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Home » Identifying Business Models in the Fashion Industry
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A business model represents the internal logic of a firm. As managing a business entails for a high degree of complexity, a business model allows managers to visually simplify the inner workflow of the firm and identify the 9 essential building blocks that bring value to the market.
In the fashion industry, we can additionally simplify this model by a focus on the 4 key factors that set firms apart: its value proposition, customer segmentation, communication and distribution channels and the degree of complexity of the firm’s value chain. The core element of a business model is found in the connection created by the company’s value proposition – or the solution – and the target market – or the customers the company wishes to help.
The business model canvas is a very popular and useful tool to define the value proposition of a company and is discussed in greater detail in this post.
In this article we are going to discuss instead the most important fashion business models, identifying the unique aspects of each model:
This business model is the one adopted by firms wishing to compete on the top tiers of the fashion pyramid. The business model of these typologies of companies revolves around a value proposition which is grounded on prestige and exclusivity. Let’s see a selection of the distinctive elements that set this business model apart:
Even if the concepts of fashion and luxury are sometimes used as synonyms, these two concepts stand for completely different sets of value associations.
Luxury is strictly connected to timelessness and exclusivity. In luxury, the timeless and heritage-sensitive values of a brand can be ‘stretched’ to cover a wide range of product categories, including watches, cosmetics and leather products. In this case, we can look more in-depth into the 4 elements of the business model of luxury.
Even if the concepts of fashion and luxury are sometimes used as synonyms, these two concepts stand for completely different sets of value associations.
Luxury is strictly connected to timelessness and exclusivity. In luxury, the timeless and heritage-sensitive values of a brand can be ‘stretched’ to cover a wide range of product categories, including watches, cosmetics and leather products. In this case, we can look more in-depth into the four elements of the business model of luxury.
This category of products is more heterogeneous, as it relates to brands which are positioned in the medium to high price segment. The value of these brands is delivered through a clear brand vision, capable of connecting the value of the brand to volumes and scales delivered by the manufacturing industry, and a large network of suppliers.
This business model is more associated with a good price\quality ratio which is obtained through product specialisation and production optimisation. Companies in this prices segment need to be aware of their TTM (time to market) in order to strike a balance between a higher quality apparel production and a faster fashion seasonality. A faster supply chain is also achieved by leveraging on two types of distributors: direct retailers and intermediary wholesalers.
The competition in this segment will, therefore, operate on a variety of levels:
This business model is connected to companies which pursue the development of speciality chains with a wide geographical reach. Examples of companies pursuing this business model are Terranova, Zara, H&M and Top Shop.
Their value innovation can be found in the creation of a flow of fashionable merchandise channelled through an extensive distribution network comprised of stores located in prime locations. Fast retailers create welcoming stores, with very convenient prices, where their vertically integrated organisational structure allows them to effectively manage their value chain and deliver value while achieving a high level of profitability. This typology of a company is, in fact, capable of collecting margins which would normally pertain to both the fashion producer and fashion retailer.
Other relevant characteristics of vertical retailers include:
Since the 90s it has become common practice to grow fashion companies by acquiring promising brands and designer ateliers. This growth strategy has allowed larger fashion companies to become fashion conglomerates, managing a wide portfolio of business models and brands.
When two companies enter a buyer-seller relationship both the “acquirer” and the “acquired” gain benefits making the conglomerate model of growth a viable business strategy in the fashion industry.
The benefits of this model for an acquired brand entails the opportunity to access:
The benefit for the conglomerate ultimately relates to managing a sufficiently diversified brand portfolio allowing it to compete over a variety of markets.
Fashion conglomerates like LVMH, are able to follow this model and identify new designers, brands and organisations which, through funding and expert managerial guidance can achieve market success.
As we have discussed fashion firms have a wide variety of business models to choose from as they develop their brands. Moreover, as we have seen in the case of masstige, firms may be able to cut and paste different business model blocks to create a unique value proposition.
Recently, academic and business literature has noted how companies are now understanding the benefits of moulding an organisation’s internal processes to reach the final customer. As a result firms have devised strategies oriented towards the creation of an innovative concept: the business model portfolio. This allows to create maximum differentiation across the firm’s activities and provide firms with the strategic tool to engage with their end customer.
Customers are in fact at the heart of any brand management strategy. We’re going to discuss this topic in more detail in the next instalment, entitled: Consumer Segmentation in the Fashion Industry.
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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