[Fashion Tips] Luxury Brands Declare 'Direct Entry' Amid Korea's Growth Momentum

Luxury Brands Choosing Direct Entry into Korea
High Potential Seen in Domestic Market Growth
Following Thom Browne, Many More Direct Entries Expected

Cases of global luxury brands directly entering the domestic market are increasing. This is interpreted as an effort to strengthen profitability as the Korean luxury market rapidly grows and emerges as a major market.

There have been cases in the past where luxury companies that operated their brands through domestic fashion companies established Korean subsidiaries and entered the market directly after contract periods ended. Typically, global fashion brands enter Korea by acquiring distribution rights through domestic fashion companies to conduct business locally. During the contract period, the domestic fashion company manages the local business, and after the contract ends, the company may extend it or find another partner, but it is also common for the headquarters to pursue direct entry into Korea. This serves as a way to reduce risks during the initial entry phase. After operating the brand through a domestic fashion company and increasing brand awareness, they seek directions that appear more advantageous in terms of profitability. A representative example is Polo Ralph Lauren, which was operated by Doosan until 2011 and then switched to direct entry. Famous luxury brands such as Yves Saint Laurent, Gucci, and Burberry also went through similar processes in the past. However, the sales of global fashion brands that chose direct entry have not always increased consistently.

The biggest reason global fashion brands declare direct entry is the recent growth trend of the luxury market in Korea. Compared to the past, the number of brands launching domestically has surged, and the speed of switching to direct entry is also rapidly accelerating. Recently, the U.S. economic media CNBC reported, based on an analysis by investment bank Morgan Stanley, that the per capita luxury consumption expenditure of Koreans is $325 (about 400,000 KRW), ranking among the highest in the world. This figure is derived by converting last year's Korean luxury consumption expenditure of approximately $16.8 billion (20.9 trillion KRW) into an average per capita amount. Market research firm Euromonitor also analyzed that the size of the domestic luxury market last year was 19.4488 trillion KRW, growing 8.1% compared to the previous year.

This trend is expected to continue in the future. Recently, global fashion brand Thom Browne announced plans to establish Thom Browne Korea and directly enter the domestic market. Thom Browne originally operated the brand through an exclusive sales contract with Samsung C&T Fashion Group since 2011. The entry date is set for July 1. However, Samsung C&T Fashion Group plans to manage overall business operations of Thom Browne through a retail management contract. Thom Browne Korea will be responsible for investment and cost expenditures in Korea, while Samsung C&T Fashion Group will handle product ordering, merchandising, distribution strategy, store and personnel operations, and overall business management. Although the contract form is changing, there is a significant difference in profitability compared to holding distribution rights and selling directly.

French luxury brand Celine also directly entered the domestic market this year, and global fashion group OTB has announced plans for direct entry based on its Korean subsidiary established in 2021. Since brands such as Maison Margiela, Marni, Jil Sander, and Diesel belong to OTB and have distribution rights held by Shinsegae International, a large-scale departure of these brands is expected once their contract periods end. Brands that have invested effort to settle in Korea declare independence after expanding their presence, which can be a bitter point for domestic fashion companies. This is especially true as the proportion of overseas fashion in total sales has generally increased.

An industry insider said, "It is common in the fashion industry for brands that have settled in the domestic fashion market to leave," adding, "Because of this, the importance of nurturing in-house brands or discovering new brands has grown even more."