A TWO-PRONGED STRATEGY
Byline: Eric Wilson / Koji Hirano, Tokyo
NEW YORK — When it comes down to a choice between licensing in a foreign land or importing there, makers are mixing it up.
As international distribution continues to develop, particularly in Asia, manufacturers are finding that a mix of locally licensed product and domestically manufactured apparel is the most effective way to sell globally.
Using Japan as a learning tool, several designers new to Asia are contracting with local apparel manufacturers as well as distributing domestic goods through Japanese import houses. They are finding that the mix has several advantages over licensing local companies to make their apparel — most significantly, more control.
In fact, some firms that have had a predominantly licensed presence in Asia are now ending those agreements and returning to importing their wares.
The shift toward importing apparel in Japan is in step with worldwide strategies on image control and distribution, part of the “global branding” trend, rather than “just letting licensees do whatever,” as one Asian industry executive put it.
Christian Dior Couture announced Feb. 7 it had terminated its 30-year-old licensing agreement with Kanebo Ltd. and will now import Christian Dior couture and ready-to-wear collections through a wholly owned subsidiary in Japan. Last year, Dior also terminated licensing agreements in the U.S., for hosiery, coats and suits, saying it wanted to exert better control over the brand.
Kanebo’s fall and winter rtw and couture 1997 collections for Christian Dior will be the last ones manufactured in Japan, as “Japanese consumers became more fond of imported goods,” according to Georges Tabary, president of Christian Dior K.K., the Japanese subsidiary formed in 1992.
Kanebo will continue its licensing arrangement for Dior men’s wear and baby categories.
Christian Dior K.K. deals in imported merchandise, including the brand’s clothes and accessories, runs boutiques for imported products and supervises licensing arrangements in Japan. The Paris-based parent company expanded its global strategy to switch regional business from licensing to importing when it changed its head designer to John Galliano from Gianfranco Ferre.
Through its women’s wear license from Dior, Kanebo’s wholesale volume for 1996 was $137.5 million (16 billion yen), while its importing business made $21.5 million (2.5 billion yen).
Christian Dior K.K. will open 25 in-store shops in Japanese department stores within three years, while Kanebo’s existing 17 licensed boutiques for Dior apparel will be reestablished for other Kanebo brands. Kanebo also imports and manufactures for Fila, among others.
While Tabary would not disclose projected sales volume at the Christian Dior stores, sources estimated that Dior’s royalty on the license is 5 percent, or about $6.9 million, considering its volume of $137.5 million. The French design house would need export sales of about $69 million to generate $6.9 million in operating profit, figured as 10 percent of overall sales.
Kanebo also will start an importing and licensing business with Lanvin, announced Feb. 12. Kanebo will manufacture rtw and women’s golf apparel, and it will distribute the product through franchised boutiques.
Lanvin men’s wear has been produced under a licensing agreement with Sosakuya, but this is the first time Lanvin has signed a licensing arrangement for manufacture and distribution of women’s wear, according to Lanvin Japan officials. Within three years, the company projects it will generate $22.3 million (2.6 billion yen) from its import business and $55 million (6.4 billion yen) through licensed goods.
“Licensing business is important in order to let the brand’s image and the products prevail rapidly,” said a Lanvin official.
Takeyuki Touda, senior managing director of Itochu Fashion System Co., a brand marketing division of Itochu Corp., said importing is on the rise there because “foreign brands are doing business based on the idea of borderlessness.”
“The world is dotted with consumer markets and places of manufacturing,” Touda said. “In globalizing their business, it is important to maintain the brand image.”
Major department stores are eager for new brands, he said, “and the Japanese market still needs foreign brands.”
Foreign companies are switching to importing strategies now because they are trying to reestablish brand identity, said Masayoshi Soutome, senior staff researcher and manager of the management consulting department for Mitsubishi Research Institute.
“During the nation’s bubble economy in the Eighties, the brand business swelled so rapidly and brand images [were devalued]. Brand equity was eaten up [quickly],” Soutome said.
Licensees remain valuable, though, for their knowledge of local consumers’ needs and distribution.
Calvin Klein’s business has been conducted by Calvin Klein Japan since its inception in 1995. The signature collection generates about $25.8 million (3 billion yen) annually through 12 doors.
CK Calvin Klein’s rtw and accessories generate $214 million (25 billion yen), and the jeans line accounts for about $47.3 million (5.5 billion yen) annually.
The collection and jeans lines are imported, while CK rtw and some other items are manufactured under licensing agreements.
“The advantages of licensing are delivery on time and reorder during the same season,” said a Calvin Klein spokesman. “On the other hand, imported goods convey the real image of the brand.”
All Donna Karan and DKNY goods are imported, with the exception of handkerchiefs, which are licensed to a Japanese maker because “it is a product peculiar to Japan,” said Yasutada Oda, representative director and president of Donna Karan Japan K.K. “Our brand is strongly designer-driven. If we license here and do designing and product development locally, we will lose our [cache].”
Oda said it is nearly impossible to reorder imported merchandise in season, but that that “is the nature of designer brands.”
Yet because vendors’ trade with department stores there is on consignment, vendors try to keep constant trade by merchandising a wide array of products.
“If the vendors deal in foreign brands, they need licensed goods as well as imports,” said Itochu’s Touda.
Tetsuo Miura, general merchandise manager at Renown, who supervises Ellen Tracy and Isaac Mizrahi distribution, explained the uniqueness of the Japanese market in terms of its requirements.
“Almost all of the products of Ellen Tracy are imported, and difference in size between two markets is inevitable, but not a big problem,” he said. “But some categories, such as winter coats and clothes for humid summers in Japan, are made here.”
As for Mizrahi, the collection sets its retail price as high as Donna Karan and Calvin Klein, and “should be sold to rich people who are peculiar about fashion,” according to Miura.
“The merchandise has to be imported,” he said.
“The second line for Isaac is for younger consumers, for whom we need to reorder merchandise during a given season,” Miura added. “This line should be treated under the licensing agreement.”
Todd Oldham, who is opening a boutique in Tokyo this fall, holds a licensing arrangement with Elite Company Ltd. in Japan to produce handbags, which will be available there for fall. The designer also licenses shoes and a jeans line.
Distribution in Japan will be through Itochu Fashion System, mostly of imported apparel. However, some of the apparel particular to the Asian market, considering the demographics of Japanese sizing, will be produced there.
“But the true fashion customer loves the apparel coming from the source,” said Tony Longoria, vice president of merchandising and operations for Oldham, here.
The freestanding boutique will be modeled after Oldham’s flagship here, but is expected to be about twice the size.
The company is taking its international expansion slowly, though, Longoria said. The next logical markets for Oldham shops will be throughout Southeast Asia and then into Europe.
Designer Steve Fabrikant is also entering Japan with the Steve Fabrikant Collection, which will be imported, and Fab-NYC, a diffusion line that will be licensed and made there under a partnership with Mitsubishi and Ichida.
Fab-NYC is geared to a younger consumer for everyday wear and is more adaptable to a licensing arrangement, Fabrikant said. An Asian manufacturer has better knowledge of demographics and sizing specific to the market.
“There are a lot of techniques I wouldn’t have the facility to do, and when launching a new line, it makes more sense to have them doing it rather than me,” Fabrikant said.
The designer collection made here, meanwhile, can accommodate Asian sizes and will maintain its prestige by importing the merchandise.
Licensing in Asia is not solely limited to designer labels.
Sumikin Bussan will market Pacific Trail apparel ranging from footwear, sportswear and outerwear to accessories, including backpacks and sunglasses. The line, subject to approval by the Seattle-based Pacific Trail, a wholly owned subsidiary of London Fog Industries, will be available throughout Japan this fall.
Sumikin Busan also will open a Pacific Trail concept shop format with selected retailers.
The concept is being pegged to Japanese consumers’ enthusiasm for the Pacific Northwest, active, outdoor and casual lifestyles, said Gary Hansen, vice president and general merchandise manager of Pacific Trail. Sumikin Busan is manufacturing the entire line there.
“They will develop sportswear, and we don’t have that here or any plans to have that here currently,” Hansen said. Sumikin Busan was interested in the panache of Pacific Trail’s name, moreso than its American outerwear collection.
Although Pacific Trail is taking a strictly licensed approach in its Asian venture, firms that mix licensing and importing “definitely need a partner in Japan,” said Soutome of Mitsubishi.
“There is no problem in importing products if a company has on-time delivery,” added Touda. “Designers who are confident in their future tend to think highly of their brand image and they also tend to prefer exporting the products in order to control the image.”