The Bifurcation of Fashion: If Luxury is Out of Touch and Fast-Fashion Is Not Sustainable, Where Else Can We Shop?
Hello and welcome to the eighth week of moderated, a newsletter created to dive into insights and phenomenons in the Fashion Industry. It also has a curation and summary of the most talked last week’s events of the industry, offering further readings for more details.
if you are here for the first time, nice to meet you! I hope I can somehow help you to keep up with the fast-paced Fashion Industry. If you haven’t subscribed yet to receive a weekly issue by e-mail, you can just by clicking below.
This week’s moderated is about mid-range fashion brands and retailers. I explored the bifurcation of retail and how inequality directly affected negatively mid-priced brands’ performance.
But before we jump into the main article, check the last week’s recap of the Fashion Industry (and last week was intense, a lot happened).
Last Week’s Recap
Amid Fashion Brands’ Support to BLM Movement, Many Are Accused of Opportunism
Most Multinational and American fashion brands demonstrated some sort of support to the BLM movement. Many posted the black square on Instagram, while others released campaigns and images with black models. However, many that entered this movement were accused of being opportunistic.
As usual, Diet Prada is between one of the Instagram accounts that pointed out brands that were supporting the protests online, but not applying the same inclusion in their companies and campaigns. The model Thayná Santos also exposed some Brazilian brands and designers that posted about the movement but allegedly hold racist practices backstage. Business of Fashion wrote a full article about the statements pro of the movement that sounded hollow due to brands' actual practices. Even though many of these brands that suffered backlash remained silent, some came out to recognize their problems and offer practical changes for the future. Some of the called out brands were Reformation, Gloria Coelho, Lala Rudge, Ferragamo, and Celine.
You can help the Black Lives Matter movement by clicking here or the Brazilian movement Alvos do Genocídio by clicking here.
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Chanel Presents Its Cruise Collection Online
Different from Kering, it seems like LVMH is keeping with the traditional fashion calendar for now. This Monday, Chanel presented its cruise collection online. The show was originally scheduled to happen in Capri in May, but with the pandemic, the brand had to cancel the plans. The collection titled "Balade en Méditerranée" (A Trip Around the Mediterranean) was presented in a 7 minutes poetic film. The pieces were made with already owned fabrics, in order to explore the upcycle technique.
To read a complete review of the collection, check this Vogue Paris article. To check the full collection video click here.
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Nike Inc. Announces a US$40 Million Support to American Black Community
Nike Inc. has pledged to donate US$40 million in funding to support the black community in the US. The group that counts with Nike, Converse, and Jordan will use the fund over the next four years to support “organisations that put social justice, education and addressing racial inequality in America at the centre of their work”.
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American Fashion Industry in Trouble: Brooks Brothers May Be the Next Giant to Fall and JC Penney in Contact With Potential Buyers
Brooks Brothers is a menswear brand that calls itself the oldest clothing retailer in the US. The company, born in 1818 has more than 500 stores internationally, being around half of them in the United States. However, with the pandemic impact on economy and retail, the company has been talking to banks about financing for a potential bankruptcy, which could be happening as soon as July. Brooks Brothers retailer was for sale since April, but haven't found a proper buyer yet. According to CNBC, the company has many interested buyers, attracted by its strong brand, but most of them would prefer to buy the retailer out of bankruptcy.
Also according to CNBC, the private equity firm Sycamore Partners is in early talks to buy the retailer JC Penney, which has filed for bankruptcy in May. The fashion retailer has around 85,000 employees and has been struggling for years, a scenario intensified by Covid-19. JC Penney has also been having conversations about potential transactions with some of its landlords such as Brookfield Asset Management and Simon Property Group.
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Without Demand, Diamond Miners Pilled Up an Inventory Worth Around 3.5 Billion Dollars
The jewellery market may be the fashion sector that is most suffering from the pandemic. As a result, so are its suppliers. Owner De Beers, a diamond miner and auctioneer company from South Africa, stated that it has barely sold any rough diamond since February. Its Russian competitor Alrosa PJSC said it is going through the same. According to Gemdax, the five largest producers are together stuck with a diamond inventory of US$3.5 billion. Now, with the market reopening, producers have to deal with destocking, but they are being careful with it. To defend their market, De Beers refuses to decrease prices. Instead, the company offered unprecedented freedom for buyers to cancel stone orders. Smaller producers, however, dropped prices on their diamonds. Most diamond companies also reduced production to keep diamond value, but stock keeps pilling up.
To read more about this topic, check this Business of Fashion article.
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High-End Brands Reduced Their Ad Budget by 30 to 80%
Digital Luxury Group stated in a report that, due to the pandemic impact, fashion luxury brands reduced their advertising budgets by 30-80%. The companies that will probably most suffer from this ad budget reduction are magazines. As David Sadigh, Digital Luxury Group Chief Executive, said:
“Nobody knows if luxury brands will go back to investing in print ads as much as before the pandemic (…) We’re already seeing more flows into digital as it reduces costs. That’s set to continue the more brands build up e-commerce and as they seek a more direct return and measurable results from media.”
The Bifurcation of Fashion: If Luxury is Out of Touch and Fast-Fashion Is Not Sustainable, Where Else Can We Shop?
Recently, Chanel and Louis Vuitton increased even further their prices, while some fast fashion brands entered early sales. We are choosing between buying €20 jeans or €800 t-shirts. Yeah, we completely lost the track of how much clothes should reasonably and responsibly cost. Then, last week, I talked to a friend of a friend, who has been going through the same reflections as me about the fashion industry. We agreed on how we neither want to shop from fast fashion nor from luxury. We discussed how luxury is getting too expensive and out of touch, while fast fashion lacks conscious production and individuality. But then, we both questioned ourselves: where are the brands in between these two extremes?
It’s crazy how, recently, we rarely talk about middle-range brands in fashion. Maybe you neither want a US$900 dress nor a US$30 one. Maybe you are ok with paying something in between for a good quality that will last, or another value proposition. Maybe you don’t necessarily need the status logo, but you want more than a cheap fabric. But also, maybe, you don’t even know where to find those anymore. They have been slowing disappearing from many countries around the world. At the same time, some few remaining have been quietly rising as strong and healthy businesses. I decided to talk about these because, I don’t know about you, but I miss middle-range brands and I believe this may be the perfect moment for them to have a comeback - but it won't be easy.
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What Classifies a Middle-Range Brands?
Middle-range is an extremely broad concept and, with luxury becoming more expensive and fast-fashion cheaper, what’s in the middle became way broader than before. Mid-range is basically everything between luxury and fast fashion (even though some specialists disagree with this classification). There is a big discussion if “affordable luxury” brands are mid-range or luxury. I personally consider them mid-range, so let’s flow with them in this definition, shall we?
But who are these? There are some mid-range fashion brands known and present worldwide, and then you have a lot of local ones too – which, based on solely my impression, are the majority. To give you some well know names: Furla, The Kooples, Sandro, Whistles, Arket, Coach, Arezzo, and Allbirds. Then, each country, region, or city has its local ones. Many mid-price brands have died or have been struggling in the last years, like J.Crew that recently filed for bankruptcy. Local brands with balanced price points suffered from large fast-fashion chains and low price retailers entering their market with competitive bargains. But the main reason for this lower number of mid-price fashion brands is related to a serious economic problem.
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The Middle Class Can’t Afford Middle-Range – The Bifurcation of Fashion
Not only the middle class is disappearing in some countries, what is left of it does not have the same disposable income it used to have. There was a time when being at the middle class was an aspiration. This status used to come with a comfortable and financially stable lifestyle - that is no longer the reality.
Inequality rates are skyrocketing in many nations around the globe, and the pandemic will probably make it worse. It's the old story of the rich getting richer and the middle and poor getting poorer. The problem is that, while salaries in low and middle-income families barely changed, the cost of living in most countries increased generation after generation. Now, the middle class just can’t afford the same lifestyle as their parents and grandparents use to.
In countries of Eastern Europe and Latin America, and in the US, for example, middle-class families live paycheck to paycheck and spent most of their income in essential expenses such as rent, grocery shopping, health, education, and taxes (if they can afford all that). This scenario shortened these families’ disposable income. It is no longer a comfortable lifestyle. In the US, for example, just 47% of Americans have enough saved to afford three months of expenses without income. On the other side, the upper social-economic class highly increased its income and became able to afford more than before.
This shrinking of the middle class behaved differently in different countries. In the US, the middle class shrunk due to the expansion of lower and upper classes. In Spain, the decline of the middle class is entirely a result of people falling into the lower class. In the UK, the lower-class got smaller and upper class larger, but within the middle class, lower-middle grew while mid-middle and upper-middle declined.
In fashion, this resulted in a phenomenon named by Deloitte as the great retail bifurcation. With the middle class becoming more price-sensitive, they moved started to shop from more affordable retailers, such as fast fashion. On the other extreme, the high-income population got richer, with more people purchasing luxury items. The result was a bifurcation of fashion retail: brands doing well were in the two extremes – luxury and fast fashion – while mid-range brands, or balanced retailers as Deloitte classifies them, lost its consumers. The following Deloitte analysis demonstrates how mid-price brands underperformed between 2012 and 2017:
With the bifurcation of fashion, consumers that sometimes would shop luxury and mid-range, for example, started to mix fast fashion with luxury. The flexibility (and acceptance) of dressing high and low also contributed to mid-range brands' loss of customers. The wave of mid-low dressing was so strong that luxury brands even started to do collaborations with fast fashion brands. The two thriving extremes of the industry knew they were taking over the market.
Actually, the two extremes were so aware of their competitiveness in the new social-economic frame of the market that they targeted on going more extreme. Fast fashion took advantage of the economy of scale and the cheaper labour, especially in Asia, and clothes’ prices went lower and lower. On the other extreme, with the boom of luxury, many high-end brands insanely increased their prices. Brands such as Chanel and Louis Vuitton have been applying prices' increase up to twice the rate of inflation in the last decades. The Speedy bag, the entry-level product of Louis Vuitton, for example, doubled the price from 1998 to 2008, reaching US$685. Today, in 2020, the bag costs US$1,160. In 2000, Gucci’s loafers cost around US$350, today it is more than US$800. Now you can barely buy a Gucci belt with US$350. The gap between fast fashion and luxury was (and still is) getting larger each year – and the pandemic consequences may intensify that.
Chanel and Louis Vuitton had a record increase in price between February and May. The brands justified the change to the production cost increase, but many are sceptical. The move seems more a form of recovering the revenues lost during the lockdowns implemented around the world to combat the Covid-19 virus. So far, the strategy worked well in China and South Korea, where the stores had lines to buy the products before the next price change. The pandemic also generated inventory excess that made the whole industry question its model of business. Aligned to that, many high fashion brands and designers have been discussing the change in the fashion calendar to avoid discounts not only for now but in the long term. Summary: as for now, it seems that luxury will get more expensive.
In the fast fashion and off-price retailers world, however, many companies have already implemented discounts in order to sell their pilled up inventory. With the economic crisis that the pandemic caused, with people losing their jobs and facing years ahead of financial instability, the demand for cheaper fashion will probably increase. The middle class is suffering even more with the pandemic. As a result, brands that target this share of the market will probably struggle with their customers. As JB Osborne, co-founder and CEO of brand agency Red Antler, stated: “People will be more likely to buy one quality item or a bunch of cheaper items versus a few things that are pretty good but not as exciting.”
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The Difficulties of Being Mid-Priced
In this scenario, being between the lure of fast-fashion bargains and the lustre of luxury brands is a challenge. Positioning itself in the middle brings the necessity of offering the perfect balance of price and intangible value. The brand needs to offer a good enough quality, service, design, and aspirational value to justify to the customer that they should choose this brad over a more affordable fast-fashion brand. Or, the brand needs to be “good enough” to be purchased in the place of a luxury item.
The Danish brands Ganni talks very openly about the difficulty of positioning itself at a more affordable price for good quality. The brand managed to get to a luxury positioning, with a fixed show during the Copenhagen Fashion Week, but to get there, one of their main challenges was the price point. As Ditte, one of the brand’s founders, said:
“If your product is expensive, it is inherently exclusive. It is a lot easier to have a conversation with cool people about your product when it is expensive. Trying to build distribution (at the kinds of places we needed to) was a huge challenge. It would have been so easy, especially lately, to have just hiked our prices. To have the price points that we do have actually made everything a lot more difficult.”
The brand managed success by being authentic and offering the “Scandi” look that so many girls aim to have, especially with Scandinavian influencers and aesthetic taking over social media. Ganni became one of the most successful contemporary brands with this approach and, even though it is now more related to luxury than mid-range, it still preserves its balanced price point. Ganni actually started in a very recent market niche of mid-range brands that has been quietly rising due to the increase of luxury prices: affordable luxury.
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Affordable Luxury
As stated, luxury products became more and more expensive in the last years. At the same time, with the access that social media provides, more and more young people started to desire to be part of this luxury market, but can’t afford it. This scenario resulted in the immense but discrete success of some brands self-classified as an affordable luxury. Longchamp, Furla, and Sandro are a few examples of these brands that discretely expanded and achieved sales revenues at the hundreds of millions of euros.
Longchamp, for example, is a family-owned business that got popular with its iconic Le Pilage bag, which costs €85 (classic model and size). The company has a commitment to quality, a clear lifestyle, strong brand value, and an inspiring heritage story. All these characteristics that could be easily placed into a luxury price point – but are not. Longchamp offers timeless designs basing its pricing on costs of production instead of aspiration value. Furla has a similar positioning, bags produced with the Italian quality, with a fun design and sided to a luxury customer experience; but sold at a mid-range price.
Sandro, which belongs to the SMCP group (that also owns Maje and Claudie Pierlot), is part of the French Contemporary Wave. This phenomenon is basically a bunch of French brands adapting to the new market conditions of mid-price players: you need to look, sound, and smell like luxury, even if you are not. The French Contemporary Movement, which also counts with brands such as The Kooples, Zadig & Voltaire, and Comptoir des Cotonniers, is composed of brands that bring a luxury design, customer experience, and image. The difference from luxury are two: 1) the production is from more affordable factories, where labour costs are cheaper; 2) the price point is lower, more specifically mid-price. These brands also implemented the same fast reaction to demand that fast fashion has, but to ensure that nothing is under-or-overproduced. At the same time, they count with a creative team of designers that develop beautiful pieces inspired by runways, but not copying it.
Ganni success was part of something similar to the French Contemporary Wave, but in Denmark. The Scandi Girl fever in social media allowed many Scandinavian brands to expand. Most of these also have mid-range price points and enter this affordable luxury category.
All these affordable luxury businesses were some of the most successful mid-range brands in recent years. To justify the consumer to pay more than fast fashion, brands had to offer a similar experience or/and quality to luxury. They found the balanced positioning that works in this new scenario. We just don’t know yet if this model will keep working in the post-pandemic economy. But affordable luxury is not the only approach that has been working for mid-range brands during the bifurcation era of fashion.
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Brands That Justify Their Existence
Younger generations such as Gen Z and Millennials are attracted to brands with a purpose greater than just selling fashion, and like innovation from these businesses. To pay more, customers now expect a justification beyond just the items they will bring home. These factors are some of the differentiations new mid-priced brands have been using to justify their price positioning and existence. If you won’t offer something relevant that fast fashion does not offer to their client, you can’t compete with their pricing strategy. As a result, many brands started to come up with value propositions related to sustainability, social statements, and innovation, things that very often fast fashion can’t touch on without increasing the price point. This type of brand started to appear more in recent years and many have become healthy business models at a mid-range price. As JB Osborne stated:
“The brands that are really positioned to capitalise on these new consumer behaviours are the ones that have meaningful stories to tell and can deliver a great product at a more affordable price (…) That is really dialled in for where the economy is going.”
Osborne mentioned Allbirds as an example, a brand that offers conscious footwear priced between US$95 and US$135. Another example is Arket, a brand under the H&M group that offers to consumers extreme pricing and supply chain transparency. These brands are offering more to their customers than just the items they are selling. They are offering a contribution to society, a new approach to things, and that is why their price point seems reasonable to their clients.
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What Is the Future of Mid-Range Fashion Brands?
No one knows. Some specialists stated that after a small wave of responsible purchase, we will probably go back to our old habits and the bifurcation will be back. On the other hand, some say that the lower demand for clothes, in general, will probably crack the whole fast fashion business model, while luxury’s attempt to scape discounts can maybe mean lowering its prices.
Independent smaller mid-priced brands were starting to have a moment before this whole pandemic started, which probably affected them harder than larger organisations. Now, to keep boosting the mid-range market, we will have to support it. I know many people can’t afford it but if you think you are one of these and you buy fast fashion at least once every two weeks, you can. Just buy less with more quality. Sustainability doesn’t need to come from a mixed fiber textile or sneakers made of plastic rescued from the ocean, it can just be buying less to last more. And I will keep looking for brands that have a perfect balance between price, quality, and service here.
Thank you for reading this week’s moderated and next Tuesday I will be back with more. If you haven’t already, subscribe below to receive the moderated newsletter straight to your email, and if you really liked it, share this post with friends and family.
Bye-bye and see you next week!
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