The Amazing Business of Fashion
Each week, I think during the week about what interesting tid-bits have come up in the world of business. I have to admit this week I was a bit stumped and was talking to my daughter about it. She is a fashion victim and immediately instructed me to write about handbags – my initial reaction was to laugh, then I thought about it.
Global “house of brands” fashion houses have enjoyed immense revenue and profit growth of the past 15 or so years – it got me wondering – why?
From the turn of this millennium, we have lived in the world of “masstige”, prestige products specifically marketed to the huge mass aspirational market. This strategy was mostly executed by the 6 fashion houses that dominate the market. In actual fact, they own 40 of the worlds leading prestige brands.
What are their key strategies
- High Price – Everyone of these products are in the very highest price brackets compared to other products in their market. They are priced to give customers a feeling of exclusivity and luxury.
- Products at many price points – almost everyone of these brands has a perfume, casual clothes, more designed clothing and then of course their flagship product – whatever that happens to be. It means the brand can be introduced to a very large audience.
- Control the experience – again most of the above products are very careful to ensure they control the customer experience – from packaging, presentation, retailing space and pricing.
What have the results been?
These companies have been the highest growth, most profitable businesses in the fashion product sector.
LVMH for example
- 5 year revenue growth – $27 billion per annum
- 72% average gross margin
- Operating Profit growth – $3 billion per annum
- Free Cash Flow growth – $1.6 billion per annum
Numbers any business owner would be very proud of and reflective of many other masstige fashion houses financial performance.
Of course there are examples of successful companies in the fashion sector that have followed a different strategy – Uniqlo, Zara and H&M. However, the consistent theme seems to favour the masstige strategies.
What can you apply in your business?
- Look for items other than price to differentiate.
- Drive sales growth with products and services at multiple price points.
- Ensure consistency and quality by controlling the experience.
*Main Confessions of a Shopaholic Image: http://www.randomhouse.com.au/collections/fashion.aspx