When approaching an expansion strategy for your fashion brand, there are a series of challenges to overcome.
How are you going to adapt your products and services to another culture?
How are you going to scale distribution while still maintaining control over your customer experience?
How are you going to grow your brand without having to “break the bank” to develop your retail presence?
Well, if these are the questions keeping you up at night, in this post, we’re going to discuss an expansion and foreign-entry strategy which is able to help you solve all of these issues.
We’re talking about franchising.
With no further ado, let’s get into it!
- What is Franchising?
Franchising is a contractual entry mode which is really helpful in fashion, as it foresees a contractual agreement that is focused on your brand equity and intellectual property.
Franchising is defined as an agreement or a license between two distinct parties whereby the owner of a trademark or trade name (franchisor) gives another party (the franchisee) the right to market a product or service.
In this sense, as we’re talking about intellectual property, we’re in the area of licensing. However, with franchising, we’re adding an additional element to the contract: the way in which operations are managed.
In franchising, we’re not only using a trademark but we’re also given strict guidelines to follow so that we will provide a service, or sell a product. These guidelines are part of the business format or set of operations that franchisors request franchisees to follow as part of the agreement.
Franchisors in fact want to make sure that, as they are scaling and growing they are keeping consistent. Despite expanding in a domestic or foreign market, the customer experience needs to stay the same regardless of the touchpoint that connects you to the brand.
This approach provides a series of benefits for both parties: the franchisor and the franchisee.
Benefits for the Franchisor
Franchisors get to scale their business quickly as they are licensing their intellectual property and business format to a third-party entity that will have to invest their own money to start operating the business. Business risk, in this sense, is entirely on the franchisee.
On the other hand, it could be argued that if franchisors don’t choose their business partners wisely they could dilute their brand equity.
Franchisors will be paid a franchising fee, related to the value of their brand equity and will be getting franchising fees every month, calculated as a portion of the revenue generated by the franchisee.
Franchisors will get to work with local entrepreneurs when growing their business internationally. As a result, they are able to scale their business while adapting it to different markets, by working with locals.
On the other hand, what are the benefits for the franchisee?
Benefits from the Franchisee
There are a few benefits for the franchisee too. Let’s look into them.
Franchisees will get to start a business leveraging the high brand equity of an established brand, minimizing their startup risks. This will involve a huge time saver, as they will not have to invest heavily in marketing to build an audience for their business.
Franchisees will have a very clear and detailed game plan on how to manage operations, allowing them to become profitable much faster as they are not going through the challenges of optimizing a business for profit.
Franchisees will pay a relatively manageable portion of their revenue, allowing them to benefit from their own success.
As discussed, as this business model relies quite extensively on intellectual property it is a great model to scale your fashion distribution. We’re looking at this point in further detail in the next section of the post.
- Benefits of Using Franchising in Fashion
One of the biggest benefits of using this model in fashion is that it provides a really good middle ground between exports and foreign direct investments when entering international markets.
Let’s look at why this is the case.
Issues with Exports and Foreign Direct Investments
With exports, a brand is losing control over its products, as once they are shipped, the customer experience of receiving a product is entirely managed by third-party entities. If you are distributing an up-market product, then you know how important distribution can be in adding that “luxury feel” that export can’t promise to deliver consistently.
With foreign direct investments, even if you could potentially manage your customer experience entirely, you are exposing yourself to a lot of financial and business risks.
Investing in foreign markets refers, in this context to the practice of developing a foreign business presence by acquiring a fully-owned store.
The financial risk is connected to the size of the investment you are committing to, which could impact your growth and cost of capital.
The business risk is connected to an untested market, where you may build wonderful stores only to realize that the market you chose is not ready for your brand.
As for many business strategies, there is a point of balance we can exploit with franchising.
What Makes Franchising a Good Option for International Distribution
As discussed franchising allows you to reap a series of benefits, such as the following.
Franchising allows you to control the experience your customer makes in the store, by creating clear guidelines that your franchisees will follow. This allows you to get “the best of both worlds” as on the one hand you’ll access physical distribution while controlling your customer relationships through your franchisees.
Franchising does not entail excessive financial risk, this will allow you to operate with multiple franchisees and access a faster time-to-market, hypothetically entering multiple markets at once.
And last but not least.
Franchising allows you to take advantage of local entrepreneurs’ knowledge and business network. By setting eligibility standards you can choose those business partners that display the characteristics, values, and competencies that best resonate with your brand.
Of course, we also need to remind ourselves that franchising can also be a stepping stone in a broader strategy. We’re going to discuss this in the next section of our post.
- Franchising as a Stepping Stone
For as great as franchising can be, there are certainly some limitations to consider, as per any other business model.
Here are some challenges to overcome with franchising.
Challenges with Implementing a Franchising Expansion Strategy
It’s hard to recruit the right talent and find the right franchisees. Given the type of relationship that franchising foresees, it is not simple to identify, attract, recruit and retain the right talent for your franchising strategy. Strong brand equity can help, but it’s still a challenge that needs to be overcome.
It’s not simple to keep operations consistent. Even if you’re disciplining every single aspect of your business operations, you can’t control your franchisees too strictly, and this may lead to inconsistent brand experiences, which could harm your brand.
You may not be making all the money you want. By taking only a share of the profits, you may feel that your franchisees are taking the better end of the deal, exploiting a brand you worked hard to build.
As a result, at some point, you may want to move past franchising and invest in your fully-owned retail stores.
As discussed, this option is very risky and before committing to a “make it or break it scenario” you want to make sure you’re fully equipped to tackle the challenge.
In this sense, franchising can be a really good stepping stone to get there.
Great, now that we’ve covered all the relevant points, it’s time to draw a few conclusive remarks.
There you have it! In this post, we’ve discussed some of the benefits associated with franchising as a strategy to scale your brand’s distribution both domestically and internationally.
Entry modes are a fascinating dimension of international marketing and if you’re interested in learning more about them in this post, we’re providing extensive research on how to enter foreign markets.
If you’d like to learn more about international marketing and fashion, don’t hesitate to explore our blog where we’re sharing a wealth of content on these fascinating topics. Enjoy!