The Business of Fashion

Everybody's talking about | Women in the middle

Some say that during a downturn, there is a flight to the high-end: buy fewer of the more expensive pieces that will stand the test of time and do away with impulse fashion purchases. There is also a rush to discounters: buy the same quantity of goods, but at lower prices which enables consumers to keep the newness factor, albeit at inferior levels of quality. Therefore, it is said, the middle market suffers.

Whatever is the conventional wisdom, if recent moves by some of the industry's most successful fashion executives are any indication, there is a significant opportunity to be captured in the middle market, which has lagged in recent years. They are putting their money where their mouths are.

Style.com: Sartorialising

WWD reports today that Style.com has concluded an agreement to sell advertising on the Sartorialist blog maintained by Scott Schuman, a former fashion industry staffer who left a fashion sales showroom to create one of the best known blogs in the fashion blogosphere.

Women's Wear Daily said:

A fashion label may get the best endorsement when its wares show up on a well-dressed city dweller photographed for fashion industry veteran Scott Schuman's popular blog The Sartorialist. But for those who want more direct brand promotion, Style.com and Men.style.com will begin to sell ads for Thesartorialist.blogspot.com beginning Sept. 1....

YSL: Interactive experimentation

For years now, the Yves Saint-Laurent brand has been a drag on the otherwise strong results posted by many other fashion brands in the Gucci Group, owned by parent-company PPR. Most recently, Bottega Veneta has been on a tear with strong financial results (eclipsing YSL's top line revenue in 2006) and a leading position in the luxury consumer league tables, making it the number two luxury brand in PPR's stable.

The story for YSL is a lot less fairytale, and a lot more Nightmare on Elm Street. The brand has not been profitable since Gucci Group purchased it in 1999 and is still reportedly losing around €50m a year. The brand turned over €194m in sales in 2006. PPR doesn't break out operating loss of YSL its website and has not provided a timeframe to investors for expected profitability.

The Business of Fashion: Basics 3 - How do I find the right investors and partners?

Taking on financing is one of the most important decisions an emerging fashion company will make.  This step is absolutely essential because the early stages of growth often requires significant amounts of working capital that cannot be generated by the business alone.  So, unless you are independently wealthy and sitting on a pile of cash, financing decisions will be part of your critical path, early on.

What is the difference between equity and debt?
Financing can come in many forms, but it basically comes down to equity versus debt.

Equity investors (in this case, venture capitalists or angels) provide cash to invest in your company and  therefore end up sharing ownership of the company with you. They invest in the hopes that your business will grow and that they will have some positive return through shared profits and upside.  They may offer you resources and expertise to help drive the business further. In fact, this is much preferred to someone just giving you cash and leaving you to fend for yourself.  If, however, you disagree fundamentally with your investor on where you want to take the company and how you will do it, then you may find their "help" a nuisance. Thus, when evaluating equity investors, choose someone who is aligned with your strategy and who has the industry and/or functional experience that your business needs to grow.

Debt financing, on the other hand, usually comes in the form of loans, where you are required to pay back  the money you have borrowed, plus interest, using a fixed schedule of payments that can be spread out over many years. While debt providers won't be actively involved in your day to day business, taking on debt will mean you will have an additional cash outflow that your business will have to be able to support each month to stay on good terms with your bank. If payments aren't made regularly, you may quickly find yourself dealing with irate calls from your bank manager. In the worst case, taking on too much debt  could drive your business into bankruptcy. Debtors are always paid back before profits are shared amonst the shareholders of your company.

Crowning glory: The CFDA/Vogue Fashion Fund

For all of you budding young designers based in America, the CFDA has officially begun its annual search for America's most promising young designers. Each year, the CFDA awards a $200,000 grant to the winner, along with mentoring from a recognised fashion business guru as part of the CFDA/Vogue Fashion Fund.  Past winners include the intelligent and talented Doo-Ri Chung (looking super glam in this ad) who is mentored by J.Crew's legendary Mickey Drexler and the refined-beyond-their-years Proenza Schouler design duo, Jack McCullough and Lazaro Hernandez, who were mentored by Burberry's impressive former CEO, Rose Marie Bravo.

This is a really great initiative from the CFDA and other venerable fashion names like Barneys New York and Vogue. That said, I have one suggestion to make it even more powerful. I believe the CFDA should supplement the business mentoring and cash with a requirement and access to funding for the winning designers to find a suitable day-to-day business partner/advisor. While mentoring from an experienced fashion business executive is priceless, it does not make up for daily support and partnership.

I have made this point before, but so many young designers try to do everything on their own, and this means they deal with areas where they might not have any formal training or expertise. One look at the long list of established designers who have relied on business parters to act as thought partners on day-to-day decisions and to share the workload, shows that this is a real pattern of success in the industry.  Marc Jacobs (who has Robert Duffy), Miuccia Prada (has always worked with her husband Patrizio Bertelli), Tom Ford (who with Domenico De Sole turned Gucci around from a fuddy duddy backwater brand), Giorgio Armani (Sergio Galeotti worked with Armani for years before he passed away), Valentino (Giancarlo Gianetti is still his business partner, even if he is no longer his life partner), and Derek Lam  (Jan-Hendrik Schlottmann) have all shown that this tandem approach can help to get the business off the ground properly, allowing the designer to focus more on the creative aspects of the business.

This ad above, from today's WWD, lays out all of the requirements and the application procedure. Good luck!