The Brand Positioning Divide. Store Counts vs Revenues.

In the fashion and luxury industry, two critical metrics are often analyzed: the revenue a brand generates and the number of stores it operates. These elements are considered key indicators of a brand's market success and presence. This post will explore these trends and dive into the dynamics that shape them, while also examining how brand positioning influences the number of stores a brand operates, based on an analysis of nearly hundreds of fashion and luxury brands across all price segments.

Importantly, this analysis does not consider point-of-sale locations that are not directly owned by the brand (e.g., stores within department stores or third-party retailers), but focuses solely on owned retail locations. Revenue figures are based on total sales, including sales through both owned and partner stores, where applicable.

1. Introduction: Understanding the Relationship Between Stores and Revenue

The fashion and luxury industry is home to both ultra-exclusive brands and those with more accessible price points. On one end, you have high-luxury brands such as Dior, Chanel, Hermès, Cartier, Gucci, and the other brands within the LVMH group. These brands cater to a wealthy clientele and focus on exclusivity, quality craftsmanship, and status.

On the other hand, there are more accessible brands like Uniqlo, Tommy Hilfiger, Lacoste, Calvin Klein, Coach, and Michael Kors, which target middle-class consumers and strive to offer high-quality fashion at more affordable price points.

The key difference between these two types of brands becomes evident when we examine their revenues versus the number of stores. By plotting these data points, we see two distinct patterns. High-luxury brands show an exponential growth in revenue with each new store, while accessible brands follow a linear growth pattern. This reveals much about the business models, strategies, and market segments that these brands target.

2. High-Luxury Brands: Exponential Revenue Growth

High-luxury brands operate on a fundamentally different model from more accessible brands. Brands like Chanel, Hermès, Cartier, and Dior are examples of companies that combine exclusivity with exceptional craftsmanship. The relationship between their number of stores and revenue follows an exponential curve, meaning that as they increase the number of stores, revenue rises sharply.

Key Reasons Behind Exponential Growth:

• Exclusivity and Brand Value: High-luxury brands typically rely on their prestigious reputation and scarcity to fuel demand. They don't need to open hundreds or thousands of stores to generate substantial revenue. Even with a small number of strategically placed stores, these brands can achieve impressive sales figures. For example, Hermès with approximately 297 stores generates a staggering $13.4 billion in revenue.

• Premium Pricing: Luxury brands set higher price points for their products. A Chanel handbag or Dior jacket can cost thousands of dollars, meaning each store has the potential to generate far higher revenues compared to more affordable brands.

• Selective Store Placement: High-luxury brands focus on flagship stores in prestigious global cities such as Paris, London, New York, and Tokyo. Their stores are not just retail spaces but exclusive experiences that contribute to brand allure and high revenue.

• Brand Loyalty and Affluent Clientele: These brands target a wealthy consumer base that is less price-sensitive. Even with fewer stores, their loyal customer base ensures high revenues. Gucci and Louis Vuitton provide perfect examples of how exclusivity and strong brand power allow for rapid revenue generation with relatively fewer stores.

3. Accessible Luxury and Mass-Market Brands: Linear Revenue Growth

Brands such as Uniqlo, Tommy Hilfiger, Lacoste, Calvin Klein, Michael Kors, and Coach follow a more linear growth pattern. In these cases, the number of stores correlates more directly with revenue, but the growth rate is much slower compared to high-luxury brands. These brands tend to rely on volume rather than exclusivity.

Key Reasons Behind Linear Growth:

• Affordable Price Points: Unlike luxury brands, these companies focus on mass appeal and affordable luxury. The products are generally priced at a lower range, which means the revenue per store is lower, and more stores are needed to drive sales.

• Wider Accessibility: These brands aim to be present in multiple markets and open a larger number of stores worldwide. For instance, Tommy Hilfiger operates over 1,600 stores, a number far greater than luxury brands. But due to their more affordable price range, their revenues grow in a more linear fashion.

• Global Reach: Accessible brands tend to have a broader consumer base, appealing to middle-class consumers across different geographies. Uniqlo, for example, has more than 2,300 stores worldwide and generates impressive revenues, but its revenue growth is more proportional to the number of stores.

• High Volume of Sales: Brands like Michael Kors or Coach depend on reaching a larger number of customers to generate their revenue. Despite having many more stores than high-end luxury brands, the average revenue per store is lower, leading to a linear growth in revenues.

4. Does Brand Positioning Influence the Number of Stores?

An interesting question arises when considering the relationship between brand positioning and the number of stores: Does a brand's position in the market correlate with how many stores it operates? Based on our analysis, we can hypothesize that lower-positioned brands (more accessible brands) tend to have a higher number of stores compared to high-luxury brands.

Why Lower Positioning Equals More Stores:

• Target Market Size: Brands with more accessible positioning target a broader consumer base, meaning they need more stores to capture a larger share of the market. Uniqlo, Tommy Hilfiger, and Lacoste all operate in mass-market segments, which require widespread presence to ensure customer accessibility.

• Volume Strategy: These brands rely on high sales volumes to generate significant revenue. More stores in more locations allow them to cater to larger, more diverse markets, from urban centers to suburban malls.

Why High-Luxury Brands Have Fewer Stores:

• Scarcity and Exclusivity: High-luxury brands aim for scarcity, which enhances demand. More stores would dilute the exclusivity and affect their brand’s cachet. This is why brands like Chanel or Hermès are less likely to open numerous stores, preferring instead to focus on high-end retail locations in key cities around the world.

• Affluent Clientele: The target market for high-luxury brands is much smaller, as it caters to a wealthier demographic that doesn’t require mass-market availability.

5. Conclusion: A Study in Contrasting Growth Models

In conclusion, the data shows a clear divergence between high-luxury and accessible brands when it comes to the relationship between revenue and the number of stores. High-luxury brands experience exponential revenue growth with fewer stores, thanks to their exclusivity, premium pricing, and brand power. In contrast, more accessible brands follow a linear trend, with the revenue gradually increasing as the number of stores grows, driven by mass-market appeal, higher volumes, and more affordable price points.

Moreover, our analysis suggests that lower-positioned brands do indeed require a higher number of stores to generate significant revenue, as they rely on volume and global reach. Meanwhile, high-luxury brands focus on creating a sense of scarcity and exclusivity, which is reflected in their smaller number of stores.

This examination of revenue growth, store numbers, and brand positioning offers valuable insights for anyone looking to understand the different strategies at play within the fashion and luxury industry.

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