Appunti di Management of Fashion Companies

Appunti di Management of Fashion Companies

Definition and introduction

Fashion is an ever-changing way of expressing someone’s personality and style. Fashion is

related to trends, and trends are related with seasonality, to create planned obsolescence.

Fashion was born as dressing but right now it consists of many different businesses (jewellery,

bags, etc.). In a wide way, fashion industry is leaded by accessories.

Fashion and luxury are not the same: luxury never changes, fashion is a trend that changes

constantly. In any case Luxury Industries try to be fashionable. Fashion is cultural-related.

Muccia Prada said: “Fashion is an instant language”, a form of non-verbal communication to

say something about who we are (even wearing no-logo clothes is a form of communication).

Fashion is a continuous succession of stylistic changes, that grows and declines.

But where do trends come from? Mainly from socio-cultural trends, designer creativity, media

and arts and technological and textile innovation.

Fashion is not radically changing (ex. trousers are always trousers): what changes is the mix

and match (ex. one dress becomes more sporty or more elegant) and the technical features

(ex. the texture and the fabric).

Fashion is also about to create a dream factor to justify the premium price: the role of

designers is really important, and fashion is the only business in which designers are stars. In

fashion, designers often think not only the product itself, but also the marketing or sponsor

campaign. Fashion is about business, and there are many different business models. Luxury is

timeless, fashion is about being contemporary.

Theories

Trickle Down: fashion trends start among upper class or fashion leaders and move

 down to the masses

Trickle Up: fashion goes from the people at the bottom of the society (younger or

 lower income groups).

Trickle Across (Robinson-1958, King-1963, Blumer-1969): fashion moves

 horizontally between groups on similar social levels. The spread of information is

accelerated by mass and social media.

Luxury

Luxury was born in France, that’s why it uses a lot of French expressions. Fashion is about

many different businesses, from cheap ones to expensive ones, and always changes, while

luxury is timeless, and does not cover the mass market.

Luxury stuff value does not decrease on the contrary it often goes up (ex. Rolex watches).

Luxury is generally speaking connected with craftsmanship because it relates to quality (in

materials and the craft of them).

Product is king, but we also need exclusivity, in terms of product, but also in terms of

distribution and in terms of buying experience.

A very important marketing tool in Luxury is Heritage: the emotional storytelling about a

brand. It is about creating a bondage with the past of a brand. But why the past? Because it is

the best prove that a product will last longer.

Anyway, a luxury brand has to remain contemporary, or it will become old-like and dusty.

Luxury industry, overall, is a very healthy one (it’s not really influenced by crises, and it

recovers faster), and it is hardly influenced by traveling (e-commerce can’t really substitute

stores); we forecast a contraction in sells of luxury goods between 20 and 35% due to Covid-

19 Pandemic crisis. Post-Covid scenarios: general strengthen of digitalization in companies,

and realization that the usage of digital tools is fundamental in this period: digital showrooms

and influencers market are a reality at the very moment and can’t be ignored. At the same

time it is important for customers to touch and try clothes they are buying, so a good fashion

business should act in a blended way (both physical and digital stores and events, and not

just digital ones).

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Business Models

There is no single definition of business model available that is applicable in all facets to any

single company, especially considering that a unique business model - and thereby value

proposition - is the lever on which every company competes in the market.

Rappa (2003): “The method of doing business by which a company can sustain itself where it

is clear how it will generate revenues and where it is positioned in the value chain”

The business model in fashion and luxury consists of four building blocks:

The WHAT, i.e. the Value Proposition – The offer to the market (products, services,

 experiences)

The WHOM, i.e. the Client Segment – Targeted by the value proposition

 The HOW, i.e. the Value Chain and his organization, and the degree of vertical

 integration

The WHO, i.e. the Revenue and Governance Model – The system by which companies

 are directed (Margins vs. Volumes; % of international sales; % retail sales; % online

sales; % by category / Family Businesses vs. Listed Public Companies; Monobrand vs.

Multibrands vs. Multisector; Independent vs. Conglomerates)

R&D Design Prototyping

Industrializa Distribution Retail

tion

There are four main business models in F&L:

Luxury Brands: the product is king and has to be iconic. The value propositions are

 timelessness, heritage, and exclusivity. The competition is mainly focused on product

categories other than clothing. There are different luxury businesses, but we will focus

on soft luxury: apparel and accessories. The structure is vertically integrated both in

retail and manufacturing. Often luxury companies belong to big groups (es. LVMH).

Fashion Designers: the creative vision and brand’s world come first. There’s a high

 importance given to clothing and fashion shows for brand building. Fashion Designers

cover different segments: RTW, diffusion, upper bridge, recently also HC. They usually

create different brands (es. Diesel, Diesel Black Gold, 55DSL). Apparel is important (25-

30% of total revenues, while in luxury it is 5%). This companies born in a more

industrial way than the luxury ones (ex. Diesel founder is an entrepreneur, not a

stylist).

Premium Brands: for these brands it’s all about marketing and the value for money.

 There’s a high know-how both industrial and commercial. Marketing is the main value

driver. Premium brands are widely diffused (corner, duty free store, amazon). Most of

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these products are made in China or in other countries but often not in Italy or France

as the Luxury ones.

Retailers: Availability of wide assortment in large and welcoming stores at very

 convenient price. Stores are very important: you can’t buy H&M outside H&M stores, or

Uniqlo outside its own store. All others business models start from the top (design,

production, etc, and lastly the stores), retailers start from the stores. There are basic

retailers (as Gap, Benetton, Uniqlo) that make basic products every season, and fast

fashion ones (ex. Zara, H&M), that, on the other hand, very frequently change what’s in

the store copying more premium and successful brands. If fast fashion, weekly

deliveries (drops) of fashionable collections.

Retailers vs Fast Fashion

Retailers engage in commercializing good directly from manufacturers or from wholesalers,

selling

products directly to consumers (e.g. Louis Vuitton, Macy’s, H&M). Most of brands are not pure

retailers as they also sell through wholesale

Fast Fashion is a business logic applied by those retailers able to make a garment with high

fashion

content very fast. Fast fashion retailers, such as H&M and Zara, are updating collections

throughout

the year (new products being brought on the racks weekly rather than by season), and can

react to new trends in fashion through complete control of their supply chain. For example,

Gap and

Benetton are retailers but they are not fast fashion retailers.

Main stages for Industry Analysis

1. Define the business (based on customer needs satisfied by the product): facts &

figures, trends, customer profile

2. Determine industry segments (select key variables for identifying clusters of

companies/brands to whom the same KSFs apply) and build a competitive map

3. Identify strategic groups, KSFs, growth outlooks and empty spots

4. Drive conclusions on the industry attractiveness:

Is this an attractive industry? (can companies achieve sustainable above average

 profits in the industry)

Which segment is better performing? Why?

 Where is there more potential for growth? Why?

 What are the most relevant future trends?



Strategic Groups

To identify Strategic Groups:

1. Identify the key drivers for competition in that particular business (price, range, style,

geographic scope…)

2. Position all competitors according to these drivers (by product category and item and

by geographic market). Price: identify the entry, top, core and position based on the

core (most frequent)

3. Identify clusters of firms with similar positioning giving to each cluster a name related

to the way they compete. No less than 3 no more than 8-10 competitors by cluster

4. Identify the KSF (product, channel, media) for each cluster

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Trends shaping the actual business

Circular economy

 Channel less experience

 Influencers marketing

 Transmedia storytelling

 Collaboration

 Customization

 Gender neutral

 Inclusivity



 End of ownership

Fashion Pyramid

This paragraph about the fashion pyramid and so about the main criteria that can be used to

position fashion brands. Usually the two most important variables that are used are price

and style. Price can be top and mass market. Style goes from classic to trendy/updated, to

vanguard.

Classic brands are mainly sartorial, based on basics, so product that stay the same for a long

time; also, they are focused on the raw material. A classic brand example is Loro Piana.

Trendy/updated brands are following the trends, but they are not anticipating them, an

example could be Michael Kors.

Vanguard brands, that are also called radical, are fashion forward, which means they are the

brands that are setting the trends.

Anyway, this is kind of subjective because for example no brand defines itself as classic.

Classic brands usually would rather define themselves like contemporary.

What’s important to understand is that there are some brands that are more radical in their

fashion choices and that would suggest dresses more difficult to wear and more innovative in

terms of material, and other brands that stay more on iconic products.

Together with the price this combination defines different market segments.

Haute Couture

On the top of the pyramid we have the haute couture (French word, in fact it was born in

France). It may be translated as high fashion. Here we find the most expensive dresses,

unique pieces, totally made by hand with the most precious materials. They are mainly

suitable for special occasion (weddings, red carpet for celebrities).

The price of a dress is usually 20000 euros up, it can reach 50000 euros; they are so

expensive because there is the highest level of creativity, where the designer is strongly

involved in the creation of them, also because of the material, of the many hours of

craftmanship required to make the pieces and because of the many years of training that are

required to become a person able to make an haute couture dress.

Most of the haute couture is not profitable. That’s because (1) all over the world there

are fewer and fewer customers of haute couture. This means that there are less customers

than in the past, not because there are fewer rich people but because even rich people today

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prefer to wear in a more casual way. Even actresses are singers are wearing “ready to wear”

(which is another market segment) in the red carpet.

Also (2) half of the business is not really business because it goes to celebrities: celebrities do

not pay for the haute couture fabulous dresses, they borrow them.

Why do company like Chanel, Dior, Valentino keep the haute couture? And why Armani, Dolce

e Gabbana, which in the past did not have an haute couture line, have decided to introduce it

if it’s not profitable? Because the haute couture is an image builder, it’s a marketing and

communication investment. When we see the dreamy dresses on the red carpet, the next day

recreate the dream

we buy a Chanel lipstick just to .

Generally speaking, the haute segment is occupied by French brands or brands that just

started their business from the very top.

Ready to wear pret-a-porter

Then we have a much bigger segment which is the ready to wear or in France.

This market segment was mainly developed by the Italian designers.

The idea of ready to wear is that you take from high fashion the idea of seasonal renewal of

the collection but then you make it to become industrial. So, each piece will be produced in a

series.

In a ready to wear fashion show usually there is a climax: it starts with the daily wear (suitable

for pleasure time or work) and then there are the beautiful evening dresses that are not

entirely made by hand (just a little touch) and they are not unique.

Comparing the prices: if the haute couture price is 20000 euros up, a ready to wear dress is

2000 up. You pay less but it’s still expensive.

While high fashion is exclusive, ready to wear is selective: it is in fact still only sold in the

flagship store placed the luxury street, but it is relatively more affordable and that’s the

Made in Italy

reason why the market is bigger. Ready to wear is where was born: Italian

designers started with ready to wear. Italian designers made an alliance with factories for the

manufacture that characterizes so much Italy.

Diffusion

A step below ready to wear we have the diffusion segment. It is the segment of the so called

“second or young lines” (for example Emporio Armani for Armani).

Especially Italian and American designers in the past used to have many second lines.

Why they are called young? Because they were supposed to appeal younger audience

because the price was cheaper.

So the key success factors change: while most of the time ready to wear will be made in Italy,

for the same company the diffusion line can be made everywhere in the world; also the

diffusion lines are cheaper not only for the price but also for the collection product categories

that were mainly casual, in fact today even ready to wear is moving into leisure but still is

more formal (jackets, suits), while in the diffusion line you are likely to have more sneakers,

more denim, more t-shirts.

Also the diffusion line are more diffused (and this explains the name) in terms of distribution:

while ready to wear is mainly sold to retail, so to stores that belong to the brand, the diffusion

line can be sold to wholesale, to multibrand stores, to independent boutiques that together

with the diffusion line will be selling other product categories.

For most of the brands, diffusion is the biggest source of revenues. However, many

companies in recent years have decided to shut down their diffusion lines: this was done by

Dolce e Gabbana with D&G that does not exist anymore, also by Burberry and Michael Kors.

Why were the diffusion lines shut down? Because the brands understood that this may dilute

the brand value: you can see a brand that’s made in Italy (haute couture), a brand that isn’t

(diffusion line); a brand that’s sold in a specific store environment (haute couture), and a

brand that is mixed up with other product categories (diffusion line).

It makes more sense to expand the ready to wear, which today has to have more young,

casual products, rather than having several brands that are a little bit jeopardizing each other.

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For example for the digital communication you would have to have two different Instagram

pages, so somehow you divert the attention; also you would have to organize two different

fashion shows, while today the more you focus, the better.

The tendency of the market is to consolidate one of few brands, not as many as in

the past.

Bridge

A step below the diffusion is the bridge segment.

As the name suggest, this segment is a link between the mass market and the high end of the

market. This market segment was born in the reality of the American department stores

where the value for money is the key value proposition. When you buy in a department store

you have a lot of variety, so you can compare the prices, you can compare everything. So,

you are probably not that much into specific brands, otherwise you would go into the flagship

store. mid-

You just want to find something that is updated, trendy and stylish and usually with a

segment price.

Here we can find Max and Co, Zadig and Voltaire and more affordable designers.

Many companies are in between the diffusion and the bridge segment.

mid segment

What is important to remember is that the bridge segment is the of the market.

Given the fact that today there is a tough competition from the fast fashion retailers, many

brands that were born and positioned as premium brands, so in the bridge segment,

nowadays are trying to position themselves higher: they start doing fashion shows, they try to

sell more in their own direct store in order to justify the price.

This is also the reason why of the crisis of the diffusion segment: why should I buy a product

of Versus (Versace’s diffusion line) that in any case is expensive but not t