Major hat tip to NPR for bringing Yelping with Cormac into my life…a blog featuring the voice of Cormac McCarthy applied to some of the most banal of American consumer institutions. It was with particular glee that I read the review of Juicy Couture, located in my backyard of Union Square, San Francisco…
One thing I love about the fashion industry is that, despite all the glitz of runway shows and glossy magazines, there are real people behind the clothes we look at, long for, and buy. Fashion isn’t just about Vogue magazine. These clothes have to be made by someone, somewhere. And despite a sketchy history of child labor and sweatshop conditions, clothing production can be an opportunity for positive change in countries like Liberia.
Located in western Africa, Liberia was torn by a brutal civil war that only recently ended in 2003. Women in this country have had little control over their own lives and are frequently sold into marriage. In fact, an estimated 75% of Liberian women were raped during the fourteen-year civil conflict.
But things are changing. In 2003, a small group of women, who were tired of the stalled peace talks, staged a demonstration that contributed to the exile of corrupt leader, Charles Taylor. How did they do it? Wearing only white t-shirts, they threatened to remove their clothes and stand naked in the streets (their protest is chronicled in the award-winning documentary, Pray the Devil Back to Hell). Then, in 2005, Ellen Johnson Sirleaf was elected president of Liberia – the first female elected to office in Africa. Sirleaf has made substantial economic improvements but unemployment still hovers around 80% (even the current recession only resulted in roughly 9% unemployment in the US).
In this environment, entrepreneurs like Chid Liberty are seeing opportunities to affect change and create a profitable local business. Liberty was born in Liberia as the son of the Liberian ambassador to Germany. Although his family moved to Germany and, ultimately, the United States when Liberty was a child, he always felt a connection to his home country. Inspired by the actions of the women protesters, Liberty started brainstorming ways to make a long-term impact in Liberia.
A currently popular aid effort for struggling nations like Liberia is microfinancing – basically, providing small loans to individuals so they can create a business to support themselves. One criticism with this strategy is that many of the recipients are not equipped to handle the money and often end up no better off. A recent example of this occurred in Haiti, where a $3,000 donation to rebuild a school resulted in a pile of concrete instead of any substantial improvements. Liberty felt that a better solution was stable, long-term employment and the Liberian women who have demonstrated the strength and desire to change their circumstances were the perfect employees.
Leaving a finance job in San Francisco, Liberty started the Liberian Women’s Sewing Project (LWSP) in Liberia in 2009. To house the new business, he reclaimed a family-owned building in the capitol city, Monrovia, that the military had commandeered during the war. Bullet holes still cover the exterior and, at the height of the conflict, passersby would often be shot if they even looked at the building. Now, the building is a factory for LWSP clothing assembly services and the 58 women employed there currently sew t-shirts – a fitting choice as t-shirts were worn by the female protestors in 2003. The LWSP is the non-profit arm of its for-profit parent company, Liberty & Justice, and is guided by the same strategic and financial principles. Decisions for the company are made through an all-employee voting process and the women function more like business owners than strictly employees.
And the business plays a role in their personal lives as well. In a country where parents have to pick which one of their children can go to school, all the employees have all of their children in school. One employee, who was sold into marriage as the 8th wife to a man 50 years her senior, was left in a displaced persons camp after her husband took her children and fled the country. Today, she is remarried to a man she loves, is reuniting with her children, and is building a small house. Many women have found the financial independence to leave abusive relationships.
But is this just one of many feel-good social causes? Liberty is emphatically opposed to this idea:
“Giving people the opportunity to work in factories may not be as sexy as giving a woman a $100 loan to buy a goat which, according to our Western dream, she will obviously turn into a multi-million dollar goat cheese empire – but I think we in the international development space need to check ourselves and really understand who we are serving.”
In order to make a real difference in the Liberian economy, the LWSP must be a business that can stay in business. Kendall Riding, a social impact investor who has committed capital to the venture, is confident in Chid’s ability to see opportunity amidst the global market forces and to create a financially successful business.
“Global manufacturing is not going away any time soon,” she says. “As wages rise in Asia and the idea of corporate social responsibility becomes increasingly important, companies like Liberty &Justice are going to be uniquely positioned to meet the demands of the marketplace.”
Additionally, Liberia benefits from a new trade agreement called the African Growth and Opportunity Act (AGOA) that provides up to a 30% price advantage over products from countries like China and India. On the other hand, if this were purely a for-profit enterprise, Liberty claims the women would likely not receive crucial literacy and family planning training. The LWSP is unique in its aim of creating a real, sustainable business while assisting its employees to a better life. Riding describes her experience seeing the factory firsthand,
“After visiting Liberia and meeting the women, I knew the social impact component of the investment was there. It doesn’t take long to see what this factory is doing not only for its employees, but also for their families and their communities. L&J is empowering these women to see opportunities and possibilities and encouraging them to dream big not only for the company but also for themselves, for their families and for Liberia.”
The future looks bright for the LWSP. Ashley Bush, the sister of designer Lauren Bush and niece of President George W. Bush, plans to use the LWSP to produce a line of skirts. The LWSP also has new contracts with a major men’s pants company and a large Japanese trading company. Liberty hopes to expand the staff to 900 employees in 18 months – a tall order despite the high levels of unemployment. As Liberty found, experienced tailors were less useful than those who were quick, could get in “the zone”, and have great eyesight. The expansion will require everyone to pitch in, but that’s something these women are excited to do.
This week, LVMH announced that the founders of Opening Ceremony, Humberto Leon and Carol Lim, will be the new creative directors at the quiet and aging brand, Kenzo. Like many of the brands in the LVMH stable, Kenzo was wildly popular at one time (the 70s) but has slowly lost its edge and fallen from the forefront of fashion. Kenzo is a winner because it seems its turn to get the LVMH makeover treatment has come. If I put on my happy ears, this is a great thing. Once great fashion brands are revitalized and younger, start up designers get a chance to have the resources of a company like LVMH support their development.
When I put on my cynical hat, I see Kenzo going the way of brands like Louis Vuitton and Dior. Overwhelming marketing campaigns centered on celebrity designers and, worst of all, teaching the consuming that heavily-logoed accessories is code word for wealth and class. But who knows? I read recently that Bernard Arnault is tiring of the antics of the celebrity designer, such as the recent Galliano debacle. Hiring highly talented but “more about the fashion than the publicity” designers like Phoebe Philo at Céline might indicate a trend in a new direction. And Leon and Lim don’t seem to be enfants terribles, so maybe this really is a good thing… Click here to check out the most recent Kenzo collections…
A few days ago, Gilt Groupe, the leader in high-end flash sales, announced it will launch its first full-price retail site later this summer. A take-off of Gilt MAN, the new site called Park and Bond, will offer men’s apparel.
Although this is interesting to note, the new site really makes me wonder if it signals the decline of the flash sale industry. It started in the recent recession as a way to offload the unpurchased merchandise many luxury brands were sitting on, while offering prices that were more appropriate for the recession-era consumer. More importantly, Gilt Groupe created a channel that maintained brand equity for luxury brands, even while they sold their products at discount prices.
But now, there are rumors that all that excess inventory has gone away – likely a combination of luxury brands slowing production and also retail sales picking up. What will sites like Gilt Groupe have to offer if there is no overflow inventory? The new Park and Bond site suggests that Gilt Groupe is migrating to other business models to stay alive.
Another idea Gilt Groupe is testing out – produce online content to drive traffic while providing commerce opportunities (discounted or full-price) to readers. Gilt Groupe recently hired former editor of Gourmet magazine, Ruth Reichl, to edit their new food site, GiltTaste.com. With her background, it is likely Reichl could produce more content than simply picking products to sell.
Since Gilt Groupe was a leader in flash sale site business, their recent strategies suggest they are seeing the tide change before others, especially late entrants like Amazon and EBay. Does this signal the end of flash sale sites? I know I’m sick of receiving the emails, so maybe so…
The future of the luxury industry was very much in question during the recession, especially with the strategy of U.S. retailers who slashed luxury brand prices to move inventory. However, sales for the first quarter of 2011 are just in and the luxury industry has officially surpassed pre-recession sales levels. Consulting firm Bain & Co. raised their prediction for 2011 luxury sales growth to 8 percent: $262 billion in sales this year compared to $244 billion in 2010. Bain referred to the recovery as a “return to normal luxury goods consumption” but this recovery does not reflect the same consumption patterns as pre-recession and is creating a potentially destructive pattern for the luxury industry overall.
Luxury firms would like us to believe that consumers are returning to high-quality luxury products after getting burned with bargain shopping during the recession. The 2010 annual report for LVMH, the largest player in the luxury market, suggests as much, repeatedly referencing product quality and the strength of their brands as the reasons for its spectacular recovery. But the geographic revenue growth for LVMH shows that sales from China are the primary driver of the exceptional sales numbers (see graph below). Bain confirmed this pattern across the luxury industry – Chinese consumers have become the largest luxury consumer with luxe sales in China outpacing the rest of the world.
It’s not necessarily a bad thing that most revenue is coming from China but it doesn’t support the theory that luxury companies are rebounding because of their great products. The Chinese market is a perfect storm of newly wealthy consumers who love luxury brands. Some of these consumers were created by owning or managing manufacturing facilities, but even lower-income Chinese spend whatever discretionary income they have on luxury goods. Ironically, the Chinese market is also heavily employed making some of the same products they are buying. If this revenue stream is dependent on current outsourcing levels creating a mass of consumers with money to spend, label-driven companies could be in trouble when production moves to a less expensive country, leaving the Chinese without jobs.
That’s not to say sales in the U.S. are stagnant — consumers in the Americas are buying even more luxury goods than they were before the recession hit. But where is this money coming from? Possibly Brazil, touted as the new center for luxury consumption because of the high concentration of wealth. Some of it comes from ultra-wealthy Americans unaffected by the recession because their wealth is built on stable, recession-proof sources, who are unashamed to conspicuously consume now that the recession is over. But large chunks of luxury sales pre-recession were from the aspirational consumer — those who could not actually afford luxury items and were buying on credit. Those consumers have not come back after losing their jobs and homes and going bankrupt. So what or who is compensating for them? Perhaps the weak U.S. dollar is triggering enough tourism, and tourist spending, to compensate for the loss of aspirational consumers in the U.S. The same thing happened in Europe last year.
In some ways, luxury consumption is the same as it was before the recession. Although sales are coming from different countries, the consumer type is the similar – someone buying beyond their means. As we have seen in the U.S. market, this consumer is temporary at best. Courting this consumer means constantly circling the globe for new wealth, often tied to areas of the globe with the cheapest labor pools.
It is this strategy that could destroy the luxury market altogether. At a recent fashion trends seminar held at the Academy of Art University, a representative from forecasting firm TrendUnion reiterated the concept that what the truly wealthy desire most is discretion and privacy. It is the truly wealthy who are the stable consumer base for the luxury market and, to keep this consumer, luxury firms must ensure that their products reflect those values. The more that luxury firms splash logos all over their products and make them readily accessible to the new money consumer, the more the truly wealthy will turn away from them.
Maybe “destroy” is too strong a term. Perhaps this strategy will simply separate true luxury firms – those focused on a high quality product – from faux luxury firms – those focused on marketing products.
Last weekend, I attended the Retail and Luxury Goods Conference at Harvard Business School – first time for me but, apparently, this is their seventh year hosting the conference. I’ve been looking for smart conversations about the fashion and luxury market, so I thought this would be a good place to start. Of the almost 400 attendees, I would guess that 70% were MBA students from HBS or other business schools – this is based on squinting my eyes while in a panel session and getting a rough visual proportion of plain black suits with dress shirts, so admittedly unscientific. The rest of the attendees were mainly industry professionals from apparel, accessories, and beauty companies as well as numerous consultants.
I’ve been to a lot of conferences in my career and I thought the HBS team did a great job organizing this one. The size was right, the process was efficient and simple, and the venue worked well. Each session was almost too short at 45 minutes, but it did keep the momentum up, which I thought was good.
In terms of content, I was divided on the quality of the speakers. The panel discussions were rich with actionable advice and interesting data points. The keynote speakers, on the other hand, didn’t say anything you wouldn’t expect the CEO of a large-scale global firm to say. Let me guess…it will be some combination of people, strategy, culture, leadership, differentiation, etc. etc. Stephen Sadove, CEO of Saks Incorporated summarized their strategy as, “Clarity of strategy. Differentiated merchandise. Local marketing. Great service.” How is that different than any other luxury retailer? I was also disappointed that Sadove pitched Saks’ recovery from the recession as a success story, when it seems that they simply weathered it. The stock price pattern for Saks and two of their (publicly-held) competitors, Macy’s and Nordstrom, look exactly the same, although Saks has the lowest price of the three.
But, as I said, I thought the panel discussions were great and was especially impressed with Gaurav Suri (Google), Mark Bonchek (Sears), Ari Bloom (Alternative Apparel), Charlie Graham (Shop It To Me), and Brian Spaly (Bonobos/Trunk Club). Here are some tidbits I took from the sessions:
- We need to think beyond just e-commerce, how do all the commerce channels work together? Social, mobile, etc.…
- Someone mentioned that it’s still clunky to purchase from your smartphone. I realized that, for all my love of technology, I’ve never purchased anything from my phone. Will this ever be solved or will it simply be used as an information and marketing channel?
- Google: “We don’t care where you buy, but that we influenced your purchase.”
- There was a brief discussion of the democratization of fashion opinion and I wish we explored this further because it feels so overwhelming right now. Are we trapped from making purchase decisions because there are too many opinions? Are we trapped in design ruts because this makes it hard to tell what consumers want? Who and what will emerge as the new opinion leaders?
Good reminders for all of us…
- Generally, you want to do the opposite of what everyone else is doing.
- Focus first on the product, not the business model (which is all too easy for MBA students and other business smarties to do).
- Make sure the product is fantastic and
- It may take many, MANY, iterations to get there.
- Think about nontraditional sources of funding – for example, seek funding from your supplier, perhaps in the form of free materials or even favorable production terms. Ari Bloom: “This can be worth more than cash”.
- Make sure that “free” labor such as interns are getting some financial reward – even in non-cash form such as class credit. They need to have skin in the game.
- If you’re going to fail, fail fast and cheaply.
As I said, I came to this conference looking for smart conversations about fashion and luxury. I think the panels delivered, but the keynotes could have been better. A few suggestions I would give for next year:
- Prep the keynote speakers to go beyond sound bites. Tell us something we wouldn’t have known by reading the press releases from your company’s website.
- Make sure WiFi is readily available (and tell us how to get on it) – this will help those trying to live tweet the conference.
- Since there is only enough time for a few questions at the end of each panel, maybe solicit questions in advance. Pick the best ones to pose to the speakers, so we don’t waste time on questions like, “What does it take to be a great leader?” and “So, is the retail industry hard?”
A few months ago, I attended a lecture by Glady Perint Palmer where she spoke of the spring couture shows in Paris. Although she discussed many designers, she was especially fond of the Gaultier show and shared some lovely photos and illustrations. Admittedly, Gaultier has not been on my radar for some time and I was surprised by the genuinely pretty gowns from the designer known for cone bras and S&M apparel. Maybe I should take another look…
And then, today, an announcement in WWD that Hermès is looking to sell its substantial stake (45%) in the Gaultier house, likely due to poor financial performance. But there could have been artistic and management differences as well – Hermès and Gaultier started a design collaboration in 2004 which Hermès ended prematurely last year. When the Galliano scandal erupted a few weeks ago, Gaultier’s name was thrown in the mix of potential replacements at Dior. But it seemed to me that he would not be the kind of designer to thrive under strong corporate management. If he had challenges at Hermès, working at LVMH is a non-starter.
But the bigger issue for me is the viability of haute couture clothing. And by clothing, I mean CLOTHING – not the accompanying purses, shoes, perfumes, etc. that are the real money-makers for luxury brands. It was mentioned several times in the WWD article that the Gaultier brand is losing money and sales and that the only profitable line of business for his brand is perfume. As I learn more and more about the fashion industry, it strikes me that fashion shows (and, now, fashion weeks) get a lot of attention by the fashion media but the clothes themselves are nothing more than a large-scale advertisement to sell accessories. I’m still researching this issue, so I don’t have a definitive conclusion, but my theory is that it is no longer possible to create a sustainable business by making and selling haute couture quality clothing. What do you think? Any examples where it is working?
I’ve always been fascinated with branding and advertising campaigns and, sure, I sometimes watch Mad Men and think, “That would be so fun!” – blatant racism and sexism of their office aside. And I’m puzzled over a recent ad campaign I started noticing in the last few weeks. As I’m sure many of you know, Windows launched a phone to compete in the smartphone space against Apple. I’m not going to discuss whether I think that was the right move or not, but I do want to discuss their ad campaign strategy.
In the ads, we see several scenarios of people so absorbed in their smartphones that they completely miss the world around them. For example, they crash into a fire hydrant and don’t even notice. They attend their child’s soccer game and are oblivious to the action. So far, so good – I think Microsoft is tapping into a deep public sentiment that is gathering steam – enough with the phone already! I’ve experienced this myself – about a year ago, I attended a Tweet Up event which included dinner. At one point during the dinner, I looked around the table of roughly 20 people to find that I was the only one not typing furiously onto my phone’s keypad. Remember – these are people who had previously only communicated virtually. This was their big chance to meet face-to-face and talk. And what did they do? They messaged each other while sitting in the same room. So, yes, when I see the Microsoft ad, I’m on board and have a strong emotional connection to what they’re saying.
Then, they lose me. Because the punchline is something like, “Well, this won’t happen anymore because Microsoft’s easy-to-use interface saves you time, so you spend less time on your phone.” Huh? Let me clue you in…it’s not the ease of the interface that’s causing people to spend so much time with noses pressed to tiny screens. My theory is that people are addicted to two aspects of a smartphone: 1. The mental distraction which keeps our minds busy and 2. the feeling of importance that comes with emails that must be answered. See how critical I am? I have to stay glued to my phone in case I need to weigh in and prevent the company from going under.
My armchair diagnosis aside, I think Microsoft has a huge disconnect between the problem (too many people embedded in their phones) and how they are solving it (a new interface?). It doesn’t make sense.
There is one other tiny marketing play in their campaign that I do find more logical, although they made it very subtle. My husband pointed out that most of the people in the ads are middle-aged men. I think the logic is something like this…in most families, the husband works outside the home. In most companies, Windows is the primary operating system. Therefore, working men will be more comfortable with a Windows-based smartphone. That could actually be a very successful message (although why the focus on men? Why not just make it about working professionals?) but also very hard to tease out from the broader message.
What’s your reaction to these ads?
I read a WSJ article this morning about how well the luxury industry is doing – how it has more than recovered from the devastating economic recession plaguing the rest of the world. And this isn’t news – I see an article like this every couple days – luxury companies reporting higher-than-expected quarterly results, sales are up, new advertising campaigns are paying off, etc. etc.
The luxury industry is either completely deluding us or they are brilliant. Yes, before the recession, the luxury market had many consumers who were playing well above their income level, aided by easy credit and a culture of unchecked spending. So I can imagine that the recession brought a sharp focus to the real customer for the luxury market – truly high net worth individuals, whose income is largely insensitive to a recession. So perhaps the luxury industry has done what I wish other companies had done earlier – reset market expectations immediately and at a much lower level, so that growth is possible from the new baseline.
The other factor cited in the luxury market rebound is the Chinese market. Yes, I get it, but it still makes me a bit nervous to pin recovery on a single market, even one as large as China. For one thing, many of these manufacturers are also challenged by increasing labor and material costs coming out of China. In fact, one really funds the other – increased sales for Chinese manufacturers means increased wealth, which means there is a market for luxury goods.
So, although I’ve heard loads about increased sales – sales that improve dramatically every quarter – I’m not hearing that much about profitability. Will anyone report on this?Gleam Returns to Luxury Goods Sales
First of all, apologies, dear Readers, for the massive delay since my last post. I’ve been wrestling with WordPress and the glitchy handling of images in blog posts. *sigh* No resolution yet, so I’m going to post sans graphics until this improves. Sorry about that…
Anyway, has anyone else noticed that lack of gratitude in stores these days? Correct me if I’m wrong, but I assumed that stores were anxiously awaiting every purchase we make, as most retailers’ financials are in the toilet. Yet, it is seemingly impossible to receive a simple, “Thank you for shopping with us” at any retailer.
In a bizarre twist, I often catch myself thanking THEM…for example, when they hand me back my credit card, or when they hand my bag over the counter, I automatically say, “Thank you!” and head out the door. Why do I say this? Maybe I’m overcompensating for the lack of thanks in the process.
So I started a little test – I wanted to see what would happen if I don’t chirp my thanks during the transaction. And the result? Awkward silence. Try it sometime. At the cupcake store, I got a “Did you need your receipt? Ok then, you’re all set!”. At Cusp, the bag was silently handed across the counter. At J. Crew, I routinely get, “And there you go!” There I go? This isn’t a Dr. Seuss book…
Of course, you can always blame the slack-jawed lackeys working in retail, who could care less about the store or its customers. I know that it’s hard to hire truly engaged workers at low hourly rates. But in this economic crunch-time, companies need to differentiate themselves from the pile of competitors all struggling to stay alive. The worst companies will bemoan their lack of resources to make significant change. The smartest companies will get creative and make improvements that cost them little to nothing. For example, ensuring that your staff are receptive and polite is an easy way to differentiate yourselves from competitors. No cost, and can go a long way to attract and keep customers. Is it just me or is this a total blindspot?