In the past, brand collaborations with an established company were a favored tool of start-up companies looking to fuel growth and gain access to a ready-made customer base. But we have recently seen an increase in long-established luxury brands, with sizable customer bases of their own, collaborating to reach new target markets and provide their loyal customers with something new, exciting and different.
What are the benefits and drawbacks of brand collaboration, and which factors most affect the viability of a collaboration?
Access to a New Target Market
The ability to gain access to a new target market is perhaps the greatest benefit and main motivation behind many brand collaborations. In 2017, Louis Vuitton debuted its collaboration with New York-based skate brand Supreme at its fall 2017 men’s wear show in Paris. News of this collaboration arrived with much fanfare among streetwear and high fashion enthusiasts alike. Louis Vuitton has, for decades, been the epitome of luxury clothing, ever-popular among Baby Boomers and Generation X. By attaching to Supreme, whom many will argue is the epitome of cool, the brand was able to gain the attention of a younger, style-conscious, Millennial market.
To say the Louis Vuitton x Supreme collaboration was a success is an understatement. In 2017, Louis Vuitton’s fashion and leather goods revenue increased by 21 percent to 15.4 billion euros. In the LVMH 2017 annual report, the Supreme collaboration (as well as another collaboration with artist Jeff Koons) is directly attributed as a factor for this growth, and the trend continued in 2018, with LVMH fashion and leather goods revenue increasing a further 19 percent to 18.5 billion euros.
With Millennials soon to be the most numerous living generation in the U.S., and their purchasing power expected to reach $1.4 trillion by 2020, it is important for brands to cater to this group and design their marketing techniques for them.
Sharing Knowledge and Costs
Collaboration allows brands to share both costs and knowledge. Brands may seek a partner with whom they can share design expertise to be incorporated in the product, such as Dior Men enlisting Matthew Williams, founder of 1017 ALYX 9SM, to integrate his signature utility buckle on a host of belts, caps and backpacks in the Dior Men spring 2019 collection.
Alternatively, they may seek intangible expertise, such as in marketing or access to customer lists and distribution channels — for example, the recent Moschino x Sephora collection, where Jeremy Scott-designed Moschino beauty products were sold through Sephora’s extensive network of retail stores and online. These types of brand collaborations are less about gaining access to new markets and more about providing current customers with something new, with the hope of further strengthening brand loyalty.
Reinvigorate an Old Brand
Brand collaborations have proved to be a useful means for some older, stagnating brands to reinvigorate themselves. Italian sportswear brand Fila collaborated with Russian designer Gosha Rubchinskiy for SS17. The collection subsequently sold out, as did its numerous restocks. For AW18, Fila partnered with fellow Italian brand Fendi on a high-end collaboration, with some pieces retailing for upwards of $7,000.
These collaborations helped reintroduce Fila and laid the foundation for the success of its 2018 sneaker, the “Disruptor II,” which led to a 17 percent increase Fila’s 2018 revenue and a further 22 percent year to date in 2019.
Choosing the Right Partner
If not planned and executed correctly, collaborations can fail and may end up doing more harm than good. Choosing the correct partner for collaboration is critical. For luxury brands, there is a risk of damaging the luxury image, causing the company to fall out of favor with prestige-driven customers. With sustainability and ethical business practices playing a more important role, particularly in the shopping habits of millennial consumers, brands should also consider any potential partners’ reputation in these areas.
Setting the Right Price
One of the most important factors to consider for a successful brand collaboration is the price point. As with choosing the correct partner, for luxury brands, there is a risk that offering their product at a lower price may dilute the brand’s prestige in the eyes of their customers. Conversely, if the price point is too high, then there is a risk that the collaboration may not be a commercial success.
With the Fendi x Fila collaboration, pricing was set in the typical range expected by Fendi customers but likely out of range for those of Fila. For Fendi, the collaboration was less about enticing Fila customers to purchase Fendi products, and more as a method for Fendi to capitalize on nostalgia and logomania trends.
Before work begins on the collaboration, partners should agree upon financial matters such as profit-sharing and financing agreements. The method of distribution should be chosen — whose store will stock the product? Or will it only be sold online? Perhaps a special one-off pop-up store should be considered?
Going back to the Louis Vuitton x Supreme example, Louis Vuitton insisted that the line was sold exclusively through select Louis Vuitton boutiques around the world in order for them to retain control of the customer service experience, ensuring that it met the high standard of its customers. These considerations should be made early, in order to avoid potential conflict among partners down the line.
There is no doubt that brand collaborations can prove to be lucrative for both partners, but their success is not a given. Careful consideration should be made in choosing the correct partner, pricing and route to market strategy. Most importantly, the consumer should be at the forefront of decision-making — the collaboration needs to appeal to your customers, as ultimately it is they who will determine whether the collaboration is a success.
Mark Grant is audit senior at Mazars USA.