By  on November 4, 2005

MILAN — A|X Armani Exchange is ready to go global.

Giorgio Armani SpA announced Thursday that it is forming a joint venture with billionaires Christina Ong and her husband, Ong Beng Seng, to grow the A|X Armani Exchange business worldwide, doubling the number of retail stores and introducing the brand to new markets such as Japan, China, the United Kingdom, the Middle East and Latin America.

Giorgio Armani will form a joint venture with the Ongs, Armani's longtime business partners and the licensees of the A/X Armani Exchange brand, which does the bulk of its business in the U.S. but has a small international presence in select Asian countries, Canada, Australia and Venezuela. The Ong-controlled Como Holdings will own 75 percent and Giorgio Armani will own 25 percent of the new company, Presidio Holdings Ltd. Giorgio Armani has the option to increase its stake to 50 percent in November 2008.

"I think that Mr. Armani, by buying a part of the company, is showing his trust and belief in the brand and its growth," A|X Armani Exchange president Harlan Bratcher said in an interview.

The new joint ownership of A|X Armani Exchange will enable it to expand to areas where there is already evidence of an untapped customer base, like Japan, Bratcher said. The company has data showing that Japanese travelers are shopping at A|X Armani Exchange elsewhere in Asia and in the U.S.

"These are markets that are ready for us," he said. "We know who our customers are as we are part of a masterbrand."

Financial terms of the agreement were not disclosed. The company, however, said business plans call for A|X Armani Exchange's revenue to grow 83 percent during the next three years to $550 million at the end of 2008 from a projected $300 million this year. The retail expansion calls for the number of A|X Armani Exchange stores to double in three years from its current 95 units.

Armani did not release an overall investment figure, but Bratcher said the company spends about $1 million per new store in the U.S., a figure that is likely to change depending on the costs of the local market.The iconic designer, who this year entered the world of couture with his Armani Privé collection, is now giving increased attention to the lower end of the market. Although Armani's press release bills A|X Armani Exchange as "fast fashion," Bratcher said there are no plans to reposition the brand in terms of pricing. He said he doesn't consider Inditex's Zara or Hennes & Mauritz direct competitors, despite H&M's hiring of designers like Stella McCartney and Karl Lagerfeld. Instead, the brand is working to capitalize on its designer cachet and deliver new collections to stores once to twice monthly at an average price point of $50.

"To have [Armani] involved with something as basic as [the design of] a T-shirt is extraordinary," Bratcher said.

John Allert, ceo of London-based consultancy Interbrand, said he sees a market for customers shopping on a budget who want to buy into the Giorgio Armani brand.

"It crosses over both the low end of brands like Paul Smith and the high end of brands like the Gap and Next," he said.

There are also plenty of possibilities for product diversification within the A|X Armani Exchange brand. This is hardly a new concept for Giorgio Armani, who through a portfolio of brands like Emporio Armani, AJ/ Armani Jeans and Armani Casa has applied his name to everything from chocolate bonbons to floor lamps.

The old A|X Armani Exchange license with Presidio applied to just apparel. Now the two partners are looking to expand the product range to encompass accessories, fragrances, eyewear and watches.

The investors are also looking to expand the brand's e-commerce business to other countries; it is currently available in just the U.S. and Canada. But Bratcher said the brand is focusing on building freestanding stores for now.

As for getting shoppers into those stores, Bratcher dismissed potential concerns that A|X Armani Exchange could cannibalize the sales of other Armani diffusion lines like AJ/ Armani Jeans and Emporio Armani.

"We live side by side in many markets. We are not a new brand. We are 16 years old," he said.

Armani said last year that he wanted to reach out to a younger clientele and "democratize" fashion. He went on to stage a huge fashion show at Pier 94 in Manhattan and an A|X Armani Exchange after party, inviting the public at large through an ad in Paper magazine. On Thursday, the designer reiterated his desire to broaden his customer base."Through the launch of the Giorgio Armani Privé couture collection at the start of this year, and now this new joint venture for the expansion of A|X Armani Exchange, we are effectively closing the circle on our unique multibrand approach, whereby we are reaching all levels of the marketplace with carefully differentiated lifestyle fashion collections under the Armani masterbrand," Armani said in a statement.

A|X Armani Exchange was launched in 1991, the same year it opened its first retail store in Manhattan's SoHo. During the last 11 years, the Ongs' Presidio International Inc. subsidiary has owned A|X Armani Exchange's assets and paid royalties to Armani, who owned the trademark. Armani will now own a portion of the business and benefit directly from its revenue stream.

A|X Armani Exchange expects to see its 2005 sales grow 16.7 percent to $300 million, with $242 million of the revenue coming from North America. Sales have grown at a double-digit pace each year since 2001, advancing at an average annual rate of 13.7 percent through last year.

"Thanks to a most effective collaboration with Presidio International Inc. over the last 11 years, A|X Armani Exchange has become one of the most dynamic collections within our group with its own unique identity and an ever-growing base of young customers who enjoy its accessibility," Armani said in the statement.

Presidio Holdings and Armani will expand the brand in A|X Armani Exchange's existing markets and take it elsewhere on the globe. More than half of the 95 stores are in the U.S. The others are in Canada, Australia, Venezuela, Hong Kong and a number of other countries including Korea, Malaysia and Taiwan. Last year, A|X Armani Exchange entered the Chinese market with two Shanghai stores, and Bratcher said that they were immediately successful.

Armani wants to broaden the brand's international presence in key markets. Over the next three to five years, Presidio plans to open as many as five stores in Japan, 10 in the U.K. and eight in Central and South America. In China, there are plans to increase the store count by another 10 units.

Still, A|X Armani Exchange isn't neglecting its core U.S. market, where it has a retail network of more than 50 stores. Bratcher said the plan is to roll out another 20 to 25 stores in the U.S. over the next three to four years, with the openings concentrating on the geographic areas where the brand is already performing well, mainly the two coasts and states like Florida and Texas.Bratcher said that there is plenty of untapped potential for A|X Armani Exchange in the U.S., adding that the market could support as many as 100 stores.

Christina Ong, chief executive of Como Holdings Inc., praised Armani's "extraordinary creative vision" and was upbeat about the brand. A|X Armani Exchange business is just one component of the Ongs' partnership with Armani. The couple opened the first Armani boutique in Singapore in 1988, and now operate Armani and Emporio Armani stores in London, Australia and the Far East. In the Nineties, the Ongs helped rescue Simint, Armani's jeans and A|X Armani Exchange's manufacturer, from bankruptcy.

"With the new impetus of this joint venture, we have the ability to capitalize on this brand's remarkable potential worldwide, which is an opportunity our highly talented team has been eagerly awaiting," Ong said in the Armani press statement.

There are no plans to roll out A|X Armani Exchange boutiques in Continental Europe, home to some of the most finicky fashion customers around, where it has never had a presence. An Armani spokesman said the brand is channeling efforts in the U.K. market, where the "fast-fashion" concept is well established and brand awareness is high, since large numbers of British go on shopping trips in the U.S.

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