(last updated in September 2022)
Own and operated stores are a favoured brick & mortar channel, but heavy on investment. In comparison, partner (aka franchise) retail is a capital-light strategy and often far more profitable.
While luxury brands clearly prioritise growing own and operated retail, successful premium brands (i.e. VF or LEGO) invest in growing both. But professionalising partner retail remains a challenge for many brands.
How Well Do You Manage Partner Retail?
If you are like most premium and mid-market brands, partner retail is a bit of a strategic stepchild. If you want to determine where your brand is on partner retail, ask yourself these three health questions:
- What is this year’s L4L partner store performance?
- What was your operating income from partner retail last year?
- How many well-prepared meetings to discuss your partner’s strategic and organisational development do you have?
If your brand is anything like the average lifestyle brand, you will need a day or two to answer the first two questions. In other words, you’re not too sure about the quality of your growth for 10-30% of your brand’s sales. Why? Because most brands don’t report on partner retail as a distribution channel.
In fact, of the top 20 global lifestyle brands, none report details of their partner growth beyond store openings. But you will find in all cases that partner retail is a major distribution channel, mostly managed by the wholesale team.
Partner Retail vs Own Retail
There are good reasons to do own retail, and even more good reasons to operate partner retail.
Besides the obvious reason that local entrepreneurs are more familiar with local markets, partner retail distribution is a channel for those strong enough to allow others to build and own the consumer relationships.
But partner distribution doesn’t work without brand retail guidance. It takes specialised resources, processes, tools and more. And like any partnership, it needs to be developed. Quality growth in partner retail only happens if you invest in it.
In mono-brand retail, own stores are the channel for the hasty ones who want to see full sales growth quickly while in full control their distribution. Partner retail is the smarter retail, the capital-light growth option. In essence, your partner invests in building your brand presence, while you coach them in quality retail appearance. As a brand you gain years of retail learning, and when the time is right, you take over your partner’s stores.
In essence, with partner distribution you grow three times:
- with the market entry,
- with the partner’s expansion over the years, and
- with the acquisition of your partner stores.
That’s why partner retail is often referred to as the smart preparation for future own retail.
Is Your Brand Partner Retail Ready?
The prejudice that only luxury or premium brands can find partners interested in investing in their retail persists. But a long list of small, mid-market or value positioned European and American companies that very successfully grew with partner retail proves it wrong.
Take Bestseller (Only, Jack & Jones, Selected & Vero Moda), Marimekko or Jack Wolfskin for example. They owe a significant proportion of their growth to partners. Partner retail paid off for them with high growth rates and global awareness.
In spring 1996, two Danish entrepreneurs approached Bestseller’s owner Anders Holch Povlsen about building a partner retail network for him in then emerging China. The two youngsters were not necessarily the natural first choice, and China was not necessarily a strategic priority at the time. But Povlsen gave it a try, and two decades later this partnership operates more than 5,000 stores in 500 Chinese cities. Uniqlo entered China the same year with own stores and reports 529 stores.
Bestseller don’t report details of their business in China, but their own retail network stands at +2,600 stores. Whether your brand is ready isn’t a question of global awareness or luxury positioning, but of whether the brand owners are ready to let go, like Povlsen did in 1996.
Three Reasons to Invest in Partner Retail in Times of DTC
In case you are still unsure whether you should invest in partner retail, here are three more reasons why it’s a good idea:
- Partner retailers are entrepreneurs. The annual growth of new partner stores is the better investors index, indicating that third party retailers are convinced your brand has an attractive financial payback.
- Far earlier than your stock indices, a shrinking expansion of partner retail warns you of problems on the horizon.
- DTC is strategically right. Yes, you need better stores and cross channel experiences, but consumers don’t differentiate between own or partner stores. Make sure you and your partner invest in partner retail to have a superior brick & mortar experience everywhere. Partner retail sales is your next decade’s sales growth, so it’s essential to ensure its health. If you invest in your partner retail management now, you know you will only acquire healthy business, taking you from good to great.
Partner Retail Outlook
For those of you working in partner retail and feeling unheard on the need for quality development, you are not alone. Yes, Direct to Consumer (DTC) strategies are trendy, while selling via third parties currently sounds dated.
Rest assured, there will come a day when every brand organisation recognises that multichannel distribution includes strong and healthy partner retail. There will come the day when all brands realise that some markets or cities are better operated by third parties. Today Brazil, or the UAE, tomorrow perhaps Myanmar or Cuba. Despite all DTC hype, investing into partner retail management will continue to be smart.
About the Author:
Guido is a fan of managing qualitative growth. He believes partner distribution is challenging, but a smart and rewarding brand growth strategy. If you want to exchange some thoughts, feel free to reach out via e-mail or read more from him here.