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FASHION AND THE WEALTH OF NATIONSFASHION AND THE WEALTH OF NATIONS
3rd Lecture ofLEARNING FROM MILANO
The Business Model of the Italian Design IndustryIntersection course by Giannino Malossi and Marco Ricchetti
HERMES LAB
A few basic questions about A few basic questions about the Fashion Economythe Fashion Economy
•What has to do fashion with the wealth What has to do fashion with the wealth of a nation ?of a nation ?
•How fashion generates value for the How fashion generates value for the industry?industry?
•How strong (and far reaching) are the How strong (and far reaching) are the linkages between manufacturing and linkages between manufacturing and fashion design?fashion design?
•Does an optimum management model Does an optimum management model exists for a fashion company?exists for a fashion company?
FASHION AND THE WEALTH OF FASHION AND THE WEALTH OF NATIONSNATIONS
The italian fashion industry in 2001 (textiles, clothing, leather goods, footwear)
Bln. € 2000 2001 %
turnover 57,74 59,08 2,3 export 34,99 37,71 7,8
Source: Hermeslab estimates based on ATI,SMI,AIMPES,ANCI, ISTAT data
Over 800.000 employees in ItalyOver 800.000 employees in ItalyOver 3.000.000 employees in EuropeOver 3.000.000 employees in Europe(just in (just in manufacturingmanufacturing of fashion goods!!!) of fashion goods!!!)
The engine of fashion: Italy as an exampleThe engine of fashion: Italy as an example
How fashion generates value for the industry?How fashion generates value for the industry?
3 basic competitive strategies
A cost leadership strategy is one in which a firm strives to have the lowest costs in the industry and offer its products or services to a broad market at the lowest prices.
A firm that uses a differentiation strategy is one that tries to offer products or services with unique features that customers value. The value added by the uniqueness lets the firm command a premium price.
The focus strategy can be either a cost leadership or differentiation strategy aimed toward a narrow, focused market.
Neither of these strategies is inherently good or bad.
Cost Leadership strategy
Characteristics: Low level of differentiation
Aim for average customer
Uses knowledge gained from past production to lower production costs
Add new product features only after the market demands them.
Advantages: Cost advantage protects from new entrants.
Can reduce price to protect from new entrants
Risks: Competitors may leapfrog the technology, nullifying the firm's accumulated cost reductions.
Competitors may imitate the technology (e.g., IBM clones in PC industry).
Differentiation
Characteristics: Key is perceived quality
Quality
Innovation (technological, "cultural content")
Service after sale
Advantages: Perceived quality and brand loyalty insulate company from threats from competition: Price increases from powerful suppliers can be passed on to customers who are willing to pay.
Buyers have only one source of supply.
Brand loyalty protects from substitutes.
Brand loyalty is a barrier to new entrants.
Differentiation
Risks: Imitations are more of a threat today because of production technology.
How long can the firm sustain a particular differentiation advantage? The "shelf life" for such advantages is getting shorter and shorter.
How high can the managers raise the firm's price before customers will be willing to switch?
Customer tastes may change and wipe out competitive advantage: the higher the propensity to change the higher the risk
In the knowledge economy, strategy In the knowledge economy, strategy must focus on expanding existing must focus on expanding existing
markets or creating new ones - not markets or creating new ones - not beating the competition on costs.beating the competition on costs.
Fashion is, by definition, change.Fashion is, by definition, change.Success in fashion industry comes Success in fashion industry comes
with the ability to grasp and recreate with the ability to grasp and recreate in clothes and accessories the in clothes and accessories the etherealethereal spirit of the time and voluble desires spirit of the time and voluble desires
of customers.of customers.
Fashion adds an important design Fashion adds an important design dimension to textiles or leather dimension to textiles or leather
artifacts, which is capable of providing artifacts, which is capable of providing a continual and varied flow of a continual and varied flow of newnew
productsproducts
Source: Marshall L. Fisher
The The variabilityvariability, , unpredictabilityunpredictability and and the the multiplicitymultiplicity of factors behind the of factors behind the success or the failure of a particular success or the failure of a particular
garment that becomes the garment that becomes the best sellerbest seller (or the (or the worst-sellerworst-seller) )
of the season generates at every of the season generates at every season a season a risk far greaterrisk far greater than those than those
involved in the launch of new products involved in the launch of new products in other industriesin other industries
Risk management in the fashion businessRisk management in the fashion business
Consumer tastes less predictable than in the
past:
department store markdowns, a key
indicator of how well what is supplied by department
stores matches what customers want to buy,
have grown from 8% of have grown from 8% of sales in 1971 to 33% in sales in 1971 to 33% in
19951995
In Italy the textile plays a pivotal role within a complex cluster
of industries and services
The textile-clothing-fashion-home The textile-clothing-fashion-home clustercluster
FIBRES
TEXTILE MACHINERY
KNITWEAR
ACCESSORIES
ACCESSORY
MACHINERY
CLOTHING
TRADE
FAIRS
FINISHING MACHINERY
INDEPENDENT
RETAILERS
MASS-SCALE
DISTRIBUTONPRODUCERS’
P.O.SVISUAL
MERCHANDISING -
TRAINING TECHNICIANS AND DESIGNERS
DYERS - PRINTERS FINISHERS
COTTON YARNS
WOOL YARNS
FILAMENT
SILK-LIKE TEXTILES
WOOL TEXTILES
COTTON TEXTILES
PRESS - MEDIA
P.R. - COMMUNICATION
- DESIGN - STYLISTS
BUREAU DE STYLE - TRENDS FORECASTS
ICULTURE INDUSTRY - SPECTACULA EVENTS
HOME TEXTILES TECHINCAL TEXTILES
OTHER INDUSTRIES
TEXTILE APPLIED RESEARCH
The textile-clothing-fashion-home cluster is more than a mere
summation of products, sectors, or statistical categories
It is first and foremost a system of relationships that strengthens
competitiveness.
The textile-clothing-fashion-home The textile-clothing-fashion-home clustercluster
3 capabilities for the 3 capabilities for the Management of riskManagement of risk
Bureau de style
Produttori di fibre
Istituti di previsione delle tendenze moda
FILATORI
TESSITORI
CONFEZIONISTI
DETTAGLIANTI
CONSUMATORI
GRIFFES
STAMPA SPECIALIZATA,
PUBBLICITA' RIVISTE,
CINEMA, TV,
TESTIMONIALS ECC.
PROTOTIPI, CAMPIONARI, FIERE
PROTOTIPI, CAMPIONARI, FIERE
PROTOTIPI, CAMPIONARI, FIERE, SFILATE
NEGOZIO, SERVIZIO, ASSORTIMENTO
PROTOTIPI
LEGENDA:
FLUSSI DI INFORMAZIONI
FLUSSI DI MERCI
Risk management in Risk management in the fashion business the fashion business
and the role of and the role of information flows information flows
through the through the pipeline.pipeline.
1) The manufacturing 1) The manufacturing pipeline works orders in pipeline works orders in hand. The main risk is hand. The main risk is born by the retailers.born by the retailers.
2) Trade fairs, prototyping 2) Trade fairs, prototyping and sampling contribute and sampling contribute to the streamlining the to the streamlining the pipelinepipeline
3) The communication 3) The communication overload reduces the overload reduces the risk of large risk of large mismatching between mismatching between the supply pipeline and the supply pipeline and consumer behaviourconsumer behaviour
Mismatching Mismatching riskrisk
Mismatching Mismatching riskrisk
Increasing uncertainty
and risk
Medium to Medium to highhigh
highhigh
very highvery high
RISKRISK
N. OF DIFFERENT FABRICSIN GARMENTS SOLD TO
RETAILERS
N. OF FABRICS ACTUALLY USED
IN GARMENT COLLECTIONS
N. OF SAMPLES DEIGNED BYWEAVERS
(EXCEED 60.000 SHOWED AT Première Vision)
Fonte: Hermes Lab
The selection process: the case of fabricsThe selection process: the case of fabrics
Risk management in the fashion businessRisk management in the fashion business
H
E
I
C
G
A
C
G
H
I
A
E
COSTO FILATI E TESSUTI
COSTO DEL LAVORO E GESTIONE NELLE IMPRESE DI CONFEZIONE
DESIGN, PUBBLICITA' COMUNICAZIONE
MARGINE NETTO CONFEZIONISTA
PERSONALE, AFFITTO, GESTIONE DEL PUNTO VENDITA
SCELTA DELL'ASSORTIMENTO E COSTO DELLE SVENDITE/INVENDUTO
MARGINE NETTO DEL NEGOZIANTE
100=prezzo di vendita
dell'abito
VALORE
"MODA"
B
D
F
L
FF
D
'Il valore aggiunto creato da funzioni "moda": 'consulenze bureau de style, designer e stilisti; royalties; realizzazione prototipi; 'progettazione interna, ricerca e
ingegnerizzazione nuovi prodotti; marketing; 'partecipazioni a fiere, sfilate di moda, show room; costi scelta
assortimenti; 'comunicazione, promozione, vetrine e localizzazione punti vendita
IN BLU:
MATERIE PRIME E VALORE AGGIUNTO
MANIFATTURIERO
IN ROSSO:
VALORE AGGIUNTO DA FUNZIONI
"MODA"
F
BL
The value created by fashionThe value created by fashion
0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0
Ecus / Kg
ITALY
GERMANY
FRANCE
EUR Average
AUSTRIA
IRELAND
DENMARK
NETHERLANDS
PORTUGAL
FINLAND
SPAIN
SWEDEN
UTD. KINGDOM
GREECE
BELG.-LUXBG.
AVERAGE PRICE x KG OF GARMENTS EXPORTED BY EUROPEAN PRODUCERS
Fonte: Hermes Lab su dati Eurostat
The value created by fashionThe value created by fashion
How strong (and far How strong (and far reaching) are the linkages reaching) are the linkages between manufacturing between manufacturing
and fashion design?and fashion design?
-0.30
-0.20
-0.10
0.00
0.10
0.20
0.30
0.40
TURKEY FRANCE GERMANY UNTDKINGDOM
ITALY KOREA REP. CHINA THAILAND INDONESIA USA,PR,USVI
SPECIALIZATION IN WOMENS’WEAR OF SPECIALIZATION IN WOMENS’WEAR OF LARGEST WORLD EXPORTING COUNTRIESLARGEST WORLD EXPORTING COUNTRIES
THE SPECIALIZATION IN WOMENS’WEAR VS. MEN’SWEARTHE SPECIALIZATION IN WOMENS’WEAR VS. MEN’SWEARAS A PROXY OF SPECIALIZATION IN FASHION GOODS AS A PROXY OF SPECIALIZATION IN FASHION GOODS
Services are a major vehicle Services are a major vehicle in adding value to in adding value to
manufactured goodsmanufactured goods
A tentative 3 circles map of the services A tentative 3 circles map of the services sector selling to the fashion businessector selling to the fashion busines
SECON TIER
GENERAL
COMMUNICATION/PUBLISHING
CONSULTING/TECHNICAL
DESIGN
TRADE
SHOW
ROOM
FIERE
STILISTI
DESIGN
P.R.
PERIODICI
SPEC.
RIVISTE
FEMMINILI
FOTOGRAFI
CONSULENZE
DIREZIONALI,
LOGISTICA
MARKETING ECC.
VISUAL
DESIGNER
SISTEMA
ALBERGHIERO E
TARSPORTI
AGENZIE
DI PUBBLICITA'
SPAZI
URBANI
LOCATION
DEI NEGOZI
RICERCA
DI BASE
NUOVI MATERIALI
TECNICI DI
PRODUZIONE
TV - RETI DI
TELECOMUNIC.
CORE
Core tier: Specialized services
for the fashion business.
Second tier: General services but oriented to the fashion business moda,
External circle: General services
TRADE SERVICES: TRADE SERVICES: the case of Milanothe case of Milano
Show rooms in Milano 633
FASHION FAIRS IN ITALY: 41
Fashion week in Milano:Runaway shows/designers presentations 300
Buyers registered 30.000
Turnover generated by Fairs in Milano
1,5 bln Euros
There are more than There are more than
8.100 employed 8.100 employed
in design companies in Italyin design companies in Italy
DESIGN SERVICES: DESIGN SERVICES:
In Italy the yearly turnover in store fittings and In Italy the yearly turnover in store fittings and design design
is estimated at around is estimated at around 5 billion Euros5 billion Euros
greater than that of machine tools greater than that of machine tools or motorcycles, or motorcycles,
similar to hat of household appliances, similar to hat of household appliances, more than double of more than double of pasta pasta the italian national the italian national
symbol, symbol, not much lower than wine, beer and beverages, not much lower than wine, beer and beverages,
and over half of that of computers.and over half of that of computers.
DESIGN and TRADE SERVICES DESIGN and TRADE SERVICES
Settore
Target
Concept Lifetime
Years
Store format
Mq surface
Cost x mq
(mln lit) Outerwear Mass 5 120-200 0.8-1.2 Outerwear Medium 3 120-200 1.5-2.5 Outerwear Top 3 120-200 Over 7 Clothing Medium 6/8 > 1000 mq 0.6/0.8 Sport goods Medium 3 400-800 mq 1.5/2.0 Cosmetic Medium 5 100/200 mq 2.0/3.0 Eyewear Medium 5 300/400 mq 3.5/4.5 Hosiery/swimwear Medium 4 40/60 mq 1.0/1.2 Underwear Medium 4 50/100 mq 1.0/1.2 Jewelry Medium 5 60/100 mq 3.0/4.0 Footwear Medium 4 100/200 1.0/1.5
The cost of setting up a new shopThe cost of setting up a new shop
DESIGN and TRADE SERVICES DESIGN and TRADE SERVICES
Does an optimum management model Does an optimum management model exists for a fashion company?exists for a fashion company?
The fashion business in the The fashion business in the ‘80s‘80s
Communication
Retailing
Design
Manufacturing
CultureSociety
Consumption
The fashion business in the The fashion business in the ‘90s‘90s
Design
Manufacturing
Communication
Retailing
Multi-competenceMulti-competencecompanycompany
CultureSociety
Consumption
Zara: - turnover more than 2bln €, - produces and sells fashion goods at reasonable price - more than 2.000 differents models a Year - 24.000 employees, 2000 designers more than 300 designing
collections - 90% of products manufactured in European Countries
distinguished itself by - tightly integrating its design and manufacturing systems - translating the latest trends into designs that are manufactured
in less than 15 days--and delivering them to its stores twice a week--Zara pioneered a new kind of quick, custom-made retailing that has transformed the relatively low-profile retailer into a global powerhouse. Nobody else in Europe can get new designs to stores as quickly: European-retail AT Goldman Sachs. "Unless you can do that, you won't be in business in ten years."
- producing about 60% of its merchandise in-house, while its direct competitors such as the Gap and H&M outsource most of their manufacturing
- running almost no advertising outside of its biannual storewide sales, can go with the concept of design-on-demand retailing
- focusing on logistics (zara's logistics are considered the best around in Europe)
Diesel: - turnover over 350mln €, - over 1000 proposal evaluated for each collection - 250 employees, 60 designers and r&D personnel, 120 in the
logistic dpt. - Production mostly carried out in Italy
distinguished itself by - Production carried out at external plants (small-medium
loboratories) - Emphasis of innovation, communication, teamworking, retail
network. - Attention to weak signals of change in consumer attitude - Strong advertising campaign
What has to do fashion What has to do fashion with the wealth of a nation ?with the wealth of a nation ?
Fashion relies on industry as anFashion relies on industry as aneconomic engine economic engine
The industry relies on fashionThe industry relies on fashionas as a competitive weapon as as a competitive weapon
The cultural and volatileThe cultural and volatilenature of fashion produces nature of fashion produces serious serious challenges to the management challenges to the management of fashion business of fashion business
The result is an interesting The result is an interesting interdependenceinterdependence
between insubstantial frivolity and between insubstantial frivolity and conreteli practical economic behaviorconreteli practical economic behavior
