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Getting The Luxury Fashion Business Model Right

July 24th, 2014 modelrecruituk No comments

Getting The Luxury Fashion Business Model Right

Today, BoF exclusively brings you Savigny Partners’ blow-by-blow analysis of the rapidly shifting luxury fashion business model which is undergoing transformation due to underlying shifts in consumer values, technology and globalisation.

LONDON, United Kingdom — Luxury fashion is a very exciting business which can generate substantial returns if you get the formula right. Not only is there the ability to charge up to ten times the cost of manufacturing a garment and the potential to build a global business; apparel can be the beginning of a page-turning blockbuster, accessories and leather goods are the next chapter, fragrances and eyewear licenses the well-oiled plot. The story can have a happy ending with the promise of many sequels to come.

Success stories in this field are mouth-watering: Burberry’s share price climbed from 175p in November 2008 to 1,116p at the beginning of this year as the brand went from strength to strength and reportedly attracted the attention of a number of acquirers. Lanvin has embarked on a stellar growth trajectory with plenty of potential yet to come. However, not all blockbusters have a happy ending. The latest crisis has claimed a number of victims: Christian Lacroix, Gianfranco Ferré, Yohji Yamamoto, Luella Bartley to name a few.

In this article we will examine how the traditional designer business model has come under threat and what key factors we believe are necessary to ensure the success of a luxury fashion label today. Finally we will take a look at what lies ahead for the luxury fashion sector.

Is the designer brand becoming redundant?

The traditional designer brand business model is not for the faint-hearted. Typically, a design-rich but loss-making main line is invested in with the aim of capitalising on its cachet through a cash-generative diffusion line and, eventually through lucrative licensing deals. This model not only takes years to generate returns, but the ride is also a bumpy one with no guarantee of success. Christian Lacroix is a prime example of a label which, despite heavy investment in its main line/couture business, never saw the more commercial side of its activities take off sufficiently.

Life has also been made more difficult for designer brands, initially by the proliferation of fast fashion brands with a credible fashion offering. Zara, Mango and H&M have been extremely successful at attracting the fashion conscious consumer by interpreting catwalk trends with a time to market that would make Philip Green’s head spin. H&M took this one step further by pioneering designer collaborations, which created veritable stampedes in its stores and brought new customers to the brand. Top Shop has also been a trailblazer in this category: the brand showcases its Unique collection at London Fashion Week, its collaboration with Kate Moss has given it an edge and its recent opening of a flagship opposite Harrods demonstrates that it is looking beyond its traditional high street pasture.

And finally, traditional designer labels have been challenged by — and sometimes losing ground to, contemporary brands which offer a more accessibly-priced, less fussy fashion product. In this category both a Phillip Lim, who designs his eponymous line to a price point whilst still being able to fully express himself, and a Tory Burch, with a very-well merchandised line sourced mainly out of China, have found their audience in a relatively short time and have created thriving, financially successful businesses.

It is telling that Narciso Rodriguez and Hussein Chalayan both saw their brand being returned to them by their investors, and that such a star designer as Hedi Slimane is still without a major job in the industry. What lies ahead for top designers?

Managing seasonality

Designer labels have taken major steps to reduce seasonality risk by complementing their Spring/Summer and Autumn/Winter collections with pre-collections, cruise and pre-Fall collections, thus increasing the number of collections from two to up to six per year. These inter-seasonal collections tend to contain more commercial pieces than the main collections, often have more accessible price points and now account for the bulk of sales of a fashion brand. This is also music to retailers’ ears whose aim it is to get fresh stock into stores, so as to give customers a reason to come back, and shift the stock as quickly as possible. Some luxury brands have taken a leaf out of the book of leading fast fashion players such as Inditex, introducing flash collections in their stores.

Harnessing creative talent – the increasing importance of the merchandiser

The well-publicised demise of the Gianfranco Ferré fashion house exemplifies the need for a strong merchandising function: during the early noughties development costs for its main line collection escalated to 5m euros per season, and the number of pieces produced for market stretched as far as the eye could see. The first actions of the newly-appointed CEO upon taking over the troubled company was to control collection development costs by significantly reducing the number of SKUs, the number of styles produced and of prints ordered, and to make sure that each style was able to generate profits on relatively small sales volumes.

There the model was clearly in need of an urgent fix, but on an ongoing basis the role of the merchandising team, working with the design and product teams on one hand and the marketing and sales teams on the other, harnessing the creative talent and editing down the creative output to what will work or generally help the band, is absolutely critical. This helps to ensure that the market reception of the collection will be as good as possible, but is also true — and increasingly importantly so — in a world where the number of deliveries has increased and where efficient re-ordering and replenishment is where the real money is made.

Create a bestseller but know when to let go

Whilst every management team in the industry dreams about creating that iconic product or series of products which will become a cash cow, over-dependency can prove a curse if you push this too far and the market turns on you. This famously happened to French Connection, which rode the FCUK bike from 2001 until the wheels came off, resulting in the company dipping into loss for the first time in fourteen years in the first half of 2007 (the group is now rapidly recovering under the watchful eye of its Chairman & CEO, Stephen Marks).

One interesting path is that of Burberry, which initially had to rely too much on the dual deities of trench and check but made a considerable effort to diversify its product portfolio so as to avoid being branded as a one-horse pony, and on top of that successfully fended off the chav issue (to be reviewed in detail in a forthcoming issue of our newsletter).

Invest in retail but focus on the detail!

The last crisis claimed a lot of casualties as a result of over-dependence on the wholesale channel. Pain was felt in two areas: small boutiques not paying up on their orders, or proving to be too much of a credit risk going forward, and department stores panicking and batting down the hatches. Many fashion wholesale businesses were thus caught with their pants down and had nowhere to shift their rapidly devaluing stock. At the other end, whilst the experience for retail-led fashion brands was not by any means pleasant, the effects of the crisis were less hard felt. In this respect wholesale activities played for the fashion industry the same role as leverage did relative to the financial world: it can significantly enhance returns and offers easy growth, but when the market turns, the ground is taken away from under your feet.

Beyond this point, retail presence offers a number of advantages. First and foremost the ability to capture the retail margin – a fully-integrated fashion retail business can generate gross margins up to 80 percent (and sometimes more!), as compared with a wholesale business margin of 40 to 50 percent. Retail presence also allows for more control of the brand image and presentation. This is particularly important as a brand evolves as it can often get stuck in a time warp, with retail buyers ordering variations on what sold well in the last season instead of following with new products/designs, often seen as more risky.

Whilst location is key, store size is also vital to driving store economics. The late 1990’s saw the proliferation of mega-stores as shrines to brands. Many of these were loss-making: those of you who spend time in London will remember the monolithic Jil Sander store on Burlington Gardens, intimidating by its emptiness. When Change Capital Partners took over the company, its losses were well into double-digit millions. One of the first steps the new owners took was to close a few of its most unprofitable stores – the infamous London flagship for instance was relocated to a smaller premise on Bond Street. Losses were drastically reduced, and within a year the company was profitable.

White elephants such as this previous Jil Sander store never made good retail propositions, but you could understand why some management teams were keen on them: retail really helps drive wholesale. Department store managers will never own up to it, and we are sure Barneys and Bergdorf top brass were horrified when Lanvin announced the opening of its Madison Avenue store in the summer last year, but over time (and more quickly than people think), whatever turnover is temporarily lost for the neighbouring department stores will be made up and more, as the brand benefits from increased awareness, more prestige and a stronger, more complete image as a result of its own retail presentation.

So, own retail is most definitely good — as long as you can properly evaluate its cost/reward assumptions and avoid the white elephant trap.

A dynamic supply chain can drive profitable growth

Fashion is a uniquely complex business. The supplier base is increasingly global and increasingly specialised: there is therefore no guarantee a brand will be sourcing its product from the same country, let alone the same supplier, season after season. Distribution can be equally complex, the challenge of a global distribution network being compounded by an often fragmented customer base. The fashion business model is also very sensitive to production volumes; thus the supply chain has to be continually revisited during the growth phase of a brand.

One of the cornerstones of Burberry’s success has been the investment in its supply chain. Project Atlas, an overhaul of the company’s supply chain and IT systems, was launched in 2006, culminating in the roll-out of global SAP systems in 2010. This has given it a much improved granular understanding of every phase from design to the consumer, allowing the company to react rapidly to sales trends and capitalise on bestsellers. Burberry completely re-engineered its supply chain, cutting the number of distribution centres, freight carriers and suppliers and, through improved production planning, significantly reduced the use of air freight in favour of cheaper sea freight. These measures were estimated to deliver approximately £25m in annual savings, or 14 percent of operating profit. As a result of these measures the company can now also give fast fashion a run for its money through dramatically shortened times to market.

A future dominated by men and computers?

Besides the well-documented potential in China and other emerging markets, two areas of growth merit our attention: menswear and the internet.

Despite continuing success stories such as Lanvin’s, womenswear is pretty much a saturated segment in developed markets and therefore very competitive. On the other hand the men’s market accounts for a relatively much bigger slice of the luxury pie in emerging markets. Men are notoriously difficult to attract to a brand, but as a result also tend to be very brand loyal. There are also less cultural/sartorial differences across borders in menswear than there are in womenswear. All of these characteristics make this segment worth the chase, even if traditional menswear players have to alter their offering to give more room to sportswear and casual styles, away from suiting (suits are simply worn less in emerging markets). The potential of the internet has yet to be fully harnessed by luxury fashion players.

Richemont’s recent investment in Net-a-Porter (and the valuation the investment commanded) confirms the perceived potential of this medium. Burberry is ahead of the curve in this category — its Facebook page has the largest following of any luxury brand, its social media website www.artofthetrench.com is streets ahead of competition and it was the first brand to sell runway items from its Autumn/Winter 2010 show direct from the webcast to consumers. The potential for volume and margin in this area is huge — the only cloud on the horizon being the high level of returns (around 40 percent) creating a working capital headache.

Let fashion do what fashion does best….re-invent itself

The designer brand model in its purest sense has probably had its heyday. However, just as we thought we’d never see shoulder pads again when Joan Collins’ flamboyant character Alexis Colby left our screens, with a few alterations here and there they are back with vengeance. We should expect no less from the designer fashion business.

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The beauty business

July 24th, 2014 modelrecruituk No comments

The beauty business

Brainy models and a global talent pool are changing the catwalk

ON FEBRUARY 17th London’s spring fashion week begins. Across the capital, young women in vertiginous shoes and skimpy dresses will be teetering along catwalks. And thousands of young doughnut-dodgers will be inspired to queue outside agents’ offices for the slim chance of becoming the next Kate Moss.

Careers in modelling are typically short-lived, badly paid and less glamorous than pretty young dreamers imagine. Yet the business is changing. For one thing, educated models are in. This may sound improbable. In the film “Zoolander”, male models are portrayed as so dumb that they play-fight with petrol and then start smoking. But such stereotypes are so last year.

Lily Cole, a redheaded model favoured by Chanel and Hermès, recently left Cambridge University with a first-class degree in history of art. Edie Campbell, a new British star, is studying for the same degree at the Courtauld Institute in London. And Jacquetta Wheeler, one of Britain’s established catwalkers, has taken time out from promoting Burberry and Vivienne Westwood to work for Reprieve, a charity which campaigns for prisoners’ rights.

Natalie Hand of London’s Viva model agency, who represents Ms Campbell, says there has been a shift away from the “very young, impressionable models”, who were popular in the past ten years, to “more aspirational young women”. “There is an appetite now for models to be intelligent, well-mannered and educated,” says Catherine Ostler, a former editor of Tatler, a fashion and society magazine.

This is new. The best-known models of yesteryear often led rags-to-riches lives, courtesy of the rag trade. Twiggy, a star of the 1960s, was a factory worker’s daughter. Ms Moss’s mother was a barmaid.

But the big fashion houses and leading photographers are tiring of the drama that comes with plucking girls as young as 15 from obscurity and propelling them to sudden stardom. Too often, models were showing up to photo-shoots hours late or drug-addled. This wasted a huge amount of time and money. Fashion houses are now keen to avoid trouble. Many find that educated models show up to work on time and don’t go doolally as often.

Trends in the modelling business also follow those in the global economy. From the 1960s to the 1990s, America reigned supreme. The hottest “supermodels” were Americans such as Cindy Crawford and Christy Turlington. They were figures whose glossy confidence mirrored America’s. They never woke up for less than $10,000. They were cultural icons, too, celebrated in songs such as Billy Joel’s “Uptown girl”, the video of which starred Christie Brinkley, who became his wife.

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Rich Quick – Fashion Modeling Business

June 22nd, 2011 modelrecruituk No comments

This is one of the fastest growing international business in the world today. Most people do not know that an average person can also have a niche within the modeling business. Have of those who go into fashion modeling aspect of modeling jobs have actually become celebrities due to the vibrancy and lucrative nature of the business.

Height, weight, age and body measurement are strictly followed in fashion modeling. Fashion models are always require to stay thin for as long as they want to remain in their job. It is also true that it may take a long period of time for an average stature fashion model to build her portfolio but there are some ways you can actually get noticed if you think you are not a perfect fashion model. There is a stiff competition in the fashion modeling job no doubt, and few people who started a fashion modeling career actually make it to the top. Some have to get involve in drugs and do some other stuffs to actually establish themselves as fashion models.

All you need to be successful in the fashion Model business is to look at other aspects of the business. You can set up a fitness center, Glamour center, enhancement centers, modeling products and information centers and many others. If you go into commercial print business for instance, you can make as much as $5,000 a day. You can be a commercial fashion model photographer and sell print copies of photographs of models at high prices. Every aspiring of professional model would like to improve on his body and profession, hence you can display these printed copies of photographs in or outside your studio as advertisement copies and sell at an averagely high prices. You can also publish catalogues or billboards of a lot of fashion modeling collections and sell them to aspiring models.

You can set up a fit and showroom. A model or aspiring fashion model would not pay less than $100/ hour for fitting jobs while a pay for good modeling magazine shoot will cost the model an average of $150 per day. If you have at least ten aspiring models for photo shoot sessions in a day, then you make more than a thousand dollars everyday. Some aspiring models do not even make such money in a day.

There so many other ways you can make money I the fashion modeling business without passing through the rigors that models pass through to be successful. You can be a modeling agent or a consultant and make our money.

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