The Business of Fashion – Regulation, acquisition and the slowdown

When the global financial meltdown struck in 2008, many of those with a vested interest in the luxury market watched nervously; high net worth individuals had surely seen many investments wiped out as the recession struck and would thus be more inclined to austerity. While there was a brief moment of humility and caution over indulgence in life’s finer things, it was brief. The luxury market proved surprisingly resilient. Global spend has increased since the recession by around a third, helped in no small part by the explosion of growth in developing regions, China in particular. Orson Welles once said “If you want a happy ending, that depends of course on where you end your story”. Our story, sadly, does not end here.

It was not a good omen when fashion curator and director of the Musée Galliera in Paris Olivier Saillard said during New York Fashion Week last month, “We are in a moment that’s very bizarre in fashion: there are too many clothes”. Business of Fashion lamented both a lack of quality and vision in contemporary collections,

“Fashion seems stuck between the need to surprise using a new array of communications tools and the urge to deliver novelty at the fastest possible pace. Slowing down might be a solution, but that would be a hard route, which will hardly find followers.”

And it is followers that fashion, and the luxury market as a whole, are in need of. Earlier this month the Financial Times reported on the global slowdown of luxury spending. Behind this slowdown lie two factors. On the one hand, there is what are hopefully short-term influences; geopolitical turmoil is rife. Hong Kong continues to see protests that refuse to simmer down, causing disruption to myriad businesses. The city accounts for perhaps 20% of global luxury spending. The Middle East, whose consumer origin or nationality according to Bain & Co. has the biggest average per capita spend, is similarly in chaos, with Syria, Iraq, Afghanistan, Egypt, Libya all in various stages of unrest. Regions like Saudi Arabia and Qatar are caught between a rock and a hard place. In Russia, sanctions have hit oligarchs and their ilk hard. As a result, shares in luxury good companies have been hit hard. Prada has seen profits slide 20% in the first half of the year. Everyone’s darling of fashion innovation, Burberry, has warned of a “cautious outlook”. Mulberry has issued a string of profit warnings and recently ejected its CEO.

McKinsey illustrate the drift of luxury growth from developed to emerging markets

So we can reason that these companies are seeing fewer customers. But they are also attracting new ones, albeit with very different expectations of the service they expect from the companies they have relationships with. This is the longer-term challenge. Millennials may have been treated as a distinct niche group with quirky demands from brands, but next year they will outnumber Gen Xers, according to McKinsey. These utterly digitally savvy citizens have embraced and contributed to a digital fragmentation in the consumer decision journey, the production process and the fundamental nature of buyer / seller value exchange.

“[A] confluence of digital, the rising power of street fashion and changing consumer attitudes… are radically altering the industry. [It is a] consumer-led shift away from ostentatious and mainstream mega-brands towards understated originality”

One of the most obvious ramifications of this has been the trend of ‘logo fatigue’. It is likely to hit those like Gucci particularly hard, while benefiting those like The Row, and little-known retailers like L’Art du Basic. For larger brands there are some examples for inspiration though. Yoox, whom we have profiled in detail before, have gone from strength to strength in embracing effective digital strategy. The fashion ecommerce site reportedly sees 42% of its global traffic coming from mobile devices, and has recently made a significant push into experimenting with instant messaging app WeChat. As elaborated by Fashion and Mash, the account allows users to “shop via an interactive look book, and to instant message customer service teams and personal stylists. Content also invites users to exclusive events and provides early access to specific products”. In the physical world, Ralph Lauren’s hosting of a cafe in its Fifth Avenue store in New York may be less immediately strategic but seeks to leverage the same burgeoning trends. Brands will need to do more of this, more often, if they are to find what works best for them in terms of engaging and converting future prospects.

Also this month, Zeitgeist found itself at an event at London’s Four Seasons hotel off Park Lane, hosted by law firm Baker & McKenzie. Threats, tech trends and M&A were the main subjects of discussion. Zeitgeist scribbled down some bons mots which were thought worth recounting here. Last month, McKinsey produced an insightful piece on the future of luxury growth, indicating growth would come for the most part from what they termed global megacities, a large proportion of which were located in emerging economies. But China is facing a slowdown; no doubt one of the reasons it was recommended in the conference that businesses start to think less of China as an independent market of growth and more of ASEAN as a region.

3D printing was a matter of much conjecture, but it was pleasing to see that the regulation of such materials was already being considered. One speaker offered the technology would be a greater problem for toy manufacturers than luxury, but cautioned that fast fashion and high customisation were a potent mix. Current UK regulation allows for printing any designs (of one’s own creation or not) at home for personal use for no gain. Such laws may have to be re-examined as 3D printing becomes more widespread. It is difficult to protect the IP of a fashion designer’s work, and difficult therefore to know where to draw the line between inspiration and infringement. The case of the red shoe, specifically between Yves Saint Laurent and Christian Louboutin, has illustrated such difficulty. In the case of 3D printing, one speaker suggested that printing could be limited via restriction similar to how publishers use paywalls, or a more sophisticated version of the DCMA. The importance of protecting the source code of 3D printing designs looks set to be important; Pirate Bay already has a section for such product. Social networking as a new source of IP was also discussed. David Yurman sought opinions on styles to be included on a Valentine’s campaign; users could drop hints to their partner. Bergdorf encouraged fans to design Fendi bags over social, too. But there have been slip ups; Cole Haan offered to pay fans $1,000 for taking pictures of their shoes, without making it clear it was part of contest where someone would win and that the company was sponsoring the activity. They got off with a warning from the regulator, but luxury brands must treat that as a cautionary tale as they continue to experiment. “The law is not keeping up with the technology”, as one speaker sagely confessed.

David Yurman’s Facebook campaign suggests new IP possibilities for businesses in the future

The M&A chat was equally of interest. Speakers ruminated on the rise of vertical integration as LVMH et al seek to own the whole process. It’s a brave step for companies that traditionally haven’t involved themselves with supply chains or distribution, according to those speaking. Acquisitions were taking two forms: one was spotting missing gaps in the portfolio. For LVMH, the hole in their portfolio was jewellery, which lay behind their purchase of Bulgari in 2011. More recently Giorgio Armani – or as one speaker referred to the man himself, “King George” – reclaimed control of Armani Exchange as it attempts to leverage fast fashion trends. The other form was that of acquisitions in support of brand development – innovation, technology, CRM in Mandarin, social media, etc. More of these sorts of acquisitions were expected on the horizon.

How do these deals play out today? Private equity buyers have a lot of capital and access to cheap debt, but traditionally many of the targets of a buyout have been family-owned businesses who were not ready to relinquish control to a PE firm. These firms are much quicker and more aggressive at deals; they can quickly globalise a brand, can improve the supply chain and stretch the brand up and down from the original price point. Of course, adding new assets, like social media, makes due diligence – and knowing how to allocate risk to a mercurial medium – much harder. Owning supply chains carries risks of more exposure (see Apple and Foxconn). One of the most thorny issues that speakers envisioned was for a luxury good empire known for provenance and quality to be acquired by a a company in a jursidiction that is not known for such things. What if Alibaba bought Balenciaga from Kering, for example?

Digital is expected to drive, on average, 40% of projected luxury sales growth from 2013 to 2020

Next year will see the return of John Galliano to the runway stage to the helm of a fashion house, this time at Martin Margiela. A recent article on the designer’s flameout while creating works of wonder for Christian Dior emphasised the way in which Galliano “had been cloistered off into a strange protective bubble. Sometimes, we isolate (and elevate) talented creatives so much in the fashion industry that they lose connection with reality”. It is arguably a similarly protective bubble that the fashion industry itself has often been accused of being in, and we would argue it is in now with regards to the need for greater digital sophistication and a more significant investment in digital strategy as it concerns customer insights and the law. It is plain to see that the luxury industry continues to face disruptive challenges, be they at the hands of digital, demographic or geopolitical trends. Some of these disruptions will hopefully, as mentioned earlier, be more temporary in nature. The more fundamental shifts in consumption, though challenging, also present myriad opportunities for businesses that are brave and agile enough to test what works best to capture and retain the customer of the future. Last month Exane BNP Paribas published a report illustrating just how important digital sophistication will be (see above chart), and naming those most likely to benefit from such changes. They could do worse than start by reading our previous post on the future of retail.

The future of retail – What digital will do next for commerce

Back in July of this year, while schoolchildren dreamt of holidays and commuters sweated their way to work, management consultancy McKinsey sat down with president of eBay Marketplaces Devin Wenig. The interview is above; we’re going to pick on some highlights below as Wenig pontificated on the future of bricks and mortar stores, the change needed in marketing, the fallacy of big data and what will make for good competitive advantage over other retailers in the months and years to come. Often with talking heads the output can be generic and anodyne. Wenig though offers some insightful thoughts.

The future of the store: “I think stores are going to become as much distribution and fulfillment centers as they are full-fledged shopping experiences… They’ll become technology enabled so that you can go to a store and see enough inventory, but you may shop “shoppable windows.” We’re building those right now for retailers around the world. You may end up hollowing out the real estate, where the showroom is a much smaller part of the footprint, and the inventory and the distribution center become more of that footprint.”

How marketing needs to change: “There are still many instances that I see where it is old-school marketing. It’s still about major TV campaigns, get people into the stores. That’s still important, and that’s not going to go away. But understanding how to engage in a world of exploding social networks, how to use search, how to use catalog, how to optimize, and how to engage—very different skills.”

Competitive advantage: “I think the answer is data… While from the merchant standpoint incredible selection may seem great, from the consumer standpoint it can be overwhelming. I actually don’t want to shop in a store with a billion items for sale, I’m just looking for this. Data is the way to connect a long-tail advantage with consumers that oftentimes want simplicity.”

Executing on strategy: “Great data is both art and science. There’s a lot of press about the science; there’s not as much about the art. But the truth is that judgment matters a lot… we bring quantitative analysis to that to say, “The right way to look at our customers is this, not this,” even though there are infinite ways we could.”

The fallacy of big data: “It’s not about big data, it’s about small data. Big data is useless… it’s about me connecting with you, my business connecting with you. You don’t want to be part of a big data set; you’re just looking to buy a shirt. And that’s about small data. That’s about understanding insights that I can glean about you that don’t feel intrusive, don’t feel creepy, and don’t feel artificial—but feel natural. That, to me, is the future. There are glimmers of success there. I wouldn’t say the industry has arrived. For all the rhetoric about data, it’s a work in progress, but a critically important work in progress.”

Merging experiences: “E-commerce [fulfills] a utilitarian function… Stores have an important element of serendipity… The future of digital commerce is trying to get the best of both… we’re trying to spur inspiration.”

Ski-chic Strategy – Moncler, North Face & Canada Goose

Interesting video from the FT on Moncler, above. London’s more tony neighbourhoods of Chelsea and Belgravia have seen an explosion of thick down jackets over the past three years, mostly colourful, all with the same logo on them. They are worn as much by macho Eurotrash as Yummy Mummies. The brand is seemingly reaching a tipping point, where exclusivity leads to a bling reputation, where mass acceptance is quickly followed by mass exodus. La Martina has done a good job of steering clear of such waters, as we reported on in a state of retail article. While Moncler considers its IPO and a strategy for selling hot coats in Hawaii, North Face takes a completely different tack, embracing its mass appeal while still communicating an aspirational feel by showcasing the demanding professionals who use their apparel. Canada Goose, another recent entrant into the winter sportswear / city chic market, has also seemed to have had a burst of popularity recently. Zeitgeist saw no fewer than a dozen such coats around Soho and Chelsea this past weekend. An interview with the CEO of the company earlier this year described the strategy thus: “By focusing on the made-in-Canada, used-in-Canada story behind the coats, people would clamour for them.”

Twitter activity already points to Moncler having a ‘bling’ reputation. Investors will be hoping this can this be nipped in the bud before it is too late.

It will be interesting to see what happens to Canada Goose as it develops; whether it will try to emulate the more ritzy path of Moncler or the performance-related one of North Face. Zeitgeist doesn’t see many people in Europe on the ski slopes wearing Moncler, and doesn’t see many players on the polo field wearing La Martina (unless they are a sponsor). North Face, on the other hand, seems to have a deeply-seated place among hikers and skiiers, particularly in North America. Time – and a sound strategy – will tell whether Moncler retains its exclusive airs.

This Thanksgiving, demanding shoppers

PSFK this week wrote about a subject Zeitgeist have taken great interest in over the years, that of tech layering over retail to create unique experiences. Our focus on this blog with regard to retail has often been the way that new technologies are disrupting traditional bricks-and-mortar establishments, sometimes for the better, sometimes for the worse. PSFK take data strategy back to basics, pointing out quite rightly,

“To succeed retail brands need to provide what has been called over the years ‘a value exchange’. In others words, to learn more about a customer, we must always provide them something in return. This may manifest itself as discounts and other perks, but what if the reward was simply a better brand experience in itself?”

Earlier this week, as a precursor to the US going crazy for the Black Friday shopping extravaganza (even though The New Yorker tells us everything we know about Black Friday is wrong), Deloitte released new research on the way consumers like to buy their wares. Unsurprisingly, it seems shoppers are now keen for an omnichannel experience. Some of this talk may be a bit premature, or vary by retail sector. Online groceries, for example, though seemingly prevalent, are having little impact on grocers’ bottom lines. In the UK, where the march of online shopping is advanced, grocery shopping online may account for just 5% of sales this year, according to Datamonitor analysis. Select highlights from Deloitte’s report below – which mostly reads like customers are wanting to have their cake and eat it – full report here.

• The high street remains the number one destination for shops, services and leisure, compared to online and out-of-town: 59% use the high street for top-up grocery shopping, 58% prefer the high street for banking services, and 52% for cafés.
• Consumers still want more from their high street, and 73% believe that the consumers themselves should decide what shops and services should be available.
• The omnichannel experience is in demand with 45% wanting free high street Wi-Fi and 1 in 3 wanting to use a Click & Collect service.

UPDATE (13/12/13): The Economist this week published an interesting piece on the closing of UK department store Jacksons, which refused to keep pace with changing consumer demands. Interesting lessons on how to be cognisant of customer insight while trying to remain “authentic”.

Embracing digital – New moves for old companies

Are incumbent companies starting to see the light when it comes to embracing digital? Evidence is slowly starting to point in that direction.

Artists are known for embracing change and innovation, but the art market itself has been slow to adapt to changing consumer behaviour. Now mega e-tailer Amazon is selling art on its site, and venerable auction house Christie’s is pushing headlong into online-only sales, as Mashable recently reported. And while fashion designers know how to use digital to push the envelope, the fashion industry as a business has been notorious for their skittishness at investing in efficient, immersive digital experiences for their customers, so worried are they about detracting from the brand. So it was reassuring to see during Paris Fashion Week recently that French marque Chloé had gotten the message. As Zeitgeist’s dear friend and fashion aficionado Rachel Arthur details on her blog, the brand launched a dedicated microsite for their runway show. Brands like Burberry and Louis Vuitton have been doing this for at least three years, so in of itself it’s nothing new. What made the experience different were two things. Firstly, the site created a journey that started before the show, and continued after it, rather than merely offering a stream of live video and little else. More importantly, it tried to make the experience one that reflected the influence of those watching. As Rachel points out,

“As the event unfolded, so too did different albums under a moodboard header, including one for the collection looks, one for accessories, another for the guests, and one from backstage. Users could click on individual images and share them via Twitter, Facebook, Pinterest or Weibo, or heart them to add them to their own personal moodboard page.

‘[We] are excited to see how you direct your own Chloé show,’ read the invite.”

The recognition of platforms like Weibo should be seen as another coup for Chloé. Too often, companies send out communications to global audiences with perfunctory links to Facebook and Twitter. Not only is there no call to action for these links (why is it that the user should go there?), but there is no recognition that one of the world’s most populous and prosperous markets are more into their Renren and Weibo.

Elsewhere, despite what seems like some niggling problems, Zeitgeist was excited and intrigued to read about Disney‘s latest foray into embracing how consumers use digital devices, this time creating a second-screen experience in movie theaters. Second Screen Live, as Disney have branded it, doesn’t immediately sound particularly logical, as GigaOm point out,

“Of all the places I’d thought would be forbidden to the second screen experience, movie theaters were near the top of my list. After all, you’re paying a premium ticket price for the opportunity to sit in a dark theater and immerse yourself in a narrative — second screen devices operate in direct opposition to that.”

And yet the Little Mermaid experience that the writer goes on to describe cannot be faulted for its attempt at innovation, at reaching beyond current thinking (not to mention revenue streams), in order to forge a new relationship between the viewer and the product. Kudos.

Lastly, Zeitgeist wanted to mention the US television network Fox as a classic example of a company that has slowly come to realise the power of working with digital, rather than against it. In years passed, companies like Fox were indisputably heavily involved in digital, but only from a punitive standpoint. Fox and others were ruthless in their distribution of takedown notices to sites hosting content they deemed to infringe on their product. Fan sites that exploded in support and admiration for shows like The X-Files were summarily threatened with legal action and closed. There was little thought given to the positive sentiment sites were creating around the product, and little thought given to the destruction of brand equity that such takedown notices brought about. Not to mention the dessication of communities that had come together from different parts of the world, their single shared attribute being that they were evangelists of what you were selling. Clips of shows, such as The Simpsons, appearing on YouTube would be treated with similar disdain. So it shows how far we’ve come in a few years that this morning when Zeitgeist went onto YouTube he was greeted on the homepage with a sponsored link from Fox pointing him to the opening scenes of the latest Simpsons episode, before it aired. Definitely a move in the right direction.

Once notorious for their stringent outlook on content dissemination online, Fox now pushes free content across multiple digital channels

Selling Luxury in 2013 – Does brand education lead to monetisation?

At Cannes Lions tomorrow, Burberry’s Chief Creative Officer Christopher Bailey will ask “What if ads didn’t have to look or feel like ads?”. In a guest post, Chloé Hajnal-Corob writes about how luxury goods companies are seeking new and diverging paths in order to engage with their customers. Chloé spent time working at a fashion startup earlier in the year, assisting with the launch of a fashion hub for Vine videos, among other things. She is currently placed at Editd, a fashion data insight company.

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This spring, the House of Dior descended upon Harrods in London, one of the world’s premier department stores, for their “So Dior” exhibition and café. Last month, for one week only, Hermès had their “Festival des Métiers”, at London’s Saatchi Gallery. These two events represent a recent trend for providing luxury experiences, and though they are markedly different in some ways, they share a common goal: to drive revenues via brand education.

The “So Dior” exhibition, café and pop-up boutique took over a large designated area of Harrods alongside their usual concessions. Their presence was felt throughout, and Harrods have described the takeover as “a luxury-charged adventure combining French Savoir Faire and British charm”, the premise of which is to showcase the brand’s relationship with the store, and Christian Dior’s personal affiliation with the capital. Zeitgeist and I paid a visit, after seeing the social media hype from opening night. The event did not disappoint. On arrival, we were offered a private tour of the exhibition. What followed was a complete education into the history, heritage and identity of the brand and designers (Christian Dior, as well as Yves Saint Laurent, John Galliano and now, Raf Simons). The assiduousness and attention to detail demonstrated in the event were striking, and the quality of the experience was exceptional. It stands in particular favour given it was a free event, especially when compared with similar exhibitions such as the recent Valentino show at Somerset House, for which entrance was £12.50. We wondered if Dior and Harrods would set a precedent for luxury experiences where no fee is charged. Enter Hermès’s Festival des Metiers, which has been touring the world in a travelling circus of craftsmen, demonstrating their skills, and charging nothing for the privilege of seeing them. This harks back to how customers at high-end boutiques are treated, but without obvious intent to purchase. We are rewarded for our passion for the brand, not simply our contribution to sales.

Dior’s exhibition excelled at presenting a linear history grounded in contextual relevancy

What is the ROI for these free events then, when the cost of execution is so high? Both exhibitions come after a lengthy stream of brand “experiences” (as noted in a previous Zeitgeist article) that represent the latest luxury market strategy for driving revenue and footfall to retail spaces, in attempt to allay fears of a mass exodus of shoppers from the street to the website. However, Dior’s CEO, Christian Toledano reportedly told vogue.co.uk at the launch party of the event: “This isn’t a marketing tool… It’s a transmission of Couture”. But these are not mutually exclusive concepts; rather they are means to the same end, and arguably an education into the brand is simply the chosen method of marketing. Indeed, Hermès openly acknowledges the lucrative repercussions these luxury experiences have. An article in the FT cites that the event, in each city, draws around 30,000 visitors, which in turn increases footfall to brick and mortar stores. A twenty percent increase, to be precise, in the week following the festival in Seattle, Washington. In a far more low-key event than Dior, these are impressive figures, particularly given that no attempt at sales was made on the exhibition site. A bespoke, or even generic, selection of products on sale at the event would likely have been very popular.

Both events encouraged significant online chatter, though neither seems to have been particularly driven by the host brands. Dior at Harrods was littered with high impact branded totems, ripe for the social media picking, and as usual, Twitter, Facebook and Instagram were filled with images and comments from the event, and now Vine, twitter’s 6-second video app, provided the ideal way to document the experiential nature of the event. It is interesting that Dior made no attempt at harnessing or leveraging the veritable mass of attention the event garnered. On investigation, I found only a limited amount of content around the event on Dior’s twitter feed and Facebook timeline. There was no official hashtag for the event and no evidence (that I could find) of any engagement with consumers who were talking about it. Hermès, though a far more low-key affair, “discreet to the point of invisible branding”, were no less well-represented in the social media space, but were almost equally poor at engineering and engaging with their online audience. The hashtag #festivaldesmetiers seems to have been widely adopted but it is completely unclear whether this was brand-driven, and Facebook interaction was limited to a single status update announcing the event. For brands that exert meticulous control over themselves in the physical space (something that was made patent in the exhibitions), it is strange that they are not attempting to implement this in the digital space, where barriers are borderless and the opportunity for damage is massive. This is a bold (perhaps naïve) move in the current climate, albeit that both events seem to have been highly successful.

It is somewhat ironic that Dior’s exhibition was held at Harrods – an obviously commercial venue, where special Dior products were available to buy – choosing to assert their mission as education rather than marketing. By contrast, Hermès chose an established art space to host their Festival des Metiers, albeit one that is often known for its consumer links, and have clearly acknowledged the potential of education as a means of marketing. Neither space is less appropriate then the other, but both are indicative of the kind of events hosted. Harrods, with its lavish window displays, reputation for luxury and labyrinthine layout, was apt for Dior’s fantastical and grandiose display, not to mention that it was intended to draw on the relationship between brand and department store. The Saatchi gallery’s minimal open space provided a neat backdrop for hosting “a rendez-vous with the Hermès craftspeople”, and apparently, sought to appeal to a younger demographic than perhaps the Hermès customer would ordinarily be. It is appropriate too, to present what can only be described as a fine art and craft, in an artistic space. It’s a notion that rival (and owner of Dior), LVMH, clearly thought worth cashing in on, since they have subsequently launched a similar initiative: the Journées Particulières, which this year will see it open 40 of its ateliers to the public for a weekend.

Hermès attracted large crowds with its silk screen printing demonstrations

Both Dior and Hermès certainly made good attempts at getting people to engage physically (as well as virtually). The “So Dior” exhibition, and of course the café, were multi-sensorial. Beyond visual aesthetics, short films with headphones were provided, touch-sensitive technology was exploited and food inspired by Dior’s cookbook made for a wholly engrossing experience. Perfume was a key focus of the exhibition, explored from many different angles; not content with simply handing out the usual sticks of paper to smell, Dior and Harrods provided a telephone box (grey and white, in-keeping with brand décor, naturally) emitting one of Dior’s signature scents. Hermès was less immersive but more intimate; the possibility of viewing and interacting with those who create the product (and by extension the legacy), and even partaking in the sewing of scarves or ties, successfully created a feeling of exclusivity and privilege that the event no doubt strove for.

Toledano stated of the “So Dior” exhibition, “We need to explain why and how we do what we do. I want people to understand the passion, the innovation and our commitment to excellence.” In a similar vein, Guillaume de Seynes, great grandson of Emile Hermès explained: “We want to demonstrate that for us, craftsmanship is something that happens everyday.” Both brands sought to educate the consumer about themselves – Dior by making comment on the ideas and inspiration that produce the end product, and Hermès by demonstrating their commitment to the heritage of the brand by maintaining the quality of garments through skill of craftsmanship. Were they successful in their mission? Certainly; both provided real insight and inspiration. In doing so, Dior and Harrods, and Hermès’s Festival des Metiers, created an opportunity to become part of a legacy, and with this, the aspiration to turn something memorable into something wearable.

Taking flight – Opportunities and obstacles in democratising luxury

I don’t think democratic luxury exists. I don’t believe in something for everyone… How can we possibly put these products on the Web site without the tactile experience of luxury?”

– Brunello Cucinelli

The democratisation of fashion took a beating this past week as news reached Zeitgeist that Fashion’s Night Out was to be no more. Spearheaded by Anna Wintour at the height of the global recession, the idea was for a curated evening; a chance for stores to open their doors late, inviting a party atmosphere and focussing spend on a calendar event. The Wall Street Journal wrote that last year, “Michael Kors judged a karaoke competition at his store on Madison Avenue, rapper Azealia Banks performed at the MAC store in Soho and a game night was held at a Kate Spade store.” The evening festivities were replicated across New York, London and other cities.
Zeitgeist happened to be on Manahattan’s Spring Street last September when the most recent FNO was held, waiting patiently for a perenially-late friend who works next door to Mulberry. While waiting, it was absolutely fascinating to see the sheer of variety of people out on the street. While the crowds were mostly composed of women, the groups ranged from college-aged JAPs and the avant-garde to hipsters and stay-at-home mothers. Most gawped excitedly as they beheld the Mulberry boutique, enticed by the glimpses of free food and drink, as well the sultry bass tones of some cool track. One elegantly dressed fashionista strode hurriedly past Zeitgeist, lamenting to her cellphone “Oh God, it’s Fashion’s Night Out tonight”.
Ultimately perhaps it was such feelings among the fashion set that caused FNO to come to an abrupt end. But Zeitgeist got the sense that, while undeniably a celebration of fashion and an opportunity for brands to showcase their attractively experiential side – particularly to those who might usually be deterred by luxury brands and their perceived sense of formality – there weren’t a great deal of people actually buying things. It’s quite possible that the whole strategy of attracting a crowd who would not otherwise frequent such stores backfired; they turned up, sampled the free booze, felt what it must be like to shop at such-and-such a label, then moved on to the next faux-glitzy event with thumping music. This then was a failed attempt to bring luxury to the masses.

On a macro scale, the cause for democratisation is hardly helped by the global financial crisis. Although over four years old, the ramifications and scarring done to the economy are still sorely felt. This is illustrated in the unemployment figures around the world, tumultuous elections and anecdotal tales of hardship. More starkly, they are being backed up by solid quantitative research that proves we as a world are less connected now than we were in 2007. In December last year, The Economist reported on the DHL Global Connectedness Index, which concluded that connections between countries in 2012 were shallower (meaning less of the nation’s economy is internationalised) and narrower (meaning it connects with fewer countries) than before the recession. Meanwhile, just this past week, the McKinsey Global Institute published a report showing financial capital flows between countries were still 60% below their pre-recession high. This kind of business environment hardly fosters egalitarian conduct, and indeed such isolationist thinking was on show at Paris Fashion Week recently, where designers clung to their French heritage as a badge of honour. Exactly at the time when art needs to be leading the way in cultural integration, as emerging markets not only continue to make up a larger part of the customer base, but also develop their own powerful brands, it seemed that designers, like the financial markets, retreated to what they knew and found safe.

The world is less connected today than in 2007

Where the ideology of democratising fashion has seen more success is of course online. We’ve written before about how luxury is struggling with the extent to which they invest in e-commerce. One of the principle hurdles is that the nature of luxury – elite, arcane, exclusive – is more or less diametrically opposed to the nature of the Internet – open, borderless, democratic.
Yet the story of Yoox – the popular and, in online terms, long-lasting fashion ecommerce platform – and its founder is one of just such democratisation. (It is particularly stunning to read of the difficulties the founder, a Columbia MBA graduate, Lehman Brothers and Bain & Co. alum, had in attracting VC funding). It also, crucially, points to the importance of recognizing multiple audiences, and how they like to shop differently depending on context. John Seabrook, writing in The New Yorker, reports that when Federico Marchetti set up Yoox in 2000, the world of ecommerce for fashion was regarded as a not particularly salubrious environment. Rather, the magazine compares it to outlet stores like Woodbury Common, fifty miles north of New York. Luxury brands like Prada and Marni could be found there, offering deep discounts on their wares, and it was for that reason – and the lack of control over their own brand – that they didn’t like much to talk about such places. This, despite the fact that they attracted 12 million people in 2011, “almost twice the number of visitors to the Metropolitan Museum”. Yoox was likewise greeted with much trepidation by fashion retailers. The article quotes an analyst from Forrester Research:

“It was a matter of principle with luxury brands that only people who shop on eBay use the internet – and their only interest was in getting a low price.”

Marchetti’s only available source of designer clothing was from last season and beyond, as no brand would sell their current collection. He curried favour with some of them though by advertising the prices without noting the discount customers were getting. Other than that, luxury brands took little or no notice.

Online shopping though would prove to be “one of the largest disruptions of the luxury-goods industry since the birth of the department store”. There are three kinds of online store today; those that sell deep-discounted goods on end-of-season wear, those that sell in-season clothing, and those that have flash sales of small numbers of clothing or accessories. It turned out there was an audience for all of these types of website. Bridget Foley, executive editor of WWD is quoted in the article saying “[T]here has been a sea change in attitude… I think [it] surprised the fashion industry… Just because you love clothes doesn’t mean you love shopping“. This struck Zeitgeist as one of the more important insights in the lengthy article. Though retailers often harp on about the importance of the retail environment, the need to touch the product, to be in an atmosphere where everything has been curated down to the finest detail, online neutralises all of that. This idea threatens those in the luxury sector, as the thinking goes that any such premium on products may seem less justifiable away from a Peter Marino-designed armchair and a nice glass of champagne. Such ideas are being challenged though. Not only is the nature of the store changing – from robotic sales staff to customers as models on the catwalk – but so is the view of the luxury customer as a homogenous, static group, devoid of context. Zeitgeist was at a Future of Media summit at the Broadcast Video Expo last week, where, as behavioural economics suggest, MD of Commercial, Online and Interactive for ITV Fru Hazlitt insisted that consumers had to be targeted in ways that were pertinent to them, not only as demographic groups, but in ways that recognised the context of how approachable they were likely to be at the time, given the programming they were watching. Fru admitted that in years past, broadcasters like ITV had seen advertising as “space to rent out”. Now they were thinking deeply about how and when is the right moment to reach their target consumer. It is the same in fashion. There is not one single way to reach the consumer; buyers of luxury goods do not want to be solely restricted to being able to buy your wares in a physical store.

Chanel are one of the few remaining luxury brands to resist fully integrating online

Behavioural economics played a role in Marchetti’s initial framing of the audience for the website as well. He hired pedigreed fashion writers, as well as artists, architects and designers to make special projects that lent the website an air of curation, of something more special and rarefied that what one might find – or more importantly the way one might feel – at an outlet mall. Marchetti wanted the customers “to see themselves as connoisseurs, even if they were really just hunting for bargains”. The New Yorker article goes into some anecdotal detail about the way people shop on Yoox, which crucially differs not only from the way they would shop in-store, but also from other e-tailers. For online shopping in general, the experience is one where you can purchase ten items, and return nine of them with very little hassle, with credit for multiple rather than a single brand, and certainly no raised eyebrow from a pretentious shop assistant. Regarding specific sites, Yoox, unlike Net a Porter, for example, does not try to force a set of looks onto the user. Behavioural economics tell us that people irrationally value something more when they’ve been made to work a bit to get it. Such is the case now shopping for luxury items, which makes clothing not in-season (i.e. not currently in every shop window), both cooler and cheaper. It’s an act not to be discouraged. A Saks representative says customers who shop online as well as in store buy four times as much merchandise as customers who shop only in the store. What will worry retailers though is that the convenience of the online store outweighs the experience of the physical boutique. The New Yorker quotes a shopper: “I’ll never buy a dress at the Prada boutique again after getting these really amazing ones on Yoox.”

As well as setting up the Yoox website, Marchetti’s company now also powers the online stores of more than thirty fashion houses, including Armani and Jil Sander. Last summer, PPR joined in too, after conceding that their in-house expertise was not up to snuff. The latest development is making designs available to any customer as soon as it hits the runway. Burberry, as well as separate sites like Moda Operandi, have spearheaded this innovative change, which is effecting editorial as well as buying methods previously seen as unshakeable. The demand for this type of instant purchasing seems to be fueled by a niche – albeit a sizable one – that is not representative of the majority of luxury shoppers. The accessibility of a brand and its products is a tricky one to tread, one which Zeitgeist has written about several times before. Tom Ford performed a volte-face this year, after debuting his womenswear collection with no press and VIPs only, relented this year at London Fashion Week by letting bloggers write about the show. Chanel still steadfastly refuses to fully engage with online shopping. The tension is keenly felt in the New Yorker article, where Amazon’s new entry into the world of fashion is referenced. The CEO of Valentino is unconvinced: “Valentino is high luxury… People going to Amazon are not going to Valentino“. This smacks a little of pride and ignorance, for they most assuredly are, though perhaps not with luxury purchases in mind… yet.

It comes back to the idea that there are myriad types of luxury consumer. The industry has not fully acknowledged as of yet that the buying behaviour of a descendant of the ancien regime in Paris is unlikely to buy in the same way as a newly-minted businessman in Shenzhen. They may know that these types of buyers exist, and they may even create different products for each. Importantly though, they are not recognising that these people may go about purchasing in a different way. It’s not just a purchase journey that has changed massively in recent years, as McKinsey’s consumer decision journey illustrates above. It’s also, as ITV’s Fru Hazlitt insists, about recognising that different people shop in different ways, wholly dependent on context. Though Fashion’s Night Out may be on permanent hiatus, and though the global economy may be sputtering along in second gear, the opportunities to leverage deep insights into consumer purchase preferences are there for the taking. Yoox, along with a deeply complicated algorithm, are trying to tap into just this. But the process must start with realising that yes, actually, someone might want to pick up that Valentino dress while surfing on Amazon.

Making Retail Truly Emotional

A great ad featured during a commercial break in the Academy Awards broadcast tonight on ABC. There’s no shortage of data out there pointing to the decimation of the retail sector, and we have written on the subject before. Stores cannot be promoted from a practical viewpoint any more; the internet has put paid to that. The irrational, emotional connection is what companies like JCP – after enduring troubles with another rebrand – are counting will bring customers into store. It’s a nice ad that feels genuine.

UPDATE (28/2): Great advertising sadly can’t always save a company from poor financial performance. The stock dipped today by over 20% as the company backtracked on a previous strategy, deciding to hold daily sales after completely swearing them off a year ago. Walter Loeb, a retail consultant and former senior retail analyst at Morgan Stanley, proclaims the company “lost its core customer during the transformation”. Oops.

UPDATE (25/3): James Surowiecki, writing in The New Yorker, has a good piece on jcp’s trials and tribulations, here.

Horses for main courses

The last couple of weeks have been far from slow for news.

The Pope’s resigned, Oscar Pistorius has been charged with murder after shooting his girlfriend on Valentine’s Day and then a meteor crashed into rural Russia. However, one story threatens to keep them all off the front page – ‘The Great Horsemeat Scandal of 2013’.

The Guardian provides a chronology of events so far, but in short, horsemeat has been found in a number of dishes that claimed to contain only beef.

Reaction has been suitably mixed, from horror to apathy. Some see the deceit as part of a larger criminal activity that conned consumers, failed to adhere to religious doctrines and risked public health and so must be punished, while others take the view that the meals tasted nice, and therefore think, ‘So what?’.

Either way, our trust in those who put their names to the compromised products has been eroded. So far, all the major retailers have withdrawn products, and Findus are the biggest brand name to be affected after their lasagne was found to contain 100% horsemeat.

Our historical relationship with meat is quite complex. In the past, how you saw it depended on your social status. If you were a peasant, you saw the animals when they were alive. So you called them, cows, sheep, pigs and deer. If you were from a higher social status, you saw the animals on a plate. So you knew them as beef, mutton, pork and venison. Note that the latter come from the French, a land of unrepentant horse eaters. But in English, the meat of the horse is simply ‘horsemeat’. We don’t have a fancy name for it, because it’s never really been on the menu.

But for all the gnashing of teeth, is this scandal a major surprise?

Everyday Value

Even before the recession hit, retailers were doing their utmost to be seen to be providing value to shoppers. Often that was achieved by bringing prices down. This is generally accomplished at the expense of the suppliers, who in turn look to make savings from the companies that provide them with goods and services.  Marketing agencies know only too well that negotiations with procurement departments are rarely painless. The same is almost certainly also true for meat suppliers.

When cost cutting becomes endemic and pressure gets pushed down the line, people look for new ways to deliver. It can be the spark for innovation – necessity being the mother of invention and all that – but it can also lead to corners being cut and standards being lowered. In this instance, the consequences are apparent.  Real damage has been done to the brands caught up in the scandal and they will have to invest to build back their credibility.

For shoppers, it has provided a wake-up call and brought the whole meat processing business into the spotlight. Far from being happy and healthy beasts, we now know that meat is sent from country to country before it finally ends up on our shelves.

Effect on Shoppers

For some, these revelations will change behaviour.  A survey by Consumer Intelligence found that around one in five shoppers will cut back on the amount of meat they’ll buy, while around three in five are more likely to buy meat from independent shops. Inevitably though, the indignation will wear off and in the medium term, the convenience of supermarkets will win back many of those who ever managed to find a local butcher.

The irony for those who do stop buying processed meat is that, just as someone who is burgled tends to react by improving their security arrangements, new regulations will soon be implemented to improve standards in the meat supply chain. These ought to mean that the standard of meat we buy will soon be higher than ever.

Beyond processed meat, there may be benefits to consumers as food brands in other categories take a closer look at their own processes to ensure they don’t end up making the wrong type of headlines in future.

Indeed, for all the unpleasantness, perhaps we should be grateful that while we have been tricked and there has been serious criminal activity, it was ‘only’ horsemeat that entered the food chain. Had it been something more emotive like dog meat or far less pleasant like rat meat, the damage to the brands and retailers would have been much harder to overcome. In the meantime, the whole episode provides a clear lesson to brands, retailers and shoppers alike.

Cheap often comes at a high price.

Netflix: House of Cards and Castles in the Air

“If you have built castles in the air, your work need not be lost; that is where they should be. Now put foundations under them.”

– Henry David Thoreau

Though the brouhaha over the series House of Cards has been building steadily since its announcement almost two years ago, through rumours of budget battles between director and studio, it was upon the release of the series this week that the media meta-echo chamber really went into overdrive. The first season, with a budget far north of $100m, debuted to ebullient praise from critics. But what does it signify for the trail-blazing company’s future?

Aside from the mostly positive reviews, the series piqued the media industry’s interest for other reasons too. It is the first to be created and screened exclusively by Netflix, a company previously known for striking deals with studios to distribute and stream their content. Not satisfied solely with such (sometimes pricey) deals, the company also saw an opportunity for greater brand visibility and a separate revenue stream – assuming it eventually licenses the show regular TV networks – in fully-fledged independent production. What is also interesting is that the entire first season was made available for instant viewing, all 12 hours. By doing this the company recognised and capitalised on a trend that has been accelerating for almost a decade; people like to watch multiple episodes at once. This has never not been the case, but the weekly episodic installments of shows on network television have allowed the audience little say in the matter, and thus no room for such a habit to develop. This changed dramatically with the arrival of the DVD, specifically with affordable boxsets, as those that had missed the zeitgeists of West Wing, The Sopranos and 24 were able to quickly catch up with their obsessed brethren. Critics have often noted how the viewing of multiple episodes at once – which is how such reviews are often conducted as they usually receive a disc with several shows to consider – particularly for shows like Lost, improves the structure and narrative flow. With the arrival of boxsets, such opportunities were available to all. Indeed, marketers leveraged this enthusiasm for consecutive viewing, creating events around it. Netflix saw this with absolute clarity and allowed viewers to watch as much or little as they desired. Many, it seemed, chose to devour the whole first season in one weekend, which entertainment trade Variety covered with humourous repercussions to the viewer’s psyche, across now fewer than six stages of grief. Zeitgeist has written before about the increasing popularity of streaming, and the complementary preference that audiences have for the type of films (action, romcom, broad comedy) they like to watch when choosing such a distribution method. It is interesting to consider then just how much the viewing experience differs between a 12-hour marathon over two days, and a one-hour slice over a period of three months. As the article in Variety half-jokingly posits, “Is tantric TV viewing a thing? If it’s not, should it be?”.

Of course, Netflix aren’t alone in seeing an opportunity to delve into developing complementary products and assets. Microsoft are using the functionality of Kinect to pair with their own content development, letting children “join in” with Sesame Street, for example, and are in the process of setting up a dedicated studio for production, in Los Angeles. Amazon, which owns the streaming service LoveFilm, is also getting into the game, recently setting up Amazon Studios for original content production. At the end of last year, The Hollywood Reporter announced Amazon would be greenlighting twenty pilots, all of which were “either submitted through the studio’s website or optioned for development”. YouTube recently launched twenty professional channels on its UK website, Hulu is following suit… It really is quite startling to see such fundamental disruption and turmoil in environments where incumbent stalwarts (such as 20th Century Fox in film and Walmart in retail,) have long been accustomed to calling the shots. Could the model become completely inverted, such that the Fox network and HBO become the “dumb pipes” of the TV world, showcasing the best in internet-produced television? Maybe so, and this is not necessarily a bad thing. The Economist this week argue that one of the most important factors in Liberty Global’s recent purchase of Virgin Media was the avoidance of paying corporate tax for “years” to come. If content is still king though, a problem remains for those incumbents. The New Yorker astutely points out,

“An Internet firm like Netflix producing first-rate content takes us across a psychological line. If Netflix succeeds as a producer, other companies will follow and start taking market share… When that happens, the baton passes, and empire falls—and we will see the first fundamental change in the home-entertainment paradigm in decades.”

Netflix must tread carefully. Crucially, what seems like competitive differentiation and all-quadrant coverage now can quickly shift. Amazon’s ventures into content production will be backed up with a sizeable and perpetual stream of revenue that it derives from its e-commerce platform, which isn’t going away anytime soon. The BBC are publicly welcoming new entrants, and is devising its own tactics, such as making episodes available on iPlayer before they screen, if at all, on television. Interesting but hardly earth-shattering, and likely to make little difference to viewer preference. Netflix will have to do better than that if it wants long-term dominance of this market. It will have to be increasingly careful with its partners, too. Recent, though long-running, rumblings of discord with partners like Time Warner Cable, though seemingly innocuous, tend to be indicative of a larger battle ensuing between corporate titans. Moreover, though the act of providing a deluge of content seems new and sexy now, what about when everyone starts doing it? Chief content officer for Netflix Ted Sarantos told The Economist last week, “Right now our major differentiation is that consumers can watch what they want, when they want it, but that will be the norm with television over time. We’re getting a head start”. Fine, but about when that is the norm, what is the strategy for differentiation then? Netflix have made some lofty, daring, innovative moves here, exploiting consumer trends and noticing a gap in the competitive environment. But they will need firm foundations to support this move into an adjacent business area, of which they know relatively little, in the years to come. As President Bartlet of West Wing was often heard to say, “What’s next?”.