It is already widely accepted that Burberry will not renew its key Japanese apparel license with Sanyo Shokai and master license with Mitsui Bussan next year. Given that the UK brand accounts for as much as a third of Sanyo’s sales and significant royalty income for Mitsui, it will be a blow for both firms. Sanyo has had plenty of forewarning, however, and is positive it can make up the loss.
Last month Sanyo Shokai’s stock price plunged 17% in one day following a Nikkei report that Burberry would not be renewing its license with the Japanese apparel firm in 2015. This should not have come as a surprise to investors. Burberry had already signalled its intentions in 2009 by shortening the original contract with Mitsui Bussan and Sanyo Shokai by five years from 2020 to 2015, and its recent activities in other key markets such as Spain show a preference for closing license contracts in favour of direct operations.
At the same time as shortening Sanyo’s contract, Burberry also stiffened the license terms, demanding higher royalties and higher targets. Burberry had already begun preparing to take greater control of the Japanese market by setting up a ‘liaison office‘ and later created a subsidiary called Burberry International tasked with opening directly operated stores stocked with imported merchandise in key Japanese cities – there are now 14 such stores.
Then in 2010 it cancelled its main bag license with Nishikawa and some other smaller licenses, preferring instead to focus on imports that conform to the positioning, design spec and pricing of Burberry globally – most licensed product on sale in Japan is generally priced at a significant discount to Burberry in other markets and at the global stores within Japan.
Burberry first signed a license with Mitsui in 1970, resulting in one of the most successful licensed businesses in Japan with sales estimated at around ¥60-70 billion, all licenses and peripheral merchandise included. Sanyo Shokai’s Burberry sales alone, which come from sales of both Burberry branded apparel as well as the two Japanese sub-brands Burberry Black Label and Burberry Blue Label, are reported to be around ¥30 billion-¥40 billion out of group turnover of ¥107 billion last year, from more than 300 doors. It is expected that Burberry will continue to let Sanyo operate the Black and Blue label licenses, and indeed expand sales in other markets for these brands.
Sanyo Shokai has had plenty of notice to begin preparations for the handover from June next year. It recently licensed another outerwear-based brand, Mackintosh Philosophy, and is working closely with Mitsui on Paul Stuart, a brand Mitsui recently acquired outright precisely to avoid the threat of lost license revenue happening with Burberry. Sanyo recently launched Paul Stuart Golf from which it hopes to see sales of ¥5 billion within three years. In 2012 it signed a deal with Pringle to develop the Pringle 1815 brand in Japan.
Sanyo has also done well with its own Epoca brand too and has even begun exploring the younger fashion market, acquiring Kai Lani in 2010, a small young women’s fashion retailer. It also launched a new women’s brand called Molda Vita last year, and owns the respected select shop chain, Loveless. As important, Sanyo has culled under performing brands long protected by the cash generated by the Burberry business, scrapping 15 and bringing the total down to about 25.
As a result of these efforts sales rose 3% in FY2012 to ¥107 billion and operating profit jumped 180% to ¥5.8 billion.
Burberry Black Label prices up 30%
In preparation for the changeover, Sanyo has already been tasked with re-positioning the Burberry Black Label with prices up 30% for a new ‘Made in Japan’ collection which will launch this Autumn. The line, which will include trench coats, suits and shirts, will be made in Sanyo’s Japanese factory in Aomori, and even the fabrics and parts like buttons will be sourced locally. Suits will see prices rise from ¥70,000-¥80,000 to more than ¥100,000. Non Japan-made items will also see prices rise by around 10%.
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