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ISTANBUL — Luxury is booming here, and it’s making franchising a big business.

Sephora, Dolce & Gabbana, Chloé, Jimmy Choo, Coach and Prada are just a few of the names that, during the last 12 months, have opened their first monobrand stores with Turkish partners in the country’s biggest and richest city as the luxury market spreads to an increasingly affluent middle class.

Shopping malls are lining up by the dozens to welcome international brands, which have rained on Turkey, especially Istanbul, in the past few years. One of the best examples of the growing market was the opening of luxury mall Istinye Park last fall. The mall, which contains brands such as Chanel, Dolce & Gabbana, Prada, Dior, Celine and Fendi, was fully rented a full year before it opened at a reported cost of $250 million.

And the flood shows no sign of abating. In addition to monobrand stores by major labels, those said to be looking into Turkey are Saks Fifth Avenue, Selfridges, Italy’s La Rinascente and Spanish department store El Corte Ingles, all hoping to capitalize on the lack of a department store tradition here.

All the demand creates a lucrative business for the small but growing number of franchise partners that dominate the market. And as the brands move in, so the agreements evolve.

Take the arrival of Sephora, which entered the market as part of a pioneering partnership between its parent company, LVMH Moët Hennessy Louis Vuitton, and Unitim, the company that brought Harvey Nichols to Istanbul in 2006.

The partnership for Sephora Unitim A.S. — owned 60 percent by LVMH, 40 percent by Unitim — is a new formula in a country where franchise and licensing have been the norm, and demonstrates the increasing confidence international companies have in the potential of Turkey’s retail sector.

“Turkey is in the process of joining the European Union, there is political stability here at last, the economic indicators are improving all the time and foreign investors are seeing that it has become a very attractive emerging market,” said Aret Cilingir, head of strategic planning and business development at Unitim, who said he believed the Sephora agreement to be the first retail partnership of its kind in Turkey.

This story first appeared in the January 4, 2008 issue of WWD. Subscribe Today.

“In its first four months, Harvey Nichols was operating between 20 and 25 percent above its initial targets,” he said. “When international brands see how their label performs in Harvey Nichols, they see that the opportunity is there in Turkey and many have begun to talk to us about their own monobrand stores — some of them even as partnerships like Sephora.”

Unitim’s labels now account for about 25 percent of the uberluxe shopping mall Kanyon. As well as Harvey Nichols, these include shirtmaker Thomas Pink, shoe label Bally, the popular Accessorise chain, chic London Chinese restaurant Hakkasan and separate shops for Agent Provocateur and Jo Malone within the Harvey Nichols concept. Not bad for a company that was not even in the retail sector 10 years ago. Speaking to a Turkish newspaper before the opening of Harvey Nichols, chief executive officer Burc Cemiloglu tentatively confessed it was his first-ever interview.

Unitim founder Cemiloglu, 51, is the son of a local mayor from Turkey’s impoverished southeast. He studied textile technology in the U.K., where he was sent to avoid political turmoil in Turkey that led to a military coup in 1980. On his return, instead of bringing the usual car or major appliances beloved of expats, he brought back 10 sewing machines and set up apparel producer Imteks, which still makes products for Adidas, Nike and Puma.

In 1998, as Unitim, he got the franchise for Tommy Hilfiger. “I could choose one of two paths — either I created my own brand or I could bring foreign brands to Turkey and enter the retail sector. I chose the latter,” he said later.

Now, retail accounts for 70 percent of the company’s turnover, or $70 million in 2006 versus $30 million from the production side, and its share continues to grow.

Like Cemiloglu, the Eren family, whose packaging-to-cement company Eren Holding has the sought-after Burberry franchise and is slated to open Coach stores this year, also has a rags-to-riches story beginning in southeast Turkey. The four Eren brothers, including current ceo Ahmet, founded the underwear label Eros soon after leaving Bitlis, one of the poorest towns in Turkey, in 1965.

The family expanded into other areas — it is the third-largest packaging paper maker in Europe — but returned to its first love, fashion, signing a deal for the Lacoste franchise in 1991. Eren now represents half a dozen foreign brands including Calvin Klein Jeans and Swatch. The group is aiming for sales of $300 million from its retail sector companies by 2010.

Beymen, the upmarket department store founded in 1971 and owned by businessman and onetime political aspirant Cem Boyner, held a virtual monopoly on foreign luxury brands throughout the Nineties. But, as competition increases, it, too, is jumping into the fray, scooping up a large number of new franchises in one go. Last year alone, the company opened or planned stores for Dolce & Gabbana, Dior, Fendi, Prada, Chloé, Etro, Moschino, Celine, Paul Smith, Jimmy Choo and Giuseppe Zanotti, said Beymen ceo Esel Cekin. It also has won the Tod’s franchise from another Turkish group.

“There is considerable interest in Turkey. The widening of Turkey’s horizons and the improvement in the economy are very important factors in our growth,” said Boyner at an event to mark Beymen’s 35th birthday in late 2006. Plans to open brand stores for international labels had been in the pipeline for years, he added, but the time had not been right until now.

The attraction of the Turkish market also has been spotted from even farther east. While Western companies come to Turkey as a way to move into Eastern markets, Kuwait’s 115-year-old retail giant, the Al Shaya Group, sees it as a way into the West. Shaya, the group’s Turkish arm, came into being in 2002 by taking over the Topshop, Evans and Dorothy Perkins franchises.

It is also responsible for the plethora of Starbucks and moved big into the enormous, midmarket Cevahir shopping mall in 2005, where the firm has opened a Turkish branch of the Debenhams department store. Shaya has a large number of British names under its belt, including the Body Shop, River Island, Next, Laura Ashley and Miss Selfridge chains, and was expected to have 500 stores in Turkey, including relatively uncharted provincial cities, by early this year.

The big industry names in Turkey also have seen the attraction in the retail market. Demsa was founded in late 1999 by Demet Sabanci, of the wealthy industrialist Sabanci family, and her husband, Cengiz Cetindogan, who worked in a Sabanci Holding company until shortly after the assassination of his boss, Ozdemir Sabanci, by a left-wing militant. In 2000, the family had the Mothercare franchise. Now it has eight brands, including Guess, Fornarina and Gerald Darel, and plans to open stores for D&G, Gianfranco Ferré and Ferré within a year.

More potential partners enter the field constantly, sometimes from the unlikeliest of business backgrounds. Emporio Armani and Gucci are here courtesy of Filiz Sahenk, heiress of Dogus Holding, better known for its media and banking businesses. Marks & Spencer is operated by financial holding firm FIBA, owner of Finansbank.

The franchise or licensing model is the preferred way for most brands seeking a niche in Turkey, helping them expand without any substantial investment and giving them access to crucial local know-how.

“In Turkey, you need to know the market very well, you need to know the locations very well. Established relationships are very important here,” said Unitim’s Cilingir. “Sephora actually came in 1998 with their own investment…but they soon closed up and went home. They had the wrong management, the wrong location. Things were just not right.”

Ahmet Eren said he had to work hard to persuade Burberry to have another go after the British brand came to Turkey a few years ago with another firm, its lack of success giving it cold feet a second time around.

Sometimes the time is not right. In the late Nineties, when Turkey was plagued by ineffective coalition governments and still struggling for official recognition as an EU candidate, the pomp of a glittering Versace store proved too much for the local market, even in upmarket Nisantasi. Marks & Spencer also faltered at around that time, closed down and changed franchise partners in 1999, but now has 26 outlets in Turkey.

Today, the atmosphere is altogether different. As the Turkish market grows, so the international brands get to know the country. Cilingir predicted the partnership model will develop further, while some brands are coming in directly already. Spain’s Inditex has opened stores for several of its brands, including Zara, Oysho and Berschka, while Swedish rival H&M plans to follow suit.

But it is still a brave soul who comes here without local help. As one American businessman told WWD: “People think things are all screwed up here — they’re not, but things get done differently considering that just over 10 years ago they had triple-figure inflation and everything depended on the grace of your contacts. People sitting in London and New York can’t always appreciate this.”

Apart from franchising, designers are finding other creative ways to build a presence in the market.

Turkish luxury goods house Vakko made a stir in fall 2006 with the simultaneous opening of a new store in Kanyon and a series of parties to launch a collaboration with young New York designer Zac Posen, who adapted his collection for an exclusive Zac Posen@Vakko line.

Many international brands have yet to come to Turkey, but already the franchisees are looking farther afield. Turkey sits at the heart of an enormous potential market spanning Eastern Europe, the Balkans, Russia and the former Soviet republics and the Middle East. The regional contacts of Turkish companies and their closeness to European markets make them ideal partners for European and American names seeking to enter other nearby countries.

Unitim already has regional licences for Tommy Hilfiger and Accessorise and is in talks with Harvey Nichols about branches in Bucharest, Romania, and Kiev, Ukraine. Eren Holding has plans to open regional Burberry stores. FIBA holding has opened two Marks & Spencer stores in Russia since 2005. Beymen, which carries 60 percent foreign labels, is looking into opening new stores in countries such as Jordan, Saudi Arabia and Syria to add to its Cairo base.

The growth in Turkey is part of international brands’ continuing push to developing markets farther and farther afield — from Dubai to Russia, India to China. As Boyner, announcing plans for Beymen’s domestic and international expansion, which is expected to cost $36 million over three years, said of the U.S. and Europe: “There is no point joining the crowds in squashed markets.”

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