The Business of Fashion
Agenda-setting intelligence, analysis and advice for the global fashion community.
Agenda-setting intelligence, analysis and advice for the global fashion community.
LONDON, United Kingdom — Since their inception, second-tier "diffusion" lines like Emporio Armani, D&G and Marc by Marc Jacobs, which combined the halo of a designer brand with more accessible fabrications and lower price points, grew to become crucial channels for increasing awareness, recruiting younger consumers and generating reliable revenue streams. But in recent cycles, seismic shifts in the market have since put significant pressure on the concept of diffusion lines. For one, diffusion lines, which once dominated the middle market, must now contend with the rise of accessible luxury titans like Michael Kors and Tory Burch, both of which position their more affordable offerings as genuine mainline product.
Diffusion lines are now "squeezed on three fronts," observed Luca Solca, head of luxury goods research at financial services firm Exane BNP Paribas. In addition to accessible luxury brands, consumers now also have the options of shopping fashion from advanced contemporary brands like 3.1 Phillip Lim and Alexander Wang, as well as designer collaborations with mass retailers.
“These newcomers have bigger volumes of production (and therefore can have more competitive prices), very fast product development cycles (and therefore they can be closer to the latest fashion cycles), and can sustain mono-brand stores, given their wider product offer,” said Mario Ortelli, senior vice president of European luxury at Bernstein, a financial services firm.
As a result of these pressures, many fashion companies have reformulated their approach to diffusion lines. Prada Group, for one, chose to reposition Miu Miu, once a secondary line, as a sister label to signature line Prada. Others, such as Michael Kors and Burberry, have shuttered some of their diffusion lines altogether, notably Kors by Michael Kors and Burberry Sport.
Comme des Garçons avoided diffusion lines from the beginning. "We never liked the idea of diffusion because it kind of waters things down. It dilutes the idea. When you think of every single diffusion line, the name is shorter: Ralph Lauren becomes RL, Donna Karan becomes DKNY. When we did a second line for Comme des Garçons we deliberately made the title longer — Comme des Garçons Comme des Garçons — because it wasn't a diffusion line, it was an extension: the thing that comes off the real thing, so you keep the spirit. The concept behind it is not lesser than the first Comme des Garçons line," Adrian Joffe, president of Comme des Garçons, told BoF last year.
When Domenico Dolce and Stefano Gabbana closed D&G in 2011, the brand was profitable, with reported annual revenues of approximately €400 million, but the duo decided to integrate the offering into its mainline. “From the upcoming seasons, D&G will become part of Dolce & Gabbana, giving even more strength and energy to our collections.” Of course, the move also eliminated the heavy cost structure associated with separate teams, shows, campaigns and stores.
“Dolce & Gabbana have moved this way. Others have yet to streamline their brand portfolio, but risk losing money as sub-brands don’t manage to achieve scale enough to sustain dedicated fixed costs,” said Solca. “The smaller these businesses become, the more difficult it will be for diffusion lines to justify the significant fixed costs associated with their business models: dedicated design teams, dedicated showrooms and sales campaigns, dedicated fashion shows, dedicated flagships.”
"Just a few diffusion brands, those with strong brand recognition, wide collections and enough potential to sustain some mono-brand stores, such as Marc by Marc Jacobs and Emporio Armani, can adequately compete with the newcomers in the market,” added Ortelli. “I expect a rationalisation of many diffusion lines, especially the ones designed for the department stores. Some brands will make some capsules of more basic products at more accessible price points to sell in their mono-brand stores.”
“It makes sense for designer brands to reconsider the number of lines and sub-brands they want to maintain. One way to do this is for designer brands to integrate the diffusion lines’ price points within the main line product assortment,” said Solca.
Indeed, with today’s consumers now shopping from high to low, fashion companies are more willing to broaden their brands and sell a wider spectrum of products under the same umbrella, from ready-to-wear to Louis Vuitton coin purses, Fendi bag bugs and Prada robot key-rings.
While some brands have integrated lower cost products into their main lines, others are stocking their various diffusion lines in the same stores, thereby eliminating the significant additional overhead cost of separate retail outlets. Burberry, for example, operates a handful of standalone stores for its Burberry Brit line, but for the most part has committed to housing Burberry Prorsum, Burberry Brit and Burberry London under the same roof at its flagship stores.
But the message this sends to consumers can sometimes be confusing. “It is not always immediately clear to the customer what is a diffusion or a sister or a collaboration line,” said Lydia King, womenswear buyer at London-based department store chain Selfridges. “For example, we had our huge amazing world of Burberry, with all of the Burberry product within that, but we had to have our service staff illustrate what was what to the customer. As a retailer, you have to pay attention to whether the diffusion line has the huge recognition with customers necessary for it to be able to stand on its own, or whether it is going to get confused with the mainline. I think, for us, it is all about the customer message and the customer path.”
What is increasingly clear is that watered down versions of main lines no longer convince consumers to buy. “Customers are aware if a diffusion brand doesn’t have integrity and the collection is just really a money earner on the side,” continued King. “Maybe eight years ago, they could have had a diffusion line that would just churn out the volume, but then they focus all the PR on the main line, but the market just doesn’t work that way anymore. Customers are increasingly well informed and looking for integrity in the product.”
Defining their own aesthetic point of view has never been more crucial for diffusion lines. “They must not be commodity-driven, but focus on developing a credible identity and incorporating strong design elements that offer customers great value and quality for money,” said Natalie Kingham, buying director of MatchesFashion.com.
In 2013, Katie Hillier and Luella Bartley were tapped to reinvigorate Marc by Marc Jacobs, injecting youth and increased design credibility into the brand. So far, the approach has worked, giving Marc by Marc Jacobs (abbreviated as "MBMJ" across the brand's motocross-inspired debut Autumn/Winter 2014 collection) more of its own identity.
But for diffusion lines to work, companies must ensure their secondary lines are still able to capitalise on the positioning and halo effect of the mainline. “Where we don’t see it being commercial is where the diffusion line doesn’t represent in any way what the mainline is doing,” said King.
"Clare Waight Keller has now taken the See by Chloé line under her wing, [but] it is very clear that the aesthetic is targeting a different customer at a very different price point. To be a successful diffusion line and avoid confusion, all the boxes need to be ticked: design integrity, a separate product brief and a different pricing structure," said King. Crucially, See by Chloé is distributed exclusively through wholesale channels, avoiding the costs associated with supporting a network of own-retail stores.
"See by Chloé is only available in the contemporary space of department stores whereas Chloé boutiques only offer the main line," explained Geoffroy de la Bourdonnaye, the chief executive of Chloé. "The stylistic expression of the two lines, the fabrics and fabrications and the distribution channels are unique to each line. Even if the two lines benefit from the common infrastructure of the Chloé Maison, the creative and marketing teams are different, while respecting the common values of the Chloé brand."
Given the millenial consumer focus of many diffusion lines, replacing derivative aesthetics with the kind of Instagram-friendly riffing on branding seen at DKNY and Moschino Cheap and Chic is another interesting approach. “I think diffusion lines have the opportunity to not take themselves so seriously and can experiment with marketing and social engagement,” said King. “If brands are more creative with marketing or do offer a cult item, be it a phone case or a collectable t-shirt, at the end of the day it is enhancing the brand and offering it to a wider audience.”
In the long run, diffusion lines that can strike the right balance, honing strong identities while maintaining a credible connection to mainlines, may well survive. But for most fashion brands, assimilating lower-priced product into signature lines may make the most sense. Indeed, it’s becoming increasingly difficult to justify diffusion lines which confuse customers and drive up costs.