An important decision that you will have to address as you start up your fashion business is choosing your business model. Different types of fashion business models suit different types of businesses. Generally speaking, a business is what you do, how it makes money and the day to day operations. Put simply: “How do you plan to make money?” Your business model will be the determinant on how you will sell products or services to your customers. There are several factors to consider as you try to determine your best model including, target customers, business mission and values, profit margin and unique service or product you are delivering to your customers.
In business models, understanding the value of your product/service is important and not value in terms of cost but what customer problem does you product solves. So for example, H&M offers fast fashion at the best price. To have an effective business model, you have to understand that different market segments have different needs, preferences and purchasing criteria so that you can create an optimal delivery system for that value. With this in mind, there are four fashion business models to consider: luxury brands, fashion designer brands, premium brand and vertical retailers. What you have to remember is that although all businesses have a business model, what works well for them will not necessarily work well for you, which means once again, research, research and research.
Luxury brand is the oldest business model, which originated in France and has the potential to generate substantial returns if done right. Not only is it possible to charge up to ten times the manufacturing price, it is also possible to build a renowned global business with apparel being just the first type of product offering. Typically, a luxury brand consists of more than just apparel including also accessories, beauty products, jewelry and watches.
However, this business model can be quite stressful considering the control of manufacturing, quality, consistency and brand placement. Generally, this model takes years to generate returns and it’s a bumpy road to success. Primarily because this model incorporates the use of design-rich clothing lines that eats a lot of the budget but eventually making its money through lucrative licensing deals. For a luxury brand to achieve success it must have a strong heritage and customer base. With more and more people opting for more affordable and less frilly brands, this means that luxury brands target more or less to the a smaller elite customer base with assured quality being of out-most importance.
What defines a luxury brand is their focus on exclusivity, uniqueness, quality, timelessness, legacy, heritage and craftsmanship resulting in higher priced products. Calling oneself luxury does not make it so unless these elements exist. Most luxury brands are 50 years old and older.
Examples of fashion business who have used this model include, Hermes, Prada and Louis Vuitton.
Premium brands, also called contemporary brands, are more affordable than luxury brand, but there are still pricey. While luxury brands focus more on rarity, premium brands are more accessible, rational, and usually modern chic and best in their class.
Managing a premium brand can be challenging because a balance needs to be struck in not diluting your brand’s image by appearing to be mass market or making your products too inaccessible. Thus, even if manufacturing many products could help you with your business’s short-term growth, you can’t make your customers lose their sense of exclusivity and pride. Thus, packaging, customer service and your business’s image must be of the highest caliber. Still, premium brands are growing popularity because of their affordability and quality. Premium brands are a heterogeneous group such as Coach and Diesel.
Fashion designer brands
With a fashion designer brand, the core of this business is change with the need to anticipate and create new trends to be successful. While, luxury and premium brands can venture out into accessories and other product offerings, for a designer label, the main source of revenue is clothes.
With this brand, the fashion designer is more involved in every aspect of production to ensure brand positioning and consistency. Moreover, due to the constant change in fashion and competition from fast fashion retailers, designer labels have seasonal collections and a variation in product prices. Thus, there is the more expensive and exclusive collection and a diffusion line which is casual and more affordable. Fashion designer brands are driven by and closely tied to the designer who creates each collection and makes the final decision on how the brand should be conveyed.
The vertical retailer is a business model that has gained global momentum over the last decade. This growth can be attributed to booming brands such as Zara, Mango and Uniqlo. A vertically integrated model means that you include the different steps in the typical distribution process, so instead of operating solely as a manufacturer, distributor or retailer, you carry out all these tasks in house. Thus, you are not limited to just distribution and retailing and this gives you better control over the entire flow of goods until they reach your intended customer. In addition to better interaction with customers, you benefit from lower costs especially if you also make your own goods.
Typically there are two players among vertical retailers, mass fashion retailers and mass basic retailers. Mass basic retailers are less responsive to the seasonality of fashion, while mass fast fashion retailers respond more to the seasons of the fashion world, like summer, fall or winter collections and trends. Generally, most mass basic retailers are usually brands that offer a wide range of products that are readily available to the public. With competitive prices, this adds to their attractiveness as a convenient business model such as GAP and Uniqlo. Fast fashion retailers like Zara, offer a flow of new and fashionable products in large numbers and at convenient prices.
The success behind a vertical retailer model is customer centricity, control and efficient logistics. With retailers such as Zara, products are renewed at least every two weeks and if you own the store, you can have daily feedback on what is sold and what isn’t. This way, you can always be at par with market trends and start manufacturing products based on customers’ needs and preferences.
Vertical retailing is appealing to shoppers because of their wide range of products, accessibility and affordability. Moreover, even though it can be quite expensive to start out, vertical retailing has high returns and offers you more control over your products.
Finding the perfect business model is challenging and most businesses constantly change their model to suit the current market and changing business goals. What makes fashion exciting is that it is dynamic and as a start-up business you have to be innovative and pay close attention to trends.
Cover Image sourced and subject to Copyright © Maurilio Amorim
Image sourced and subject to Copyright © FarrahGray