Fun & Games in Online Marketing

6 06 2009

david victoria beckham EA ad

We have all read a bunch of articles about the reluctance of luxury brands to go online due to a fear of brand dilution (translation: they don’t want to lose their luxury status by putting the brand out there with everyone else, and losing the ability to control their brand message). Now that the luxury players are developing their own websites and even some e-commerce capabilities, they are still unsure of how to proceed with interactive marketing. However, regardless of whether or not a brand decided to play the online game, people will talk about a brand. They will say great things, terrible things, true and untrue things… they will make spoof commercials and fake marketing campaigns.

The only good defense a luxury brand can have is a good offense. If they put out a website that’s substandard… well, that’s not very luxury, is it? But, if they do it well, there’s really no better way to protect the brand, distinguishing the “real thing” from the posers.

I was thinking about this today when I came across a spoof on a campaign for Emporio Armani underwear. You know the Beckham ad I’m talking about? Armani spent more than £32 million to have David and Victoria pose for a series of shots in the EA underwear, and the ads were posted on billboards around the world (including a rather fetching one of David, here in Milan). Well, it appears that a couple of married pranksters (sic.) decided to do their own version. Back in February, the UK’s 70-year old TV magician, Paul Daniels and his wife, Debbie McGee, set up the same shot used in the EA campaign, down to the drawn-on tattoos. The photo was published in the UK’s Closer Magazine, and across various websites around Europe.

paul daniels debbie mcgee emporio armani

My point is, if you’re a known brand, people will take your marketing messages and make their own messages, irregardless of the medium. User-generated content has been around a lot longer than the internet. Once the luxury companies get a handle on Web 1.0, Web 2.0 (or, some would say Web 3.0) can offer exactly the sort of customer attention and user-experience that the luxury market expects. Might as well play the game!

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Armani: King of Italian Fashion

2 06 2009

Giorgio Armani and the business he developed provide the perfect example of the evolution of the Italian Fashion System from the perspective of the designer. He began as a pure designer, and then gradually acquired various production facilities into his company on his route to becoming a fashion and lifestyle powerhouse.

The Man

Giorgio ArmaniThe following is a general timeline of the designer’s life and business achievements through the end of the 20th Century:

1934: Armani is born in Piacenza, Italy, where he grows to study medicine

1957: Armani abandons his medical studies and begins work as a visual merchandiser and buyer for Italy’s leading department store, La Rinascente

1964: Armani begins working for Nino Cerutti, where he learns tailoring and materials in menswear

1970: Armani and Sergio Galeotti establish a freelance fashion design studio, doing contract design for various manufacturers including Gibo, Sicons, Boulevard and Montedoro. Armani learns what works and what doesn’t work for industrial production.

1974-5: The first Giorgio Armani menswear collection is produced under license from GFT, followed by his first womenswear collection. Jackets and evening dresses were an instant hit.

1975-82: Armani establishes vast line extensions, including Giorgio-Armani-Borgonuovo 21 (men’s and women’s); Giorgio Armani-Le Collezioni (men’s worldwide and women’s N. America); Mani (men’s N. America and women’s ROW); Armani Junior; Armani Underwear, Swimwear and Accessories; Emporio Armani; Armani Jeans; and, Armani Bridal Collection

1982 TIME cover1982: TIME Magazine dedicates a cover to Armani, who is the first designer to be featured on the cover since Christian Dior

1984: Armani ventures into brand extension through the launch of Armani Fragrance, the license of which is ongoing with L’Oreal

1987: Armani continues brand extension in Armani Eyewear through a licensing agreement with Luxottica, which was canceled 3 years ago and moved to competitor Safilo

1991: Armani offers further brand extension on the US market through the launch of Armani Exchange

1990-2000: Armani practices business consolidation and vertical integration by acquiring production facilities and direct retail ownership, and establishing additional Joint Ventures in production and distribution

2000: Armani launches his first online store, www.armaniexchange.com, on the US market, as well as his line extension into housewear with Armani Casa

2005: Among his numerous line extensions, Armani launches Armani Prive, his first haute couture collection. He provides live online streaming of the collection’s first runway show via MSN.com

2006: Armani gets ahead of the game in Corporate Social Responsibility by joining (RED), an organization committed to fighting AIDS in Africa

2007: Armani launches another online store – this time for the Emporio Armani line – on the US market, along with associated blogazine and soundtracks at www.styletraxx.com

2008: Armani launches one of the first online luxury stores for a singular brand on the European market with Emporio Armani

Armani’s Brand Signifiers

Roots

In the 1970s and 80s, as Armani’s sisters and female friends were heading into the business world, he noticed a common complaint that there was no practical business wardrobe available for women. Since Armani was coming from menswear and tailoring, he took the men’s jacket and deconstructed it from a rigid and straight form into a soft form, fitted for women. This seemingly gender-ambivalent form was exactly what professional women were looking for. Now with businesses in men’s and womenswear, Armani continued to develop his brand through product and line extension, always focusing on his brand codes and the roots of the brand for consistency.

Female Prototypes

Marlene DietrichArmani, like many designers (and marketers), had an image of the ideal customer whom would wear his clothing, and later buy his additional products. Actresses Marlene Dietrich, Lauren Bacall and Greta Garbo were referenced for their supreme confidence and understated beauty bursting with sexuality, in addition to more modern actresses such as Lauren Hutton, whom he dressed in American Gigalo, along with Richard Gere.

Of course, his ideal woman is also very tall and slim. Nothing typical there, right?

Home Town Colors

milan's galleriaLike Dolce & Gabbana to Sicily, Armani drew inspiration from the business center of Italy, the City of Milan. In addition to the classy dress code of the Milanese, Armani used a color pallet derived from the industrial, polluted, Gothic city.

He incorporated the drab colors of black, white, blue, grey and beige (and his favorite blend, dubbed “greige”) to create a distinct selection that would unify his various product categories and lines.

In later years, Armani would take more than influence from another adopted home: he used a chemical composition from the Obsidian native to the Italian island of Pantelleria, where he has long kept a vacation home, for his cosmetics line.

An Evolving “Core Business”

Brand Extension (Moving into other product categories- remember this began in France)

Over the decades, Armani has amassed capabilities for the design, production and retail arms of his company, allowing the core of his business to expand while maintaining control over the total brand image. Throughout the years, brand extension has grown the company as follows:

armani chocolate1975: Ready-to-wear (RTW)

1980s: RTW + Accessories

1990s: RTW + Accessories + Men’s Accessories + Home

2000s: RTW + Accessories + Men’s Accessories + Home + Home Expansion + Watches & Jewelry + Hospitality (Hotels & Resorts) +Restaurants + Nightclubs + Chocolates (!)….

Line Extension (Moving into other retail channels, target markets or price ranges; this began largely with Armani)

Armani has developed more than ten different lines under his brand. Some have been very successful (like Emporio Armani, which has the same target market as Dolce & Gabbana or Gucci), while others were less successful (Mani, which was a lower-priced line, now essentially replaced by Armani Exchange). Below you will find a graphic I made to illustrate the quality/style differences in the main Armani lines, based on a discussion I had with the marketing manager of Emporio Armani.

Armani brand architectureContesting the King

As Armani developed his brand structure, he continued to add only lower-level lines to his portfolio, with his original Giorgio Armani line (ready-to-wear) at the top. In order to avoid diluting the line too much with the constant reduction of quality, he finally added his haute couture line in 2005 as a balance.

While Armani is the uncontested master of Italian brand and line extension, and there is no question of brand uniformity, he has had a challenging time conveying the unique characteristics between his lines, particularly when dealing with certain product categories.

For example, would you know the difference between the two lines, based on these ads? For some, the distinctions are vague. (For others, not so much!)

ea shades

ga shades

In addition, Armani has had problems developing bags and shoes. He never quite nailed the category’s design, and didn’t find a good licensing partner to assist him. As he has acquired many other production capabilities and know-how from former licensees, this gap in ability presents a major set-back. In the future, with many high-end designers depending on accessories sales, Armani may suffer greatly.

Founder’s Dilemma

Additional problems Italy’s reigning King of Fashion is facing is known as the “Founder’s Dilemma” – how to hand down the brand after retirement, without losing the relevance of the brand. This si a typical challenge seen in businesses where the founder is the life and personality of the brand. As we have seen, many of the French brands have achieved a successful brand transition through rock-star designers with their own distinct personalities (such as Lagerfeld at Chanel, or Galliano at Dior), while other brands have a quieter approach (Maison Martin Margiela silently designs for Hermes).

Financial Independence

As the financial burdens inherent to the fashion industry continue to rise, requiring constant innovation both on product design, business and communication strategy, Armani remains the only major fashion player to be the only shareholder of his company. He has never even taken out a bank loan! This has afforded him total control over his business and design decisions, however, one must question what will happen when he retires or the economic downturn and extensive company expansion catches up with him.





The Italian System for Fashion

2 06 2009

1950s ferdinandi

Italian Fashion Industry – Cycles of Development

Though some could argue otherwise, according to the experts in Italy, there are 4 primary phases or cycles of Italian fashion industry development.

  1. 1950s-60s:  Industrial production systems are developed after WW2
  2. 1960s-70s:  Economic and social change emerges, apparel system reacts
  3. 1980s:  Democratization of fashion and surge of “Made in Italy” around the world
  4. 1990s:  Brand concentration, financing revisions and mergers & acquisitions

The 1st Cycle: 1950s-60s

Prior to industrial developments in Italy, which occurred only after WW2, 90% of Italians were rurally employed. The elite acquired their luxury products from France, and Italian goods were considered “poor”. Most higher fashion was reserved for men, as women did not have as many black tie events to dress for.

At the time, the fashion industry in Italy was largely non-existent. With the high-end consumers buying their fashions from Paris, or having copies made by local tailors, some industrialists noticed a gap in the market supply, which called for functional, durable, high quality garments. To begin to meet this demand,  Italian company Gruppo Finaziario Tessile (GFT) took the first initiative to measure a wide sample of the Italian population to create national sizing system.

Italian Apparel Finds a Niche

giorgini's la sala bianca show of italian designs for the us market, 1951In 1951, an Italian importer for American goods, named Gian Battista Giorgini, realized the the US market was also ready for something new and different from that offered by France. They had mass-produced garments, the elite could buy haute couture from Paris, and yet there was nothing in between. Giorgini used his US contacts for market research and development, and began to organize Italian designers, whom he encouraged to abandon their French knock-offs and pursue an affordable Italian style. With new production technologies from the States being imported into Italy as part of the recovery plan, and a large skilled workforce of women to operate the machinery, GFT and other Italian manufacturing firms such as Marzotto and Lebole developed the production end of the industry. As many of top producers had a background in men’s tailoring, there was still a strong industrial concentration in menswear, but the mass-production capabilities in the States would find their way into Italian womenswear production soon enough.

You could summarize that the beginnings of the Italian Fashion Industry were characterized by:

  • Large manufacturing facilities
  • Economies of scale (primarily the US market)
  • Strong specialization

The 2nd Cycle: 1960s-70s

girl_trioIn most cultures, up until this point, children and adolescents had dressed as their parents dressed. In the States and the UK, pop culture shifted in the wake of the Baby Boom as young people struggled to develop a new identity and used fashion as a means to demonstrate their separation from the values of their parents’ generation. (England was becoming a hub for the new youth culture, inspiring fashion and trends around the world, in addition to American hippies.) Women had entered the workforce in increasing number, and no longer wanted to dress as housewives. Further, as there were fewer and fewer occasions for dressing up, people began to seek more informal clothing. Trends had begun to be driven by market needs, as opposed to the stylistic direction set in Paris.

Big Business Gets Smaller

woolworths union strike 1970At the same time, there were many social and union conflicts that helped create increased labor costs in developed countries, resulting in a surge of apparel imports from developing countries. The combination of these elements together with the oil crisis of 1974 and the Italian economic crisis of 1975 caused the big manufacturers to lose their hold on the mass market. There was no longer a one-size-fits-all model for fashion (and that was only the beginning, as we now know!).

As the big manufacturers in the States and elsewhere had maintained large scale standardized production even after consumer demand had decreased and diversified, the labor costs in Italy were falling and new small/medium-sized production companies were forming. Manufacturers began to outsource production in Italy, and even France began to rely heavily on the cheap yet skilled Italian labor pool for their pret-á-porter lines.

Designers Respond to a Changed Environment

1979 versace for genny adA new generation of designers emerged in Italy, capable of working with industry partners to produce collections that were fashionable and more affordable than their French counterparts. (Consider Armani & Cerruti, Versace & Genny, or Soprani/MaxMara.) These designers had relationships with market-savvy business leaders, who ensured that the Italian form of fashion would meet the demand of developed markets. The Italian Fashion Week cycle, following on the heels of Paris, became increasingly popular to buyers and press who saw the potential of Italian fashion’s middle ground between haute couture (France) and mass fashion (the US).

In summary, this cycle of development in the industry of Italian fashion can be characterized by:

  • New consumer values and lifestyles (youth, rebellion, rock, women in business, etc)
  • Market segmentation (no longer one-size-fits-all)
  • Increased demand for informal wear
  • The decrease of influence from Paris and haute couture
  • The increase of influence from London and the youth culture

The 3rd Cycle: 1980s

DynastyCast-Season6-1985-1986This was the decade where the world found Italy.

By the 1980s, Italy had little competition from other developed countries for quality textile production. However, developed markets were building a habit a rampant consumerism, with a renewed interest in fashion. The Italian style had gradually been gaining consensus, especially in the States, which had become the largest consumer market. Meanwhile, Italian industry was looking for new formulas to stay (or get) on top of the fashion game.

Total Look, Branding & Hollywood

A new type of relationship began to form between industry and the designers, which was more a partnership that a contractual business relationship. With the craze for “Total Look” taking the fashion scene by storm, designers began to throw their labels onto every conceivable product in their quest for notoriety and brand building.

Internationalization, mass media and the help of Hollywood brought Italian industry onto the main markets. For example, Armani exclusively clothed actor Richard Gere for his role in American Gigalo, bringing the brand notoriety throughout the States and abroad. You can see an early example of product placement with Armani’s menswear collection in the closet scene of American Gigalo, in the clip below:

Love for Licensing

Licensing agreements had become the method of choice for labels to expand their designer names into new product categories (including second and third lines, kids wear, athletic wear, homewear, eyewear, fragrances, etc.). The cooperation between industrial companies and designers, mainly based on these licensing agreements, was the key success factor to growth for the Italian fashion industry.

Fashion companies moved from product-specialization to develop multi-product capabilities through their licensees. In addition to manufacturing, licensees were used to handle distribution and retail activities for the licensor brands, while the brands in turn provided the design concept, the brand name and image.

Throughout the 80s, much of the Italian fashion system depended on licensing agreements for growth and for specialized production (after all, what does a ready-to-wear designer know about producing furniture or fragrances if he can’t rely on experience professionals to help him?). However, as the brands amassed capital, and learned from their licensees about best (and worst) practices, it became clear that licensing could be equally beneficial and detrimental.

Brands like Gucci were widely diluted through numerous licensees, all whom had a different idea of what the brand represented and how their designs should appear and retail. On the verge of bankruptcy, they needed to build capital and buy back their licenses, in order to impose a universal brand strategy throughout their comapnies.

Within the decade, four different groups of players on the Italian fashion scene had clearly emerged. They were:

  1. Industrial companies (GFT, Marzotto, Miroglio)
  2. Small to medium-sized industrial companies with product orientation (Max Mara, Zegna, Genny, Aeffe, Ittierre)
  3. Designer/entrepreneurs who both design and produce (Missoni, Mila Shon, Mario Valentino)
  4. Pure designers who take designs to production firms (Versace, Armani, Ferré, Moschino, Krizia)

By the end of the 1980s, Italian designers had entered into a new system of growth:

  • Most remained family industries (Missoni, Prada, Versace, etc)
  • Designers maintained direct control over their “first lines” (the highest line in their brand’s “food chain”  –   typically ready-to-wear)
  • Brands developed second lines and brand extension, typically under general artistic direction of the original designer and through licensing agreements
  • Brands developed direct control of distribution, taken back from licensees
  • Focus was kept on retail, to create a unified harmony across a branded retail outlets

You could therefore conclude that the Italian model for the fashion industry, at this point, consisted of designers sketching models for the primary line, with manufacturing and additional product development farmed out to licensees, with the finished products then brought back under internal control for distribution and sales. Just ten years prior, licensees had handled everything but the initial design, brand name and image direction for the Italian brands.

Unlike France, Italy typically relied on lower-end textiles – not fragrances and accessories – to make the big money.

The 4th Cycle: 1990s

Versace w supermodels 1991 guardianTowards the end of the 20th Century, the fashion system was undergoing many changes. The fashion system had become increasingly global in supply and demand, affecting Italian, French and American firms together.

versace-couture 1994New players were entering the field; for example, the luxury conglomerates. New market segments were being created as well, including the bridge segment, which spoke to a market beneath ready-to-wear but above mass fashion. Entry barriers into the industry had become increasingly higher, with great investments required in marketing (fashion show and advertising extravaganzas, parties, supermodels, etc) and retail. Retail itself was undergoing change through the introduction of the lifestyle concept, pioneered by American designer Ralph Lauren.

Fronting the Tab

In order to meet the new financing needs of the fashion system, many companies opened on the stock exchange. With this move came a market rush by the luxury conglomerates to acquire and reposition the Italian brands with marketable heritage. Much like the French houses before them, Italian brands were gradually having to transfer creative direction from the original designers onto new creatives.

As for the four groups of players on the Italian fashion scene, the 90s saw the following changes:

  1. Industrial companies: begin to acquire brands – typically from past licensors, launch their own brands based on their acquired capabilities, or develop retail strategies (Aeffe/Moschino, GFT/Valentino, Exté, Max Mara, Zegna)
  2. Designer/entrepreneurs: control production and distribution processes with the purchase of production facilities, utilize very few licenses (Versace, Dolce & Gabbana, Armani)
  3. Multibrand Groups: conglomerates acquire brands and designer companies (LVMH, Gucci Group, Prada)
  4. Pure designers: sell their companies to industrial or multibrand groups (Jil Sander, Valentino)

In “Short”

The Italian fashion industry really took off after WW2 with the help of technologies provided as part of the Recovery Plan, the entrepreneurship of business and manufacturing leaders who saw an opportunity, a newly-urbanized population of skilled textile workers, and a burgeoning demand for quality apparel and ready-to-wear.

The first phase of industrial fashion in Italy was made by a few concentrated, large-scale production facilities. As the economy turned south and many new market segments emerged, big business lacked the flexibility to diversify their business model, and small to medium-sized manufacturing companies took the lead.

Designers and their business partners (typically family) recognized the changing market as an opportunity, and developed partnerships with manufacturers who had once contracted work to them. Under this model, the designer became responsible only for the initial designs of his collection, while his business partners managed the brand and image, and licensees took care of the rest – from manufacturing through distribution and retail.

By the end of the 1980s, many brands had gained the capital and the knowledge base to buy back their licenses in specific product categories, as well as their distribution and retail systems. Some were able to purchase their own manufacturing facilities. The typical model now had the design company controlling the initial designs of the highest line and whatever licenses they had brought in-house, as well as their distribution and retail. Manufacturing was still typically licensed out.

During the final years of the 20th Century, the costs of running a fashion business had exploded with a need for mass marketing. Many companies went on the stock exchange to build capital investment. While some brands took control back from their licensees, others were acquired by luxury conglomerates. Some manufacturing leaders developed their own lines or acquired brands they had once licensed production rights from.





The French System for Fashion & Luxury

14 01 2009

French fashion has long been reflective of social and economic hierarchy, illuminating the distinction among classes. Beginning with the Royal Court of the Sun King, France became the capitol of rich fashion. After Charles Worth created the business of haute couture in the 1800s, Paris became the creative center for a business model that has evolved greatly, yet still remains centered around the spirit of haute couture.

Haute couture is identified as unique pieces constructed with precious materials, made-to-measure, and made for special occasions- not daily wear. A dress of this nature today should run you on average between 20,000 and 30,000 euro and up. Where there were once more than 30,000 clients per year for the highest form of French fashion, today there remain less than 3,000, and most of these are irregular clients. Hence, haute couture is not a big business anymore; it is unaffordable and impractical, as there are fewer and fewer occasions in today’s world to wear such items. Therefore, it has become much less profitable than it once was, having lost the link with modern life.

Most companies that made their name in haute couture today sell mostly accessible products and democratic accessories like lipstick, perfumes, and so on. However, to continue to sell these more “basic” goods at high profit margins, they must continue to produce high fashion. People are now buying the legacy of couture, rather than the couture itself. Therefore, to make the big bucks selling goods at the bottom, you must be positioned at the top.

According to French law as of 2008, 50 garments per season must be produced by hand, by at least 20 skilled in-house workers for a fashion company to be considered a house of haute couture. (This model is changing under the current economic situation, in order to protect the existing haute couture legacy; too many couturiers were closing their doors under the weight of these expensive restrictions.) These companies lack a bottom-up business model, and have no second-lines: consider French powerhouses Dior and Chanel, as opposed to Armani, Ralph Lauren, Dolce & Gabbana, etc.

john_galliano_paris_menswear01Brand images and communications demonstrate a high level of arrogance and provocation. Have you ever wondered how or why that “crazy stuff that nobody is ever going to buy” makes it onto the catwalk? The most elaborate and provocative designs are taken onto the runway because the goal is not mass profitability, but to demonstrate creativity and uniqueness. Consider the wild boys Jean Paul Gaultier for Hermes, or John Galliano for Dior (below).

john_galliano_dior_paris_fashion_week

In fact, most clients are unaware of exactly who is the designer behind today’s major labels. Instead, they typically know what celebrities are wearing them (the Poiret legacy lives on!).

To summarize, the French business model is derived from a long tradition of craft and individualism. Couture was the original product of the French fashion and luxury system, which is now integrated with accessories. The image of sophistication and provocation are used to produce the sense of luxury, which is what the companies are selling. Viola!

Here’s my hastily-made visual (with apologies to France):

French luxury business model