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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