Brand distribution partnerships - or: How's your marriage?
by Guido Schild
Retail franchise partners represent the second-largest distribution channel for most global brands, but do you know what like-for-like growth your partners are achieving this year? This channel is far more profitable then own retail for most brands, but do you know the actual profitability figures? Partner retail is likely your largest potential growth market between now and 2020, but do you value that potential enough to develop a growth strategy and allocate enough experienced staff and resources?
Partner retail is a valuable source of growth
If you work in the brand industry, you know a hundred stories involving partners. Brands work with “third parties” in licensing and sourcing, but – most importantly – in distribution. Distribution partnerships come in many different shapes and are so widespread that fewer than a handful of brands have expanded internationally without partners. Just two examples of those growth strategies:
Distributors build brands. Jack Wolfskin, Germany’s No. 3 sportswear brand, recently lost momentum in its home market. But its partner in China moved the brand from the status of a “nobody” in 2007 to 650 POS locations in 2014 – best practice by any measure. A licensing agreement with a Hong Kong manufacturer made this happen.
Acquisition of distributors as a growth strategy. The CSO of Ralph Lauren travels throughout Europe in 1998 to review a partner-built European distribution network. In the five years that follow, RL buys back 30 distribution agreements and builds up its own presence in Europe. Today it enjoys 4,900 POS locations and sales of $1.6bn. If you read RL’s annual report, Europe was then, Asia is now: Acquisitions of distributors and partner stores is a powerful growth strategy – if you have managed your partnerships well while they lasted.
Distributors are an industry – brands need to learn how to manage it
Distributors are only one way to grow partner retail, and it is the most sophisticated way. Whether Hugo Boss in UK, Timberland in Italy or Prada in Russia, growth via partners is a key lever for success. Brands’ growth strategies have built a global industry of distributors, some operating more than 50 brands and over 500 stores within a region. But the size of a brand portfolio is no indication of excellence in operations.
If distributors have one strength, it is knowing how to sell themselves. And how do brands asses their future partners? Most often pragmatically, with a low risk approach. If a distributor is already engaged with 15 other brands, that is a KPI – often the only one. And the approach is understandable. Isn’t it so much easier to follow 15 brand peers than to find own partners in strange foreign markets? From our experience working with brands and distributors, we can say for sure that this “following the peers” approach works only for brands ranking in the top 1/3 – all other brands become a strategic “adjacency” in a distributor’s growth strategy. Being a third priority gets you weaker locations and weaker store managers, and creates an overall mediocre brand appearance. This may not bother you, because the markets are far away and you enjoy the sales, but some day you may be forced to take over the partner stores, and fix what has been going wrong.
Groom your partnerships
If starting a partnership programme with a selection process that already makes a difference is not your idea of a sales growth strategy, there are other examples out there. Jack Wolfskin in China and many more show that best practices in partner growth often come from unexpected partners, from candidates in the background who are hungry and entrepreneurial.
Do you think the biggest risk in partner distribution is a divorce and temporary country exit? Puma’s CEO Jochen Zeitz may have thought so too, until the brand’s Greek distributor filed for bankruptcy. Puma informed the stock market in 2012 that it may lose €115m – no small figure considering that the total Greek sporting goods market generates less than €700m in annual sales. If you are familiar with financial reports of global brands, you read cases like this very often. It is poor partner management that is costly, and at the end you have to buy you partner out and live with what he has created. Isn’t it better to exert stronger control and influence on your partners while growing your distribution?
Many brands operate in 10+ countries and with 100+ partner stores, but they spend 95% of partner management time on recruiting new partners, rather than on growing the quality of existing relationships. A brand’s partner management is often only a small team fighting a lonely battle for growing standards, quality and performance. Country GMs protect “their” partners, and so many brands fly on radar alone when it comes to visibility of partner store performance. Partner managers are toothless, and qualitative brand growth happens only when partners are strong in developing the brand their own way.
And are your partner stores in brand-appropriate locations in the right neighbourhood? Are you happy with your partner’s way of living the brand? Do you want to know why so many invest little in growing partner management and many partnerships fail? For the very same reason so many marriages fail: We are blinded by good looks, we are no good at reading people, we are lousy at investing in relationships.
We evolve, let the partner evolve, but we don’t work on our partnership. Arguments about late delivery, larger returns, late payments or larger discounts are often 100% of our annual communication with brand partners. If your marriage is reduced to discussions about who messed up the bathroom, how can you expect the relationship to grow. Without investment in the wellbeing of the relationship, the quality of partnership will suffer.
Partnership management is a learnable skill
If you want to change your relationship management, give it a different level of attention, make it a strategic priority, the priority it deserves. And you will benefit from significant improvements.
It was 2011 when a US brand consortium asked us to transform its successful, but hands-on 150+ European partner store business into a holistic partner programme. We enhanced the brands’ franchise readiness and developed processes, tools and structures, while doubling the original partner growth plans. Today processes and tools are implemented, partner contracts follow one standard, and expansion and profits are well ahead of the original plan.
Same story, different programme and priorities with a global toy brand from the Nordics. Partner retail had taken place pragmatically in 300 monobrand stores and 20+ countries. Partners had created their own local interpretation of how the brand should look in stores and how to serve consumers. It was 2013 when we started supporting the brand’s Centre of Excellence in partner retail and worked out local partner growth strategies, without taking away local ownerships. Today processes and tools are aligned, consumers in Moscow and Kuala Lumpur experience a similar interpretation of the brand and service, and partner retail growth is managed rather than just administered.
Energize your partnerships!
Whether you look at your franchise store in Lyon, or your distributor in Russia, you can influence the development by working on your partner management. Don’t leave partner management to small teams and small budgets, value your retail partnerships with high strategic priority. Partner growth is a top-level task, and its management should take place outside of direct reporting lines. It calls for top executive leadership.
10 tips for excellence in partnerships
1. Avoid “speed dating”: Put quality into a proper “dating” process, refrain from commitments when under sales pressure.
2. Go for performance, rather than friendship: Performance won’t develop between friends. Quality partnerships need arguments at times and the desire to improve performance.
3. 4 eyes only: Pass partner selection to executives and cross-functional teams for less conflict of interest and more quality in decision making.
4. Select management expertise over product love: Building brands is a strategic task, so make competency in qualitative growth your No.1 selection criterion (rather than (loves of the brand).
5. Don’t trust PowerPoint: Question dynamic PowerPoint presentations of expansion plans when you select your favourite partner. Develop a joint view of the business plan.
6. Plan for twice the need: Always negotiate partnerships and expansion with twice the number of potential partners or locations. Only this will keep you free to say “no” if a partner or location doesn’t convince you in the process of negotiations.
7. Ensure the same agenda: Your partner’s natural agenda is increasing sales and making profits. Are you sure building a brand is your partner’s priority?
8. Trust comes with transparency: Share store P&Ls and benchmarks, agree on partnerships only with access to your brand’s KPIs in wholesale and retail from the beginning.
9. Senior expertise for sophisticated management task: Recruit executives for partner management – people with the standing and expertise to challenge and manage independent third-party relationships.
10. Invest in your “marriage” instead of increased “dating”: Allocate 50% of resources to developing existing partnerships in terms of quality and L4L growth.
Raise your company’s awareness of the development potential. A currently low-key approach holds huge potential, provided you leave your state of partner administration and go for partnership management. Work on tools like partner assessments, partner benchmarking and appraisals of partner management and your relationship. It pays back in mutual growth.
Guido Schild is corporate developer at Team Retail Excellence. He loves implementing partner retail growth as he sees it as the most promising and most challenging form of brand growth.