LONDON, United Kingdom — When swimwear specialist turned lifestyle brand Orlebar Brown decided to expand its retail footprint beyond the US and Europe, it didn’t plan an expensive rollout of directly operated stores. Instead, the company turned to franchising.
In August 2013, Orlebar Brown raised £8 million ($12.4 million) from private-equity firm Piper in exchange for a significant minority stake; capital that will support the expansion of the brand’s directly operated store network in the UK, the US and Northern Europe. But for more far-flung geographies, including Australia, Mexico, Singapore and China, chief executive Paul Donoghue and founder Adam Brown sought an alternative strategy that would allow the brand to enter several new markets quickly and cost-efficiently.
Orlebar Brown initially found traction with fashionable “tailored swimwear” that consumers could wear from the pool to lunch. To date, the company has sold 25,000 pairs of its classic navy blue mid-length shorts (£145). “The product that Adam [Brown] created has a relatively unique proposition,” says Donoghue. “It’s important that we’re able to get meaningful global distribution in a relatively short amount of time to retain a first mover advantage or a first to market proposition. That’s why franchising is attractive to us.”
Under franchising agreements, an external partner pays for the rights to use valuable branded assets to build a business, paying a percentage of sales revenue to the owner of the brand in return. The franchisee is effectively a wholesale partner, often buying product at costs lower than wholesale. For a brand, this makes franchising a slimmer margin channel than directly operated retail or even wholesale. But, critically, the franchisee bears the set-up costs of stores.
Franchising will allow us to accelerate expansion over the next couple of years with greater operational efficiency.
Luxury fashion brands like Tom Ford, Balmain and Ermenegildo Zegna have all successfully utilised the model. But franchising isn’t without risk. “Franchising is a high risk strategy. Bad franchisees can be extremely detrimental to a brand,” says Mortimer Singer of Marvin Traub Associates. But, “local franchisees have ‘lay of the land’ know-how and a well-placed store can serve as a billboard that can be accretive to global brand visibility.”
“We see franchise agreements as a genuinely meaningful part of our business — a fourth channel, running parallel to wholesale, digital and direct retail,” explains Donoghue.
Orlebar Brown, launched in 2007, is currently stocked at over 350 doors worldwide. Today, menswear accounts for 90 percent of the business and, divided by category, swimwear stands at 45 percent and polos and t-shirts at 30 percent, while the remaining 25 percent comes from the brand’s ‘every day’ collection (including shirts, outerwear, knitwear and trousers). The brand expects to reach £20 million (about $28.8 million) in revenue in 2016, a 40 percent increase over last year. And, while Orlebar Brown plans to deepen its wholesale accounts and expand its own retail network in markets closer to home (two directly operated stores are on course to open early this year in New York and Miami), the brand is tapping franchise agreements to drive further momentum.
“If you can get your retail concept resolved, you can always take it to a franchise format. Franchising will allow us to accelerate [expansion] over the next couple of years with greater operational efficiency,” explains Donoghue. “In the long term, what’s important to us is that we get our story and our product out to as many people as we possibly can.”
Orlebar Brown’s franchising strategy was informed by the success of two major Italian companies. “We studied Moncler and Brunello Cucinelli. They’ve done it in a really cerebral way, they’ve really thought about it. It’s about global cities, it’s about the right partners,” says Donoghue.
“It’s a very viable way for brands to grow, but it all depends on the expertise of the local franchise partner,” says growth and global markets consultant Robert Burke of Robert Burke Associates. “It’s very, very important they are able to represent the brand so that it has a seamless experience with the consumer. The biggest risk is having the wrong partner. Entering the market and then exiting the market — that’s really detrimental to a brand.”
“A bad franchisee will damage the brand,” agrees Singer. “If they buy too much inventory, they will try and flush the inventory by discounting too early, while poor sales associates can fail to represent the brand identity.”
Orlebar Brown has already entered into partnerships with retailers Peter Degotardi in Australia and Sunbarth in the US. “Sunbarth has a multi-brand swim business in the Caribbean, in the US and in France. They asked us to do the first franchise store in Cannes in 2014,” says Donoghue. Sunbarth has since opened another Orlebar Brown franchise store in East Hampton, the first in the US (and a strategic anomaly).
“The way we see them, they’re genuine partnerships,” he says. “It starts with getting ‘the pack’ [the brand’s concept and retail identity] really locked down. Then it’s about being really clear about the contract. We have to sign off every location. We retain that control,” Donoghue continues. “We opened a store in Cannes and East Hampton as tests in 2014. It taught us that we had to get the concept fully resolved — branding, store design, shop floor and the service proposition.” Orlebar Brown plans to open eight franchise locations in 2016, including one in Bondi Beach in Australia and one in Playa del Carmen in Mexico.
“It’s not that I don’t worry about the risk to the brand,” says Donoghue. “I worry about it all the time and that makes me think that it’s really important that we do all the things that negate that worry, like creating a really strong pack and keeping a close watch on everything.”
“My biggest fear is how the brand is going to be interpreted,” says Brown. “So I think it’s just as Paul [Donoghue] said — getting to know the partners.”
Often, brands use franchising strategies to expand quickly into new geographies, understand the local market and, then, over time, buy back franchised stores, turning them into directly operated retail outlets. “To do a Brunello Cucinelli and have the ability to buy back franchises to make them direct — that’s the ultimate goal of many brands. Using the franchise partner to really understand the market as a brand in a very thorough way, so that when you do have the financial ability to buy it back, you’re not going in fresh, you’re not going in inexperienced,” explains Burke. Singer agrees: “Smart brands will add buy back provisions where possible so that they can take over a mature business down the road.”
“Brunello Cucinelli went through this same process,” says Donoghue. “As I understand it, they’re starting to either buy them back. We would love to be sitting here in 10 years time, working that out.”