“Let’s face it, the fashion business does not attract the nation’s best and brightest…”
As told to me by one of the titans of retail, the ex-CEO of a major American brand.
Doubts about my own personal career choice aside, he was right. With a few exceptions, fashion is still somewhat a backward business. What other industry has so little pure product innovation and relies solely on fickle, fleeting consumer desires to drive business? Unfortunately for us, there are no real trends anymore, but gradual evolutions in style due to the way information is constantly leaked and diffused. Sadly, Jorgen Andersson, formerly with H+M and now CMO of Uniqlo, agrees, calling fashion and consumer culture “generic.”
Uniqlo is one of the few fashion companies that play on product innovation, rather than trend, to drive sales. Fast Retailing is genius in its approach to acquisitions and it has a real gem in Uniqlo, a true industry disrupter. Their innovation, mainly in the form of textiles, is costly and requires expertise, but is a much more stable strategy in that it gives more control over the product development cycle and product exclusivity. A play on trends requires adapting to the trend at hand to your brand and necessitates relying on someone else’s crystal ball-like predictions, which takes away control.
Most fashion companies play on trend, however, even menswear. Fortunately, companies that play on trend can still become disrupters and break through all the sameness in two ways — brand and business model. But the two “Bs” must evolve together to succeed.
Countless examples of brands being disrupted, both new and old, can be seen around the world. Many of the most dominant ones come from Europe, as fast-fashion and luxury have changed the landscape by focusing on two critical things: time and product. H+M and Zara are, of course, known for an extremely fast time to market while producing clothing driven by trend and change. Although superficially similar, these companies are not run in the same way, but both brought best practices to the industry such as fabric and garment platforming, strong assortment planning with little to no collection planning, and an excellent price to quality ratio at a speed that makes your head spin. Others like Tamara Mellon are following this lead but at higher price points. These businesses were built this way from the ground up so disruption is in their DNA; it is very difficult for a disruptee to go through such a complete transformation and emerge unscathed.
Luxury is another business model that is upending traditional fashion. Hermes, Chanel and Dior are examples of old houses that have adapted to a modern marketplace while creating their own balance of brand, product and exclusivity. They have not, like some others, over-exposed themselves and thus have not suffered from brand degradation and a lack of desirability. For them, labor cost is of little consequence when workmanship is critical; they produce in France or Italy or wherever they have found or developed groups of skilled artisans. They strike a balance between technology and craftsmanship and know how to leverage both well. Other brands are trying to emulate this model while adapting to a more mass market appeal. Accessible luxury is working for some like Michael Kors and Tory Burch, but less well for others like Mulberry as they are having trouble with their transformation.
The disruptive practices coming from the US tend to be more retail oriented. The concept of a lifestyle brand has made a huge impact, causing companies to clamor for the higher margins associated with accessories and other non-soft goods. But this is yesterday’s disruption. Of late, the focus is on cost savings or maximizing investments already in place. Approaches include store-to-store inventory replenishment, creative product placement and advertising, merchandising and product display to capitalize on every square inch of retail space, tracking online consumer behaviour, and merging online and offline worlds. While these strategies will drive growth while being relatively easy(ier) to implement as they are structural in nature, they are not in and of themselves a secret sauce that will lead to a long-term unique positioning and organic growth.
The real disruption in fashion is yet to come. China has already disrupted the fashion and apparel world once with its low cost labor and ability to churn out product to the point that the average price of a garment in 2013 in the US is $13.49 (NPD Group as reported by The New York Times). Because the cost of labor in China is increasingly steadily (15-20 percent per year for the past eight years), Chinese producers have been forced to rethink their business models. (Add spikes in taxes, social charges, energy costs, exchange rates and other charges into the mix and the cost of producing in China is only about 4 percent less than producing in the US.) The Chinese now must build value into products and are improving quality, innovation and design. They are also rethinking their strategies entirely to be more long-term growth-oriented (rather than focusing on optimization as we see in the US).
After years of learning by producing for others, they figure, how hard can having your own brand be? And for the most part, they are going through the same growing pains as American or European brands did, albeit at a much accelerated rate. Only recently, it was easy to open a store, fill it with stuff and sell in China. But this population is growing more sophisticated by the minute, and even foreign brands are now reaching out to Tier 3 and 4 cities (with Tier 1s already saturated fashion-wise). Thus Chinese brands were forced to quickly adapt. They now think nothing of hiring European design talent and having mixed strategies; some are focusing exclusively on the Chinese market for now but others are going directly to Europe, the US and other foreign markets. Many large manufacturers are simply buying foreign brands to not only buy market share, a presence in other geographies and eventually a place to sell the stuff they make, but also to learn about retail and branding and to develop their own expertise. And once they master these skills, look out!
O2O (the online to offline retail experience) is now becoming an obsession for Chinese companies and they are learning the branding and design aspect of fashion. This, combined with a mastery of operations and manufacturing, will lead to a new round of disruptive business models driven by branding and products that are strong both in terms of design and innovation.
So we’ve talked quite a bit about the companies — and countries — turning the industry on its head. But now, most importantly, how do you compete as a former titan or even as a fellow disrupter? Stay tuned to our next post for an in-depth view on brand and business models and how they are intertwined.