Competitive analysis criteria for fashion companies
- Written by440 The industry
- fashion store
- 23. October 2019
When defining a strategy for your fashion brand, a good place to start is by analyzing a competitor in terms ofIdentification of niches with untapped value. In other posts we have addressed the criteria to attract customers from both ademographic and behavioral perspective, but let's take a different look now by comparing and contrasting companiesB. by looking at their strategic decisions and their organizational structure.
In this post, we will discuss what types of criteria can be identified to segment and compare the companies operating in the fashion industry.These are the main criteria that we will discuss:
- The breadth of the product portfolio
- fashion content
- International Presence
- Company size, vertical integration and distribution
1. The breadth of the product portfolio
Traditionally, fashion companies would abrand strategygeared towards making their products according to the "ModePyramid”, which is divided into 5 levels (haute couture, ready-to-wear, diffusion, bridge, mass). According to each market price level of the pyramid, companies would manage their supply chain to align their brand with market expectations.For each positioning statement, a brand would manage its production pipeline to strike the right balance between quality and quantity.
This model is not surpassed, however, as the reality is that companies are more focused on the intangibles of their brand than on building assets into the business.A quality brand can be monetized in a much broader range of scenarios, expanding the types of products that can carry the brand and the price point of each item. Let's see them in detail:
- Horizontal growth, wider product range. A high quality brand may choose to place its logo on luxury experiences rather than being limited to luxury clothing. As the luxury market grows, it becomes less and less tangible.A fashion company may choose to use its brands in connection with lifestyle products, events, hospitality and travel, and apparel to expand its product offering. Since the goal of brands is to attract and retain customers, providing an enhanced brand environment can help keep your customers engaged and connected. We address the growth of the luxury market and its trendsin this post.
- Vertical growth, a deeper product range.At the same time, if your high-value brand operates only at the haute couture or ready-to-wear tiers of the pyramid, you are missing out on the opportunity to build a following of users at the lower tiers of the market. There are many ways a fashion company can use their brand to access sub-categories of products such as:massiveProducts, a category of products that represent mass prestige, for fragrances, cosmetics and beauty. However, masstige is still a limited approach to this topic as many brands choose to tailor their product offerings to each price point. An example can be supplied by Armani and his collectionPortfoliocomposed of Giorgio Armani Privè (haute couture), Giorgio Armani (prèt-a-porter), Armani Collezioni (second line diffusion), Emporio Armani (bridge), Amani Jeans (lower bridge), Armani Exchange (mass).
However, it must be noted that a fashion company doubles its product development, staff, operations, etc. for each segment. For this reason, the value associated with the products is still mainly sourced from its brand or its griffè. At the same time, only very large and global companies can afford this “all-in” strategy.This means that start-up companies and new entrants must first operate in a niche before expanding into neighboring segments.
when we look at each otherthe price rangeand to a companyTrademarkAs a reflection of their positioning in the fashion pyramid, we must consider the fact that the simplified contract between cheap and expensive price points impacts the organization both externally and internally.
- Extern.Price points are one of the first elements considered by customers looking to purchase a product. Pricing immediately defines your audience and target market in terms of the benefits and costs associated with the purchase.
- Internally.Creativity in clothing designbeing heavily influenced by the final price, fast fashion companies, for example, in order to keep a competitive price, will not hire designers, but will rely on style bureaus, who will not really create anything new unless they imitate what others are doing. Additionally, companies that take this approach are unlikely to develop their brand as a fast fashion collection is hardly recognizable or has its own DNA.
The contractual tool to manage your brand as it operates in different products or sectors islicensing. If you want to learn more about this topic,Here is an article for you. If instead you are looking for more information onModepyramideand the business models of fashion companiesHere is an articleYou might be interested.
2. Fashion content
The second factor we will address is the fashion content of a company. This criterion relates to how a company deals with the element of time. Let's start with a clarification: time in fashion and time in luxury are two radically different things.
- time in fashion.Time is Fashion is projected into the future. In a way, fashion is about change, trends and fads. A fashionable brand is one that is constantly looking for novelty and evolving with each season, collection or mood. Fashion is about embodying the change in society and standing on the edge of taste.
- time in luxury.Time in Luxury is the opposite, time is about the past, it's about heritage, it's about a narrative that has been told for decades if not centuries. Time in luxury is about static, lack of change, resilience to the passing trends.
According to these two different time orientations, fashion companies can take four different steps, the first two being more typical of luxury andtraditional brands, the last two being more typical of more fashionable companies or even fast fashion retailers.
The decisions about the fashion content of their production depend on the international strategy that a company is pursuing. In this sense, since fashion content is a cultural cognate, finding the right balance of fashion-forwardness according to the specific market a company is looking to enter can provide a competitive advantage. More classic lines will cater to more general tastes and be easier to export with little if any adjustments, more stylish collections need careful planning if they are to meet the tastes and preferences of foreign markets. We will discuss this in more detail in the next paragraph.
3. International presence
An international company generates revenue in international markets, and depending on where most of its revenue comes from, it will change its growth and adapt to the needs of its evolving customer population. As we discussed in the previous section, this has a lot to do with the fashion content of the collection or its style and creativity.At the same time, a company's international presence gives us a lot of information about how its value chain is managed.
The value chain is a simplified representation of the processes that take place in a company. We usually divide the value chain into four segments:Research and development, production, marketing, sales.
A globalized value chain is likely to fit the business logic of a company that is expanding globally and looking for locational advantages to find efficient manufacturing locations or countries to acquire raw materials.
Over the past 30 years, companies have harnessed the financial and cost advantages of a globalized value chain to achieve higher profit margins by keeping production costs down, but this has had a huge impact on the environmental cost of fashion. As a result, many companies are now reverting to managing a more transparent and, where possible, domestically managed value chain to show accountability for their production pipeline. By looking at how companies manage their value chain, we also collect important information about their size.
4. Company size, vertical integration and distribution
Finally, we can look at how fashion companies run their businesses. Here are some additional criteria for segmenting fashion companies. By looking at vertical integration, we can examine whether companies manage their value chain through relationships involving organizations owned by a company, as opposed to organizations tied to the fashion company through a contractual relationship.
With that in mind, we break down companies based on their use ofoutsourcingorInsourcingstrategies.
- outsourcing. A company that outsources segments of its value chain seeks to achieve cost savings by finding partners willing to work under a contractual obligation to provide services and sales. Research and marketing are not usually outsourced as designing a collection and promoting the brand are core activities that have to follow very strict guidelines. As a result, fashion companies rarely outsource these components of the value chain.
- Insourcing. Insourcing or managing some of the value chain operations within the company is one way to ensure operations are performed to the strictest standards. Haute couture and luxury brands rely on insourcing or direct oversight to ensure the TQM (Total Quality Management) of the final product, which is essential to adding the “luxury premium” to the price tag. This option is more expensive as it requires a significant upfront investment, but allows one to directly monitor each of the thousands of tasks that bring a product to life.
Another element to consider is the logic of interacting with the market. We can have bothPush or pullsystems and combinations of both.
- Planned Manufacturing.This is how fashion companies usually work. In the planned manufactory, fashion companies will only produce a collection (which is now only available as a prototype or sample) after the orders have been fulfilled. This happens because fashion companies need to scale production according to actual market demand without being burdened with unsold merchandise. This economic advantage comes at a price: the TTM (time to market) of the final product is slightly delayed and customers have to wait longer before they can access the product in stores.
- Fast delivery.To compensate for this delay, the fast delivery model was developed. As a result, fashion companies choose to "bet" on a number of items in the collection to minimize the wait time for the items that are more likely to sell. These types of items can include iconic items, popular items, or new items that a business wants to retail test. Of course, there is an underlying issue that may relate to the fact that some of these items may not sell.
- reordering.In this model, a company instead splits up production and pays more attention to the feedback retailers and their customers receive. In restocking, a company decides to invest in the production of the items already sold and in demand. In this case, more emphasis is placed on the customers than on themMarket knowledge of dealers.
- Fast fashion.On the other hand, the highest level of customer orientation is shown by fast fashion companies, where the production is 100% based on following the ongoing demands of the audience as closely as possible by producing in short 6-week cycles the items that the meet customers' tastes. The low production costs allow for a degree of hit-or-miss strategy, however this approach, which is heavily based on volume savings, has negative environmental impacts.
Another differentiator relates to distribution.Indeed, in the value chain, we can argue that the final segment, distribution, is one of the most important, if not the most important, as customers may be shifting their shopping experience from a product-based to an experience-based one.Even if the retail-wholesale segment is the last mile for the company, it is still the first point of contact with the customer and adds great value to the product. Let's compare the two models or retail and wholesale.
- Retail trade.Retail is a directly operated point of contact between brand and customer. As previously mentioned, fashion retail is becoming more experiential and less physical, so these stores can add value to the purchase by being educational, entertaining, aesthetically pleasing, or even escapist.
- Wholesale.Through wholesale, companies can access a network of independent wholesalers who sell one brand in a multi-brand store. In this way, a brand can avoid the costs associated with running its own store and allow it to test markets without undue investment. At the same time, brands could miss out on the price premium associated with direct selling.
Of course, there are now many ways in which retail and wholesale find new value combinations, as in the case ofFlagship-StoresAndomnichannel salesas discussed inthis post.
Case Study: The Difference Between...
Case Study: The Difference Between Louis Vuitton and Christian Louboutin - 440 Industries
Here are the four most prominent business models in the fashion supply chain:
- Vertically integrated luxury brands.As mentioned, this is the model of luxury brands that seek total control over every segment of design, production, marketing and distribution. Their "consistency promise" would be difficult to keep if they operated through a third party.
- Industrial Brands.These brands strive for volume savings and use the means of industrial production to find the best balance between production costs and sales costs. The lower price point allows them to work with processes that may lack complete attention to detail, but with no real impact on final quality.
- License Relationships.These are the models followed by companies that have acquired high brand intangible assets and seek monetization through licensing. This model is particularly prominent in masstige, in eyewear, fragrances and beauty products.
- Artistic Director.According to this model, a company relies on the expertise and reputation of a fashion designer to create its collection. This can be helpful as it allows companies to take advantage of a designer's high value and connect them to the product the company is creating.
Due to the complexity of the fashion industry, it's impossible to find two companies that are exactly the same. As seen in this post, there are so many differentiating elements that companies will always find a degree of freedom and novelty in the way they grow internationally.
As we discussed there, there are a variety of criteria that can be applied to segment companies operating in the fashion industry. With these criteria, we can perform competitive analysis and add strategic interpretation to simple data collection. This is very important as markets are never static and there is no point in just taking a snapshot when we can take a time lapse.
Another use of these criteria is to help entrepreneurs look at some organizational elements in their businesses and assess what can be done in terms of growing their business. In the creative industries we are often breaking new ground, and in this context our competitors are often our greatest allies.
If you want to learn more about itfashion industry,Don't hesitate to take a look at our course”The Fashion Industry: Explained”. Our in-depth course covers a wide range of topics, ranging from understanding fashion customers and markets to designing immersive retail experiences for your customers.Here is a link to the rate when you use the discount codeBLOG20you canget 20% discount. Enjoy!
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Competitive analysis criteria for fashion companiesUsing the segmentation criteria of fashion companies, we can better understand the competitive market in which a brand operates and better define its competitors.
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