A Brief Introduction to the Business of Fashion

Thomas Brownlees

Thomas Brownlees

CEO and Founder,
440 Industries

Introduction

The fashion industry is unique. Even if we are likely to associate fashion firms with the glamorous catwalks and the eccentric personalities of fashion designers, behind the curtains, there is much more than meets the eye.

Fashion firms are firms nonetheless, and as such should be analysed in the context of business theory and practice, to understand their strategic behaviour and long-term goals.

In this post, we are going to clarify what we mean for fashion and start studying this industry by addressing two fundamental business concepts: the Product Life Cycle and the Value Chain.

Here are the topics covered in this article:
1. The Concept of Fashion
2. Managing fashion through the Product Life Cycle
3. The “Pipeline”: related and supportive industries in Fashion
4. The Value Chain in the Fashion Industry
5. Conclusions

1. The Concept of Fashion

There is no business like fashion business.  The starting point of our journey revolves around the definition of fashion. Despite being a concept we refer to daily, defining fashion can be challenging.
In the words of Christopher Breward, when we speak about fashion we refer to at least three different concepts:

  • Fashion intended as a form of art and communication
  • Fashion as an ‘adornment’ of the body
  • Fashion as an industry producing clothing and accessories

Any way we look at it from a business perspective, fashion is a direct result of both a creative and industrial process.
In this post we are going to focus on the concept of “fashion as an industry” and in particular, we are going to analyse what makes the fashion industry unique.

segmentation in the fashion industry

2. Managing fashion through the Product Life Cycle

The first element we are going to discuss relates to the fashion industry’s planned obsolescence. The fashion industry relies on production cycles which, over time have become increasingly short. 

At the beginning of the 20th century, French couturiers created two product collections a year: one for the Fall and Winter season, the other for Summer and Spring season. The pace of collection production, in time, has been continuously increasing and one century later, fast fashion companies are able to work through production cycles that put new items in the store every six weeks.

This dramatic shift happened for two sets of reasons: one relating to the pace of society, the other related to a better-managed supply chain.

In general terms, we could talk about fashion products as of any other manufacturing product. Most industries have created an artificial cycle of obsolescence to foster a renewal of their consumer base. This “programmed obsolescence” is something that in fashion has always been happening. In the controversial words of Oscar Wilde “Fashion is a form of ugliness so intolerable that we have to alter it every six months“.

The cycle of obsolescence is something that firms need to plan for and manage effectively by planning the four stages of the Product Life Cycle.

Whenever a new product is ‘launched’ to the market, it typically undergoes 4 different stages related to its product life cycle or PLC in short.  These stages are Introduction, Growth, Maturity, Decline.

In general, companies should plan and manage their production, so that in each moment of the year a product – or a product line – can reach its maturity and top market adoption (and with it, maximum profitability). 

This is a necessity, as successful products allow companies to invest in the research and development of new products and generate a loop of sustaining innovation.  

At the same time, to support market adoption, a firm needs to be aware of the different typologies of consumers that will be engaged with different phases of the PLC.  In fashion, like in any other industry, we can identify 5 categories of users, which will ‘react’ to different PLC stages:

  • Innovators are those who will buy first, for the sake of being at the edge of fashionability, regardless of any other influence of their peers over their decision-making process.

  • Opinion Leaders are what some might call ‘influencers’ and connect the fashion avant-garde with the ‘masses’. This is the most critical customer segment as products which are adopted by opinion leaders have a high chance of reaching market success. In a famous TED talk entitled: How Great Leaders Inspire Action Simon Sinek suggests how the market success of a product launch ultimately relies on this category of users. 

  • Masses. This segment relates to the most significant percentage of the market population. By reaching the masses, a product achieves its highest possible level of market adoption, before entering a decline phase. This is the stage where maximum profitability can be reached, as firms can leverage scale economies and achieve the highest profit margin per item sold.

  • Late Adopters. This category of users is only going to purchase products after they have become common and widespread. Their purchase behaviour will be inspired by the necessity to adapt to change, once it has become irreversible.

  • Leggards. This is the last category of adopters: those who will purchase a product last, only when the purchase has become a dire necessity rather than a choice.

The PLC allows companies to plan their product launch and sustain market adoption through a marketing strategy. To connect to each category of users, firms need to devise a specific communication strategy, as each consumer segment will be looking for different sets of benefits when making the purchase. This is why in marketing we use the term ‘marketing mix’ as per each category of users we need to think about a different product, price, place of distribution and promotion strategy.

As marketing plans become more complex and articulate, other ‘Ps’ can be added: the process of a product purchase, the people involved in the transaction and the physical experience provided to the end customer.

In light of the PLC, fashion companies need to adjust their marketing mix to an additional variable: time.  

Companies need to match their “internal” clock with the timing of fashion. This timing relates to the management of the fashion ‘pipeline‘ comprised of all of the supporting industries which assist fashion brands in delivering their products from the sourcing of textiles to the fashion show. 

This process is made more complicated by fashion trends, and their variable cycle duration:

  • Fads only last for a short time, making only fast fashion companies truly reactive to this phenomena.
  • Fashion trends have a medium length, spanning from six months to a year.
  • Basic products are less rooted in fashion trends and therefore have a much longer shelf life.

Not all companies can easily react to the shorter timelines pursued by fast fashion retailers. Manufacturing processes can vary greatly for each firm, both in terms of partners involved and in terms of final output quality. The faster pace required by our society is, therefore, creating a “polarisation” which favours the two extremes of the fashion world.

On the one hand,  fast fashion companies, such as H&M and Zara are able to grow and prosper thanks to an innovative approach to manufacturing which allows them to create volume efficiencies based on the Just in Time Inventory (JIT) production system. These companies can react almost instantaneously to changing fashion trends and take advantage of any fad or trend, making it readily available to their customers in a matter of weeks.

On the other hand, not all consumers are fast consumers. For those who enjoy a more classic style of clothing, luxury brands can fulfil a desire for timelessness.

Time, in both cases seems to be the discerning element that sets apart different business models in the industry.
The relevance of time is also echoed by how it can ontologically separate the two concepts of
fashion and luxury. If the former is about purchasing the ‘now‘, the latter is about purchasing the ‘forever‘.

This conversation between extremes has also been echoed in the way that fashion firms have  developed new trends. Companies like Zara and H&M became successful by reproducing haute couture products at much lower price points. This was done following the ‘trickle down’ approach, whereby lower-tier fashion companies would essentially recreate a luxury brand’s look with faster and cheaper production lines, to make it more affordable for the end consumer. 

In recent times, however, fashion collections have been inspired by a variety of situations, emulating any tier or society: from the high British society to the Punk movement. This is why we often use expressions like the ‘trickle up’ and ‘trickle across’ approach to indicate how design inspiration can really come from anywhere.

international pricing

3. The "Pipeline": related and supportive industries in fashion

To better understand fast fashion, we don’t need to focus exclusively on the marketing process of promoting sales once a collection is out in the market; instead, we need to focus on the fashion pipeline.

With the fashion pipeline, we indicate the extensive production process of a fashion product, involving not only fashion maisons but all of the related and supportive industries that contribute to the production process. This ‘cluster’ of industries includes companies from a variety of economic sectors such as farming and agriculture, chemicals, textile and textile machinery, fabric creation and pattern-making.

The concept of the fashion pipeline allows an understanding that the management of the product’s pipeline is a significant component of competitive advantage for a fashion firm. According to Porter’s Diamond model, Italy was able to draw a robust competitive advantage in the fashion industry because of the development of many supporting and related industries connected to the fashion product pipeline. By fostering the growth of a wide variety of core and supportive industries Italian fashion brands could easily achieve total quality management.

Porter’s Diamond is a model capable of explaining why certain countries have a definite competitive advantage when competing in the global market. Porter listed six factors, that can help us tell why countries like Italy and France were able to acquire and maintain control of the fashion world for more than 20 years.  These factors are: 

  • The firms’ strategy structure and rivalry. The presence of a variety of competitors in this industry pushed companies to strive for excellence.
  • Demand conditions. The refined taste of Italian consumers would not settle for ‘average’.
  • Factor conditions. The presence of highly specialised training programs and educational opportunities for those wishing to pursue a career in fashion.
  • Related and supportive industries. An abundance of companies supporting the process of creation of fashion items.
  • Government. The support of the fashion industry from the Italian government.
  • Chance. Undeniably, luck always plays a role.

In the case of Italy in particular, we can also add that in many occasions, because of the quality standard set at the beginning of the product pipeline, products were conceived from a higher quality standpoint.

This is why the ‘Made in Italy’ country of origin effect was able by itself to provide a perception of quality and craftsmanship that only French couturiers could parallel.

This notion of high quality inspired many Italian manufacturers to pursue a forward integration strategy. By seeking forward integration companies which would traditionally be ‘behind the curtains‘ as licensed manufacturers, would create their company brand and sell it through owned distribution channels in order to acquire higher profit margins. The Persol brand provides an example of a company following this managerial strategy.

To better analyse the value creation process in a fashion firm, we need to understand the concept of the value chain or the internal value-adding cycle of a company. A “simplified” value chain is comprised of four stages, which we are going to discuss in the next section of this post.

4. The Value Chain in the Fashion Industry

When analysing a fashion company, it may be hard to devise a strategy by taking into account each and every  process which comprises the fashion pipeline. In business, we often use visual tools that help us “simplify” business decisions by gaining a more detached view of the problem. An example of this ‘visual simplification’ is provided by the value chain.

The Value Chain allows to divide the production cycle of a fashion company into four stages of value creation:

  1. Research and Development
  2. Production
  3. Marketing
  4. Distribution and Sales

The first two are called  “upstream functions” whereas the second two are called “downstream functions”.

Fashion companies may not own all of the four stages of the value cycle. In time, to create volume efficiencies, or to gain better control over production, firms may acquire the different stages of value creation, but this can be costly both in terms of acquisition and in terms of operations.

Fashion manufacturers may start working as licensees for other brands, and slowly pursue a forward integration strategy, on the other hand, fashion designers at the beginning of their career may function as the “research and development” division of their company at their atelier. As their business grows, they may enter into licensing agreements to access third-party manufacturing, and in time,  they may look for consultants to develop a marketing plan and enter into contractual relationships with distributors to reach the end-customer. 

As a trend, firms tend to pursue vertical integration, by acquiring their value chain so that they may manage better the relationship with their final consumer. A vertical integration approach is very costly but allows to gain higher margins in the long term. All the brands that can afford this strategy, do their best to pursue it.

Only by managing the product creation from start to finish it may be possible to gain total quality management which is often the gateway to the luxury segment of the fashion market.

Managing a customer’s retail experience is the final frontier of this forward-integrated approach. Managing retail allows companies not only to deliver the product but to convey educational and entertainment elements to foster a relationship with the brand. Without getting ahead of ourselves,  we will touch upon this topic in a future post: Flagship stores and the future of retail.

5. Conclusions

By looking at the fashion industry from an ‘operational’ and ‘manufacturing‘ perspective, we can see how managerial decisions regarding a company’s competitiveness start from creating a profitable value chain.

Fashion firms start their growth strategy by making sourcing decisions, establishing manufacturing contracts, developing wholesale distribution partnerships and eventually managing retail stores.

When companies are able to achieve “total quality management” – by owning or controlling the entirety of the value chain -they are able to access the luxury segment and “escape” the fast-paced world of product life cycle management and enter a different set of product associations connected to heritage branding and iconic, timeless pieces.  

Luxury is, therefore, a goal shared by many companies who pursue a higher brand value. We are discussing the role of luxury in the fashion industry in greater detail in this post: The Value of Luxury in the Fashion Industry.

Bibliography and sources for further research

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A Brief Introduction to the Business of Fashion The business of fashion spans across many industries, firms and cultural influences. Let's break it down and understand how the fashion system really works.
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Thomas Brownlees

Thomas Brownlees

I am an Anglo-Italian business lecturer and consultant based in Florence, Italy. In 2017 I started 440 Industries, an education and training company focused on fashion, music, and technology. Our mission is to help students, entrepreneurs and managers in overcoming the challenges of starting, developing and scaling their business in the creative industries. When there's a will, there's a way!

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