Financial management

Licensing, Duty-Free Shops, and Directly-Operated Stores

Done by: Sarah, Anastasia, MariaIsabel

IntroductionLicensors (Gucci) grant licensees (external businesses) permission to use, create or sell its products under its brand name. In return, they receive royalties.

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IntroductionDuty-free shops are exempt from the payment of taxes and duties, on the requirement that the goods sold will be sold to travelers.

IntroductionDirectly-operated stores (DOS) are owned and run by the company and allow luxury houses to maintain complete control over presentation, service, pricing, and the range of products that were sold.

Risk VS reward

Investment needed● Licensing: Low● Duty-free shops: Moderate● Directly-operated stores: High

Revenue Cost of goods soldGross profitExpensesOperating profit

Effects on financial statements

Increase in sales volume + royalties

Decrease in marginal cost

Decrease in rent and fixed expenses

Licensing: income statement

Effects on financial statementsLicensing: balance sheet

Assets

Liability

Shareholder’s equity

Decrease in fixed asset investment

Increase in return on capital invested

Effects on financial statementsDuty-free shops: income statement

Revenue Cost of goods soldGross profitExpensesOperating profit

Decrease in taxes

Effects on financial statementsDirectly-operated stores: income statement

Revenue Cost of goods soldGross profitExpensesOperating profit

Increase in sales volume

Increase in expenses

Overall increase in operating profit

Effect on profit margins

Licensing: ● Brands acquire rights to design and distribute products

● The easiest way to expand a brand○ Handbag collection

Effect on profit margins

Duty Free Shops: Duty Free Sales before 2000

1990 1992 1994 1996 1998 2000P

RO

FIT

YEAR

● In the early 90s big companies relied on sales by tourists

now their goal is to establish local relationships

Effect on profit marginsDirectly Operated Stores:

● A risky investment● Cutting cost● Allows for complete control

○ pricing○ service○ creative○ profit!$$$

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