International Journal of Retail & Distribution Management

The Burberry business model: creating an international luxury fashion brand Christopher M. Moore and Grete Birtwistle The authors Christopher M. Moore is the Director for the Glasgow Centre for Retailing and Grete Birtwistle is Head of the Division of Marketing, Glasgow Caledonian University, Glasgow, UK. Keywords Premier brands, Brand management, Fashion Abstract The performance of the British fashion brand Burberry has been determined largely by the adoption of business models which, on occasion, have been detrimental to the company’s performance. For the financial year ending 31 March 1998, Burberry saw its annual profits drop from £62m to £25m, leading financial analysts to describe it as “an outdated business with a fashion cachet of almost zero”. However, from 1997, at the instigation of a newly appointed chief executive, Rose Marie Bravo, Burberry has radically re-aligned its business model and has enjoyed, as a result, significant improvements in its business performance. Drawing from extensive documentation that was published by Burberry in support of their initial public offering (IPO), this paper will provide a review of the history of Burberry; evaluate Burberry’s re-positioning strategy as defined by the firm in their IPO prospectus; and critically delineate Burberry’s current business model. Electronic access The Emerald Research Register for this journal is available at www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at www.emeraldinsight.com/0959-0552.htm Introduction The viability, or otherwise, of a fashion brand is dependent upon the efficacy and appropriateness of the decisions of those responsible for its management. There are numerous examples of brands that have prospered and/or withered as a result of the business models that management have deployed in order to achieve their strategic (or not so strategic) objectives. Gucci, the Italian luxury brand is a case in point. In the 1950s the brand enjoyed significant success. It was the status brand of choice for Hollywood film stars and European royalty. However, just over a generation later, the brand suffered a loss of cachet and the once profitable business made significant losses. The adoption of a business strategy (which sacrificed management control over product development and distribution in favour of seemingly indiscriminate licensing agreements), undermined the credibility of Gucci as an exclusive and aspirational fashion brand (Jackson and Haird, 2003). Tom Ford’s arrest of Gucci’s decline in the 1990s has been well documented (Moore and Fernie, 2004), and has been attributed to his adoption of a business model that maximised internal controls with respect to product sourcing, brand communications and distribution. Ford’s legacy has been the implementation of an integrative business model which maximised “back-end synergies” in relation to logistics, fiscal planning and real estate management for the purposes of cost management and resource utilisation efficiency. The “front-end” of the Gucci business model is concerned with the management of risk through the provision of a portfolio of distinctly positioned fashion brands and the maximisation of internal control through the abandoning of licensing agreements in favour of company-owned or company-controlled manufacturing and distribution (Gucci, 2001, 2002). Likewise, the performance of the British fashion brand Burberry over the same period has been determined largely by the adoption of business models which, on occasion, have been detrimental to the company’s performance (Cowe, 1998). For example, for the financial year ending 31 March 1998, Burberry saw its annual profits drop from £62m to £25m, leading financial analysts to describe it as “an outdated business with a fashion cachet of almost zero” (Finch and May, 1998). However, from 1997, at the instigation of a newly appointed chief executive, Rose Marie Bravo, Burberry has radically re-aligned its business model and has enjoyed, as a result, significant International Journal of Retail & Distribution Management Volume 32 · Number 8 · 2004 · pp. 412-422 q Emerald Group Publishing Limited · ISSN 0959-0552 DOI 10.1108/09590550410546232 412

improvements in its business performance (Menkes, 2002). The re-alignment of Burberry’s business model, with its partial public share offering; a preference for internal control over manufacturing and distribution; the expansion of the product portfolio to include a wider customer base and the adoption of a multi-brand positioning, reflect many of the developments that have occurred within other premium international fashion retail companies. These include firms such as Gucci, Ralph Lauren and Prada (Moore and Fernie, 2004). As such, an in-depth analysis of the Burberry business model, as is proposed here, serves to reflect at the micro-level, many of the corporate trends and management issues that currently pre-occupy the international luxury fashion retailing sector. Drawing from extensive documentation that was published by Burberry in support of their initial public offering (IPO), in summer 2002 and from other sources, such as market analysts and investment brokers’ reports, this paper will: . provide a review of the history of Burberry; . evaluate Burberry’s re-positioning strategy as defined by the firm in their IPO prospectus; and . critically delineate Burberry’s current business model. A chronology of Burberry Thomas Burberry founded Burberry in 1856 in Basingstoke, England when he opened a store selling men’s outerwear. The reputation of the company was enhanced through Burberry’s development of “gabardine”, a fabric that was resistant to tearing; was weatherproof but was also breathable (Burberry, 2002). This new fabric was especially suited to military needs and led Burberry to design an army officer’s raincoat which became an integral element of the standard service uniform for British officers in the early 1900s. During the First World War, Burberry continued to develop the officer’s raincoat by adding functional dimensions such as epaulettes, straps and D-rings. Named the “Trench coat” as a result of its military associations, the company developed its now distinctive Burberry check as a lining for the product. Inevitably, as a result of its military associations, Burberry outerwear was readily adopted by leading explorers, such as Captain Scott and Sir Earnest Shackleton who wore Burberry gabardine on their Antarctic expeditions. In tandem with these developments, Burberry developed a retail and wholesale business. The first London store opened in 1891 and by 1910 the first international store was opened in Paris at the Boulevard Malesherbes. Indirect foreign market participation was instigated in the early 1900s when Thomas Burberry began to supply retail stockists in New York, Buenos Aires and Montevideo. In 1920 Burberry entered into wholesale agreements with Japanese retailers. The firm’s relationship with the Japanese market was further developed when Mitsui were appointed distributor of their outerwear products in Japan in 1964 and then as their licensee in 1980 alongside the Sanyo Company (Adams, 1995; Sherwood, 1998, Burberry, 2002). Acquired by the British retail and catalogue conglomerate, Great Universal Stores (GUS) in 1955, this change in ownership provided the funding for the expansion of the Burberry retail network in the UK and the USA. In addition, licences were granted to a variety of third parties in Europe and Asia to facilitate the expansion of the Burberry product range and increase foreign market distribution (Cowe, 1997). With an everincreasing reliance upon Asia for sales, the sharp downturn in the Japanese economy had a significant effect upon Burberry’s performance in the mid-1990s. By 1997 the vulnerability of Burberry’s strategy became all too evident when their annual profits dropped from £62m to £25m and GUS was advised to sell-off Burberry but to expect no more than £200m for the business (Finch and May, 1998; Roberts, 1998). In their IPO prospectus, published in spring 2002, Burberry identified the key strategic challenges that faced their business in 1997 as follows: . a heavy reliance upon a small base of core products; . a company-owned retail network based within non-strategic locations; . an inconsistent wholesale distribution strategy with Burberry products being sold in a widerange of retail environments of varying quality; . parallel trading of Burberry products by legitimate wholesale customers to other nonapproved distributors and stockists; . a poorly controlled licensing strategy which resulted in inconsistencies in prices, design and quality control across markets; and . under-investment in corporate infrastructures, specifically in relation to marketing, merchandising, product development and other support functions. The extent of Burberry’s problems are typified by the fact that in 1997 the brand was available in more than 60 different stores in central London but was not stocked by the capital’s most prestigious retailers such as Selfridges, The Burberry business model Christopher M. Moore and Grete Birtwistle International Journal of Retail & Distribution Management Volume 32 · Number 8 · 2004 · 412-422 413

Harvey Nichols or Harrods (Fletcher, 2003). Rather than disposing of the Burberry business, GUS appointed Rose Marie Bravo as the new chief executive for Burberry (she had previously been president of Saks, New York’s fashionable department store in Fifth Avenue) and a new management team was assembled. From 1997, the new Burberry management team sought to radically reposition a company whose primary asset, the Burberry brand, was undermined by a moribund image and which was overly reliant upon a narrow customer base comprising of middle aged, fashion-conservative men. Furthermore, the team recognised their need to address the problems associated with their inadequate control over product design and distribution arising as a result of indiscriminate licensing and distribution agreements (Fletcher, 2003). Their new strategy sought to re-position the Burberry’s brand as a distinctive luxury brand with a clear design, merchandising, marketing and distribution strategy, which would be appealing to new, younger, fashion-forward customers, while still retaining the traditional customer base (Burberry IPO Prospectus, 2002). Immediately, the management undertook a range of initiatives intended to update the firm’s brand image, re-configure the distribution network and assert fuller and more comprehensive controls over product development, sourcing and distribution both domestically and internationally (Burberry IPO Prospectus, 2002). These initiatives were intended as the platform for the development of a revised business model for Burberry that would provide for future growth, stability and innovation. Derived from their IPO Prospectus of 2002, it is possible to delineate the defining features of what the company described as “the repositioning of the Burberry brand”. These are concerned with new approaches to brand management, product design and sourcing, as well as brand distribution. The specific initiatives undertaken with respect to each of the three dimensions are delineated below. Brand management As has been previously acknowledged, the Burberry brand trademark was a critical business asset for the firm, and as such, the management team acknowledged the importance of an effective and efficient brand management strategy. The first initiative was to update the image of the brand by firstly changing the name from Burberry’s to Burberry. This change was supported with the introduction of a new brand logo and contemporary packaging. Furthermore, and in recognition of the crucial contribution that advertising plays in the development of international fashion brand positioning, Burberry launched a radically different advertising strategy that sought to change perceptions of Burberry through the use of leading models, such as Kate Moss and reputable fashion photographers, while retaining distinctly British themes as the content of these advertisements. The attempt to re-position Burberry as a relevant, contemporary and also credible high fashion brand also required the opening of a flagship store on New Bond Street in London. The choice of New Bond Street was critical since it placed Burberry adjacent to the other leading fashion and luxury brands in London – such as Gucci, Versace, YSL, Prada, Chanel, Bulgari and Asprey. The management team also recognised the importance of a flagship store as an important mechanism for attracting the attention of the international fashion press and that it would help Burberry obtain greater editorial and other media coverage. Product design and sourcing In recognition of their need to extend the range of products included in the Burberry offer in order to furnish a flagship store and compete with the product ranges provided by competitors, the inhouse design team was strengthened, particularly with the appointment of Christopher Bailey as design director. Bailey brought with him extensive experience from other leading fashion houses, most notably Gucci and Donna Karan. With an enlarged design team, Burberry launched the Burberry Prorsum brand – a premium, high – fashion collection that would allow Burberry to compete with the prestige lines offered by their rivals. In terms of the Burberry London brand, the design team sought to upgrade the range to ensure that it more clearly reflected the updated lifestyle positioning of the company. In addition, the company stated that they “restructured its sourcing and pricing and eliminated unnecessary product variation” (Burberry IPO Prospectus, 2002, p. 22). For product sourcing, Burberry reduced its reliance upon licensees for product design and manufacture. Consequently, they acquired their Spanish licensee in June 2000, while in their renegotiated agreement with Japanese licence partners, they secured greater control over licensed product design and manufacturing activity. The Burberry business model Christopher M. Moore and Grete Birtwistle International Journal of Retail & Distribution Management Volume 32 · Number 8 · 2004 · 412-422 414

Brand distribution Central to the repositioning of Burberry was the need for the management team to better control where and how the brand was distributed within the UK and internationally. Furthermore, it was imperative that the distribution policy should support the repositioning of Burberry as a prestige and exclusive brand. Consequently, all unprofitable and “non-core” retailer stores in Europe were closed. Wholesale accounts with inappropriate stockists and/or known parallel traders (i.e. firms who sell on branded goods that have not been obtained through authorised sources), were discontinued. Driven by the desire to maximise control over foreign markets, the company bought back the distribution rights within the Hong Kong, Singapore and Australian markets in December 2001 and within the Korean market in 2002 (Burberry, 2003). Defining the Burberry business model It is important at this stage to note that the various initiatives detailed above markedly improved Burberry’s financial performance. From 2000, (when most of the initiatives were concluded) to 2003, turnover increased by 263 per cent and profits rose by 630 per cent. Table I provides a four year summary of the firm’s financial performance. These initiatives contributed to the formation of a new business model for Burberry that was also delineated in depth in the Burberry IPO Prospectus in summer 2002. Evidence that the business model has been retained and implemented by Burberry after the offering can be found in their subsequent annual report and accounts (Burberry, 2002); in addition to interviews given by the chief executive, Rose Marie Bravo (Fletcher, 2003) and company trading statements and updates. The Burberry business model comprises four inter-related dimensions: (1) Products. (2) Manufacturing and sourcing. (3) Distribution channels. (4) Marketing communications. Each dimension is examined below. 1. Products With a clear positioning as an authentic British lifestyle brand, the range extends from men’s, women’s and children’s apparel to include “soft” accessories, such as scarves, shawls and ties, alongside “hard” accessories, including handbags, small leather goods, women’s shoes, luggage, umbrellas, eyewear and timepieces. Table II identifies the turnover by product category for 2002 and 2003. At an individual level, Burberry classifies their products as either continuity or seasonal. The former (such as the classic trench coat) have a long life-span and are sold year after year, the former are responsive to fashion trends and are typically sold as a specific collection in one season. In some cases, a seasonal product can become continuity if demand extends beyond the season. The company states that they “seek to achieve a relatively high proportion of continuity products in order to minimise our exposure to changes in consumer preferences and fashion trends” (Burberry IPO Prospectus, 2002, p. 26). Product ranges – apparel Burberry has a multi-level brand strategy that is comprised of six key brand levels. Burberry Prorsum is the couture/high fashion range that serves as the focus for fashion shows and editorial interest/coverage. Produced in limited quantities in order to satisfy the demand for exclusivity among affluent consumers, the range is distributed through Burberry’s flagships stores, as well as through prestigious department stores including Barneys in New York and Harvey Nichols and Harrods in London. The Burberry London line is the company’s core ready-to-wear range which is presented in two collections for spring/summer and autumn/winter for men and women. In womenswear, between 450 and 500 lines are offered each season, while in menswear, the range has an average of between 330 and 350 lines. In the past, and as a reflection of the firm’s heritage in outerwear, both the men’s and women’s apparel ranges tended to focus more upon autumn/winter collections. However, in order to appeal to warmer climates, the Table I Four-year financial summary 2000 2001 2002 2003 Turnover £225.7m £427.8m £499.2m £593.6m Profit – EBITA £18.5m £68.7m £90.3m £116.7m Gross margin as percentage of turnover 46.8 47.8 50.3 56.0 Source: Burberry (2003) Table II Turnover analysis by product category Product category 2002 (£m) 2003 (£m) Womenswear 165.2 197.9 Menswear 149.4 162.8 Accessories 125.8 169.5 Others 5.3 5.1 Licences 53.5 58.3 Total turnover 499.2 593.6 Source: Burberry (2003) The Burberry business model Christopher M. Moore and Grete Birtwistle International Journal of Retail & Distribution Management Volume 32 · Number 8 · 2004 · 412-422 415

womenswear spring/summer ranges now include swimwear, as well as complimentary accessories, such as shoes, towels and bags for the beach. Likewise, the men’s collection has been extended to include sportswear, swimwear and a ski collection. Reflecting what the company describes as “historical as well as market specific reasons” two separate Burberry London lines are designed for the Spanish and Japanese markets. Both markets make significant contributions to Burberry turnover. For example, in 2002/2003, 40 per cent of Burberry’s wholesale customers were from Spain or Portugal, while the Spanish department store chain, El Cortes Ingles, was Burberry’s largest wholesale customer. Until 2000, Burberry goods sold in Spain were manufactured by a Spanish licensee. As part of their strategy of achieving greater control over product design and manufacture, Burberry bought back the licence from the Spanish partner, but retained the policy of producing Burberry London ranges that are specific to the Spanish market. In Japan, Burberry re-negotiated the terms of its licence agreement to provide for greater control over the design of the goods distributed in Japan, but continued to allow these to be distributed under the Burberry London brand name. The tailored Burberry London range for the Spanish market is described by the company as being “more diverse with a strong classic element. We have in recent years increased the fashion content and improved the quality of fabric and other materials used in these products” (Burberry IPO Prospectus, 2002, p. 26). Likewise, the line developed for the Japanese market is described as being classic in style and is adapted to suit the seasonality and fit requirements of Japanese consumers. The Thomas Burberry range is one of three diffusion brands. This is targeted towards the younger age 15-25 year old customer group. Initially sold exclusively in Spain from 1997 and Portugal from 2002, the availability of the collection has been extended to the UK and Europe. With its emphasis upon casual fashion and its newly modernised brand logo, the range is differentiated from the Burberry London brand (according to the company), by its design, marketing, distribution and pricing. The Burberry Blue and Burberry Black brands are the two other diffusion lines that are sold exclusively within Japan. The former, introduced in 1996, is a casual collection for younger women, while the latter brand is targeted at the younger professional male and is comprised of tailored clothing and sportswear. The Burberry brand also incorporates the firm’s accessories range, which with a sales value in 2003 of £58.3m, has emerged as a highly significant part of their business. Handbags represent the largest accessories product category by turnover. Scarves, shoes and other leather goods are also included in the accessories category. In addition, and manufactured under licence (the detail of which is presented below), are four other important product categories comprising of fragrance, eyewear, timepieces, and childrenswear. All are marketed under the Burberry brand name. As such, it is possible to classify the Burberry product/brand model in terms of a pyramid as illustrated in Figure 1. From the Burberry Prorsum brand, at the highest tip in the pyramid, to the Burberry Accessories collections, at the lowest, the company has secured three important dimensions in its product model. First, the multi-brand approach provides the company with maximum market coverage and broad customer appeal. Second, the model provides for flexibility and market responsiveness as is evidence by the countryspecific Burberry Blue and Black brands. Third, the broad coverage of product categories and differential price positioning among the brands, provides a comprehensive lifestyle offer that also enables customers to access, as well as trade-up (and down) between the various brand levels. 2. Manufacturing and sourcing Integral to the re-positioning of Burberry in the late 1990s was the company’s determination to ensure that it maintained full control over the development, sourcing and manufacturing of the various collections. The design director, Christopher Bailey, is responsible for the design of the Burberry Prorsum collection, while his London-based design team is responsible for the design of the Burberry London range. This team also oversee the design direction of other Burberry brand lines and ranges. For example, local design teams in Spain and Japan are in regular contact with their London counterparts in order to ensure that all variations of the Burberry London brands are presented in a coherent and consistent manner. The company claims that the Burberry Prorsum collection provides creative direction for all of the Burberry brands in that all of the various design teams look to it for inspiration and direction (Burberry IPO Prospectus, 2002). Assuming a manufacturing and sourcing scheme, comprising of fabric procurement and pre-production, product manufacturing, and warehousing and logistics, it is possible to delineate Burberry’s management of the scheme as follows. The Burberry business model Christopher M. Moore and Grete Birtwistle International Journal of Retail & Distribution Management Volume 32 · Number 8 · 2004 · 412-422 416

In terms of fabric procurement and preproduction, the company utilises its own fabric weaving operation to supply linings and fabrics for the Burberry London collections. Fabrics for the Burberry Prorsum and Burberry London collections are sourced primarily from a limited number of European suppliers. Initial fabric orders are based on sales forecasts to ensure product availability, and further purchases are based upon the extrapolation of early orders received (Burberry IPO Prospectus, 2002). The company purchases directly, or retains full control over the purchase by third-party manufacturers, of all raw materials that bear the Burberry name or other Burberry trade marks (Burberry IPO Prospectus, 2002). Product manufacturing is secured through a mix of internal and external capability. Internal manufacturing facilities based in Castleford (England), Treorchy (Wales) and New Jersey (USA), produce rainwear, outerwear and polo shirts for the Burberry London collections. Finished goods for the Burberry Prorsum, and other elements of the Burberry London collections are obtained from European suppliers. Quality control for the Burberry Prorsum and Burberry London collections is managed internally. Finished goods for the Thomas Burberry diffusion brand are supplied principally by Moroccan manufacturers, although goods are also obtained from other European suppliers. Burberry has outsourced the quality control management of the Thomas Burberry collection to a third-party specialist. Burberry also grants a limited number of licences to those firms capable of producing “brand-enhancing products”, which require specialist expertise. The principal product categories are as follows. Fragrance, which is manufactured by InterParfums S.A., and is marketed as “Burberry London”, “Burberry Weekend”, “Burberry Touch”, “Burberry Brit” and “Burberry Baby Touch”. The Burberry Eyewear collection, launched in 1997, is produced in collaboration with Safilo S.p.A, a leading Italian manufacturer and distributor. The Burberry Timepieces collection was launched in 2001 in collaboration with Fossil, the watch manufacturer. Finally, childrenswear is produced by CWF, a specialist manufacturer of children’s clothing (Mitsui and Sanyo hold the licence to produce Burberry the children’s range in Japan). In Japan, the design, manufacture and distribution of Burberry products is managed under a series of licence agreements with selected third parties. The two major licence partners are Mitsui, Japan’s largest general trading company, which has acknowledged expertise in textiles, and Sanyo, a major designer, producer and wholesaler of apparel. Both licensees are exclusively responsible for the design and manufacture of the Burberry London collections, as well as the childrenswear and Burberry Golf collections. Royalties are paid to Burberry by both licensees on a monthly basis. These are calculated on the volume of goods produced and their recommended retail value. Provisions are also made to ensure that any exchange rate fluctuations are not prejudicial to Burberry. As part of the licensing agreement, both parties must achieve minimum monthly advertising and marketing targets. Figure 1 The Burberry product/brand model The Burberry business model Christopher M. Moore and Grete Birtwistle International Journal of Retail & Distribution Management Volume 32 · Number 8 · 2004 · 412-422 417

A total of 18 other firms in Japan hold licences to produce ranges other than those manufactured by Mitsui and Sanyo. Both firms are responsible for the management and monitoring of these sublicensees and in exchange, they receive 20 per cent of the royalties received by Burberry from these other 18 licence partners. A significant proportion of warehousing and logistics activity at Burberry is managed in-house. Warehousing for the wholesale side of the business is company-owed and located in Northumberland, England. There are three further warehouses in the UK, while the company operates two others in New Jersey, USA and in Hong Kong. Through the acquisition of their Spanish licensee, Burberry obtained two further warehouses in Barcelona. As a means of reducing goods handling costs and improving delivery times, the company has piloted the direct shipment of products from suppliers to wholesale customers in the USA and Asia Pacific. The company plans to extend this service to major wholesale customers. All parts of the Burberry operation utilise external logistics companies for the distribution and delivery of finished goods. Figure 2 represents Burberry’s manufacturing and sourcing model. Three important observations can be made with respect to Burberry’s approach to manufacturing and sourcing. First, through the retention of internal weaving and manufacturing capability, the company has retained control over the creation of rainwear, their core product category. Second, through the use of third-party manufacturers and licensees, external expertise is brought to the collections and with it, an ability to be flexible and responsive to changing customer tastes and demands. Third, their exclusive use of licensed manufacturing in Japan serves to integrate the local expertise, knowledge and commitment of established and reputable local organisations. Furthermore, their use of this near-to-market capability eliminates the problems associated with managing a global supply chain within a very significant profit-generating market. 3. Distribution channels The distribution of the various Burberry brands is achieved through the operation of companyowned stores, by company-controlled wholesale arrangements with third-party stockists, as well as through licence agreements with partner firms in Japan. The turnover by distribution channel method is illustrated in Table III. Burberry markets two clothing collections each year for spring/summer and autumn/winter. Initial orders from wholesale customers are received for spring/summer ranges in the previous June to September, while orders for the autumn/winter season are received by March at the latest. Retail distribution The Burberry retail chain is comprised of four distinct formats. Located within the primary shopping locations in Burberry’s most important national markets, flagship stores are located in Figure 2 The Burberry manufacturing and sourcing model Table III Turnover analysis by distribution channel Turnover by channel 2002 (£m) 2003 (£m) Retail 156.9 228.4 Wholesale 288.8 306.9 Licence 53.5 58.3 Total 499.2 593.6 Source: Burberry (2003) The Burberry business model Christopher M. Moore and Grete Birtwistle International Journal of Retail & Distribution Management Volume 32 · Number 8 · 2004 · 412-422 418

London, New York, Barcelona and Tokyo (the Tokyo store is owned by their Japanese licensee). These stores, with a minimum 10,000 square feet of selling space, stock the full Burberry Prorsum and Burberry London ranges, alongside the various accessory collections. Serving as a showcase to the fashion media and potential wholesale stockists, the stores serve as an important role in communicating the exclusive positioning of the Burberry brand. Described as regular price retail stores by Burberry, the company operates more than 30 of these outlets across Europe, the USA and Asia. Often operated within capital cities, and always within affluent locations, these stores offer a product mix that is broadly similar, but merchandise is tailored to suit local climates and local variations. For example, the Burberry stores in New York and Chicago stock a wider range of rainwear compared to the Beverly Hills store, which has a greater emphasis upon lighter weight products. A third retail format is that of department store concessions, of which there were more than 50 in 2003. In view of the fact that department stores are the dominant distribution method for premium priced fashion in important markets, such as Korea, Japan and Spain, these concessions enable Burberry to access, in a cost-efficient manner, a wide and relevant customer base. In so doing, the associated risks and costs of operating a large number of company-owned stores can be avoided. Unlike the regular price retail stores, these concessions offer an edited version of the Burberry London/Thomas Burberry ranges. Finally, Burberry also operates nine designer outlet stores and three factory stores in the UK, USA and Spain. These stores sell surplus stock at discounted prices from the retail stores and the wholesale side of the business. In addition, these sell products with minor imperfections, as well as products manufactured from surplus fabrics. Wholesale distribution The retail network is complimented by an extensive wholesale distribution network. The number of outlets (classified as doors), operated by Burberry’s wholesale stockists in 2002 was in excess of 3,100. Of these, 17 per cent were in the USA, 40 per cent in Spain and Portugal, 37 per cent in the rest of Europe, and the remainder in Asia and elsewhere. Wholesale stockists include prestigious department stores, speciality fashion retailers and duty-free retailers. To serve their wholesale accounts customers, Burberry operates showrooms in London, New York, Milan, Du¨sseldorf, Barcelona and Hong Kong. In other markets, it employs agents who sell their range directly to wholesale stockists. Through the showrooms and agents, Burberry claims to work with wholesale customers on an individual store basis in order to select appropriate products and volumes in order to maximise the sale of products at full price. In addition, the company works with major stockists to ensure consistent visual merchandising and store presentation of the Burberry brand. A shop-in-shop format, based upon the Bond Street flagship design has been developed and is implemented in department stores. Wholesale customers typically have access to the entire Burberry brand offer, other than the Burberry Prorsum brand. As part of their development of long-terms relationships with wholesale customers, the company also engages in collaborative marketing activity with important clients. Burberry provides co-operative allowances whereby wholesale stockists receive a benefit towards advertising Burberry products (Burberry IPO Prospectus, 2002). Licensee distribution Sanyo own and operate the Burberry flagship store in Tokyo that stocks the full range of Burberry brands, including Burberry Prorsum. Sanyo also operate two Burberry Blue and one Burberry Black stores. The two licence partners are jointly responsible for the wholesale distribution of the Burberry ranges to department stores and speciality stores across Japan. As part of their responsibility as licensees, both firms provide product, visual merchandising and sales staff to their department store customers. Based upon the three distinct strands, the Burberry distribution model is presented in Figure 3. As Figure 3 illustrates, Burberry’s model of channel distribution provides the company with a variety of advantages. The maintenance of a company-owned chain of retail stores, while costly to establish and maintain, provides maximum control over the presentation of the Burberry brand within significant and important markets. Furthermore, this approach allows for maximum return on investment in that none of the profit is lost in having to pay for franchise partners and the like. Through the implementation of an allocation formula which confines the risk of a full merchandise offer to flagship stores and allows for the dispersal of excess stock through its own factory outlets, Burberry efficiently and effectively maintains the exclusivity and integrity of the brand standing of each of their brands. Their development of a comprehensive, yet restrained network of wholesale stockists worldwide provides for maximum market coverage at minimal cost and reduced risk. A symbiotic relationship exists between both the retail and The Burberry business model Christopher M. Moore and Grete Birtwistle International Journal of Retail & Distribution Management Volume 32 · Number 8 · 2004 · 412-422 419

wholesale channels in that the retail stores provide an impetus for media and consumer interest in the Burberry brand within the respective markets which precipitate wholesale sales, while the profits from wholesaling ensure that flagship stores are economically viable. 4. Marketing communications In their IPO Prospectus (2002), Burberry clearly identify the importance of active marketing communications in the development of an image and lifestyle that is capable of “generating interest among retail customers, wholesale buyers and the media” (p. 34). In order to generate and sustain a coherent brand identity, all Burberry marketing activities are managed from London. Any local form of marketing communication and activity are determined by the direction provided by the London marketing team. There are three core strands to the Burberry communications model: (1) Advertising. (2) Fashion shows. (3) Editorial placement. Advertising Launched on a twice-yearly basis to coincide with the delivery of the seasonal collections to their retail stores and stockists, the Burberry advertising campaigns are focused upon the leading fashion and lifestyle publications. The production and media costs associated with the advertisements represent a significant proportion of the firm’s advertising expenditure. With a particular and strong focus upon iconoclastic British images, these advertisements draw heavily from the firm’s heritage and history. With an emphasis upon key products and the trade marks, the campaigns do not feature individual products, but instead present a mix of products that present the overall brand image and which demonstrate the extent of the product range. In relation to advertising within the Japanese market, both Mitsui and Sanyo manage their local advertising campaigns directly using the images and campaigns generated by the London marketing team. All advertising campaigns in Japan require central marketing department approval. Fashion shows Burberry views fashion shows as an important element in their marketing plan since these serve to underline the luxury status of the brand. Furthermore, the shows establish and reinforce the fashion credibility of the brand and generate international press coverage. The shows for the men’s and woman’s Burberry Prorsum are held twice-yearly in Milan. This decision to show in Milan recognises the importance of the city as the global centre of luxury fashion and serves to maximise fashion media coverage internationally. The Burberry London line is shown at London Fashion Week each season in the London showrooms. Editorial placement In order to create brand awareness, as well as establish and reinforce a luxury positioning, Burberry has adopted a proactive public relations strategy aimed at the fashion and trade press. This strategy aims to maximise world-wide editorial coverage and comment in support of the Burberry brand and to ensure frequent product placement in the leading fashion, business, trade and newspaper publications. In addition, the company provides a brochure each season containing the current collection for Figure 3 The Burberry distribution channels model The Burberry business model Christopher M. Moore and Grete Birtwistle International Journal of Retail & Distribution Management Volume 32 · Number 8 · 2004 · 412-422 420

wholesale account customers and operates an information-only Web site which includes information on the history of the company, images of current advertising campaigns and shareholder information. The core elements of Burberry’s marketing communications model are presented in Figure 4. Burberry’s approach to marketing communications highlights three important considerations. First, it recognises the importance of advertising in the creation of a luxury brand image and lifestyle association. Second, it is clear that fashion shows and associated events are crucial to the achievement of international media coverage. Finally, a proactive media management strategy is crucial for the achievement of adequate editorial coverage and the development of a credible international brand profile and standing. Concluding comments The re-positioning and subsequent renaissance of the Burberry brand provides invaluable insights into the machinery of the luxury fashion brand business model. This analysis of Burberry’s strategy has sought to both identify the generic dimensions of such a business model and delineate its defining elements. The value of this analysis lies in the access that it gives to the location of those factors that contribute to the success of an international luxury fashion brand. The Burberry model identifies five key success factors: (1) The importance of a clearly defined brand positioning which communicates a definite set of attractive brand values and lifestyle associations. (2) The requirement to maintain a co-ordinated distribution strategy whereby retail chains compliment and are complimented by wholesale chains which assure maximum market coverage. (3) The opportunities afforded by a strong brand identity to extend into adjacent product areas either through internal capability or via licensing agreements. (4) The opportunities afforded by a flexible approach to the management of important foreign markets – such as in the form of delegating marketing activity through licensing agreements. (5) The importance of media relations management to the creation and maintenance of a credible luxury fashion brand reputation. Finally, through an in-depth analysis of the Burberry business model, this paper has sought to encourage further interest and debate with respect to the mechanics of generating an internationally successful luxury fashion brand. It is hoped that it will stimulate and encourage other researchers to further explore the apparatus that other fashion retailers use in order to reposition and generate alternative models for the achievement of business success. References Adams, M. (1995), “Burberry coats: a king provided them with their most familiar alias”, Incentive, p. 68. Burberry (2002), Burberry PLC Annual Report and Accounts 2001-2002, Burberry, London. Burberry (2003), Burberry PLC Annual Report and Accounts 2002-2003, Burberry IPO Prospectus, Burberry, London. Burberry IPO Prospectus (2002), “Burberry group global offer of shares”, Burberry IPO Prospectus, Summer. Cowe, R. (1997), “Saks retailer fits Burberry’s ticket”, The Guardian, 6 September. Cowe, R. (1998), “Burberry fails to weather the Asia storm”, The Guardian, 25 June. Finch, J. and May, T. (1998), “Reputations: putting a zip in a Burberry”, The Guardian, 27 June. Fletcher, R. (2003), “Brava, bravo!”, The Sunday Telegraph, 5 October. Figure 4 The Burberry marketing communications model The Burberry business model Christopher M. Moore and Grete Birtwistle International Journal of Retail & Distribution Management Volume 32 · Number 8 · 2004 · 412-422 421

Gucci (2001), Gucci Group Annual Report and Accounts 2000- 2001, Gucci, Amsterdam. Gucci (2002), Gucci Group Annual Report and Accounts 2001- 2002, Gucci, Amsterdam. Jackson, T. and Haird, C. (2003), “Gucci Group: the new family of luxury brands”, International Journal of New Product Development and Innovation Management, Vol. 4 No. 2, pp. 161-72. Menkes, S. (2002), “Bravo! Reburnished Burberry sets the pace”, International Herald Tribune, 12 September. Moore, C. and Fernie, J. (2004), “Retailing within an international context”, in Bruce, M., Moore, C. and Birtwistle, G. (Eds), International Retail Marketing; A Case Study Approach, Elsevier Butterworth-Heinemann, Oxford, pp. 3-37. Roberts, D. (1998), “Burberry is not really tailor-made for Far-East”, Birmingham Post, 25 June. Sherwood, J. (1998), “Born-again Burberry modeled by Stella Tennant, worn by Jarvis and Noel and shot for the pages of Vogue and Frank ...”, The Independent, 3 October. The Burberry business model Christopher M. Moore and Grete Birtwistle International Journal of Retail & Distribution Management Volume 32 · Number 8 · 2004 · 412-422 422

The nature of parenting advantage in luxury fashion retailing – the case of Gucci group NV Christopher M. Moore and Grete Birtwistle Division of Marketing, Glasgow Caledonian University, Glasgow, Scotland, UK Abstract Purpose – Examines the application and nature of parenting advantage within the context of luxury fashion conglomerates principally as a means of understanding the synergistic benefits that accrue as a result of brand consolidation within the sector. Design/methodology/approach – Derived from company annual accounts, market analysts’ reports and other secondary sources, the paper delineates and evaluates the ten-year renaissance of Gucci brand from a company on the verge of bankruptcy to its emergence as the world’s second largest luxury group. Findings – Through the identification of intra-business group synergies, it is clear that the transference of brand management expertise and competence is the principal dimension of parenting advantage in the Gucci Group. Originality/value – From an examination of the Gucci Group’s brand management strategy, resource investments and business development activities, the paper proposes a model of the luxury fashion brand. This multi-dimensional model identifies the components of the luxury fashion brand, locates their inter-connections and illustrates how these collectively can provide and sustain advantage within this highly competitive sector. Keywords Fashion industry, Premier brands, Brand awareness Paper type Conceptual paper Introduction April 30th 2004 not only marked the termination of Domenico De Sole and Tom Ford’s employment as president and CEO and creative director, respectively, of the Gucci Group, but it also concluded a period of office whereby the two executives achieved what has been variously described as the most radical and successful turnaround strategies within the luxury brand sector (Heller, 1999; The Economist, 2003). In 1994, Gucci made losses in excess of US$ 40 million and faced bankruptcy, while a decade later, the company emerged as the Gucci Group, one of the most important luxury brand groups, with sales in excess of US$ 2 billion and five-year average annual operating profits exceeding US$ 200 million (Gucci Group NV Annual Report, 2004). The transformation of Gucci in the period from 1995 to 2004 was achieved in three distinct phases, as is shown in Figure 1. The first phase, from 1995 to 1999, marked a period of brand stabilisation. Management re-established the integrity and luxury equity of Gucci through their pursuit of a consistent control and investment strategy. Management developed formidable expertise in product development, supply chain control, brand communications and luxury fashion retailing ( Jackson and Haid, 2002). These core The Emerald Research Register for this journal is available at The current issue and full text archive of this journal is available at www.emeraldinsight.com/researchregister www.emeraldinsight.com/0959-0552.htm IJRDM 33,4 256 International Journal of Retail & Distribution Management Vol. 33 No. 4, 2005 pp. 256-270 q Emerald Group Publishing Limited 0959-0552 DOI 10.1108/09590550510593194

luxury brand management skills made Gucci attractive to other businesses, particularly their close rivals, LVMH and Prada who acquired, by stealth, sizeable share holdings. Another interested party, the French brand conglomerate, Pinault-Printemps Redoute (PPR), formed a strategic alliance with Gucci in March 1999. As part of a standstill agreement, PPR acquired a 42 per cent stake in Gucci for US$2.9 billion, agreeing not to exceed that level for a period of five years (Gucci Annual Report, 2000). It was PPR’s significant investment that facilitated the second stage of Gucci’s transformation – the multi-brand acquisition phase – which signalled their emergence as the Gucci Group. From November 1999 to July 2001 the company acquired equal or majority shareholdings in ten companies to form the Gucci Group NV, the world’s second largest (as measured by share of the luxury goods market) multi-luxury-brand conglomerate (Mintel, 2004). Finally, the period from August 2001 to April 2004 marked the Gucci Group’s consolidation phase. During this period the company sought to exploit “group resources – management; production and logistics; distribution – to build these brands, which over time can contribute meaningfully to Group returns” (Gucci Group NV Annual Report, 2000, p. 16). With their expertise in luxury fashion brand management, the Gucci Group’s strategy was to bring the skills and advantages of the parent company to their subsidiaries. The emergence of Gucci as a multi-luxury-brand conglomerate is not unique within the luxury goods sector. The four leading companies are each multi-brand conglomerates: Louis Vuitton-Moet Hennessey (LVMH); Gucci Group NV; Prada; and Richemont Group (Mintel, 2004). Various commentators have attributed the success of these luxury businesses to their multi-brand status, and particular ability to exploit the expertise, resource and cost synergies of conglomeration (Matlock and Edmondson, 2002; The Economist, 2003). Consideration of the nature and characteristics of the luxury goods sector is sporadic and incomplete (Beverland, 2004; Jackson, 2004). There have been recent attempt to conceptualise the components of a successful luxury brand (Beverland, 2004; Kapferer, 2001; Vigneron and Johnson, 1999; Quelch, 1987), while other studies have examined the features of the trading strategies of the luxury retailers, (typically on a case-study basis) (Quelch, 1987; Dovaz, 1998, Jackson and Haid, 2002; Moore and Birtwistle, 2004). None have expressly considered the potential for their being unique characteristics in luxury fashion branding. Furthermore, little, if any consideration has been given to how luxury brand conglomerates secure what Goold et al. (1994, p. 13) described as “parenting advantage” – those strategies, structures and processes whereby the “parent works through its businesses to create value”. Parenting advantage is concerned with the extent to which a business unit gains a competitive advantage as a result of its link with a parent corporation and vice versa. Figure 1. The three phases in the development of the Gucci Group NV The nature of parenting advantage 257

Therefore, given this clear research neglect, the aim of this paper is to draw upon the insights derived from an extensive review of the formation and development of the Gucci Group NV to inform understanding of the nature of parenting advantage as well as the management processes which facilitate its realisation, within the luxury goods sector. In order to satisfy this aim, the paper adopts the following structure. The literature relevant to luxury branding is examined, then the “Parenting Advantage Model” proposed by Goold et al. (1994) is reviewed. Subsequently, the paper considers the core brand management competences developed by the Gucci Group and reviews the procedures used by them in order to create parenting value within their subsidiary brands. A model of the luxury fashion brand is then proposed. The paper concludes by considering areas for future research. Definitions of the luxury brand There are many definitions of luxury which connect it with extravagance, prestige and elitism (Dubois and Czellar, 2002), but there are few definitions of the luxury brand. Beverland (2004) argues that most definitions fail to differentiate between a luxury product/brand and the wider concept of luxury. Jackson and Haid (2002) proposed that luxury brands have a heightened status that affords an opportunity for their owners to charge premium prices. These brands possess a desirability that extends beyond their function and which provide the user with a perceived status through ownership. Their appeal and desirability is as a result of their constructed scarcity in availability (usually as a result of enforced restrictions on distribution) and because of their associations with particular consumer segments (Kapferer, 2001; Vigneron and Johnson, 1999; Quelch, 1987; Prendergast et al., 2000; Dubois and Czellar, 2002). Phau and Prendergast (2001) proposed four central features of a luxury brand as perceived exclusivity; well recognised brand identity; high levels of brand awareness and strong sales and customer patronage. Similarly, Beverland (2004) provides a model of a luxury branding which identifies and unites six component dimensions. The model is shown in Figure 2. The six components of Beverland’s model drawn from previous studies, particularly with respect to brand heritage (history – culture); product quality, Figure 2. The components of a luxury brand IJRDM 33,4 258

credibility and excellence (product integrity); personality and consumer group support (endorsements); and brand image investments (marketing) (Dubois and Czellar, 2002; Vigneron and Johnson, 1999; Quelch, 1987) The value-driven emergence component identified by Beverland relates to the extent to which the brand actively seeks to have a luxury positioning and association through its marketing decisions. As to the transferability of the model to other luxury product categories, and particularly to luxury fashion, it is clear that the Beverland model has certain limitations and that additional components must be incorporated. The dimensions of parenting advantage The associations that exist between and among a parent and its subsidiaries have been considered within the business strategy literature (Ghoshal and Nohria, 1993; Weisz et al., 1984; Gaski, 1984; Frazier and Summers, 1986), with consideration given to how these relationships are structured, managed and developed. Researchers have been particularly interested in explaining not only how subsidiary companies benefit from the interventions and directions of the parent company but also how their value may be enhanced as a result of that relationship (Ghoshal and Nohria, 1993; Weisz et al., 1984; Nathans, 1988; Taggart and Harding, 1995; Rodrigues, 1995). Within the context of thinking of these as “value-creating relationships”, Goold et al. (1994) have provided a comprehensive account of how parent companies contribute to the achievements of subsidiary competitive advantage. By conceptualising this as a process of creating “Parenting Advantage”, Goold et al. (1994, p. 12) proposed that the fundamental role of the parent is to create value for the subsidiary; “to influence the decisions and strategies of its business units, while standing between these business and those who provide capital for their use”. As a simple mechanism for identifying the value created by the parent, they propose the “better-off test” which seeks to understand how the subsidiary is “better-off” as a result of its connection with the parent company. In their view, the business unit should gain competitive advantage “from its link with the corporation or vice versa. The combination should result in value creation” (p. 14). The achievement of “parenting advantage” necessarily depends upon the strategic fit that matches the core skills, expertise and resources of the parent company with the improvement requirements of the subsidiary company. This strategic fit is a dynamic connection that evolves and adapts in response to changes in the competitive environment. Realisation of “parenting advantage” necessitates a consideration of the skills available to the parent company that may be of strategic use to the subsidiary, as well as the mechanisms which facilitate the transfer of these from the parent to subsidiary. Goold et al. (1994) identified five groups of “parent company characteristics” which may advance the strategic position of the subsidiary. These are presented in Table I. With respect to the relationships and mechanisms by which a parent company can create parenting advantage within subsidiaries, Goold et al. (1994) identified four approaches to value creation. These are as follows. (1) Stand-alone influence – the parent company influences the strategies and performance of each business in the parent’s ownership by viewing each as a stand-alone profit centre in its own right. (2) Linkage influence – the parent company seeks to create value by enhancing the linkages that exist between and among the business units that it owns. The nature of parenting advantage 259

(3) Functional and services influence – the parent’s corporate staff functions and services which create value by providing functional leadership and cost-efficient services for the businesses. (4) Corporate development activities – the parent can change the number of businesses in its portfolio by buying, creating and selling new businesses. Therefore, the parent can create (and destroy) value for the company through these activities. Such value is distinct from that which may be subsequently created through any ongoing parental influence. While it is beyond the scope of this paper to review the literature that debates the value or otherwise of Goold et al.’s view of “parenting advantage”, Have et al. (2003) provide a succinct and inclusive evaluation. The latter propose that the framework of parent company characteristics and value creation methods requires that management rethink the appropriateness of those corporate structures that evolved accidentally. Parental advantage awareness encourages the adoption of structures that encourage value transfer and encourages an evaluation of the essential purpose and contribution of the corporate parent. In terms of weaknesses, Have et al. (2003, p. 165) suggested that the four value creation opportunities can be difficult to utilise in practice due to “their strong dependence upon situational characteristics”. Furthermore, these activities are not mutually exclusive, with the potential for overlap in the value that is created. As has been noted above, there has been little or no consideration of the nature of “parenting advantage” within the luxury fashion sector, and by implication, the mechanisms by which parenting advantage is achieved in these conglomerates is unclear. Consequently, drawing from consecutive Gucci Group NV Annual Reports from 1998 to 2003, company press releases and market analysts’ commentaries, the remainder of this paper (through the use of the Gucci Group as a case-study) will seek to locate the characteristics of “parental advantage” principally in terms of luxury fashion brand creation and the mechanisms used to facilitate its transfer from parent to subsidiary firms. Parent company characteristic Description The parent’s mental maps The rules and models that parent management use in order to interpret and synthesize information. These serve as a blue-print for management decision-making and explain patterns of behaviour The parenting structures, systems and processes These are the mechanisms through which the parent creates value. These dimensions include budgeting and planning, capital approval systems and decision-making procedures Functions, central services and resources The corporate staff departments and central assets that support subsidiary management in the value creation process People and skills Parents may create competitive advantage as a result of the expertise and skills of key individuals with vision who serve to inspire in the organisation Decentralisation contracts The jurisdiction distinction between the parent and the subsidiary company in relation to decision-making powers and budgetary authority Source: Goold et al. (1994) Table I. Parent company characteristics for the creation of parenting advantage IJRDM 33,4 260

A brief history of Gucci Founded in Florence in 1923 as a manufacturer and retailer of fine leather goods, the first store outside of Italy opened in London in 1967, followed by many others in the important world centres. With its associations with royalty and film stars, the Gucci brand had become synonymous with luxury (Forden, 2000). The third generation decedents proved to be poor custodians of the Gucci brand. Concerned more with internal family feuds over ownership and rewards, the family managers exploited the brand with a non-discriminating distribution and product licensing strategy. In 1979 Gucci introduced the Gucci Accessories Collection comprised of 20,000 product lines, including alcohol, playing cards and toilet paper. With a multitude of licensing contracts and availability in over 1,000 stores worldwide, the Gucci’s equity as a luxury brand had become untenable (Kwak, 2000). By the late 1980s, Gucci was in disarray. New appointments were made, instigated by Investcorp (a Bahrain-based investment company) which had acquired all the shares from the Gucci family by 1993. Previously President and Managing Director of Gucci America, Domenico De Sole was appointed as President and Chief Executive Officer in 1995 and Tom Ford was promoted from Assistant to Creative Director to affect a turnaround ( Jackson and Haid, 2002). Brand stabilisation phase: early 1995-October 1999 A grasp of the activities of De Sole and Ford during this period is critical for understanding their subsequent activities as the senior executives of the newly formed Gucci Group NV. During this time the two refined their skills in luxury brand management and established the internal resources for the exploitation of parenting advantage whenever the company extended to become a luxury brand group in 1999. Six key dimensions define their brand stabilization strategy. These are delineated in the following sections. Re-established control of Gucci product design and manufacture The Annual Report for 1999 states that “design and product development are the core of Gucci’s success, and interact with every other centre of activity ... . We consistently strive to maintain a clear brand image”. To maximise product control, Gucci terminated or bought-back over 100 licenses for ready-to-wear (RTW), shoes and jewellery items, which reduced the number of products from 22,000 to 7,000. Production was then concentrated to 45 local manufacturers who were encouraged to participate in a partnership scheme which assured them of regular orders and payment and provided Gucci with improved quality and reliable availability (Rice, 1997; Burrough, 1999). In November 1997, Gucci acquired its watch licensee of 20 years, the Severin Montres Group for US$ 170.0 million, renaming the company, Gucci Timepieces. This licensee-acquisition, motivated to ensure that products lines were “consistent with the Gucci brand image and quality”, saw the volume of watches reduce from 950,000 to 825,000 in the first year, while business profits increased. This was explained as a manifestation of “the Company’s strategy to upgrade the distribution network and product portfolio by reducing significantly the number of points of sale and introducing new models at higher price points” (Gucci Group NV Annual Report, 1999, p. 26). The nature of parenting advantage 261

Re-established control over Gucci product distribution In the last two decades, the company relied heavily upon franchising for international distribution. However, in 1996, and in accordance with the overall strategy of maximum control over every aspect of the brand’s presentation, Gucci commenced a franchisee buy-back strategy in order to take control over distribution through direct store ownership. In 1996, of the 180 Gucci stores, 69 were directly-operated. A period of acquisition followed and franchised stores were bought in Belgium, Italy, Korea, Taiwan and Spain and majority joint-venture control achieved over store operations in Singapore, Malaysia and Australia. By November 1999, of the 181 stores, 130 were directly-operated and by January 2004, 187 were directly-operated and 30 were franchise stores. In the 2003 Annual Report, the company explained that the 30 remaining franchise stores “are in markets (such as Moscow, Athens and Dubai), where the Company believes it does not have sufficient local expertise or where, for legal of other reasons, it would be impractical to establish directly-operated stores” (p. 24). Create a balanced product portfolio for a luxury brand In 1996, the contribution of RTW clothing sales to total sales was 7 per cent, with leather goods the most significant sales category, accounting for 60 per cent of turnover. In order to secure full creative control over the RTW range, Gucci repurchased their former ladies’ RTW licensee, thereby gaining production capability and distribution rights which would “improve operations and margins”. By the end of 1999 the product portfolio contribution balance had changed markedly, with leather goods accounting for 40 per cent and RTW contributing 14 per cent of the total sales. This change was explained by De Sole in the 1999 Annual Report – where he noted that until the mid-1990s, RTW “was not an integral part of Gucci’s history; however, under the creative direction of Tom Ford, it has become a significant and profitable business and the platform for communicating the Gucci image and lifestyle. We now use fashion as a driver to enhance the excitement and value of the Gucci image and lifestyle” (p. 14). Recognising the high levels of recognition of Gucci’s brand devices and iconic products, such as Gucci Loafers, Tom Ford reintroduced these elements into his collection in order to generate media interest and prompt consumer expenditure (Forden, 2000). Establish a luxury marketing communications platform Management recognised the importance of marketing communications to the re-establishment of Gucci as a credible luxury brand. Claiming to be effective brand managers, the senior management defined their communications strategy to be “coordinated in a highly focused manner, ensuring a single, clear and effective brand message worldwide, in all areas of communication including: fashion shows and special events/advertising/public relations, visual display and internet web sites” (Gucci Group NV Annual Report, 1999, p. 27). In 1996 Gucci spent US$ 61 million on advertising, which was 6.9 per cent of net revenues and by 1999 the budget had increased to US$ 87 million (7.3 per cent of net revenues). This expenditure reflected “management’s objective to maintain communications spent between 7.0 and 7.5 per cent of Gucci turnover... since this level of expenditure generates a level of public exposure for Gucci that will support long-term growth of revenues and profits” (Gucci Group Annual Report, 1999, p. 57). IJRDM 33,4 262

Commentators have noted the contribution of evocative and often controversial advertisements to the renaissance of the Gucci’s luxury brand status (Burrough, 1999; Forden, 2000). Create a luxury brand consumption experience Given the representational significance of the luxury brand, management created a sophisticated store consumption experience that was “dramatic and highly recognisable” and “ensured that all products are presented to customers in a way that capitalises on the exclusivity and ultimate allure of the brand” (Gucci Group NV Annual Report, 1999, p. 14). A revised store concept was applied worldwide in flagships and other stores – in order that “at all points of contact with the customer, the brand speaks with one voice worldwide” (p. 27). Tom Ford – design direction and control As Creative Director of Gucci, Tom Ford’s role and involvement extended far beyond that of designer for the RTW collection. In order to create, maintain and protect a coherent handwriting, Ford’s design influence extended beyond product to include creative direction for the Gucci brand in all of its manifestations: store interiors; product packaging; marketing communications and major wholesale stockist selection. As a former model and now a successful and confident creative director, it was inevitable that Ford should become the public face of Gucci: a personification of the values and attributes of the brand (Forden, 2000). By late 1999 it was noted that Ford had become as famous as the brand he worked for and that his reputation as a consummate image maker made him Gucci’s most significant asset. He inspired customer confidence and was now seen to be synonymous with the very essence of Gucci ( Jackson and Haid, 2002). Multi-brand acquisition phase – November 1999-July 2001 The Annual Report for 1999 contained the following statement: In early March 1999, the Company (Gucci) was approached by Pinault-Printemps-Redoute (PPR), with an exciting proposition for a strategic alliance to create a multi-brand luxury goods Group, a concept which has been already considered by the Board and Management, as we believe there are natural limits to our growth as a single brand Company. The Board approved the alliance under which PPR contributed US$ 2.9 billion (p. 6). Based upon the belief that management had the “proven expertise in the luxury brand business and the capacity to effective lead a multi-brand portfolio”, Gucci engaged in an luxury brand acquisition strategy that had been unprecedented in terms of its speed or its scope (Matlock and Edmondson, 2002). The acquisitions which transformed Gucci from their single brand status to become a multi-brand luxury goods group are detailed in chronological order in Table II. With their acquisition strategy largely complete, the company proposed a tripartite-brand categorisation of acquired brands which identified declining brands – such as Yves Saint Laurent (which have over-extended and required the rejuvenating inputs of Gucci management); emerging brands – such as Alexander McQueen and Stella McCartney (which would provide for future growth and healthy returns); and complementary brands – such as Boucheron and YSL Beaute (which would afford synergistic opportunities in manufacturing and distribution) (Guccigroup.com, 2003). The nature of parenting advantage 263

The group believed that it had the requisite skills to advantage each category of acquisition and that intra-group synergies would provide positive benefits for the group as a whole. Each brand was acquired for its potential to “generate outstanding value for our shareholders through sustainable profit growth, returns in excess of our cost of capital and minimal short-terms earnings dilution” (Gucci Group NV Annual report, 1999, p. 19). The Group expected each brand to be accretive by the end of Year Three (Guccigroup.com, 2003). Gucci group consolidation phase – August 2001-April 2004 Delineating their strategy for the newly formed Group, Gucci stated that their “success will depend on our ability to manage effectively a portfolio of brands which will each be unique in its brand image and values, while leveraging the skills and infrastructure of the enlarged Group” (Gucci Group Annual Report, 1999, p. 14). In addition, the Group acknowledged that the successful brand management processes that will be “implemented by the newly acquired group brands were developed and tested over time within the Gucci Division” (p. 23). Rather than providing duplicate accounts of the actions undertaken by the Gucci Group in their pursuit of parenting advantage with respect to each of their acquired brands, the following section considers their rejuvenation strategy for arguably the most important of its acquisitions, the Yves Saint Laurent brand. In addition, it examines the synergies fostered by the Group between, and among, its respective businesses. This sharing of group resources is a secondary but nevertheless essential element of “parenting advantage” within the Gucci Group. The following statement by the Group’s CEO provides an overview of the Group’s strategy for Yves Saint Laurent: We see in Yves Saint Laurent the opportunity to implement the same strategy that we applied to rejuvenate Gucci. Over the years Yves Saint Laurent became overly dependent on royalties from licenses. We plan to develop a different business model, with the emphasis on a directly-operated store network as the principal sales vehicle. We will move decisively to terminate most Yves Saint Laurent licences upon expiration if not earlier. We will invest in communication to relaunch the worldwide image of Yves Saint Laurent (Gucci Group NV Annual Report, 1999, p. 15). Utilising the framework for the rejuvenation at Gucci, it is possible to delineate its application to the Yves Saint Laurent brand. This is presented in Table III. Date Brand Gucci holding (per cent) November 1999 Yves saint Laurent 100 November 1999 Sanofi Beaute – renamed YSL Beaute 100 November 1999 Sergio Rossi 70 June 2000 Boucheron 100 December 2000 Alexander McQueen 51 December 2000 Bedat & Co. 85 February 2001 Bottega Veneta 78.5 March 2001 Di Modolo 100 April 2001 Stella McCartney 50 July 2001 Balenciaga 91 Source: Gucci Group NV Annual Report, 2003, p. 10 Table II. Gucci Group NV Acquisitions 1999-2001 IJRDM 33,4 264

Rejuvenation dimension Action at Yves Saint Laurent Re-established control over product design and manufacture First step – regain control of the production of all core product categories from licenses – women’s RTW; watches and jewellery; women’s shoes; In 2000 “We enhanced control of distribution by cutting license contracts by more than 100 and buying back strategically significant licenses – women’s RTW, shoes, watches and jewellery” “Management transformed Yves Saint Laurent from a disparate collection of 167 licenses into a business built on directly produced high quality product distributed through stores owned and operated by the company” (Gucci Group NV Annual Report, 2000, p. 64) January 2000 – acquisition of C. Mendes S.A. to “regain worldwide control of the key women’s RTW category and the Rive Gauche trademark”. Three factories acquired as a result, consolidated into one factory within one year Repurchased the license for watches and jewellery from Cartier Number of licensees reduced to six by 2003 Re-established control over product distribution Launch of flagship chain in key world centres Directly-owned stores increased from 15 in January 2000 to 58 by January 2004 Directly-owned stores contributed 32 per cent of total sales in 2000, increasing to 61.3 per cent in 2003 Create a balanced product portfolio for a luxury brand Elimination of all diffusion lines, including the variation line – incompatible with a luxury brand Introduction of Yves Saint Laurent branded leather accessories, shoes, watches, jewellery and licensed eyewear via group and associate company agreements In 2001, accessories contributed 10 per cent of total Yves Saint Laurent sales, increasing to 32 per cent in 2003 2002 launch of the Mombassa-design handbag – media support makes this an iconic product within one season Establish a luxury marketing communications platform Significant communications investment to improve and to relaunch the worldwide image of Yves Saint Laurent 2001 – spent US$ 8.8 million in second half in order to support women’s RTW A/W collection – first to be designed by Tom Ford 2002 – Yves Saint Laurent features on the front cover of more than 100 leading fashion and lifestyle magazines 2002 – US$ 34.6 million communication spent Create a luxury brand consumption experience Renovation of Paris Rue Foubourg St Honore flagship store From 2001 – new store concept to forge Yves Saint Laurent’s new identity developed by Tom Ford and the Architect William Sofield “Colour palette of black and white, rich materials such as brushed steel to create a modern environment and makes reference to art deco and thereby serves as the architectural compliment to the products” (Gucci Group NV Annual Report, 2001, p. 26) Expenditure of US$148 million on store openings, expansions and refurbishments from 2001 to 2003 Tom Ford – design direction and control January 2000 – Tom Ford appointed as Creative Director for Yves Saint Laurent – all product categories and communication activities 2001 – CFDA Award to Tom Ford as Designer of the Year for work at Yves Saint Laurent 2002 – CFDA Award to Tom Ford as Accessories Designer of the Year for work at Yves Saint Laurent Table III. The nature of parenting advantage 265

These initiatives increased revenue for Yves Saint Laurent by 35 per cent in the period from 2001 to 2003. However, due to the significant expenditure for product development, new store openings, and communications, the operating loss for 2003 increased from US$ 40 million in 2001 to US$ 96.4 million in 2003. Gucci group synergies From its inception, the achievement of intra-brand synergies and the retention of brand image distinctiveness was a strategic objective for the Gucci group: The Group’s success is centred on the independently managed core brands – each distinct in its image and brand values – enhanced by the skills and strengths of the overall Group. A careful distinction is made between operational aspects where the individual brands need to have autonomy such as sales and merchandising, and those areas where the brands would benefit from guidance at the Group level – such as Communications, Image and Finance (Gucci Group NV Annual Report, 1999, p. 58). Based upon Goold et al.’s (1994) framework for the creation of value between parent and subsidiary companies, Table IV details the nature of advantage transfer and the mechanisms by which this was achieved. As Goold et al. (1994) acknowledge, the measurement of parenting advantage is not straightforward. For Gucci, it is clear that each of the acquired businesses benefited from the strategic direction and business resources provided by the parent as evidenced by the significant improvement in income enjoyed by each, the increased number of customer transactions and the improved media recognition (Gucci Group NV Annual Report, 2001). Yet, while all of the businesses enjoyed an increase in revenue in the period 2001-2003, none, other than Gucci Fashion and Gucci Timepieces, secured an operating profit. Given that all were still subject to substantial capital investment to support their launch, reconfiguration and/or development, the group maintained in its Annual Report for 2003 that a critical objective in the short-to medium-term would be to reduce and eliminate losses and have these generate positive earnings and cash flow. Developing a luxury fashion brand framework The parenting advantage provided by the Gucci Group to its subsidiary companies is inextricably linked to their core competency in luxury fashion brand building and the availability of corporate resources. The over-arching luxury brand strategy has been to “control product design and quality, global distribution and communications and so consistently maintain the image of the brand... to maximise the long terms growth and profitability” (Gucci Group NV Annual Report, 2000, p. 14). Consequently, for each of the subsidiaries, the Group has implemented, to varying degrees, a luxury brand formula comprised of identifiable dimensions. The Group’s platform for the achievement of “parenting advantage” is their transfer of luxury branding expertise to each subsidiary. In each case, the subsidiary has implemented a radical transformation of its branding strategy to match the Group brand model. By virtue of their pre-eminent position and successes within the luxury fashion sector, it is credible to utilise their luxury brand formula as the basis for developing a model of luxury fashion branding. Returning to Beverland’s (2004) luxury model, while its component dimensions have application to luxury fashion, these require to be supplemented with additional IJRDM 33,4 266

Relationship type Gucci group activity Stand-alone influence The Group has a clearly defined strategy with respect to the management of a luxury goods brand “it entails distinct high quality merchandise, controlled distribution – often through directly operated stores – systematic communication and solid execution” (Gucci Group NV Annual Report, 2003, p. 13) Given the importance of creative control to luxury brand success, Gucci states that it “maintains in-house the design responsibilities of all its brands”, achieved through Tom Ford, Creative Director of the Gucci Group In fiscal terms, the direct influence of the Group is explicit – “The Group therefore strives to maximise after tax return on invested capital (ROIC), an objective it aims to accomplish through: long-term revenue growth; strict cost control; an optimal fiscal structure and modest invested capital” (Gucci Group NV Annual Report, 1999, p. 58) In the 2003 Annual Report, the Group’s corporate objective for each business was clearly defined Linkage influence As each brand has been acquired, the Group has encouraged synergies in terms of intra-group supply and resource utilisation Examples include:-Sergio Rossi supplies shoes to Yves Saint Laurent; Gucci supplies leather goods to Yves Saint Laurent; Gucci Group Watches supply to Yves Saint Laurent; Bedat and Co. and Boucheron; Yves Saint Laurent Beaute supplies to Boucheron, Stella McCartney, Alexander McQueen Functional and service influence As identified above, the Group provides central support to each brand with respect to communications, image and finance Additional support is also given: Central group services Group real estate experts provide store development activity – such as Yves Siant Laurent in the USA and Japan, Bottega Veneta flagships in Milan, Paris and London Administration and information systems centrally controlled Management personnel – “In addition to transferring several highly qualified and experienced operating and financial managers from Gucci, we have enjoyed outstanding success in recruiting some of the finest talent in the luxury goods industry” (Gucci Group NV Annual Report, 2000, p. 16) Group resources in product development, production and logistics support the Stella McCartney, Alexander McQueen and Balenciaga brands YSL Beaute utilises Gucci Group warehousing in the USA Safolia, Group eyewear partner, supply Gucci, Yves Saint Laurent and Stella McCartney Raw materials and media procurement for all brands is a centralised function Corporate development activities The Group has engaged heavily in corporate development through the acquisition of other businesses. To date, none have been sold on by the Gucci Group Source: Gucci Group Annual Reports 1999–2003 Table IV. Gucci group synergies The nature of parenting advantage 267

dimensions. For example, flagship stores, situated in the premier shopping districts of the leading world centres, have previously been identified as a crucial dimension of luxury fashion brand positioning (Hollander, 1970; Alexander, 1997; Moore et al., 2000). The development of a network of “experience-branded” flagship stores, in tandem with controlled retail and wholesale brand distribution, are discriminating elements of the luxury fashion brand. Similarly, in recognition of the huge significance of distinctive brand identifiers, (such as the Gucci double G emblem or the inter-locking C’s for Channel); iconic products and recognisable symbols, to the activity of luxury fashion marketing, it is vital that these be recognised. Indeed, for many firms, such as Gucci, these iconic products and brand symbols provide a vital income source, while the designers who create them, such as Tom Ford, become inextricably linked to the brands they represent. While marketing activity is recognised in Beverland’s model, there are certain marketing activities that are distinctly critical to the luxury fashion brand. These include twice-yearly fashion shows; store window displays; distinctive carrier bags, as well the feting of fashion magazine editors to assure front page brand coverage, product placement and editorial endorsement. At Gucci, these activities clearly served to reinforce the allure and stature of the brand. Finally, premium pricing is a defining and non-negotiable dimension of luxury fashion brand positioning. For example, the Gucci Group’s Bottega Veneta brand, commands “super-premium” prices that outstrip its competitors. This is largely due to its reputation for superior quality, design innovation, superstar endorsements, near non-availability and extensive marketing support which promotes its place within the “prestige segment of the luxury goods market” (Gucci Group Annual Report, 2002, p. 39). Derived from the findings of the Gucci Group case-study, Figure 3 shows a proposed model for the luxury fashion brand. Figure 3. A model for luxury fashion branding IJRDM 33,4 268

In conclusion, a summation of the role of brand management in the creation of parental advantage within the luxury fashion conglomerate is provided by Domenico De Sole who stated: At Gucci, we are managers and business builders. We play close attention to the acquisition process, and we believe that we have demonstrated our ability to identify and complete investments on terms commensurate with the value of the acquired company. Any brand we acquire must achieve excellence in brand perception and financial results (Gucci Group Annual Report, 2000, p. 15). Areas for future research This paper has proposed that brand development is the principal parenting advantage activity of the holding company in a luxury fashion conglomerate. There is an opportunity for other researchers to extend the application of parenting advantage to other luxury fashion conglomerates and to explore the mechanisms by which parent advantage transfer is achieved. The area of group synergy management is worthy of further exploration. Furthermore, there is also the opportunity for researchers to test the extent to which the proposed model for luxury fashion brands has cross-conglomerate, cross-sectoral application. References Alexander, N. (1997), International Retailing, Blackwell Science, London. Beverland, M. (2004), “Uncovering ‘theories in use’: building luxury wine brands”, European Journal of Marketing, Vol. 38 Nos 3/4, pp. 446-66. Burrough, B. (n.d.), “Gucci and Goliath”, Vanity Fair, New York, NY, June. Dovaz, M. (1998), Chateau La, Assouline, Paris. Dubois, B. and Czellar, S. (2002), “Prestige brands or luxury brands? An exploratory inquiry on consumer perceptions”, Marketing in a Changing World: Scope, Opportunities and Challenges: Proceedings of the 31st EMAC Conference, University of Minho, Portugal, 28-31 May. (The) Economist (2003), “A costly exercise: Pinault-Printemps-Redoute and Gucci”, The Economist, Vol. 366 No. 8310, p. 72. Forden, G.S. (2000), The House of Gucci, Morrow Publications, London. Frazier, G.L. and Summers, J.O. (1986), “Perceptions of interfirm power and its use within a franchise channel of distribution”, Journal of Marketing Research, Vol. 23, pp. 169-76. Gaski, J.F. (1984), “The theory of power and conflict in channels of distribution”, Journal of Marketing, Vol. 48 No. 9, pp. 9-29. Ghoshal, S. and Nohria, N. (1993), “Horses for courses: organisational forms for multinational operations”, Sloan Management Review, Vol. 28. Goold, M., Campbell, A. and Alexander, M. (1994), Corporate Level Strategy – Creating Value in the Multibusiness Company, Wiley, New York, NY. Gucci Group NV (1999), Annual Report and Accounts, Gucci Group The Netherlands. Gucci Group NV (2000), Annual Report and Accounts, Gucci Group The Netherlands. Gucci Group NV (2001), Annual Report and Accounts, Gucci Group The Netherlands. Gucci Group NV (2002), Annual Report and Accounts, Gucci Group The Netherlands. Gucci Group NV (2003), Annual Report and Accounts, Gucci Group The Netherlands. The nature of parenting advantage 269

Guccigroup.com (2003), “Company history and strategy”, Gucci Group Web site (accessed 29 October). Have, S., Have, W., Stevens, F. and van der Elst, M. (2003), Key Management Models, FT Prentice-Hall, London. Heller, R. (1999), “Gucci’s £4 billion man”, Forbes, Vol. 163 No. 3, pp. 108-10. Hollander, S. (1970), Multinational Retailing, Michigan State University, East Lansing, MI. Jackson, T. (2004), “A contemporary analysis of global luxury brands”, in Bruce, M., Moore, C. and Birtwistle, G. (Eds), International Retail Marketing: A Case Study Approach, Elsevier Butterworth Heinemann, Oxford. Jackson, T. and Haid, C. (2002), “Gucci group – the new family of luxury brands”, International Journal of New Product Development and Innovation Management, Vol. 4 No. 2, pp. 161-72. Kapferer, J.N. (2001), (Re)-inventing the Brand: Can Top Brands Survive the New Market Realities?, Kogan Page, Milford, CT. Kwak, M. (2000), Harvard Business Review, Gucci Group NV, The Netherlands. Matlock, C. and Edmondson, G. (2002), “Maybe Gucci was too much of a luxury”, Business Week, No. 3803, pp. 30-2. Mintel (2004), Luxury Brand Retailing, Mintel Market Intelligence, London. Moore, C.M. and Birtwistle, G. (2004), “The Burberry business model – understanding a brand renaissance”, International Journal of Retail & Distribution Management, Vol. 32 No. 8, pp. 412-22. Moore, C.M., Fernie, J. and Burt, S.L. (2000), “Brands without boundaries: the internationalisation of the designer retailer’s brand”, European Journal of Marketing, Vol. 34 No. 8, pp. 919-37. Nathans, L. (1988), “A matter of control”, Business Month, September, pp. 46-52. Phau, I. and Prendergast, G. (2001), “Consuming luxury brands: the relevance of the rarity principle”, Journal of Brand Management, Vol. 8 No. 2, pp. 122-37. Prendergast, G., Phau, I. and Wong, C. (2000), “An exploratory study of the purchase of luxury brands on infants apparel”, in Chetty, S. and Collins, B. (Eds), Visionary Marketing for the 21st Century,: Facing the Challenge: Proceedings 2000 ANZMAC Conference, pp. 1005-8. Quelch, J.A. (1987), “Marketing the premium product”, Business Horizons, Vol. 30 No. 3, pp. 38-45. Rice, F. (1997), “The turnaround champ of haute couture”, Fortune, Vol. 136 No. 10, pp. 305-7. Rodrigues, C.A. (1995), “Headquarters-foreign subsidiary control relationships: three conceptual frameworks”, Empowerment in Organisations, Vol. 3 No. 3, pp. 25-34. Vigneron, F. and Johnson, L.W. (1999), “A review and a conceptual framework of prestige-seeking consumer behaviour”, Academy of Marketing Science Review, Vol. 9 No. 1, pp. 1-14. Weisz, J.R., Rothbaum, F.M. and Blackburn, T.C. (1984), “Standing out and standing in – the psychology of control in America and Japan”, American Psychologist, Vol. 39, pp. 955-69. Further reading Gucci Group NV (1998), Annual Report and Accounts, The Netherlands. Taggart, J. and Harding, M. (1998), “The process of subsidiary strategy: a study of Ciba-Geigy classical pigments”, Management Decision, Vol. 36 No. 9, pp. 568-79. IJRDM 33,4 270

The flagship format within the luxury fashion market Karinna Nobbs Glasgow Caledonian University, Glasgow, UK Christopher M. Moore Glasgow School for Business and Society, Glasgow Caledonian University, Glasgow, UK, and Mandy Sheridan Glasgow Caledonian University, Glasgow, UK Abstract Purpose – Since the concept of the flagship store format was first introduced to retailing in the 1970s, both its form and function have evolved considerably. The highest concentration of flagships can be seen in the luxury fashion market. This paper aims first to define the flagship concept in terms of its key characteristics, and second to outline the academic and industry developments, thereby charting its evolution. Design/methodology/approach – Research was undertaken qualitatively due to the exploratory theory building nature of the subject area and the absence of accepted theoretical frameworks. This took the form of non participant observation and in-depth interviews with brand representatives within seven major fashion capitals. Findings – The research identifies essential elements of the luxury store format: its scale and size which usually exceeds functional need; it is derived and built on the twin features of exclusivity and uniqueness; it seeks to offer the customer a justification for their visit. The format evolves and adapts to find new ways of generating and communicating differentiation. Research limitations/implications – The findings provide direction for future research in the area, in particular, an opportunity to investigate how luxury flagship stores adapt in order to accommodate market conditions. Originality/value – The paper delineates the characteristics of the luxury flagship store format and identifies a new characteristic of this format. Keywords Luxury, Fashion, Speciality retail format, Flagship, Third space, Visual merchandising, Retail trade, International business Paper type Research paper 1. Introduction Retailing within the luxury sector has been characterised as different from retailing in other product sectors in three important ways. First, most luxury retailers sell goods they have manufactured themselves, rather than those made by a third party. This means that what they sell and how they sell it is inextricably linked (Moore et al., 2010). Second, luxury retailers have been the most prolific of the internationalising retailers and many operate retail stores on a global scale. For most other retailers, trading activities (and therefore their retail stores) are principally in the domestic market. Third and perhaps most significantly, luxury retailers increasingly use direct investment as a method of foreign market entry (as opposed to the indirect methods of franchising/ joint-venture/wholesaling) that are used by other retailers (Moore et al., 2010). The current issue and full text archive of this journal is available at www.emeraldinsight.com/0959-0552.htm IJRDM 40,12 920 Received October 2011 Revised May 2012 Accepted June 2012 International Journal of Retail & Distribution Management Vol. 40 No. 12, 2012 pp. 920-934 q Emerald Group Publishing Limited 0959-0552 DOI 10.1108/09590551211274928

Crucial to each of these important features of luxury retailing is the flagship store. In international market development, the flagship is used as the primary form of direct investment for entry into a foreign market (Moore and Docherty, 2007). Furthermore, the international flagship store has been identified as a powerful and important platform for growth in the foreign market by encouraging representation and distribution by third party stockists and securing interest and engagement among consumers. The importance of the flagship store is perhaps best demonstrated by the significant financial investments that luxury retailers make in these stores. Moore et al. (2010) argued that on a proportionate basis, the financial investment they make is significantly greater than those of other retailers that operate flagship stores. Other studies have identified that the flagship store serves principally as a means of communicating and enhancing the image and personality of a luxury retailer’s brand identity (Jackson, 2004). Furthermore, the flagship has been described as an important business-building asset that encourages and supports the sale of the brand among external distributors and partners (Moore et al., 2010). Yet, while there has been increased recognition of the function and value of the luxury flagship store, much less attention has been given to the characteristics of their format – specifically with respect to their location, scale and operational features. The value of a focus on the luxury flagship store format is threefold. First, it will locate the features that will help to define the flagship store and which will, in turn, enable and support the classification of flagship stores. Until now, we believe that the luxury flagship store as a term has been used indiscriminately without reference to a clear and consistent description of features and dimensions. In effect, we believe that the term luxury flagship has been used inappropriately within the literature. Second, format identification will assist in understanding the essence of the luxury consumption experience; in that it will indicate the experience priorities and locate the elements that distinguish the shopping experience within a luxury retail environment. Third, an understanding of the features of the format will not only explain some of the associated costs surrounding the creation and maintenance of a flagship store, it will also assist in understanding their contribution to a luxury retailer’s marketing strategy. Therefore, the aim of this study is to delineate the characteristics of the luxury flagship store format. Implicit in this aim will be consideration of the luxury flagship’s scale and location characteristics; their experiential dimensions and their contribution to a luxury positioning. 2. Literature review In order to identify the characteristics of a luxury fashion flagship store it is first necessary to describe the specificity of the luxury retailing sector. This population is suggest to be discrete from mass market retailing in that it operates based on exclusivity, scale, perceived superior product design, premium pricing and a prestigious retail environment (Fernie et al., 1998; Aı¨t-sahalia et al., 2004; Moore and Docherty, 2007). Defining the flagship format A variety of definitions are offered to date and Table I outlines them. In terms of the application of these definitions to the luxury fashion market, those offered by Mikunda, Diamond, Varley, Mores, Frings and Moore et al. are relevant because they link to the notions of scale and prestige of the retail environment. Jackson’s The flagship format 921

(2004) definition is particularly pertinent as it highlights the experiential aspect of a flagship store, adding also that the higher price points necessitate the need for greater product knowledge. Kozient’s et al. (2002) definition is less applicable and the reasons are threefold. First, luxury fashion flagships often carry more than one brand, for example the Armani and Sony store in Milan (Bingham, 2005). Second, within luxury fashion the brand manufacturer often owns the flagship but not in every case, for example Louis Vuitton in Japan operate a joint venture initiative (Hata, 2004). Last, Kozients et al. (2002) suggest the flagship’s sole purpose is to build the brand however there is some evidence to suggest there is a move towards flagships also meeting a commercial purpose, i.e. generating revenue (Allegra Strategies, 2005; Moore and Docherty, 2007). Moore et al.’s (2010) definition identifies the strategic communication aspect of the flagship in terms of image and positioning but neglects to mention product range. Therefore at this stage a working definition of luxury flagship store is; A larger than average speciality retail format in a prominent geographical location, offering the widest and deepest product range within the highest level of store environment and serving to showcase the brand’s position, image and values Evolution of the flagship store format within the luxury fashion industry The historical emergence of the flagship format is primarily sourced from commercial articles. This is acknowledged by the authors as a perceived limitation of the validity of the literature review, however it also highlights the value and thereby justification for investigation as there is a lack of scientific business focused research in this field. This study aims to enhance contribution in this field. Definition Author “They carry a single brand, the brand manufacturer owns them, they are operated with the intention of building the brand rather than operating to sell product” Kozients et al. (2002, p. 17) “The principal store of a retail chain” Mikunda (2006, p. 228) “Allows the brand to re-enforce its image communication through establishing a physical presence in a prestige shopping location and to influence the experience at the point of sale” Jackson (2004, p. 177) “The most important in a chain” Diamond (2005, p. 12) “The pinnacle in retail chain, usually large and located in a high footfall prestigious location, with a full range of merchandise but an emphasis on the more expensive high quality and high fashion lines” Varley (2007, p. 176) “A translation of the marketing strategy into a 360 degree experience of consumption, and is increasingly becoming the company’s prime mass medium” Mores (2007, p. 25) “The largest and most representative store in a chain organisation” Frings (2009, p. 458) “They are distinguishable from the rest of the retail network due to their scale, design, location and set-up and operating costs. Their decadent size provides a positive signal with regard to the identity and prestige of the luxury brand” Moore et al. (2010, p. 156) Source: As listed above Table I. Definitions of a flagship store IJRDM 40,12 922

The roots of the luxury flagship store format are in the Couture and Ready to Wear Ateliers of Paris where the designer’s collections would be produced (Tungate, 2008). These “Maisons de Mode” were multi floor workshops and offices which often had a retail outlet on the ground floor level, this location was the creative heart and brain of the brand and many Parisian flagships retain this important feature today (Barreneche, 2008). This format spread from Paris to Milan, London and New York as the number of luxury design houses increased. The next major format change was the birth of the “concept store” in the 1960s, driven by the democratisation of fashion and this was particularly evident in Milan and London where smaller scale retail stores had an innovative design focus (Mores, 2007). Moving into the boom period of the 1980s, store formats within luxury had to get larger as fashion brands were extending into a number of different product categories like homewear and this created the term “lifestyle store” (Bingham, 2005). In 1990s the term flagship store began to be used to describe these lifestyle stores, which were larger than average and sold a wide and deep variety of products (Moore et al. 2000). In the last decade as the number of flagship stores has increased and as this store format has trickled down to the middle and mass market, luxury brands have been forced to evolve in order to offer a differentiated branded experience to today’s ever discerning customer (Tungate, 2008). This has resulted in the emergence of the “uber-” or “mega-flagship”, a format whereby each key store dimension is enhanced to be even bigger, better, and more memorable (Green, 2011). Luxury fashion brands who have embraced this top level of flagship are Prada with their “Epicentre” stores and Louis Vuitton who operate “Global Maisons” (Passariello and Dodes, 2007). These stores are characterised by their large scale, cutting edge architecture, offering of cultural events and interestingly, a heightened accessibility, in that these stores have become tourist destinations and are often visited by non traditional customers of the brand (Moore et al., 2010). More recently, luxury fashion brands who as a sector have traditionally been slow to embrace the digital revolution, are now concerned with how to translate the flagship concept online (Jackson, 2008; Okonkwo, 2009). Brands like Gucci, Burberry and Dolce and Gabbana have been early adopters and have successfully managed to integrate their online and offline stores in terms of brand image and operations (Amed, 2011). Figure 1 expresses the evolution diagrammatically. The first academic article which mentions a flagship store in a retail context is by Carusone (1970), here it is described in the context of the retail trade structure of a small city. During the 1970s flagships were mentioned in court cases proceedings where buildings applied for landmark status on the basis that they have a “flagship effect” (Conrad and Merriam, 1978). Carusone and Moscove (1985) is the next relevant study and they recognise that a flagship store can act as a draw/anchor to get consumer into a retail area. The lack of academic research to this point is consistent with the documentation of its industry evolution which details that the flagship format was not popularised until the 1990s. In the mid to late nineties a small body of research identifies that flagship stores can be utilized as a market entry method for internationalisation, however this is not the focus of the studies, and the format is not outlined in any depth (Creighton, 1992; Field, 1993; Lea-Greenwood, 1994; Fernie et al., 1997, 1998; Pine and Gilmore, 1998; and Moore et al., 2000). Research in the last decade has been more focused but there has been little quantity and there is a dearth of dedicated empirical research (Jones and The flagship format 923

Doucet, 2001, Kozients et al., 2002; Moore and Docherty, 2007; Doyle et al., 2008; Moore et al., 2010). With reference to books, the flagship format also suffers from a lack of academic attention in the marketing discipline. However they have become more regularly featured in the retailing texts but this also lacks any depth of consideration. Recently the majority of academic attention within textbooks regarding luxury fashion flagship stores is offered from the architecture and store design perspective. This is significant as this paper proposes that this is one of the key dimensions of a flagship store which differentiates it from a normal store. The form of the luxury fashion flagship store Moore and Docherty (2007) offer a scheme for examining luxury fashion flagships which is useful as a basis for developing a conceptual framework and research objectives. It was chosen despite its lack of empirical testing as it is the only model proposed to date which is specific to the format of flagships within the luxury sector. It acts as a tool for further academic contribution due to the gap between theory and practice as previously identified in the evolution section. Figure 2 illustrates the four key dimensions, each of which will be examined in turn. Size and location Moore et al. (2000) identify that luxury fashion flagship stores are typically in capital cities on premium shopping streets (Bond Street, London, Fifth Avenue New York and Avenue Montaigne, Paris). Moore and Docherty (2007) add to this stating that the most important commercial city may be chosen over a capital, for example Milan over Rome and New York over Washington. The location serves to make sure the right customer Figure 1. Evolution of the flagship format within the luxury fashion market IJRDM 40,12 924

profile is being reached and also that the “right” statement is being made about the brand (Allegra Strategies, 2005; Dalton, 2005). Moore and Docherty (2007) support this adding that flagships tend to be concentrated on specific streets accessible to HNWI (High Net Worth Individuals), fashion innovators and tourists. Distribution hierarchy A flagship store should offer the full range of products, both in terms of breadth and depth within in a range but also across categories i.e. mens, womens, accessories, home and childrenswear (Jones and Doucet, 2001; Moore and Docherty, 2007; Varley, 2007; Fernie et al., 1998). A flagship store should also hold the potential for exclusive ranges and brands like Tiffany & Co, Marc Jacobs and Comme des Garcon adopt this approach (Verdict, 2007). Allegra Strategies (2005) agree that a flagship store must have sufficient space in order to offer the full product range and possibly additional products and services not offered in other stores. Therefore the flagship can be described as being the top of the distribution hierarchy as it offers everything and a something extra, and it is this which makes it a destination store (Moore et al., 2010). This therefore highlights that the size and distribution dimensions are linked. Most luxury fashion brands operate a tiered structure of stores, for example Burberry has four-tiered levels of stores, ranging from the four flagships stores to regular retail stores, department store concessions, and designer outlets/factory stores (Strategic Direction, 2005; Green, 2011). Language of the flagship Within this dimension there are three key facets these are: the role of architecture; the offering of added value services; and the notion of “third space”. Architecture can play an important role in reflecting and helping build the identity of a brand (Barreneche, 2008). Interestingly, as the boundaries between retail, art and architecture have blurred, architects and artists have increasingly wanted to work with luxury brands (Bingham, 2005). This is not a new concept as fashion designers have been turning to architects to magnify the image of their own label since the seventies (Mores, 2007). However, it was the collaboration between John Pawson and Calvin Klein in 1996 which gave momentum to the movement (Barreneche, 2008). Today, architecture and design are increasingly significant as they are vital to expressing the image and message of the brand (Riewold, 2002). Each luxury fashion brand has a style which is what Figure 2. The four key dimensions of a luxury fashion flagship The flagship format 925

architects attempt to interpret through flagship design (Bingham, 2005). He continues stating that the search is for a visual metaphor/branding image to make clear the designer’s ethos. To illustrate, Muiccia Prada chooses the architects for her epicentres on the grounds of their ‘elective affinities’ (Mores, 2007). This is because visual stimulus within a flagship induces customers into a silent dialogue with the fashion designer’s broader vision (Bingham, 2005). Future Systems (2008) said of their acclaimed design of the Marni flagship that the clothes become part of an overall composition, not separated from the design, but part of it. To maintain exclusivity and achieve differentiation flagship store design must be exceptional and luxury fashion brands often look for spaces in historic structures or landmark buildings (Moore et al., 2010). In relation, Allegra Strategies (2005) found that flagship stores should have innovative and experimental fixtures, that they should be unique and definitely should have a “wow” factor. For example in the luxury sector flagships often have a “statement” staircase (Verdict, 2007). Frings (2009), Verdict (2007) and WGSN (2007) identify a trend for added value services within luxury fashion flagships. Pertinent examples include the Dolce & Gabanna Flagship store in Milan who offer demi-couture touches such as a VIP room and spaces for private appointments (WGSN, 2008). Aquascutum in London has a “Regent Room” provides a relaxing, invitation-only club room for special guests, and an “Archive Room” which showcases Aquascutum’s extensive library of artefacts and items of interest from its 150 year history (Creative Match, 2004). One of Louis Vuitton’s flagships in Tokyo incorporates a private club where members can sip champagne while browsing the collections (Bingham, 2005). Lastly, Cartier offers a made-to-measure perfume service which is unique to its Paris flagship store (Verdict, 2007). The function of these added value services is to make customers stay in store longer and spend more money (Allegra Strategies, 2005). It is also about creating an emotional connection with the consumer, linking to the concept of experiential retailing highlighted by Pine and Gilmore (1998). This links to the notion of “third space” which is outlined next. Allegra Strategies (2005) suggest that an important dimension of a flagship store is “third space” or “place” and the organisation of events and entertainment elements. Experiences form an integral part of third space as they activate psychological experience mechanisms (Mikunda, 2006). A third space can be defined as “somewhere which is not work or home but a comfortable space to browse, relax and meet people, enjoy a meal” (Mikunda, 2006, p. 11). For example there is a public garden at Prada Tokyo, you can get a massage in Kenzo Paris, and at Dolce & Gabbana in Milan you can get a shave and then have a cocktail at the Martini and Rossi Bar (Bingham, 2005). Allegra Strategies (2005) explain that a flagship store should be an environment where customers can interact with and “touch” the brand. A flagship which demonstrates this aspect clearly is the Armani Centre in Milan, it is 129,000 sq. ft and offers all the clothing lines, a home furnishing section, a flower shop, a confectionary counter, a bookstore, a Japanese restaurant, a bar and a Sony electronics gallery – it is a total Armani lifestyle experience (Bingham, 2005). On a more subtle level Bingham (2005) also identifies that many flagship stores incorporate artworks, or feature exhibitions as a more discreet aspect of third space. Furthermore, the use of third space to educate stakeholders about the heritage of the brand through in store exhibitions is a notable trend as it functions to add value and reassure the customer of the provenance and luxury status of their products (Feigenbaum, 2011). IJRDM 40,12 926

Strategic purpose The significant financial investments which luxury brands make into flagship stores are indicative of their strategic purpose (Moore and Docherty, 2007; Doyle et al., 2008; Moore et al., 2010). There is no clear consensus as to what the ultimate objective of a flagship store should be. Beyond the sales promoting role of the store, its role is also described by Mikunda (2006, p. 119) as a “business card in the form of architecture which produces lasting effects in image building public relations and brand and corporate advertising”. This highlights that flagship stores play an important role in retailer’s strategies to represent the brand’s identity, values and philosophy internally and externally (Allegra Strategies, 2005). Similarly Riewold (2002) argues that the primary objective is not to sell the product but to generate a fascination with the brand, creating a deep-set emotional anchor. Varley (2007) also suggests that the role of the flagship store is essentially about retail brand building and reinforcement rather than profitability. Moore et al.’s (2000, p. 930) research also found that the purpose of flagship stores was “rarely about profit as the costs are high and the turnovers modest”. Fernie et al. (1998) agrees stating that flagship stores are maintained to act as publicity vehicles for the ranges and are not required to show a typical return on investment. It is useful to understand the strategic role of a flagship as that often determines the cost base, however again there is disparity of opinion regarding where the budget for a flagship should come from. Mikunda (2006) describes flagship stores 3D advertising and therefore must be co financed by the advertising budgets. However Allegra Strategies (2005) found that flagship store formats were not covered by the marketing budget, and that increasingly flagship stores were expected to not only represent the brand but also to generate revenue and profit where possible. With respect to the luxury sector this may take some time due to the significant investment involved in securing the appropriate lease, and the design and operation of the store. In sum, it can be suggested from the review of literature that the luxury fashion flagship store has a dichotomous operational and strategic purpose which is reflected in the differential characteristics of its form. 3. Methodology The overall aim of the study is to identify the differential characteristics of luxury fashion flagship stores. In order to achieve this aim three research objectives were developed: (1) To examine the luxury fashion flagship’s scale and location characteristics. (2) To investigate the experiential dimensions of a luxury fashion flagship store. (3) To explore the form of a luxury fashion flagship store in terms of its contribution to a luxury positioning strategy. As a result of the lack of accepted theoretical frameworks the study was exploratory in nature and therefore was suited to a qualitative research design (Creswell, 2006). The research consisted of a two phase mixed method strategy, utilising observation and interviews. This methodological approach is established within previous studies on luxury and retail formats (Fernie et al., 1998; Fiona and Moore, 2009; Moore et al., 2010). The primary phase aimed to obtain a broad overview of the phenomenon addressed the first two research questions. The interviews were used to triangulate the findings from phase one and also functioned to offer an in-depth perspective while addressing the second and third research questions. The flagship format 927

The observation phase was designed to be non-participative as direct interaction with the subject of the study i.e. flagship stores was not required and the data collection aimed to be as objective as possible. Non probability sampling with an element of quota sampling was used as a database of luxury fashion flagship stores does not exist. Site visits were undertaken across seven fashion capitals (London, New York, Milan, Paris, Tokyo, Hong Kong and Moscow) and two key shopping streets in each city were observed. An observation grid of seven physical categories which emerged from the literature and in line with the research questions were developed, these included: size; brand origin; product categories; key design features; interior design; third space; and added value services. Descriptive field notes and photographs were taken based on these guidelines and the data were analysed qualitatively and quantitatively by looking for reoccurring themes. In total, 527 stores were observed. The second phase involved ad hoc semi-structured interviews with flagship store managers, during the observation phase each store manager was approached to participate and therefore the same sampling method as phase one was used. An interview guide with seven questions probing the respondents about the differential tangible and intangible dimensions of a luxury fashion flagship store was developed. 36 interviews were conducted in total and each one was audio recorded, transcribed and analysed using thematic content analysis based around the research questions. Each of the luxury fashion brands interviewed did not wish to be identified and therefore their results are described by their country of brand origin. 4. Results and discussion This section will outline the results of the observation and interviews and will follow Moore and Docherty’s (2007) conceptual model. Some general points of interest included that the most observed type of luxury brand was Italian and this is consistent with literature by Moore et al. (2000) who identify that they are the most successful at internationalisation. Size and location The majority of the stores observed were between 700-1,000 sq. m and had at least two floors of selling space. There was a clear pattern for the Tokyo flagships to be larger in size with multiple floors, for example the European luxury brands like Hermes, Chanel and Gucci operate 6,000, 6,100 and 3,283 sq. m stores respectively. This vast presence and investment highlights the significance of the Japanese market for luxury brands. The trend for the uber/mega flagship was evident particularly in each luxury brand’s country of origin, for example Ralph Lauren’s 2050sqm Madison Avenue store, Hermes’s 3000sqm Rue du Faubourg Saint-Honore´ store, Armani’s 800 sq. m via Manzoni store and Burberry’s 1,000 sq. m Bond Street store. These stores can be characterised as being among the largest in the chain and each offers something different to their other flagships. The flagships stores in emerging markets like Moscow were much smaller in scale than the other cities but the number and variety of luxury flagships was growing. The location of the flagships within each of the cities was concentrated on two prominent streets/areas as shown in Table II. Brand representatives all agreed that the location of the flagships in these specific cities and streets was a key strategic decision, with many using the words “important” IJRDM 40,12 928

and “good” to describe it. This supports the idea that the location must be prominent (Moore and Docherty, 2007; Jackson, 2004; Varley, 2007). The sample here agreed that a flagship must be located in a “main” or “well located” area due to the fact that a flagship is often the busiest store with the highest footfall as a result of its central location. The rationale for flagships being located in these streets and cities is ultimately so that it can attract a brand’s target customers but also so that it may attract new customers “The location means that you get your main clientele base, the dedicated followers, and then alongside that you get the traffic, in terms of tourists, and new customers [...] you can widen your audience, and that’s the differential aspect about a flagship” (French Luxury Brand). Interviewees also referred to the importance of adjacencies at the store location with one participant from a British luxury brand stating “who you have around your brand is very significant”. In sum the features of size and location have emerged as significant flagship form dimensions within this sample. Distribution hierarchy As a result of the larger square footage there is more space for products and the majority of the respondents stated that a defining feature of a flagship is that it has the widest and most indepth product range out of all the stores in the company, i.e. “it houses the complete collection because of the space that it has” (American Luxury Brand). Allegra Strategies (2005) concluded that a critical success factor of a flagship store is that it has sufficient space to offer the full collection and this is supported here. Additionally, the observational findings highlighted that the flagship stores offered the widest variety of product categories with 80 per cent selling more than four categories. The most common categories were womens, mens, accessories, home and perfume respectively. In terms of exclusive ranges, more than two thirds of those interviewed stated that flagship only collections were essential in providing added value for the consumer and thereby acting as a reason to visit the store. The brand representative of a French luxury brand explains that their flagship store offers “special and archival collections which make the store a destination to visit”. A destination store is defined by Levy and Weitz (2011, p. 131) as “a retail store in which the merchandise, selection, presentation, pricing or other unique features act as a magnet for the customer”. There are clear parallels between the meaning of a destination store and a flagship store this correlation has not been identified previously and therefore further empirical investigation would be useful. It can be stated that the notion that this second dimension of the flagship being at the top of the distribution ladder suggested by Fernie et al. (1998), Moore and Docherty (2007), Varley (2007), Verdict (2007) and Moore et al. (2010) is supported. City Street 1 Street 2 London Bond Street Sloane Street New York 5th Avenue Madison Avenue Paris Rue du Faubourg Saint-Honore´ Avenue Montaigne Milan Via Manzoni Via Montenapoleone Tokyo Harumi Dori (Ginza) Aoyama Dori Hong Kong Queen Street Canton Road Moscow Stoleshnikov Pereulok Street Tretyakovsky Proezd Table II. Flagship store locations The flagship format 929

Language of the flagship The three sub-dimensions of architecture and store design, added value services and third space will be addressed in turn. The observational research displayed that a number of key design features were evident in luxury fashion flagships, these include, in frequency of occurrence: staircases; double/triple height atriums; and technology in the form of video screen walls or projections. These results are consistent with the observations of Verdict (2007), Bingham (2005) and Mores (2007). With respect to the interior design elements over three quarters of the stores visited adopted a minimal contemporary feel characterised by light coloured walls and floors similar to that of an art gallery. This supports Riewold (2002) and (Tungate, 2008) who identify this “white box” design style as being prevalent within luxury retailing. A key differential dimension of the design language of luxury flagships is the trend for so called “star-chitect” luxury fashion brand collaborations (Moore and Docherty, 2007; Barreneche, 2008; Mores, 2007). An American brand outlines the benefits of this strategy “it widens the audience and amplifies the brand message”. This partnership was evident at the top tier of the flagship hierarchy within the uber/global flagships which make up less than ten percent of those observed. It can be stated that this distinction is difficult to measure exactly from the results of this study, however the creation of a taxonomy of flagships would be a useful area for future research. More generally, the interviews demonstrated that the majority of participants found that architecture of a flagship served to play an important role in making it stand out, both from competitors and, internally from other stores within the chain. One of the British luxury brands stated “we strive to find buildings for our flagships which have architectural interest as this acts as a draw for customers and also compliments our heritage positioning”. In terms of added value services these were not visually advertised inside the flagship store and were therefore not apparent during the observation. However two thirds of interview respondents mentioned this as being a differential aspect of the form of their flagship store, supporting Verdict (2007). There were three main types of service offered, the most popular was a bespoke/made to measure/monogram service, second was a VIP lounge or private sales room, and third was a parking service. Many of the brand representatives added that this was a key area of strategic growth and investment in the future as they described luxury customers as increasingly demanding, particularly those at the top end who are looking for a highly differentiated and personalised experience. This can be illustrated by this quote from a French luxury brand “we have to create special private areas for certain customers who simply demand and expect it”. With respect to the notion of third space/place, the observational research noted this was most prevalent in Tokyo due to the larger scale of the stores. The brands who adopted this feature most often were Italian and again this is consistent with Moore et al. (2000) who identify that brands of this origin are historically the most adept at brand extension. It can be stated that less than a quarter of stores visited offered some aspect of third space, however during the interviews this was also highlighted as a future strategy which was key in increasing consumers dwell time instore. One Italian luxury brand explained “it is important to give clients a reason to spend time with the store and engage with the brand, that is why we display a selection of our famous product and the celebrities who have worn them”. Of those who did offer an aspect of third space, a dedicated exhibition space was the most observed, followed by a IJRDM 40,12 930

cafe´/restaurant and then smaller art installations. As this is an emerging trend it is an interesting area for future research. Strategic purpose The interviews highlighted that there are many strategic roles of a flagship, the most mentioned onewas that it should communicate the brand personality and values. All brands irrespective of country of origin testified to this, for example a British luxury brand explains that it serves to be “an expression of the whole philosophy of the brand”, a French luxury brand describes it as “the beating heart of the brand”, and an American brand offers that is “a physical embodiment of the designer and their philosophy”. These results support research by Mikunda (2006) and Riewold (2002). The next most mentioned function was the use of the flagship for marketing communication purposes, i.e. product launches, VIP parties and customer events. This is consistent with research by Moore and Docherty (2007) and Varley (2007). A conceptual model offered by Moore and Docherty (2007) offers four strategic functions of a flagship, this will be the focus of the next phase of study using the same data and results on this aspect will be provided at that stage. Additional dimension From the interview results, an additional dimension emerged which had not been identified previously in the literature, it is that of a unique retail operations structure. Over two thirds of the interview respondents said that they have special management, visual merchandising and sales structure which they do not operate in any other store. With respect to the management structure, many brands stated that they have more than one assistant manager which is necessary due to the larger number of staff. A British brand explains “ this is the highest level of store with the largest payroll costs [...] which need to be managed effectively” In terms of visual merchandising every brand interviewed confirmed that they have a dedicated member of staff or team which is required because of the high standards expected of the flagship. A French brand states “as the store is visited by a variety of stakeholders (media, VIP’s, consumers, investors) and head office staff are very close there is a heightened pressure for the store to look textbook”. Lastly the majority of participants said that the sales advisors were fixed or static in certain product categories so that they could offer significant depth of knowledge. An American brand describes “we want to offer the customer specialist knowledge in the artisan nature of our product, therefore we operate fixed sales teams”. This finding is unique to this study and therefore offers a contribution to the literature in this field. 5. Conclusions The aim of this study was to delineate the characteristics of the luxury flagship store format. The research findings clearly articulate these characteristics and in so doing they also identify features that we believe are unique to the luxury sector. The first relates to the fact that luxury flagship stores co-locate within the premium retailing locations, typically within the most important world centres and cities of influence. These flagships form “communities of affluence,” which appear to support and feed-off each other in terms of their sense of exclusivity and style. The power of their attraction The flagship format 931

is demonstrated by their status as important visitor attractions and their status defines and enhances the status of the cities within which they inhabit. The study also identifies three essential elements of the luxury store format. The first relates to their scale and size which usually exceeds functional need. It is perhaps the availability of non-productive space that serves to best emphasise the luxury positioning of these retailers. The scale of their stores serves as a physical manifestation of their premier status and the freedom of movement that excess space provides is the clearest indication of the features of exclusivity. As one of the research participants indicated, the excess of space available within a luxury flagship store demonstrates “what makes luxury special in a crowded world” The second dimension is that the luxury retail format is derived and built on the twin features of exclusivity and uniqueness. The luxury flagship purposefully seeks to offer the customer a justification for the visit, a reason for being there. This is achieved in a number of ways. The most apparent relate to the product range (which is complete and the most extensive, but also the most distinctive, through the provision of exclusive and limited edition pieces); the store environment (which is differentiated by its carefully managed design and strong brand communication cues), as well as the spectacle of the experience (which is created through the customer service provision, installations and entertainment/events). These elements offer, in combination, a reason for the consumer to visit that extends beyond the consumptions of goods and services. But that is not to say that the purchasing of goods is not the desired, final outcome on the part of the luxury fashion retailer. The third dimension is that the luxury retail format is by its nature iterative. It evolves and adapts to find new ways of generating and communicating differentiation and to satisfy consumers’ interest in newness and excitement. Furthermore, as the luxury market becomes increasingly more competitive, these companies must continually innovate in order to secure a clear distance from their competitors. To achieve this, many luxury retailers have adopted localised retail operation structures to best serve the local needs of their flagship stores. And while it may seem that luxury brand marketing is inherent uniform in its execution, this study recognised that flexibility and close-to-market decision-making was an important feature of how these luxury flagship stores were managed. These findings provide direction for future research in the area. In particular, there is an opportunity to investigate how luxury flagship stores adapt in order to accommodate market conditions that vary sharply from those of their home continent of Europe. References Allegra Strategies (2005), Project Flagship: Flagship Stores in the UK, Allegra Strategies Limited, London, January. Amed, I. (2011), “Dolce and Gabbana talk digital”, 12 July, available at: www.businessoffashion. com/2011/07/bof-exclusive-dolce-gabbana-talk-digital.html (accessed on 15 August 2011). Aı¨t-sahalia, Y., Parker, J.A. and Yogo, M. (2004), “Luxury goods and the equity premium”, The Journal of Finance, Vol. 59, pp. 2959-3004. Barreneche, R.A. (2008), New Retail, Phaidon Press, London. Bingham, N. (2005), The New Boutique, Merrell, London. IJRDM 40,12 932

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Lea-Greenwood, G. (1994), “Episode: a case study in market entry”, Management Decision, Vol. 32 No. 3, pp. 6-21. Levy, M. and Weitz, B.A. (2011), Retailing Management, 8th ed., McGraw-Hill, New York, NY. Mikunda, C. (2006), Brand Lands, Hot Spots & Cool Spaces, Kogan Page, London. Moore, C.M. and Docherty, A. (2007), “The international flagship store of luxury fashion retailers’”, in Hines, T. and Bruce, M. (Eds), Fashion Marketing, Butterworth-Heinemann, Oxford. Moore, C.M., Fernie, J. and Burt, S. (2000), “Brands without boundaries: the internationalisation of the designer retailer’s brand”, European Journal of Marketing, Vol. 34 No. 8, pp. 919-37. Moore, C.M., Doherty, A.M. and Doyle, S.A. (2010), “Flagship stores as a market entry method: the perspective of luxury fashion retailing”, European Journal of Marketing, Vol. 44 Nos 1/2, pp. 139-61. Mores, C.M. (2007), From Fiorucci to the Guerrilla Stores: Shop Displays in Architecture, Marketing and Communications, Windsor Books, Oxford. Okonkwo, U. (2009), “Sustaining the luxury brand on the internet”, Journal of Brand Management, Vol. 6 No. 5, pp. 302-11. Passariello, C. and Dodes, R. (2007), “Art in fashion: luxury boutiques dress up as galleries”, Wall Street Journal, February 16, p. 8. Pine, B.J. and Gilmore, J.H. (1998), “The experience economy”, Harvard Business Review, Vol. 76 No. 4, pp. 97-105. Riewold, O. (2002), Brandscaping: Worlds of Experience in Retail Design, BirkhauserVerlag AG, Basel. Strategic Direction (2005), “‘Bravo’ for Burberry: from bust to boom – creating a luxury fashion brand”, Strategic Direction, Vol. 21 No. 1, pp. 22-4. Tungate, M. (2008), Fashion Brands: Branding Style from Armani to Zara, Kogan Page, London. Varley, R. (2007), Retail Product Management, Routledge, London. Verdict (2007), “Global luxury retailing”, Datamonitor, October. WGSN (2007), “Armani exchange makes ‘coolest’ London home of its largest global flagship”, 20 November, available at: www.wgsn-edu.come/members/retailtalk/features/rt2011_ 567n? from¼search (accessed 14 February 2011). WGSN (2008), “Dolce & Gabanna”, January 29, available at: www.wgsn-edu.com/members/ retail-talk/features/rt2008jan29_082924_b?from¼search (accessed 8 February 2011). About the authors Karinna Nobbs is a Lecturer in International Fashion Branding at Glasgow Caledonian University. Her research interests are in visual merchandising, flagship stores, and integrated brand communication. Christopher M. Moore is a Professor of Marketing and Retailing at Glasgow Caledonian University. His research interests are in retailer internationalisation and luxury brand management. Mandy Sheridan is a Lecturer in Marketing at Glasgow Caledonian University. Her research interests are in supply chain management, category management and the management of power within the retail buying process. IJRDM 40,12 934 To purchase reprints of this article please e-mail: [email protected] Or visit our web site for further details: www.emeraldinsight.com/reprints

Dynamic capabilities for fashion-luxury supply chain innovation Federico Caniato, Maria Caridi and Antonella Moretto Management, Economics, and Industrial Engineering Department, Politecnico di Milano, Milan, Italy Abstract Purpose – This paper aims at developing a conceptual framework to identify the main features of supply chain innovation and to analyse the role of dynamic capabilities in implementing such innovations in the context of the fashion-luxury industry. Design/methodology/approach – The paper follows an exploratory approach based on one in-depth case study. The theoretical framework, developed through the literature review, is applied to a Italian fashion-luxury company, thus exploring its applicability in a real context and obtaining evidence in the area of supply chain innovation. Findings – The paper offers insights on supply chain innovation, by investigating an area under-explored in the existing literature. The paper provides a conceptual framework oriented to analyse the main features of supply chain innovation for fashion-luxury companies, by investigating the main determinants of innovation. Research limitations/implications – The proposed model provides initial insights into the topic of supply chain innovation in fashion-luxury companies. To date, the analysis is predominantly qualitative and therefore replication is needed to generalise the results. Practical implications – The paper identifies three different perspectives of supply chain innovation and the relationships between supply chain innovation and other types of innovations, which are hopefully useful for managers that are willing to introduce innovation inside fashion-luxury companies. Originality/value – The paper addresses a new topic, underexplored in the supply chain management literature, by considering a peculiar area of investigation, the fashion-luxury. Moreover, the paper investigates the topic of supply chain innovation through the support of empirical data. Keywords Innovation, Supply chain management, Fashion-luxury industry Paper type Research paper 1. Introduction The need for innovation is widely recognised by companies as well as by academic literature. There is in fact no doubt about the constant changes of the marketplace in the last years (Lisboa et al., 2011). Innovation is defined as a change in the company that is characterised by the following features: relative advantage, compatibility, complexity, trialability, and observability (Rogers, 1995). In this situation, innovation is viewed as a worthwhile source of advantage and of competitiveness for companies, oriented to improve company’s performance and reduce the risk (Pietrobelli and Rabellotti, 2011; Rabelo and Hughes Speller, 2005; Chen and Jaw, 2009; Berghman et al., 2013). The literature presents several types of innovation, such as product, process, service, and organisation innovation, as well as different definitions (Baregheh et al., 2009). For example, Ulusoy (2003) provided a list of possible meanings of innovation, The current issue and full text archive of this journal is available at www.emeraldinsight.com/0959-0552.htm IJRDM 41,11/12 940 Received 25 January 2013 Revised 12 April 2013 7 June 2013 Accepted 22 July 2013 International Journal of Retail & Distribution Management Vol. 41 No. 11/12, 2013 pp. 940-960 q Emerald Group Publishing Limited 0959-0552 DOI 10.1108/IJRDM-01-2013-0009

by identifying the following ones: the renewal and enlargements of the range of products and services; the establishment of new methods of production, supply, and distribution; and the introduction of changes in management, work organisation, and the working conditions and skills of the workforce. Innovation is seen as fundamental for fashion-luxury industry. Several authors have investigated different perspectives of innovation for fashion-luxury companies: some authors addressed the key importance of stylistic innovations (e.g. Cappetta et al., 2006; Schweizer, 2002); other authors pointed out the growing importance of technological innovation for this industry as well; other authors have investigated the topic, by paying attention to the lifecycle phases of the products (e.g. Castelli and Brun, 2010); other authors paid great attention to the main features of the product development (PD) process (e.g. Aktuglu, 2001; Kincade et al., 2007; Tyler et al., 2006); still other authors investigated the counterbalance between stylistic and technical innovation in luxury companies, by showing the influence of company’s size on that (e.g. Crane, 1997). Whilst the importance of innovation is clearly recognised, often companies have a narrow view of what innovation is (Sawhney et al., 2011). In this mistakenly and confuse context, some authors addressed the crucial role of supply chain innovation (SCI) (Flint, 2007). Consistently with Arlbjorn et al. (2011), SCI can be defined as “a change (incremental or radical) within the supply chain (SC) network, SC technology, or SC processes (or combination of those) that can take place in a company function, within a company, in an industry or in a SC in order to enhance new value creation for the stakeholder” (Arlbjorn et al., 2011, page 8). The strong attention towards SCI is subsided by the consideration of Flint (2007), who maintained that competing in process and SC is more sustainable than competing in products because the resources allocated in SC generate more cost-savings and have stronger impact in the long term, compared to the relative high volatility of new product introductions. But in spite of this consideration, the academic literature specifically focused on SCI is still poor as well as empirical studies about this topic. The literature about innovation has widely addressed the contribution of dynamic capabilities to enable successful innovations (Eisenhardt and Martin, 2000; Gebauer, 2011). Dynamic capabilities in fact are said to create a temporary as well as a long-term competitive advantage, thus having a preeminent function to enhance innovations (Eisenhardt and Martin, 2000; Zahra and George, 2002). But, the identification of the roles of dynamic capabilities for SCI has still to be studied. This study aims at developing a conceptual framework to identify the main features of SCI and to analyse the role of dynamic capabilities in fostering SCI in the specific context of the fashion-luxury industry. The framework developed through the literature review will be applied to a prominent Italian fashion-luxury company, thus exploring its applicability in real context. The paper is organised as follows. Section 2 will illustrate the theoretical background about supply chain management (SCM) for fashion-luxury industry, SCI and dynamic capabilities. In section 3, the research objectives and the methodology will be presented and in section 4 the conceptual framework will be introduced. Then the results will be presented and discussed and finally section 7 will illustrate conclusions. Fashion-luxury supply chain innovation 941

2. Theoretical background 2.1 SCM for fashion-luxury industry The luxury industry has attracted the attention of researchers for many years, mainly focused on sociological, marketing and branding aspects (e.g. Vickers and Renand, 2003; Atwal and Williams, 2009). On the contrary little attention has been paid to the operations and SCM perspective. This could be explained by considering that luxury firms sometimes look for voluntary inefficiencies (e.g. manual labour, long waiting lists), pursuing competitive advantage over rarity and brand exclusivity (Luzzini and Ronchi, 2010). But in spite of that approach, preliminary studies have highlighted also the importance of SCM (Brun et al., 2008; Caniato et al., 2009; Luzzini and Ronchi, 2010; Brun and Moretto, 2012). In fact if companies want to move brands towards a higher positioning and add more valuable features to products and services they cannot focus only on marketing efforts. In particular operational issues appear very relevant also for luxury companies to support their brands, satisfy their customer, and deliver their products worldwide (Brun et al., 2008). For example, Brun et al. (2008) demonstrated the relevance of SCM in improving luxury critical success factors (CSF). Brun et al. (2008) addressed also the importance of managing different SCs in the same fashion-luxury company for different products: this depends on the fact that fashion-luxury companies create a certain variety of products realized and distributed in different ways. Hence, companies should apply different SC strategies especially when the product portfolio is highly variegated (Brun and Castelli, 2008). The preferred approach adopted by fashion-luxury companies to manage the SC is oriented to reduce the risk of obsolescence and to assure the achievement of critical success factors. In order to avoid these problems, fashion-luxury companies tend to pursue a make-to-order strategy as much as possible, especially when past selling data are not available and the level of customisation is high (Brun et al., 2008). From the sourcing perspective, high level of outsourcing to small size suppliers is preferred in order to assure a high level of flexibility and the contribution of craftsman companies that realize hand-made activities (Luzzini and Ronchi, 2010). Besides, the strong importance of achieving the CSFs implies the coherent configuration of the whole SC as well (Brun et al., 2008). Moreover, the literature shows that for fashion-luxury companies the most relevant core competences to keep in house are the product development ones, which define material requirements, aesthetic aspect and style of the product. Alternatively, these activities could be outsourced to external designers or brand owner’s design team, thereby increasing the value of the products (Brun et al., 2008). This collaboration with external designers implies the right management of these suppliers (Luzzini and Ronchi, 2010). In this perspective, using collaboration practices between SCM and product development processes only to pursue efficiency goals means a huge loss of opportunities (Van Hoek and Chapman, 2006). 2.2 Supply chain innovation The domain of SCM offers by definition new opportunities to create competitive advantage. In this research stream, the concept of SCI emerged as a fruitful and critical research area in the last years. But in spite of the high attention and the recognised importance of the topic, the debate and the confusion around this area are still very high. In fact, few contributions can be identified that explicitly deal with this topic. Arlbjorn et al. (2011) have realized a systematic literature review, thus formulating the definition of SCI mentioned above as well as identifying the main elements of SCI (i.e. supply chain business processes, supply chain network structure, supply chain IJRDM 41,11/12 942

technology). Several examples of supply chain innovation inside major companies serve as useful illustrations. Apple, Ikea, Wal-Mart, Carrefour, Zara, HP, Benetton, and Amazon are just a few examples of companies that have used supply chain innovations to disrupt their industry and serve as an anchor for improved business performance. Different literature streams in the area of SCI could be raised. Some authors analysed the issues with a specific focus on operational and internal processes: for example Bello et al. (2004) analysed the introduction of new logics to improve operational efficiency through the implementation of efficient consumer response and continuous replenishment. In their analysis, they have also investigated the main drivers for innovation, by splitting them into institutional arrangement and institutional environment. In literature stream about the drivers of innovation, some authors have investigated the role of strategic orientation and drivers of the innovation (i.e. market orientation and resource orientation) in channel integration for increasing supply chain performance (Lin et al., 2010). Instead Hoole (2006) has mentioned the role of complexity as driver of innovation and have proposed some suggestions for reducing company’s complexity with this purpose (i.e. management of the supply chain at the corporate level; consideration of the supply chain in all of the product development decisions; and inclusion of supply chain professionals in product development teams). Another literature vein investigates the topic of innovation with specific process perspectives. For instance, some authors specifically have linked this concept with total quality management (Perdomo-Ortiz et al., 2006); others have investigated the topic under the light of marketing, by investigating the value that customers and suppliers could bring (Berghman et al., 2013); still others (e.g. Ulusoy, 2003) the influence on logistics, purchasing and customer service. A vast literature has investigated the role of SC to enhance innovation along the SC, through the collaboration with suppliers (e.g. Petersen et al., 2005; Wagner, 2010) and customers (e.g. O’Marah, 2005) or inside the company, through the collaboration with the product development process (e.g. Pero et al., 2010). In some cases, the concept of SCI is blended with the SC design one (e.g. Srai and Gregory, 2008). With a similar perspective, the supply network has been also presented as a helpful way to enhance innovation and technological development providing the necessary resources to change the business models (Calia et al., 2007). A new literature vein creates a link between SCI and the recently widespread phenomena of sustainability (e.g. Zhu et al., 2011). With a different viewpoint, some papers have specifically investigated the factors influencing the adoption of specific innovations (Frambach and Schillewaert, 2002; Tornatzky and Fleischer, 1990). But in spite of all these studies, SCI is still a new concept and the identification of a model to introduce SCI inside companies is still missing; moreover, the critical factors to make the innovation successful at the SC level has to be investigated. 2.3 Dynamics capabilities Dynamic capabilities are defined by Teece and Pisano (1994) as “a subset of the competences/capabilities which allow the firm to create new products and processes and respond to changing market circumstances”. The ambition of dynamic capability approach is to explain the sources of company’s advantage in a long-term perspective and to support managers in maintaining the company’s success over time (Teece, 2007). Moreover, several authors have maintained Fashion-luxury supply chain innovation 943

the contribution of dynamic capabilities to improve competitive advantages both directly and indirectly (Gebauer, 2011; Helfat and Peteraf, 2009). Dynamic capabilities have been used with different perspectives, such as to analyse firms’ international expansion (e.g. Griffith and Harvey, 2001) or to handle the challenge of global markets (e.g. Hart and Sharma, 2004). Other studies (e.g. Verona, 1999) distinguish dynamic capabilities on the basis of the type of knowledge they contain (i.e. functional capabilities to allow technical knowledge; integrative capabilities to absorb knowledge from external sources; innovation capability to mould and manage multiple capabilities). But dynamic capability theory is well suited to organisational innovation, not being specifically related to a single technology and being easily related to the development of new processes, systems and business models (Lawson and Samson, 2001). For instance, Salunke et al. (2011) have specifically applied this model to innovation in service firms; Ulusoy (2003) mentioned some dynamic capabilities that could foster innovation, by mentioning continuous improvement, learning, problem solving, and product development; Lawson and Samson (2001) specifically applied the dynamic capabilities to the innovation studies. In particular, they developed a model focus on global dynamic capabilities, categorizing and operationalizing them in seven main elements (i.e. vision and strategy, harnessing the competence base, organisational intelligence, creativity and ideas management, organisational structure and systems, culture and climate, and management of technology). Although the dynamic capabilities have received substantial attention since Teece (2007), little insights have been devoted to how dynamic capabilities are put into practice (Helfat and Peteraf, 2009). 3. Research objectives and methodology 3.1 Research objective The objective of this paper is the development of a conceptual framework to identify the main features of SCI and to analyse the role of dynamic capabilities in fostering SCI, specifically in the fashion-luxury industry. The literature highlighted the relevance of dynamic capabilities for the introduction of company innovation (e.g. Eisenhardt and Martin, 2000; Lawson and Samson, 2001; Zahra and George, 2002; Salunke et al., 2011), with a special focus on the introduction of new products or processes. But, being the studies about SCI still preliminary (e.g. Bello et al., 2004; Arlbjorn et al., 2011), a specific analysis of the contribution of dynamic capabilities for the introduction of SCI is missing. Moreover, a specific analysis of the topic of SCI for fashion-luxury industry, which is highly innovation-sensitive (Aktuglu, 2001; Cappetta et al., 2006; Kincade et al., 2007; Schweizer, 2002; Tyler et al., 2006), is missing as well. In spite of this gap, we think the investigation of SCI for the fashion-luxury industry might be relevant from a research as well as a practitioner point-of-view for several reasons, such as the importance of innovation for the industry, the increasing relevance of supply chain in these companies, and the necessity of identifying new ways as well as enabling factors for fostering innovation in the industry. In order to tackle this research objective, a thorough literature review has been performed whereby the main contributions to develop the conceptual framework for SCI have been identified. Besides that, an in-depth case study of a fashion-luxury company has been realized, with the aim of exploring the applicability of the conceptual model in practical contexts. Figure 1 illustrates the main steps of the research process followed in the paper. IJRDM 41,11/12 944

3.2 Research methodology 3.2.1 Description of the case. A case-based methodology has been selected according to the exploratory nature of the study. This methodology is appropriate to describe and explore new phenomena or to build up new operations management theories (Voss et al., 2002), in particular whether the boundaries between the context and the phenomenon are not clear (Yin, 2003). Furthermore, case studies have interpretative advantages useful in the explorative phase of a study (Larsson and Lubatkin, 2001). The sample is composed of an Italian company leader for the fashion-luxury underwear. A single case study has been selected because it provides an extensive level of comprehension of the phenomena in their natural setting (Bartlett et al., 2007) and a stronger penetration of the topic than using several cases; moreover, it assures a deep understanding of the complexity of the phenomena, thus being appropriate when a few previous studies have been conducted on information-based linkages (Benbasat et al., 1987). Besides, the adoption of single case study is consistent with Voss et al. (2002), which suggested that “the fewer the number of cases, the greater the opportunity for depth of observations”. Furthermore, the adoption of one case study has been considered consistent with previous studies in the area of innovation (e.g. Chen and Jaw, 2009; Lawson and Samson, 2001). The case selection strategy has been driven by the desire of analysing a representative case, for both company and industry peculiarities (Seuring, 2008; Yin, 2003), by using an information-oriented selection approach (Flyvbjerg, 2006). The company has been selected because is an exciting case from different viewpoints. First of all, it is an Italian company that suffered strong losses and so it has been acquired by a private equity fund specialized in Figure 1. Research process Fashion-luxury supply chain innovation 945

medium-consumer companies with high potential growth rate. So the company has been restructuring the whole organisation and SC to streamline the processes as well as revamp the business: this is an appealing case to understand which changes the company has been implementing at the SC level (Table I). 3.2.2 Data collection and data analysis. For pursuing an in depth analysis of the company and comparing different internal viewpoints, thirteen interviews with the major roles in the company have been conducted. The objective was to interview all the relevant people operating in the company, thus obtaining an overview of both internal, inbound and outbound SC, and collecting also the perspective of all of the roles involved in the significant change in progress. The Appendix resumes the list of interviews. Face-to-face interviews have been preferred when possible; otherwise phone interviews have been conducted. For gaining an in depth analysis of the case, from two to five researchers have been involved in each interview, to allow a comparison of the different perspectives. Beside semi-structured interviews, data gathering has been performed exploiting different sources (internal documents and official documents), to increase the reliability of data and to contrast information between official and non-official sources. Furthermore, an additional important source of information has been the direct observation in the company, obtained by investigating two subsidiaries of the company (Milan and Bologna) and visiting the production plant as well, to see the real way of working of the company. The researchers coded the information collected with a cross verification. First of all, the notes of the researchers have been collected in a single file, thus avoiding loss of information. The results of the different researchers have been collected and compared, in order to converge towards a common classification of the case study. The final goal of the coding phase was to get an objective view of the case, to reduce the number of data to compare and to arrive to a single and shared description of the single case among all the researchers. Systematic coding has used also to avoid bias and to validate interpretations. 4. Conceptual framework The literature review has been functional to the development of the conceptual framework. The conceptual framework includes three key elements, as shown in Figure 2. Parameter Value Turnover 113 million Euros (2011) Number of employees 320 (2011) Foundation year 1954 Country of origin Italy Distinctive competences High level of product quality; Strong focus on the style; Highly fashion approach Product positioning High and accessible luxury Type of product Lingerie (70 per cent fashion; 30 per cent carry over) Critical success factors Creativity and innovation of seasonal collection; brand awareness; product quality; time to market; retail distribution; country of origin Table I. Company’s characteristics IJRDM 41,11/12 946

4.1 The drivers The first element pertains to the drivers of the innovation (Bello et al., 2004; Lin et al., 2010): these are the factors that motivate the adoption of SCI. These drivers are generally described for innovation as well as specifically for SCI, and so they have been included in the conceptual framework. The identified drivers have been classified in three groups, according to the insights of Roy and Sivakumar (2010) and Bello et al. (2004): (1) Market domain. Given that competition is no longer limited to local or regional environments but instead takes place in global markets with global competitors (Roy and Sivakumar, 2010), market uncertainty increases, then SCI may be necessary for maintaining the competitive position (Bello et al., 2004). This includes also market uncertainty, by meaning the unpredictable changes in customer requirements, technological development, and behaviour of competitors (Li and Atuahene-Gima, 2002). (2) Business domain. It considers the product variety of the company. It serves as a proxy for the level of complexity that the company must be able to handle to be competitive in the marketplace (Hoole, 2006; Roy and Sivakumar, 2010). In order to compete, the company may need to redesign or revamp its SC processes. (3) External domain. This element entails the impact from external factors. This includes governmental support and stakeholder pressures. Innovation is achieved through financial incentives, financial resources, or training programs (Scupola, 2009; Tornatzky and Fleischer, 1990), and may require the SC to deliver specific capabilities. 4.2 The types of innovations The second element considers the types of the innovations. According to Ulusoy (2003), three types of innovations can be raised: Figure 2. The conceptual framework Fashion-luxury supply chain innovation 947

(1) Product innovation. The renewal and enlargement of the range of products or services and the related markets. (2) SCI. The establishment of new methods of production, sourcing and delivery. (3) Organizational innovation. The introduction of changes in work organization, managerial practices, employee competences, etc. For the sake of completeness, all of the three types of innovation have been maintained in the conceptual framework, being them strictly interrelated each other, and being potentially relevant for fashion-luxury industry (e.g. Aktuglu, 2001; Cappetta et al., 2006; Kincade et al., 2007; Schweizer, 2002; Tyler et al., 2006). The model entails that drivers of innovation directly influence the adoption of the three types of innovation, mentioned above. 4.3 The dynamic capabilities The third element considers the relevance of dynamic capabilities, which are presented by some authors (e.g. Ulusoy, 2003; Teece, 2007) as an enabling factor for innovation. By being enabling factors, dynamic capabilities are presented as moderator factor on the relationship between the drivers to innovation and the implementation of different forms of innovation inside the company. Dynamic capabilities were selected according to the classification proposed by Lawson and Samson (2001) (i.e. vision and strategy; harnessing the competence base; organisational intelligence; creativity and idea management; structure and systems; culture and climate; management of technology). An explanation in details of each dynamic capability is provided in Table II. 5. Empirical analysis: the case study The objective of this section is to present the main features of the innovation implemented by the company as well as to apply the conceptual framework in a fashion-luxury company, thus exploring its applicability in practical contexts. 5.1 The drivers The company has introduced innovation inside the company (i.e. the reduction of the number of brands, the re-design of the SC, and the organisational innovation) for three main reasons. First of all the company was in a strong economic crisis (business domain, according to the insights of Hoole (2006) and Roy and Sivakumar (2010)), due to an incoherent and unsuccessful management of the company in the previous years. The economic problems have been accentuated by the market domain (as suggested by Roy and Sivakumar, 2010), in terms of strong globalisation of the markets, since operating in global markets has dramatically accentuated the company inefficiencies, and by the world economic crisis of 2008, since the reduction of sales volume has further accentuated the company losses. 5.2 The innovations After having suffered strong losses, the company decided to implement a strong innovation project with the aim of reducing the internal inefficiencies and to better leverage on its core competences and assets. In order to return competitive, the company is mainly implementing three main innovations, consistently with the insights of Ulusoy (2003): IJRDM 41,11/12 948