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Fashion business models
What are the fashion main fashion business models?
So first, at an industry level, we can see that fashion is a sector that is a kind of epitome of globalization. Every country in the world is more or less positioned as a customer or supplier for other countries, and the integration of countries is very strong in the sector. This is due to the fact that, in fashion, you have quite low technical barriers to entry, and very low cost countries such as China, Vietnam, Bangladesh, can position themselves in the sector quite easily. Because they have a lot of work force also, and since it’s a quite labor intensive industry, they have been able to reach a very strong position in this sector during the last few years.
And the geography of the sector evolves a lot due to the evolution also of the global players that have a very global strategy both in terms of sourcing and distribution. So, in fact, the landscape evolves very fast. At the company level, one can think that it’s very easy to enter in a fashion business. Since the cost of entry is quite low, with some money you can easily produce a collection or create your shop, online for instance. You can believe that there are low barriers to entry in this sector. In fact, it’s quite wrong to think that, since you have both economic barriers to entry, and symbolic.
For instance, if you think about the mass market business, it’s really a lot about being competitive price-wise. So, to do that and to achieve this kind of competitiveness, you need to produce a certain volume and you need to invest a lot at the beginning to attain this kind of competitiveness. If you think of other kinds of positioning, in the luxury creative field for instance, you have other kinds of barriers to entry which are more about symbolic. So you need, in fact, to position your brand and to send to the market signals that your proposition is credible and you have very strong creative potential.
To do that, you have to work with certain companies, you have to be recognized by certain bodies. In fact you don’t choose to position yourself in the sector, you are accepted as part of it, but it’s very hard to enter. At the end of the day, customers will pay for the brand and the stronger the brand is, the bigger the mark-up is. If you’re a very emerging brand, if you buy a piece of clothes at 100 euros, you will be able to sell it at let’s say 200. If you’re a very strong luxury brand, you will be able to sell it much more, at a much higher price than that. It’s really highly connected to the strengths of the brand.
That’s why companies develop strategies to both, protect and expand, the strength of the brand, through their search for legitimacy, through the fact that they produce lots of creation, that are not meant to be sold, but just to testify of the creative strength of the brand. Selective distribution is something key for creative and luxury brands, because they want to select the people that are allowed to sell their products. Again, in this idea of creating a brand asset, you have lots of very concrete strategies that are set up by companies.
During the last 30 years, we’ve seen the growth, amazing growth, of retail chains, that have changed the landscape in the fashion sector in every country in the world, both in the US, in Europe, in Asia. These kinds of players have achieved very strong performances due to a unique business model which helped them to gain market shares, against more traditional forms of businesses, such as independent retailers or traditional brands. In fact, they control a big part of the supply chain, and they also search a lot for competitiveness through a global sourcing, and through the fact that they are very concentrated, and they are able to have a very strong bargaining power against their partners.
So, they achieve this kind of performance through this kind of tools, of economic tools, and in fact if you take a look at the market share in terms of players today, retail chains represent roughly between 30 and 50 percent of the market. There is a big concern today regarding sustainability, regarding the fact that this model that has been very powerful during the last decades is sustainable in long term, and that customers are still willing to pay the cost of this organization. And moreover, with the digital revolution, we see more agile and more modern business model starting to emerge. That’s potentially the new business model, the new successful business model that is appearing today.
There is a huge diversity in terms of business models. Historically, it was easier because you had some companies who were very specialized in creation, others in manufacturing, others in retailing. And today, we can say that you have many models that combine these different elements in their proper way. You can have brands that are today ensuring directly in the retail scene, and don’t rely on multi-brand or department stores. You have retailers that integrate the creative process and sometimes even manufacturing. So, what we can say is, in general, the more you control the supply chain, the stronger you are.
If you are a digital native vertical brand, if you are a retailer, it’s very interesting to control the major part of the process. There are lots of new designers, new brands emerging every year, every season, so to gain this visibility which is, of course, something you have to achieve, it’s quite complex. You have both challenges in terms of visibility, of market access, and also in the upstream field your ability to be produced. Because there is, again, a lot of competition to access manufacturers. They require minimum quantities to produce.
And in fact, if you’re a small player, in general, you are not served the first, it’s the biggest brands, biggest players that are produced earlier than you, which is very tough in the field of fashion because if you arrive on the market later than the others, you have a good chance that your collection will not work because others will have been able to sell earlier than you. For instance, for creative labels, it’s very complex because they show their creation very early in the season, and they sell very late.
In terms of distribution and communication, the thing is, today if you take a look at what’s happening in retail, in the press, the traditional partners for emerging brands which were multi-brand formats, such as independent retailers, or department stores, are struggling, so they have less and less access to this kind of partners. And in terms of press also, the support for emerging designers is more and more complex. The press is facing major changes too, so lots of brands today choose to talk directly to the customer through social networks, for instance, rather than rely on traditional PR strategies. The digital revolution adds a new chapter to globalization.
It’s something that leads to more transparency among the processes across the world, that helps you to reach new categories of customers. It’s something that, again, increases the globalization of the sector. And what we see, as something very potentially very strong for newcomers, is their ability to use the data they can gather through the different digital tools they use, and to be more agile today than they were in the past, to be able to reply to all the market changes we are observing at a faster and faster pace.
We see that, for instance, the model that we knew of fast fashion retailer, is maybe, can be beaten by new models, which will be able to have the same probably, the same ability to reply to trends, or to anticipate them, but at a lower social cost for instance, because there will be more agile and more able to track all that’s happening in the supply chain for them. Potentially, we can see new players emerging which will combine the two elements in terms of sustainability, but also the taste for customers for new products and creation.
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Fashion business models
Franck Delpal, Professor of Fashion & Luxury Economy at Institut Français de la Mode, analyses the logics at work in the fashion industry today.
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This article is from the online course:
Understanding Fashion: From Business to Culture
This article is from the free online
Understanding Fashion: From Business to Culture
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