The Business of Fashion

Fashion 2.0: What the future holds

About a month ago, I attended the Harvard Business School’s annual Retail and Luxury Goods Conference in Boston. It was an interesting day of speeches and panel discussions, bringing together industry veterans and experts from leading luxury goods and retail companies including Neiman Marcus, Loro Piana, and Holt Renfrew. You can read more about the conference in this news article from HBS’s Harbus Newspaper.

I was honoured to speak on a panel with a diverse group of talented people from across the world of Luxury Goods, including the American designer Peter Som, Olivier Cardon, President of Roche Bobois North America, and Roberto Vedovotto, Chairman of Lehman Brothers Global Luxury Goods practice. I thoroughly enjoyed the back and forth with my fellow panelists. We touched on many topics, but the one that seemed to provoke the most debate was regarding the role that the Internet and so-called "Web 2.0" technologies can play in the branding, marketing and commercial strategies of luxury and fashion companies.

I have to say, it felt like being in a time warp. There was a notion that luxury “customers aren’t on the Internet” and that the Internet “is too risky” for luxury brands. All of a sudden, I knew what it must have been like to be Natalie Massenet (of Net-a-Porter) or Ernst Malmsten (of boo.com) back in 1999, making a case for the potential of Luxury and the Internet, to people who were very risk-averse, conservative and stuck in old mindsets; people who couldn’t see the potential for what the Internet could do for their brands and businesses. Of course boo.com and Net-a-Porter have followed two very different stories. (One, which ended abruptly, was discussed in this post.) Massenet, however, has shown (with her company that is now turning over a reported $80m and growing at 100% per year), that as with all businesses, harnessing the power of the Internet for Luxury comes down to basic business acumen, strong marketing skills, and knowing how to properly manage and grow a start-up, while also understanding technological issues such as the adoption curve and limitations of sophisticated technologies.

As for Luxury customers not being on the Internet, this appears to be an assumption made in the absence of basic facts or data. One need only look at a recent article from the Financial Times to see really how many luxury customers are online:

"A survey of  500 of America's richest families published in 2005 by researchers Doug Harrison and Jim   Taylor found that the respondents spent on average 13.7 hours a week online. The Luxury Institute, in a  survey of 1,000 wealthy consumers published in March, found that 98 per cent used the internet for     shopping, and that 88 per cent read product research and review sites.”

Clearly, these are not just young bucks trying to pick each other up on Myspace or Facebook, but also high net worth communities like asmallworld and focused fashion communities like Iqons.com. Big brands and collections are being discussed passionately on all of these highly-trafficked sites, but also on blogs (purseblog.com, whowhatweardaily) and virtual communities (secondlife.com). The amount of content is mindboggling. 

Obviously not all of it is good content. But, my basic point is that since conversations about Gucci, Prada and Burberry are going on, Gucci, Prada and Burberry might as well figure out a way to be part of those discussions, where it makes sense. The fact of the matter is that the conversations will continue, whether they are involved or not. Of course, not all of those places would make sense for every brand all the time, but to disregard the importance of the Internet outright seems shortsighted.

When it comes to the riskiness of luxury brands on teh internet, I can certainly appreciate this point. Big players have the most at stake, given the energy and money that have been invested in their brands, sometimes over hundreds of years. But that said, where there is risk, there is also opportunity. Thankfully, some big brands have recognised this and started to experiment with some of these new communication channels. Armani and Karl Lagerfeld have brought their fashion show videos to the Internet, iPods and mobile phones, showing that being a pioneer has nothing to do with age, it has to do with attitude. Dior has also experimented with the launch of a jewelry collection on secondlife.com.

That said, some of the most exciting ways to really experience what online luxury might feel like in the future is by visiting the amazing virtual worlds created by emerging designers, who are able take more risks and experiment. Boudicca’s site at platform13.com is like walking right into the fantastical (sometimes incomprehensible) world of the designers, Zoe and Bri an, who share all aspects of themselves and their passions. They have also uploaded all of their fashion shows to Youtube. Other fashion designers are also providing a peek into their everyday lives by keeping regularly updated blogs. New York-based Brit Sue Stemp and dynamic British-Japanese duo Eley Kishimoto are amongst those using blogs to create a space to communicate with their customers.

What the future holds for luxury eCommerce in particular is very exciting indeed, because much of the basic foundation has been laid. Competition is just beginning to heat up.  Since pioneers like Massenet successfully brought luxury online, all of the big retail and luxury players have jumped in. You could say, they have been fashionably late. Neiman Marcus’ direct business (which includes the nm.com, bergdorfgoodman.com and the catalogue business) now generates $700m in revenue. Revenue growth rates for the online boutiques of Coach and Gucci are massive, somewhere in the 60%+ range. Interestingly, partially because of the rush to capture online real estate and market share quickly, almost every online luxury site feels the same. Not much time has really been spent in creating a truly unique destination. Just check out  brittique.com, matchesfashion.com, brownsfashion.com, neimanmarcus.com, eLuxury.com , and bluefly.com and you will see what I mean. For the most part, each site is a one-way interaction with the consumer. They also tend to be organized in the same way, with similar aesthetics using similar fonts and layout. Only Net-a-porter has successfully integrated compelling content into their site (with its magazine) and just Yoox has a truly different look and feel.

So now, as with any other business where the product/service starts to become commoditised, the key players will have to take it to the next level and differentiate themselves to keep up with the rapid pace of what’s going on. It's not a zero sum game yet because the industry's growth is so high, but with so many players in the game, its bound to be more competitive. This is where Web 2.0 can play a role. Luxury ecommerce sites which differentiate themselves through unique product assortments, clever editorial and content, and interactive community development, will be the ones that succeed. On the other hand, with retail it always comes down to number of visits and average purchase size, so its also important that the interactivity and community don’t detract from the primary objective at hand, which is to drive sales.

Book Review: Boo Hoo by Ernst Malmsten

It seems like forever since those heady, spirited days of the dot.com boom. There was no 9/11, no War in Iraq, no "Axis of Evil". Instead there was champagne was flowing freely, the NASDAQ, FTSE and DOW soaring to new heights, and millionaires (at least on paper) were being created overnight. Wanting to relive that spirited time and on recommendation of my friends Matthias and Abi, I recently finished reading "boo hoo", the story of boo.com, one of Europe's most high profile Internet stories of spectacular boom and heartwrenching bust.

boo.com was set up in London by 3 Swedes -- Ernst Malmsten, Kasja Leander and Patrik Hedelin in 1998. Malmsten and Leander, the real visionaries behind the business, had previous experience and success with Internet businesses in Swedem. This was very impressive for 1998, before many people had even tried the Internet, let alone figure out the commercial potential it could harness. 

boo was to be the world's first online shop for fashion and sportswear. In a world with the hindsight of the successes of Net-a-Porter, eLuxury, ASOS and Yoox, this seems like an obvious idea. But, Leander and Malmsten faced substantial pessimism and doubt about boo's potential from many of the people they contacted. Through sheer determination, optimism and hard work, they slowly won people over to their idea.

Even if you are not interested in Internet businesses or business planning, this book is chock-full with lessons about setting up new businesses. It would be an insightful read for any entrepreneur. Since I was living in London at the time of boo.com's meteoric rise (and then dramatic fall) and knowing the ultimate conclusion of the business, I found myself rooting for Malmsten and Leander the whole way through, and wondering what I would have done in their shoes. What decisions would I have made differently? What decisions did they execute brilliantly? A few of the lessons that resonated most with me:

• Focus - be clear about what your company is about and what it is trying to achieve so as to understand what the core competencies of the business need to be. In the case of boo, not focusing meant they spent time an energy launching a new magazine and opening an international network of offices to support a business website that hadn't yet been launched. This burned cash and detracted from the essential tasks at hand.
• Choose investors and strategic partners who believe in you and your idea - they will end up being the ones to support you when things don't go as planned, not just because their money is at stake. That said, as an entrepreneur, to use  a quip from the book, you might always want to think of your investors as "the enemy." The worst kind of investors for a start-up are the ones looking for a quick buck, who'll walk away without warning, when the going gets tough.
• It's never too early to build a company culture - boo got as far as it did due to the commitment, excitement and buy in from its employees. This is an incredibly valuable resource and your employees can become great sources of guidance, energy and realism.
• Beware the publicity machine - The media is very powerful, and while boo built an amazing profile in such a short period, having extremely high expectations from the marketplace can add additional pressure while the foundation of the business is being set up. And, if you aren't able to deliver what you promised, when you promised it, the media will be just as happy to tear you down afterwards
• Choose your partners carefully - Partnership is very tough. Having partners who don't add value or whose objectives are different from yours will eventually lead to breakdown of the partnership. Being completely aligned  and having tough conversations early on about roles, vision, strategy and exit strategy are crucial. Even then, it is inevitable that partnership issues will arise -- these should be discussed openly and honestly so they can be resolved

I recommend this book highly. It is extremely readable, accessible and interesting, even to those who have no business training. It addresses all the nuts and bolts of building a business and as such, offers lessons to everybody in any business.

By the way, in case you're wondering what happened to the company's assets, brand and domain name, I went to the boo.com website and it says  "A new boo.com is on the way" and then provides an opportunity to dress a guy in "slick" or "street" clothes. Also, rumour has it that Natalie Massenet of Net-a-Porter scooped up some of the expensive servers and hardware that was purchased to support boo's complex website and all the traffic it was to receive.