LONDON, United Kingdom — For consumers, high-end fashion delivers significantly less ‘bang for buck’ than other luxury categories. While you can wear the same watch or necklace or handbag every day — and always look good — you cannot wear the same dress to every event.
Fashion is also a weaker signifier of status than other luxury items, as the brand of a piece of clothing is less immediately apparent than the brand of a bag, for example. Plus, when it comes to clothing, it is usually possible to get away with a lower-priced alternative. As a result, consumers often prefer to mix clothing from mass fashion retailers and specialist mid-priced brands with high-priced luxury accessories, limiting their spend in designer ready-to-wear.
But this is only one of the issues facing high-end clothing. At retail, designer fashion is structurally disadvantaged, requiring larger display and merchandising floor space, as well as greater storage space. Productivity per square foot is significantly lower for high-end fashion than for leather accessories and hard luxury. These challenges are compounded by the highly seasonal nature of the business and the complexities of sizing, which makes full-price sell-through of high-end fashion much lower than other categories.
For high-end brands, defending the exclusivity on which their desirability rests can mean difficult choices. Moving upmarket risks condemnation to an irrelevant niche, while developing sub-brands and turning to licensing can be a slippery slope, resulting in brand trivialisation and diluted brand equity.
How to resolve the designer ready-to-wear conundrum?
The major luxury groups are pursuing a range of strategies. Brands like Dior and Chanel have focused on fragrance and accessories. While among the leather goods mega-brands, Prada and Gucci continue to nurture their strong ready-to-wear DNA. On the whole, LVMH and Richemont appear to see their smaller fashion brands as future prospects rather than near-term stars. Richemont has increased its fashion presence through pure play e-tailer Net-a-Porter, but less than five percent of the group’s revenues come from ready-to-wear. Céline is a good example of a smaller LVMH brand coming of age, though most of its recent commercial success has come from leather goods. Kering, on the other hand, has had greater success with its ready-to-wear brands, notably Stella McCartney and Alexander McQueen, yet Exane BNP Paribas estimates that these brands generate combined sales, in both apparel and accessories, totalling only about five percent of Kering’s overall luxury sales.
Critically, the large European players have largely failed to tap the space between mass fashion retail brands and ready-to-wear brands that has been so effectively tapped by ‘accessible luxury’ juggernauts like Michael Kors and Tory Burch, as well as mid-priced specialists like Isabel Marant, Sandro, Maje, The Kooples, Patrizia Pepe, Pinko and Liu Jo. It is interesting to note that private equity funds — like KKR and L Capital — are investing in mid-priced fashion brands that are proving capable of direct retail expansion.
LVMH could bring Marc Jacobs and DKNY to the game and focus these brands in the mid-price space. But this does not seem to be a major priority for the group, as it appears to be concentrating its activity on its core brands and the higher end. Prada could also look to extend its reach by positioning Miu Miu at a lower price point, but this is certainly not on the agenda at the moment. On the contrary, Prada is taking Miu Miu in the exactly opposite direction, putting the brand on the same level as Prada. Balenciaga, which is going through a period of change under Alexander Wang, seems the next brand to watch at Kering, while Kenzo — for many years, a thorn in the side of LVMH — is seemingly getting new traction with a more mid-priced offering.
But the bottom line is: there is no obvious winning strategy to make designer ready-to-wear work. Designer ready-to-wear brands run the risk of becoming commercially irrelevant or losing their magic, while the accessible luxury space looks promising and open. But moving into this space means brands must become retailers, a major weakness of Italian and American designer ready-to-wear labels, which have largely focused on wholesale and not developed internal retail capabilities, running their few direct-to-consumer stores as flagships: beautiful brand “cathedrals,” which are, alas, often deeply loss making.
Luca Solca is the head of luxury goods at BNP Exane Paribas.