Sunday, September 26, 2010

Fashion vs. Banking: 2.0-1.0

With Milan’s fashion week coming to an end, one pauses to reflect: What is going on in the retail world? And specifically, what is going on in the luxury retail world? Nothing different than what we have been observing in financial services for the last year and a half: Consolidation.
In a rather unfortunate gesture in terms of symbolism, the Milan show was moved from the 13th century Loggia dei Mercanti (Merchants’ Palace that was founded during medieval times—think austerity) to the stately 17th century Palazzo Clerici, a grand manifestation of baroque manners and tastes.
Admittedly, the move aimed at convenience and efficiency but the symbolism only highlights what one would like to forget. As happened within financial services, the retail world is currently going through consolidation on a big scale. This means that smaller brands either cease to exist or are bought up by larger, more powerful luxury groups. Thus the irony of the excessive and stately Palazzo Clerici is that the brands that staged their shows there are the smaller ones because names such as Armani, Versace, and Ferragamo remained on their own premises, their respective private palazzos and away from the populace.  Many brands were completely banned from the program according Luisa Zargani, WWD’s Milan-based journalist.
Considering that last minute name shuffling comes after a long summer during which European private equity firms enjoyed a composed shopping spree, one concludes that the rules of the game are changing. On one hand, fads are dying a fast death and brands that capitalized on the public’s want for more but are devoid of substance are disappearing. The ones with a solid value proposition are now great candidates for funding by private equity firms with cash in their hands and no other projects in the pipeline. Finally, blockbuster established names (such as Ferré that already got a fund infusion earlier this summer) are moving on to the next stage of development, namely Fashion 2.0.
Therefore, the current state of the luxury retail industry is not only the outcome of the prolonged worldwide recession but also the conclusion of a natural process of contracting and getting rid of the superfluous, non-substantive, and disruptive brands, the ones that murk the waters. For the rest, the recent boost of private funding reported in all sorts of mergers and acquisitions will only accelerate the industry’s evolution to a functional sector of the economy that consistently takes place online. This is exactly where operations-driven firms will launch their strategy game, trying to outperform one another in clearly defining their 2.0 customer who will allow brands to monetize on the investment they make now. Net-a-Porter’s success story has gilded all major business publications. Luxury can be sold over the internet and those who have not embraced it yet are salivating.
In Paris, Karl Lagerfeld canceled his haute couture show in favor of online sales. In New York, Tom Ford was criticized for his preference for a tightly controlled and very private show even though what this really means is that he has total control of his own online image both in terms of content but also in terms of time. In London, Burberry experimented with a combination of Lagerfeld and Ford strategy and opted for the live haute couture show broadcast in real time in Burberry boutiques all over the world. In Milan, the exclusion of some brands means that Fashion 2.0 is for big fish only or at least for small fish who have friends in the banking world.
Bankers have always shown a stubborn preference for numbers but it seems that for once they are open to the creative energy that comes from the luxury retail industry, itself in need of some rejuvenation against its own stubborn and self-indulgent nature.  Perhaps the financial services industry will soon follow suit.

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