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International focus: Franchising

Retailers with overseas franchises face tough decisions when it comes to local websites.

When UK fashion retailers expand their bricks-and-mortar operations overseas, they often knock on the doors of local franchise operators who have on-the-ground retail knowledge and infrastructure already in place.

However, this route creates the dilemma of whether to retain control over the local online operation in the event the franchise partner is unable to successfully manage the retailer’s strategy in that channel.

If a retailer does decide to hand over control to a franchisee, it needs to work out what the working relationship will look like in order to ensure its online strategy is met and the lack of direct control won’t cause damage to its brand identity in that territory.

Paula Levitan, head of UK retail at law firm Arnold & Porter, says: “Local partners can be invaluable in their knowledge of real estate, logistics and all the things that are different from country to country, but anything that touches the brand specifically is very different.

“Franchise partners in my experience want to take on the online business, but for anyone not sat in head office and at the centre of new product development, learning about fresh promotions and the core of who the customer is, it can be a very tough task.”

Levitan warns that ensuring consistency across the retailer’s online and bricks-and-mortar platforms is essential, and that franchising websites can be tricky because different overseas partners could change the “brand essence” and affect how the company is seen in those markets.

Mark Ashton, managing director of women’s young fashion brand Little Mistress, believes that international retail stores and global ecommerce sites should be run as separate businesses. “The online sphere is your stage to convey the global image and brand message. To try and run this on an individual country-by-country basis is just not workable,” he says.

“We look at the sales in the territory and on a quarterly basis compensate the [retail] franchisee in the form of a percentage of sales achieved in the region.” He says this way the partner sees a benefit from expanding the brand’s popularity through physical retail and by directing customers to the website.

This is now becoming normal business practice, with law firms increasingly adding clauses in franchise contracts stating that a percentage of the profits generated abroad from centrally run ecommerce platforms will be given back to the franchise partner.

Further issues to consider in franchising contracts include pricing, with many franchisees usually expecting the freedom to set their own prices. This is something that needs to be carefully weighed up when the bricks-and-mortar and online channels sit side-by-side in a country, where any discrepancy in price could damage a retailer’s image and bottom line.

Returns are also an area to consider, because local customers will expect to be able to return items bought to a local store. Retailers and brands must therefore address this directly in the franchise agreement.

Maurice Bennett, chairman of womenswear retailers Austique, Kookaï UK and Long Tall Sally, agrees that signing online franchise agreements can be a tricky task because it is still a relatively new field compared with physical retailing: “One of the problems is that you can’t legislate for anything that is unknown, and online can be an unknown field.”

Bennett says it is difficult to divide the business and have a franchise operator running a retailer’s website in one territory while the retailer runs the UK site, as companies need to have common policies such as returns and marketing across all platforms to ensure consistency.

He adds: “Obviously if in a market there is a big opportunity for direct mail online then it becomes less attractive to use a local partner [and launch bricks-and-mortar stores]. All you need in that case is a really good logistics partner to handle deliveries and returns.”

Bennett adds that in countries where the online market is mature, it can be preferable to enter digitally before even considering a physical presence. “Then if someone approaches you, you can look at expanding with bricks-and-mortar as well. But you have to work hand-in-hand with whoever it is. It has to be seamless or else it doesn’t work,” he says.

Mothercare opted to allow franchise partners to adapt its website to suit the local market. The retailer controls marketing and content and provides presentation guidelines, but largely allows its overseas partners to fulfil orders from the site and run it themselves.

Mothercare has reaped the rewards of this approach, with a rise in international sales.

In the 15 weeks to July 13, international sales increased 14.1%, with its etail operation complementing its estate of 1,116 franchise stores across 60 countries including Russia, India and Kuwait.

Where the franchisee is tasked with running a retailer’s ecommerce operation, many contracts will allow the UK company to approve or remove content in order to ensure the brand image is preserved.

And some argue that this is the best route.

Jas Virdee, head of consultancy Kurt Salmon’s UK multichannel practice, says launching one site to suit all territories can be a tough ask.

“In some countries, such as Indonesia, they are quite online-savvy, but then again, how do you deal with the sheer size of a country such as Russia?”

He adds: “As long as you provide the framework and work with the franchise partner it can work well, particularly as the product can be different depending on which territory you are in.

“As a brand or retailer you don’t want to get tied down with all the trading issues, as they can take weeks to sort.

The franchise partner is best placed to deal with them as they are a lot closer to it all.”

From September, G-Star will be offering a multichannel tool to its franchise partners in countries including Australia, Germany and Poland. The website will provide shoppers with a unified experience, allowing them to pick up and return online orders in store.

Identity pass: G-Star is developing a web platform that will provide a consistent experience across territories

Identity pass: G-Star is developing a web platform that will provide a consistent experience across territories

The platform, which is still in development, will then be adopted by franchise partners and will sit on top of G-Star’s existing website in each territory.

G-Star chief creative and commercial officer Patrick Kraaijeveld says the etail framework will ensure consumers “trust they are shopping at the brand whether they are online or in a physical G-Star retail store”.

Kraaijeveld adds that in order to mitigate any issues with allowing franchisees to run websites, the brand has put together guidelines to outline terms of Sale and discounting. It has also provided RRPs and a general marketing strategy stipulating the recommended Sale period.

The debate over whether to allow a franchise partner to run a retailer or brand’s online operation is a divisive issue, with a range of opinions on how to manage digital sales internationally, depending on the fashion business you speak to.

“There’s no industry best practice or one-size-fits-all approach,” says Iain Taylor, commercial solicitor at national law firm TLT. “Different approaches work for different sectors, different territories and the capability of the local partner.

Increasingly, when retailers are targeting new territories they have an ecommerce scorecard alongside their general retail scorecard to assess a country’s suitability.”

He adds: “Keeping control of the website inevitably involves less risk but local knowledge and marketing can be more effective. Some of the major franchise operators have developed very sophisticated online offerings and these have helped UK brands get established in new markets.”

Whatever strategy a brand or retailer decides on, brand continuity is key. And no matter what channel the consumer opts to shop through, businesses need to ensure their branding and service is consistent, whether that be in a physical store environment, via a website or on a social media platform.

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