the selection of the retail stores is what matters. Usually, the third-party distributor will need the help of the brand, in the markets, to negotiate with those landlords and shopping mall managers. It’s a stronger proposal if both parties come, at the same time, to the appointments and explain what they are trying to do. Many brands are trying to enter key markets, in Singapore, in Hong Kong, in China and so on and you have Galeries Lafayette in New York. The key retail locations are, obviously, in high demand, so you need to build your case with those managers. You need to convince them and having a local partner with good experience and a good reputation in the market, plus a strong brand management, helps to build a strong case.