Since 1970, Sanyo Shokai Ltd. has been licensed to design, manufacture and sell garments under Burberry Group plc. However, the Shukan Toyo Keizai (7 February) reports that the 45-year contract with the luxury British brand will terminate in June. Thereafter, Burberry—which began preparing for this move in 2000—will supply the Japan market directly.
Sanyo will be the last overseas firm with which Burberry will have a tie-up. The agreement, initiated in the 1990s under a separate licence, has enabled Sanyo to sell Burberry garments in the Black Label and Blue Label lines.
Sanyo’s operating profits from Burberry-related business are projected to plummet sharply, from ¥8,700mn at the end of the 2014 fiscal year (31 March, 2015) to just ¥200mn by the end of fiscal 2015.
Likewise, Burberry’s licensing income from Japan—reported to be £62mn for fiscal 2014—is expected to shrink over the short term.
Better brand perception
Beginning in July, following the end of the tie-up with Sanyo, the number of outlets and concessions selling Burberry-brand goods will fall from over 300 to 16 shops run by Burberry.
By taking direct control of operations, the firm aims to establish itself worldwide as a luxury brand.
Up to now, wide price disparities have existed. While a standard trench coat, for example, has sold at directly operated outlets for upwards of ¥200,000, the same item produced under licence by Sanyo has sold for about half that price. This made the brand more of a mass premium, as opposed to a luxury marque.
Nevertheless, given Japan’s position as the world’s second-largest market for luxury goods, Burberry is optimistic about growth. It has set 2017 targets for its Japan unit of £100mn in sales, and £25mn in profits.
If things go according to plan, the Japan market should eventually account for 10% of the brand’s worldwide sales.
New shop locations
Pascal Perrier, chief executive of Asia-Pacific at Burberry, explained that the 300 outlets from which Sanyo sold Burberry products had resulted in “overexposure” of the brand.
“We want to be more careful in choosing store locations”, he said. In addition to its flagship store in Omotesando, the firm has shops in Ginza and Roppongi, as well as in Kobe, Hyogo Prefecture.
In addition, Burberry has announced it will open shops in Shinsaibashi, Osaka, this spring and in Shinjuku, Tokyo, this autumn.
Popularity high
“Japanese really like Burberry items with their distinctive checked pattern, and the brand has become a core tenant in regional department stores”, a department store operator told the Shukan Toyo Keizai. “But considering the anticipated price increases, I suppose that the fan base the brand has enjoyed in the past will inevitably leave it”.
Another department store source was more upbeat on Burberry’s prospects. “It’s far and away the top UK brand”, he said. “If the company can build cooperative relationships with department stores, it will be able to acquire new, superior customers”.
While Burberry’s direct operation model has shown success elsewhere in the world, it is unclear whether it will have a similar impact in Japan, given that expectations and anxieties abound.