Bang & Olufsen Gets Branded

Branding was once reserved for cowhide and breakfast cereals, but changes in the retailing landscape have fostered new approaches for everything from running shoes (Niketown) to cartoon-character merchandise (Disney and Warner Bros. stores) to clothes (Gap, etc.). In the audio market, Bose stores are now common sites in shopping malls, but few higher-ticket companies have taken the brand-store plunge.

Recently, Bang & Olufsen announced that it will now focus on developing B&O-licensed "branded stores" throughout the world; there are currently more than 250 stores worldwide. B&O's growth strategy is to double this number in the next three years, including opening more than 160 stores in the US. B&O has accordingly canceled its dealer agreements with retailers effective May 31, 1999---after this date, B&O products will be available only in B&O branded stores.

While this new policy has created a rift with some dealers, others are adapting by investing in the new stores themselves. For example, B&O products have been sold by Harvey Electronics since 1980, and the line represented approximately $1,176,000, or 6.8% of Harvey's net sales for the 12-month period ended October 31, 1998. In light of the new B&O mandate, however, Harvey has announced that it has teamed with B&O to open branded stores in Manhattan, Long Island, and Connecticut. Pursuant to this commitment, the Company must complete construction of these locations at various dates through November 1999. B&O has also authorized Harvey to open as many as five more branded stores should the arrangement prove fruitful.

According to Harvey, the B&O mandate has caused the company to revise its corporate strategy. In addition to its plan to open an additional Harvey Electronics store in New Jersey within the next 18 months, the company will also focus its efforts on opening the additional B&O stores in Manhattan. To date, Harvey has not secured leases for any new Harvey Electronics or B&O stores.

Franklin Karp, president of Harvey, stated, "The revised strategy occasioned by Bang & Olufsen, while unplanned, was not unanticipated. The ability to open additional branded store locations so close to existing Harvey stores, together with the elimination of competition on Bang & Olufsen products from other retailers, is a positive development for the company."