Lifestyle brands can grow significantly in next five years if they address international expansion challenges, says report

Out-Law News | 06 Jun 2014 | 2:15 pm | 4 min. read

The lifestyle brands market is set to enjoy 81% growth in the next five years compared with "fairly modest" growth for other most mass-market retailers, according to a new report.

A study conducted by Conlumino on behalf of Pinsent Masons, the law firm behind Out-Law.com, found that the retail sector is likely to experience "fairly modest" growth in general over the next five years, but that lifestyle brands are set to grow in size at a much faster rate. However, it warned that brands must address a number of issues and challenges to make the most of the growth opportunities in the lifestyle segment of the global retail market.

"At the commodity end of the spectrum everyday products which form the mass and value ends of the market are seeing relatively anaemic growth overall and a slight shrink in real terms," the 'Lifestyle Brands: Revealing The Secrets Of Global Success' report said. "In direct contrast, the luxury end of the market continues to grow strongly, even after a long run period of sustained growth."

"Perhaps the most interesting segment, however, is that of lifestyle brands. This part of the market comprises products which sit just below higher end luxury but which are more premium than everyday items. In essence they are accessible products with price points that, while high, are still accessible to most middle market consumers. Over the next five years we forecast that this part of the retail market will see the fastest growth of all, increasing by some 81%," it said.

The report identifies 'lifestyle brands' as brands that "create appeal by suggesting a certain lifestyle" and "confer a sense of identity on the person who buys them". It said that lifestyle brands now account for a bigger share of the entire retail market than is claimed by luxury brands and will claim almost double the market share than that of the luxury segment of the market by 2018.

The report highlighted opportunities for growth, in particular for lifestyle clothing and food brands, spurred by the fact many consumers "have started to look for more inspirational products which provide them with a sense of identify". However, it also cited a number of challenges that lifestyle brands must overcome to realise the growth opportunities.

The report highlighted the need for lifestyle brands to respond to consumer demands and develop business models that are "much more customer centric and much more consumer sensitive". "Brands must consider a much wider range of matters including range, price, service, packaging, quality and image when developing consumer satisfaction strategies," it said.

It said UK brands should also look to "exploit their British heritage" so as to "create lifestyle propositions around a sense of place" when expanding into other markets, but be prepared to tailor their brand offering to suit local markets where necessary.

The report also identified the different corporate mechanisms through which lifestyle brands can move into international markets, from franchising or joint venture arrangements to conducting takeovers of local businesses, among other options. The "internal capabilities" of businesses and "the level of traction that their brands are likely to garner among consumers in new overseas markets" will be factors that help businesses determine which route to market is best for them, it said.

"Each route to market boasts its own advantages and disadvantages with varying levels of cost, risk, and ensuing potential return associated with each," the report said.

It also highlighted the need for lifestyle brands to undertake research into the cultural and legal landscapes in the markets they seek to expand into. The Asia Pacific and Latin American markets are where the potential growth for lifestyle brands is greatest in the next five years, it said.

"Emerging countries can have laws relating to property and business ownership which are radically contrasting to legislation in the UK," the report said. "Elsewhere, employment legislation can differ greatly, even among countries in Western Europe; France boasts laws which reduce flexibility in the workforce."

The most important characteristics of lifestyle brands as ranked by consumers are their design, their quality and the fact they are different and innovative, according to the report. However, it also identified the increasing demand of consumers for lifestyle brands to operate ethically, including within their supply chain.

"Although ethical issues are important to consumers in general, expectations that lifestyle brands will be ethical are particularly high," the report said. "Within the everyday product segment consumers are willing to deprioritise some ethical credentials in exchange for cheaper prices. In luxury ethical considerations are more important but tend to play second fiddle to concerns about design and quality. For lifestyle brands, however, being ethical is a core part of the DNA."

"Arguably, this means that lifestyle brands may need to work harder, and possibly spend more, than their counterparts in other segments to ensure that products are produced in a way that does not harm people or the environment," it said.

Conlumino's survey, of 2,078 UK consumers in January this year, found that Apple, Nike and Dyson are the three strongest lifestyle brands at the moment.

Retail sector and corporate law expert Tom Leman of Pinsent Masons said: "You've got to do your homework if you want to be the new Apple. Only a handful of brands will be able to expand without any adaptation to their proposition. The brands themselves will need to think hard about access to finance and potential equity investment to tap into international opportunities."

"There are plenty of minefields to be avoided. Getting a franchising arrangement or JV wrong, for instance, can cripple a young business – but the real killer is loss of control of the brand. There is plenty to worry about but with risk comes great reward for those who get it right," he said.

Retail specialist and property law expert Andrea McIlroy Rose of Pinsent Masons said: "UK brands, particularly clothing, typically travel well because they boast strong heritage and lifestyle credentials. This means that brand owners in the low to mid-market in the UK can sit comfortably in the premium, high end sector of the retail market in international jurisdictions."

"What is more challenging is getting the entry strategy right. In Asia Pacific, for instance, luxury brands have established relationships with many of the biggest local players who can open doors and, for instance, plug you into the right shopping outlets in the best locations. This means that lifestyle brands are likely to have to partner with lesser-known entities which means getting the contractual arrangements absolutely right. Losing control of your brand, whether it be through counterfeiting, unethical production or simply moving into the wrong locations can be fatal," she said.