Who Took My Command? Luxury Brands Recover The Mystery Of Agency In China

Since 2008, the number of international first-line brands has recovered the agency power of Chinese companies and shifted to the direct mode of operation. In January 2008, MontBlanc announced the withdrawal of the agency rights of Shanghai ruisin watch Co., Ltd., and two months later, the French Montagut withdrew its agency power. The brand also established a China headquarters in Guangzhou in 2007, and directly managed the mainland market. Armani also set up a sole proprietorship company in 2007, and announced the opening of 50 houses in China in 2008.

What makes Chinese agents even more uneasy is that luxury magnates such as Hugo Boss and Zegna have also indicated that they will gradually withdraw their agency rights in China this year.

What is the mystery behind the collective decision made by luxury brands? What are the incentives to win the brand's command in China?

Market demand for many years has risen sharply.

In April of this year,

According to Lu Xiao, Professor of economics and management at Fudan University, the increasingly prosperous Chinese luxury market is the direct cause of brand pformation in China.

According to a report by the Chinese Academy of Social Sciences, as of January this year, China's total consumption of luxury goods accounted for 25% of the world's total, reaching US $8 billion 600 million. It surpassed the US for the first time and ranked among the second largest luxury goods consumers in the world.

In the next 5 years, the consumption of China's luxury goods market will increase to $14 billion 600 million. China will account for 29% of the world's luxury market share, ranking first in the world.

Therefore, in the value chain of luxury goods, the layout change of brands, importers and distributors has become the core of brand development strategy.

China's real

Abandonment of early investment

Zhejiang merchants Zhu Xingyi has more than 20 years of experience in the operation of luxury brands. It is the first agent to engage in luxury goods in China. It has been the sole agent of over 10 international luxury brands such as MontBlanc, grace, and van gall.

When MontBlanc announced that it would recover the agency rights of Shanghai ruisin watch and clock company, Zhu Xingyi felt that the cost of nearly 50 million yuan invested in the early stage would be reduced to nothing.

He regretted that he had worked hard for more than 4 years and made MontBlanc famous from obscurity.

According to his preliminary calculations, including pre investment and profits in recent years, his loss is no less than 100 million yuan.

In an interview with CCTV, Zhu Xingyi, chairman of Shanghai State Credit Suisse (Group) Co., Ltd. said: "the Chinese market has been open to foreign enterprises since the end of 2005. Until then, all brands can not operate themselves after entering China, all of them are operated by agents.

Nowadays, some brands that are not yet mature in the Chinese market are still using the Distribution Agency mode. Once mature, international brands are considering taking back the brand agency right.

The brand director of Burberry said in an interview that the right to withdraw the proxy will keep the brand image, which will help Burberry rapidly expand the market.

Burberry has also begun to fight against counterfeit goods.

According to Burberry's new fiscal year plan, the brand will accelerate the expansion of Chinese market stores, and it is expected to open 10 direct stores in the current fiscal year.

Burberry, which has entered China for 20 years, has about 50 franchise stores in the mainland market.

The market is mature, and it is inevitable to break the bridge.

"When they harvest fruit, they naturally rush to pick it up."

Many people in the industry think so much about the international big agent's right to recover the Chinese market, but many agents feel "hurt" by the move.

Nowadays, the brand of Zhu Xingyi's Shanghai State Credit Suisse (Group) agency has been very few. After several storms, it seems necessary for Zhu Xingyi to cancel the agency after the expiration of the contract.

According to the new cooperation agreement between Burberry and Kwok Hang Holdings, Burberry plans to invest 70 million pounds in cash to acquire Kwok Hang Holdings's 50 stores in the mainland and 85% of the company's shares.

It is reported that the increase of profits and the maximization of interests are the important reasons for Burberry to become direct battalion.

Since its entry into the Chinese market, the company's sales profit in China has been growing at two digit per year.

As of December 2009, Burberry's revenue in mainland China's franchise business was 75 million, with a profit of 14 million.

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For agents upgrading from "buyers" to partners, some experts believe that this will speed up the expansion of Burberry stores in the domestic market.

It is learnt that agents have the right to establish a brand to open a store. The cost of only one purchase is often as high as several million yuan. At the same time, agents also need to pay daily rental expenses, such as store rents and staff salaries. High input makes agents cautious in opening stores, which restricts the further expansion of luxury brands.

While recovering the agency power and changing the mode of cooperation, the brand also becomes passive marketing at the marketing level.

In addition, after the withdrawal of agency power, the brand does not need to continue to pay the agent's "intermediate fee". This part of the cost will be pformed into the direct profit of the brand, which adds capital support to the brand expansion.

"When other international markets are in a relatively atrophic state, the Chinese market is showing strong growth. These international companies will naturally make a more normal choice -- increasing investment in the Chinese market."

Lu Xiao thinks.

Generally speaking, the profit of a luxury brand belongs to the agent's part at least 20%. After the direct operation, the 20% profit will belong to the brand dealer.

As a result, his profits will be expanded to nearly 7.

Therefore, if the sales channel of agents is too strong, the brand operators will gradually lose control of the brand and derive many "gray" zones. It can be seen that behind the expansion of these luxury stores is the brand's strong desire for "command". It is no wonder that they want to abandon those Chinese agents who have made great contributions to the development of market neutrality.