Burberry Shifts Its Strategy in Japan

Burberry, the icon British luxury apparel company best known for its high fashion outwear, has been operating in Japan for nearly half a century. Until recently, its branded products were sold under a licensing agreement with Sanyo Shokai. The Japanese company had considerable discretion as to how it utilized the Burberry brand. It sold everything from golf bags to miniskirts and Burberry-clad Barbie dolls in its 400 stores around the country, typically at prices significantly below those Burberry charged for its high-end products in the United Kingdom.

For a long time, it looked like a good deal for Burberry. Sanyo Shokai did all of the market development in Japan, generating revenues of around $800 million a year and paying Burberry $80 million in annual royalty payments. However, by 2007 Burberry's CEO, Angela Ahrendts, was becoming increasingly dissatisfied with the Japanese licensing deal and 22 others like it in countries around the world. In Ahrendts's view, the licensing deals were diluting Burberry's core brand image. Licensees such as Sanyo Shokai were selling a wide range of products at a much lower price point than Burberry charged for products in its own stores. "In luxury," Ahrendts once remarked, "ubiquity will kill youit means that you're not really luxury anymore."*Moreover, with an increasing number of customers buying Burberry products online and on trips to Britain, where the brand was considered very upmarket, Ahrendts felt that it was crucial for Burberry to tightly control its global brand image.

Ahrendts was determined to rein in licensees and regain control of Burberry's sales in foreign markets, even if it mean taking a short-term hit to sales. She started off the process of terminating licensees before leaving Burberry to run Apple's retail division in 2014. Her hand-picked successor as CEO, Christopher Bailey, who rose through the design function at Burberry, has continued to pursue this strategy.

In Japan, the license was terminated in 2015. Sanyo Shokai was required to close nearly 400 licensed Burberry stores. Burberry is not giving up on Japan, however. After all, Japan is the world's second-largest market for luxury goods. Instead, the company will now sell products through a limited number of wholly owned stores. The goal is to have 35 to 50 stores in the most exclusive locations in Japan by 2018. They will offer only high-end products, such as Burberry's classic $1,800 trench coat. In general, the price point will be 10 times higher than was common for most Burberry products in Japan. The company realizes the move is risky and fully expects sales to initially fall before rising again as it rebuilds its brand, but CEO Bailey argues that the move is absolutely necessary if Burberry is to have a coherent global brand image for its luxury products.

QUESTION 1:Discuss the problems associated with Burberry's licensing arrangement in Japan.What were the benefits of establishing a relationship with Sanyo Shokai in the country?

QUESTION 2: Reflect on the new strategy that Burberry is undertaking in Japan. Given that this is a shift away from Sanyo Shokai's past strategy, what can you expect in the near future concerning performance in the country? What is Burberry's goal in the long-term?

Also makea multiple choice question with four answer choices based on the case(mark the correct answer)