Abstract
Though EBOs’ (Exclusive Brand Outlet) risk-mitigation is a collective responsibility of lifestyle brand and the expansion partner (franchisee), a majority of lifestyle brands in India believe that the risk of capital investment/recurring expenses of EBOs and profit generated by EBOs has to be owned by the expansion partner. This belief and unbalanced business strategy of lifestyle brands though attract franchisees in the early stages of EBO expansion due to the brand’s reputation in the market or initial lucrative contract terms, it seriously fails to bring any long-term strategic and competitive advantages to the lifestyle brand as the drop-out rate of expansion partners increase significantly after one year of operation. This belief is also distracting lifestyle brands from understanding the long-term positive impact of EBO expansion frameworks that could balance the risk-mitigation and profits between the brand and the expansion partner. A single theory, model and framework of ‘Firm-Contracts’ and ‘Distribution Systems’ from the existing literature available across perspectives, paradigms, and areas of study (Economics, Business Law, Market Penetration, Business Strategy, Marketing and so on) is not entirely applicable that could be adopted to suit lifestyle brand’s EBO expansion plan in India and designing a framework without empirical pieces of evidence is also not appropriate. In this study, (i) we have studied existing theories, models and frameworks relevant to market penetration and expansion; (ii) analyzed 24 months’ of actual EBO data of a few select organized lifestyle brands in India across their existing expansion models; (iii) borrowed experimental findings and insights from previous studies relevant in this context, to identify key decision and investment-making areas that could result in a balanced business contract between a lifestyle brand and the expansion partner thereby designing an economical/effective framework that would be useful in deployment of appropriate tactics of deciding a right EBO type for every City Type and the Store Location by a lifestyle brand in India. The framework is named as EBOE-LS.
Highlights
Lifestyle Brand: Each individual wants to have a unique identity that could be based on his/her, a) background such as nationality, ethnicity, culture, subculture, social class, affiliation, environment, etc; b) experiences and c) choices
It is observed that lifestyle brands of national image determine the city chosen for the retail expansion based on market reports available on the general population of consumer and due to this what is happening is that most of the price/product assortment of lifestyle brands are differentiated in Tier-2 and Tier-3 cities compared to Tier-1 cities which potentially creates negative perceptions about a brand in consumers’ minds [10]
Empirical: Interestingly, when we evaluated actual data related to contracts, product assortment, sales, consumers, inventory level, inventory turns, product sell-through and velocity, rate of sales, revenue generation, profitability, unit economics, and ROI across COCO and FOFO stores we have found many insights which are contrary to what was believed by the lifestyle brands
Summary
SFT: Square Foot; SPF: Sales per Square Foot per Day; MPF: Earning Value per Square Foot pe Day; CAM: Common Area. Maintenance; EBITDA: Earnings Before Interest, Tax, and Depreciation; Na: Not Applicable. Trading Area (SFT) Common Area Loading (%) Carpet Area (SFT) First Time Investment on Inventory (INR Lacs) One-Time Interiors and Store Set Up Cost per SFT One-Time Interiors and Store Set Up Cost (INR Lacs) One-Time Franchising Fee (INR Lacs) Realty Partner's Refundable Security Deposit (INR Lacs) Total Capital Requirement per Store (INR Lacs) Total Operating Expenses per Anum (INR Lacs) Total EBITDA Earning per Anum (INR Lacs) Returns on Investment at Store Level (%) Number of Years Required to Recover Capital Invested
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