Fashionable fashion: business in the fashion industry

The three largest fashion industry events held in New York, London and Paris, also known as Fashion Week, just came to a close. Each of them presented a distinct vision of upcoming trends, showing carefully prepared collections from fashion designers working with fashion houses or from their private ateliers. Most of these types of affairs are surrounded by accompanying events: exhibitions, science seminars and lectures. Oftentimes they present financial results, as well as the direction the industry is going, long-term strategies and upcoming trends, global and segment-specific alike.

Throughout this cycle of advertisement- and novelty promotion-oriented (clothing, accessories, ways of presentation and innovative sales techniques) events we saw collections from the known and respected, as well as from novice (scout) fashion designers. Both represent the fashion industry, though they differ greatly in the business models employed. The fashion industry is all about beauty and glamour, but it is also hard work.

It is estimated that the fashion industry is worth $ 1, 7 Trillion (2012), so it is a large and profitable market, although this size and its inner workings are a resultant of many different factors.
Let’s say we would like to open a fashion house. Maybe we’re thinking big and want to be as great as Armani ( $ 3,1 Billion in 2015) or Gucci ( $ 12, 4 Billion in 2015 ). How would our company operate?

We need to start with the basics and create a fashion atelier. Next we need to hire specialists that will work for us: a creative director – the lead designer, other designers (this is optional), dress-makers, textile technologists, clothing engineers, assistants.
This world of fashion raises a lot of questions: how exactly does the fashion industry operate in modern times? What is it made of? What are the most popular business models? Are investments in this industry profitable?

Managers and office workers. We should also have a venue that will serve as a workshop and a fashion shop, in other words, the aforementioned atelier.   Of course, it would be best if we had another fashion shop, known as a boutique, that would carry the clothes of our marketing brand. If we’d like go the separate route, it is good to remember that the boutique, not the atelier, would be our calling card, and so we would have to prepare ourselves for double the expanses, with the boutique taking priority.

After gathering the right people and designing, creating and approving our sample collection, we would have to prep the projects in a full range of sizes. There are two ways to go about it. Firstly, we can make clothes using our own resources and workers. This is cheap, but it has a major drawback: there’s little time to create new or individualized project or (according to the latest trends and market demand) to re-sew earlier outfits so they are “tailored” to the client. Secondly, we can contact an outside sewing shop and outsource the production. Of course, we need to remember that sewing shops in Poland and abroad are specialized workplaces, and so sewing shirts will require contracting sewing shop A, while sewing dresses will necessitate contacting sewing shop B, which, as it happens, focuses solely on dresses.

We have a finished collection, it’s time to  promote it. The best way would be to show it during Fashion Week: Paris, London, New York or Milan. The costs will be considerable, but – in comparison to the traditional forms of advertisement – this investment is more costeffective, as with a small outlay (compared to TV, radio, press and billboards) you would gain a global coverage of your products. We’re almost ready to ship. We would like to continue to promote our products, so we invest in a specialized PR agency that deals with social media. This should raise our brand awareness.

Unfortunately, our initial budget is almost depleted. Our investment is bringing in money, we’re starting to recoup our advertisement, production, worker and venue costs.
It’s been 6 months since our last investment, a new season is upon us and our company is preparing a new fabulous collection we are about to unveil to the world at the next Fashion Week; our promotional machine is in full swing. Regrettably, this generates additional costs.

So, how do all those brands, whose logos and products (sometimes with a cult status) you can describe with your eyes closed, make money?  
The model I described above, comprised of all those steps, i.e. creating a collection, specializing sales (atelier or boutique), promoting at Fashion Week, in magazines, TV and social media, is a giant marketing machine that helps us achieve brand recognition (recognisability of our logo, our patents and technologies developed during the design process) on local markets or on a global scale. Essentially, this is the point our investment starts to operate properly, and oftentimes lets us turn a profit. At this moment we can transform our business model, atelier, into a fashion house.
Besides designing and selling consumer goods, every fashion house designs and sells products that, without compromising the standard quality of the company, are “affordable”. This is the set of products that an average citizen (of each country the company is based in) can afford, regardless of their economic status. This generates high profits in the shoe ( annual $48 Billion ), accessories (annual over $200 Billion ) and cosmetics (35,3 % of the global market in 2014 ) industries.

At this point the purpose of each of our earlier actions becomes clear: we have created a specific image of our company, one that is recognizable to people, and now we can focus on designing, producing and selling our products to the masses. As a highly recognizable brand, our fashion house has options of monetizing its designs.
Firstly, we could continue to outsource or invest in a qualified workforce and create new workplaces, so we could start producing shoes, purses , belts, shawls, headpieces, lipsticks, perfume etc. We would sell our products in our own stores or would distribute them wholesale and retail to specialized shops. Unfortunately, even with a booming market, we would have to wait for our profits, as we would still be locked into the investment spiral. We should also remember that in 6-months time the trends will change, so now we are not only responsible.

For designs, but also production, sales and promotion.
The second option is quite different, but a lot of companies from varying markets operate under its principles. We do not outsource our production, we do not organize distribution or sales. We outsource our projects and logo.

What does that mean, exactly? There are manufacturing, contractor and subcontractor companies that create a variety of “white label” goods, that is products branded with the logo of a partner company and based on their designs. When you sign an agreement with such a company, you decide to lend your logo and designs without investing your own capital. You still profit from the agreement, receiving an agreed-upon percentage. You won’t be responsible for the distribution or sales. Your company only needs to focus on creating trends (after consulting with companies specializing in “trend catching”) and maintaining financial liquidity during the biannual holiday of trends, Fashion Week. At the same time we are accumulating our most important capital – the image of our brand.

Although those two business models vary greatly, both are good, because they both bring in a planned income.
It is important to remember that an atelier or a fashion house is still a company and as such is subject to trends and market laws, and also to all other problems that company owners must face.

To summarize: is it worth investing in fashion?

Let these two quotes serve as an answer. Both of them are from industry veterans, who inspired millions of people, modern businessmen included:
• You shouldn’t ask why do you wear a hat? What you really should be asking is why are you not? (…)” (John Galliano)
• „I don’t do fashion. I am fashion.” (Coco Chanel)