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.

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Yves Saint Laurent: Another Road to French Luxury

31 05 2009

Yves Saint Laurent

Yves Saint Laurent: A History

In a similar route of Dior, Saint Laurent made his debut on the fashion scene with French textile tycoon, Boussac. The termination of their business relationship serves as the origination point for the YSL brand story, which I’ll outline for the sake of “brevity”. It’s amazing how fun business can be!

1936 YSL is born in French Algerian port of Oran

1955 YSL joins the creative staff at Dior

1958 After Dior’s death, YSL makes his debut collection (trapeze line) as new Creative Director of the Dior Maison, age 21

1960 YSL launches the beat style at Dior, and Boussac quickly replaces him with Marc Bohan (Sounds a little like the Marc Jacobs grunge line at Perry Ellis, no?)

ysl mondrian 1962 YSL launches his own line with life and business partner, Pierre Bergé, backed by American financier, J. Mack Robinson

1963 Robinson sells his shares, and American fragrance brand Charles of the Ritz obtains 80% share of the couture house against 20% held by YSL and Bergé

1965 Infamous Mondrian collection debuts

1966 Relatively affordable pret-á-porter line, Saint Laurent Rive Gauche, is launched

1967-8 Makes headlines with launch of ethnic, safari and nude looksNYTimes/Getty image of YSL 1969

1972 Pharmaceuticals giant E.R. Squibb takes over Charles of the Ritz, along with control of YSL perfume and cosmetics, allowing YSL and Bergé purchase full control of group’s couture activities

Full ownership of couture activities gave YSL and Bergé the right to expand the business beyond couture, using the brand’s name through licensing agreements.

“Haute couture will stay for perhaps another five or ten years. I’m only keeping the salon going because I cannot ethically justify putting 150 people out of work.” ~Yves Saint Laurent, 1971

ysl opium1977-8 Launch of Opium perfume and creation of YSL Beauté

1986 YSL and Bergé buy Charles of the Ritz back from E.R. Squibb, acquiring full rights to the YSL fragrances and cosmetics, expanding their business 10 times over; many financial partners were required for this purchase, among them Carlo de Benedetti, who came to own the largest share of the company after YSL and Bergé themselves.

1989 To meet burgeoning debts, YSL is forced onto the secondary stock market in Paris

1991 De Benedetti demands to be released from his investment amidst the global recession of the early 90s; Bergé and YSL, unable to find new investors, drive themselves further into debt buying him out of his share

ysl & pierre berge1992 Another major investor, Wasserstein-Perella Bank, indicates that it must sell it’s 15% investment in the YSL Groupe; Bergé demands that their replacement investor be European (to avoid having a multinational company)

L’Oreal makes an offer for 100%, but Bergé does not want the company to be run by consumer goods giant, Nestle (L’Oreal will acquire YSL Beauté). LVMH also expresses interest, but backs out after Bergé requests that he and YSL maintain creative control over the YSL brand and its primary competitor, Dior (remember, LVMH structures its brands to avoid collaboration, brand dilution, and in this case, sabotage).

YSL and Bergé, unable to come to an agreement for an investor, begin selling off their personal shares, and are subsequently investigated for insider trading. (Check out the 1992 film documentary by Hamish Bowles on YSL here.)

1993 The groupe is sold at 100% to French national company, Sanofi, for a reported $650 million. YSL maintains position as creative director of his couture line

1997 After years of losses on the YSL brand, Sanofi shops around for a new buyer for YSL

pinault1999 After serving as white knight in rescuing Gucci from a hostile takeover from LVMH, Francois Pinault (head of PPR and majority stakeholder of the Gucci Group at 53.2%) acquires the YSL brand

The Couture Division (including pret-á-porter and fragrances) is sold to Gucci Group, where Tom Ford is named Creative Director of YSL Rive Gauche in addition to his role as Creative Director for Gucci.

The Haute Couture Division stays under direct control of Pinault through his holding Artemis, and remains under the creative direction of YSL.

“The DNA of Yves Saint Laurent is completely different from the DNA of the Gucci brands. These dreams are kept alive by our creative directors and our designers.” ~Robert Polet, Gucci Group CEO

2000 Gucci Group immediately applies its direct-control mantra for production and distribution on the YSL brand, terminating more than 150 licensing agreements and creating a network of +62 directly-operated stores in order to create brand image and service consistency, but this attempt drives YSL further into the red

YSL's final bow (AFP)2002 YSL’s final show as creative director of YSL Haute Couture

“I have today decided to bid farewell to the world of fashion I have so loved.” ~Yves Saint Laurent, 2002

2004 Tom Ford leaves Gucci Group, and is replaced by Stefano Pilati as Creative Director of YSL couture

2005 YSL brand profits fall from €169m in ’04 to €162m, with losses ballooning to €76.4m

2006 Valerie Hermann, a veteran of LVMH, assumes position as CEO of YSL

After her first full year, YSL revenues rise 19% and operating losses fall 24.9%

“With the fixed costs I have, I need more volume.” ~Valerie Hermann, YSL CEO

Lessons in Luxury from the French
  • The French model for luxury presents a growth pattern that typically occurs through brand extension and/or brand-buying, in the case of conglomerates.
  • Individual brands pursue growth primarily through brand extension, with very limited second line development (YSL Rive Gauche is an exception, not the rule).
  • Most French brands have moved from singular couture brands into luxury conglomerates, where specific skills and resources may be shared through brand synergy, but unique brand image must be carefully managed.
  • It’s a good idea to keep your brands separated, from the creative director down to the production staff, in order to maintain unique brand identities.
  • Too many licensing agreements can dilute the brand image when not properly controlled, but a group-wide policy of one-size/strategy-fits-all can have the same effect.
  • Today, the labels of former couturiers make their money in accessories, fragrances and cosmetics. Couture is needed to hold uphold the luxury brand image (for now), but the market for couture has nearly disappeared.
  • Without the high profit margins of couture sales, luxury fashion companies must rely on volume sales in lower price categories. This impacts the image of what some feel a luxury company should be (for example, a guy I look up to, Seth Godin), but without a couture market, the industry must look for a new strategy.

“I’ve always said that the couture would die with Yves Saint Laurent. Now it’s a domino effect. The couture has lost its raison d’etre. Couture isn’t art. It’s not meant to be hung in a closet like a painting. The women who wore couture no longer exist; the art de vivre that spawned couture has died. If houses such as Chanel and Dior one day get proof that they can sell as many bags and fragrances without a couture show, they’ll stop couture, too.” ~Pierre Bergé, 2004, upon hearing that Emanuel Ungaro would leave couture (Vogue)

Sources: International Directory of Company Histories, Vol. 23. St. James Press, 1998; Vogue Magazine; http://www.fundinguniverse.com; personal notes