Self-Operated Retail Making Its Mark in Personal Accessories

Personal accessories companies dealing in bags, jewellery and watches often enjoy a close relationship with retail partners in order to appeal to specific consumers. They also depend on these retail partners for guiding category growth. As consumer spending for these listed categories was highly constrained in 2012, profit margins for major players are expected to be negatively affected in the calendar year. This in turn encouraged several companies to expand their supply chain in order to include the retail end, evaluating pros and cons in the process.

Pros and cons of becomign a retailer of one's own products

Players making the switch

While it requires a substantial investment to build a brand’s retail profile from scratch, the lure of better margins and greater degree of quality control over brand image has seen manufacturers consolidate their retail chains. Luxury groups such as LVMH and Tiffany are almost exclusively reliant on self-operated retail outlets and managed to propagate their brand names without making much use of third-party retailers. However, not all luxury players follow this approach, as demonstrated by Richemont and Coach, which have appreciable contributions from their wholesale businesses.

Due to the relatively high unit prices involved and the high cost of production, jewellery and luxury brands are those that traditionally operate self-owned retail locations across countries. Among non-luxury players, the dominance in distribution is often reversed, as wholesale operations tend to guide sales. Several bags and luggage players such as Samsonite and VF Corp fall into this area. In comparison to these, some firms such as Swatch in watches and Pandora in jewellery had negligible sales sourced through self-run retail outlets in 2012. While all the brands mentioned differ in the importance of their retail operations to overall net sales, each took measures to enhance their own retail operations over 2011 and 2012.

Factors that could impact decisions

While brick and mortar stores are still the preferred medium for a wholesale-oriented manufacturer to explore retail sales, the increasing influence of internet retailing led to several personal accessories players focusing on the latter. Often enjoying appeal among young adults, a few internet retailing portals allow for creation of “virtual ensembles” and most offer products at prices lower than those seen at stores. A major constraint to an exclusively internet retailing approach is however its present limitations of consumer usage in most emerging countries, thus requiring an internet retailing expansion strategy to be tailored to specific countries.

Another factor that could discourage manufacturers from employing the self-operated retail model is the presence of dominant multi-brand retail chains in a country. Consumers in such countries expect to be able to compare major brands within their favoured retail chains. As such, manufacturers opting against partnering with such retailers give up on a major opportunity for fostering brand recognition.

Despite the concerns outlined above, the rise of self-operated retail is expected to be a common feature across personal accessories in the forecast period, as profit margins attract the focus of investors as well as company leaderships.