Such houses as Fendi, Bulgari, Salvatore Ferragamo and Giorgio Armani have set up their own operations in southeast Asia as direct offshoots of their European headquarters after years of being run as distributorships.
The move, say Asian-based European retail executives, is ultimately based on issues of control — now that these brands have their own offices in Hong Kong, everything from store openings to image and merchandising is completely their responsibility. And, with that greater responsibility come all the profits, which go into the home team’s coffers instead of being split with a partner.
These brands typically have worked with local partners or agencies, sharing overall management of the day-to-day business.
Take, for example, Florence-based Ferragamo, which had a retail presence in Hong Kong for more than 12 years when it opened a flagship at the city’s venerable Mandarin Oriental Hotel. (The same boutique is near completion of a major expansion and renovation.) With a growing business in key markets like Hong Kong, Taiwan and China, Ferragamo replaced Imaginex Ltd., its franchise holder for those areas, with a company called Ferragamo Retail HK Ltd. That office, run by managing director Eileen Bygrave, a longtime veteran of Imaginex, provides Ferragamo with easy access to business in the region, as well as a more cohesive image.
“In a way, this is like Ferragamo’s own service station in Asia,” said Bygrave. “If a brand has an agent in one market, that agent can often charge ahead without regional or international knowledge. Now, we have all the support we need from the head office and from that point of view, we can be stronger in this market.”
Essentially a joint venture, the arrangement allows Ferragamo Retail HK to take advantage of Bygrave’s familiarity with southeast Asia.
“In essence, we are here now to take care of the greater China market and to utilize the experience that Hong Kong has for marketing, trading and buying the right goods. In China we now have 14 points of sale, and soon China will be bigger than Hong Kong. It’s a very positive partnership.”
Other brands are equally as enthusiastic about the move toward greater control. At Fendi, Pierre Balsan, general manager for Asia Pacific, agreed that “the Asian redeployment is part of Fendi’s worldwide strategy for direct control of its retail network.”
In so doing, said Balsan, Fendi is now in a much greater position to strengthen and expand its global status and brand — especially in southeast Asia where business is growing overall. There are now 40 stores in Japan, 21 elsewhere in Asia, and Korea’s independent duty-free distribution adds 11 more points of sale.
The brand was previously distributed by a Hong Kong-based trading company which also looked after a few other labels. But with the opening of a Fendi office in Hong Kong, and the appointment of Balsan — who was previously with Christian Dior — the brand is now in a stronger position.
“Fendi has taken direct control of its retail network in Hong Kong, China, Taiwan, Guam and Saipan,” said Balsan. “We have also opened stores in new markets such as Thailand, Australia and Korea.”
With its now-permanent presence in the region, the Fendi office is “reevaluating the value of each store” Balsan added. There is greater control over distribution and, considered even more crucial, image.
Image, ultimately, seems to be what the new wave of restructuring is all about. Giorgio Armani and Emporio Armani are set to open two 11,000-square-foot boutiques here next September. Last year, the Milan-based empire set up its own local office. High-end retailer Joyce Boutique Holdings had the franchise for Giorgio Armani and Emporio Armani boutiques in Hong Kong for more than 25 years and had introduced the brand to the Asian market .
Armani didn’t renew the franchise agreement when it expired last year as part of its strategy to take retail and distribution operations in-house and strengthen control over the production and distribution of all its lines.
Armani’s newest office will oversee expansion in the region — including Australia and Japan. Nicole Wang, general manager of Armani in Hong Kong, said that a consistent image in the region would be one of the most immediate benefits of directly operated businesses.
“Brands are more and more taking back their businesses in this part of the world. Now with an Armani regional office in Hong Kong, the brand can have the importance it should. We can push it to another level, strengthen our relations with the head office and reestablish the Armani name in all categories. It’s a much more collective effort,” she said.
“Sometimes, if one company is dealing with multiple brands, it’s more difficult to keep any one brand’s identity clear. But it is better to unify the merchandising, events and image — and in order to do that, a big global company has to invest in a particular region. This way, we have much more say about what is needed by the local market.”
Bulgari recently opened its own headquarters in Hong Kong, after several years of being distributed through Dickson Concepts.
“Our company policy is to start with a franchise partner when we open stores in a region we are not very familiar with,” said Francesco Trapani, chief executive of Bulgari. “Once we know the market better, however, we prefer to handle our business directly. This is why, from time to time, we buy back some of our franchised operations, including many in Asia.”
Bulgari in Rome now holds a majority interest in its business in southern Asia, as well as a controlling interest in Bulgari Japan.
“Directly operated stores are better and easier to control than franchised operations,” he said. “Also, margins are obviously higher if you handle them directly.”
Bulgari also plans to open a glossy new flagship in Hong Kong’s Central district this year. Without a partner, it will have to bear the costs completely — which is perhaps one of the few downsides of having a directly operated retail business.
“The initial investment for a directly operated store is obviously among the disadvantages,” he said. “Each store costs about $5 million. But besides that initial investment, there are no other disadvantages.”