Guram GvasaliaWWD Apparel and Retail CEO Summit: Movers and Makers, New York, USA - 30 Oct 2019

With rocketing five-year growth and genuine consumer engagement, the family-built Vetements is positioned for its next stage, which will include a platform to support young talent. Cofounder and chief executive officer Guram Gvasalia detailed his strategic approach to building a business just six weeks after his brother Demna stepped down as creative director of the company.

In a far-reaching discussion, Gvasalia emphasized how ethical and upfront payment carry a lot of weight with retailers and factories. Unimpressed by designers that boast about thousands of retailers or employees, Gvasalia zeroed in on the fact that success comes down to the individual output within both of those sectors. Intent on helping the next generation of fashion designers, the executive plans to open a coworking space at Vetements’ Zurich headquarters hopefully next year. Scholarships are in the works as well as school visits where he plans to lay bare the realities of working in the industry.

WWD: Vetements exploded very quickly on the fashion scene. Could you give a snapshot of where the business is today and is the business still growing?

Guram Gvasalia: We started the business five years ago and grew very quickly. We have 200 doors and we have been keeping this number very stable for the past few years. You always need to see what stands behind those numbers. You can have a client who spends $10,000, or you can have a hundred doors, or you can have one client who spends a million and then you only have one door. What’s most important is to build long-term relationships. Today that is very rare. It is extremely important to grow within the stores. When you are in New York you go to Barneys, Saks and Bergdorf Goodman. You see the same brand selection. Then you go around the corner to Madison and there is a huge store with the same selection of the same brand. I arrived Thursday. There were a few big brands that I was curious to analyze the retail situation. We went Thursday, Friday, Saturday, Sunday and Monday to the same stores. There was not a single person in sight. The problem is once you put the brand on every single corner, you remind people of your existence, but you take away the excitement of the brand and dilute the brand. Everyone is on Instagram but big movies stars. If you look at their pictures every day, you have no incentive to go pay for their movies…Angelina Jolie is not there for a reason. The moment she goes on that level, there is no going back. The same thing happens with brands. The moment that you start being everywhere — and not necessarily selling everywhere.…You keep hearing, ‘Oh, we have 5,000 accounts.’ OK, you have 5,000 accounts, show me your sell-through numbers.

WWD: You’re not about growth for growth’s sake.

G.G.: No, I’m all about organic growth. We live in a world that has become too quick for things to develop and grow, because of the Instagram feed. Our perception of reality has become extremely short-term. Young people today do not invest in houses for 20 to 30 years from now, because this future seems so far away. It’s because of the information you get by scrolling through your feed. You invest in clothes, you invest in expensive food.…We see it with the young people we employ. Two-and-a-half years is the maximum standard stay today. They don’t want to go somewhere else. They actually change industries. One of [the people] in our factories that does beautiful products for Hermès for 10 generations now he told me that people arrive very motivated. After two years, because they are not allowed to use their phones when they work — they say they don’t want to do it any more. If you go to bed, wake up in the morning and your baby is a full-grown person, you will say, ‘What just happened?’ It’s about really making sure that you make the right decisions.

WWD: You are one of the people who is very outspoken about the problems in the wholesale business about nonpayment.

G.G.: We have this rule at home that I am trying to apply in business. If we buy something new, we really have to get rid of something old. There is a reason behind it. Is this something new that I really require or is this something that I have had for years that is important to my heart. It’s the same thing with stores. We work with stores to build these relationships. That’s why we like to keep the number at 200. We place the orders and make sure the stores can sell it. If you buy 100,000 and you only have 80 percent sell-throughs, then the next season you are only allowed to order 80,000. My goal with the stores is to always be the best brand that they have. A client, who ordered 200,000 for six doors last season, and next season they are opening 20 doors with three million. You can grow very quickly with one client, if you work with the right clients. We have strict payment terms. When I speak with young people at schools, I tell them that payment plans are extremely important. You need to get your money before you send your merchandise. We usually take 30 percent on any order. We don’t ship before we get 70 percent so we actually get all of the money before we deliver.

It’s important to get the money before. If you don’t, they come to you to start negotiating. Everyone is nice at the beginning but in the end everyone wants to negotiate. When they come to us, we say we are very happy to negotiate — to go from a 30 percent deposit to 70 percent, before delivery. [We tell them] you can pay 100 percent before. The funny thing is a lot of people agree to this without understanding what we have done. If you have this payment, we give you the priority on everything. It’s like on the plane — the more you pay for your ticket, the better seat you get and the better treatment. So we have a ranking for deliveries — whoever is a better client, of course, gets better service. We do the same strategy for manufacturers. We work with 40 factories now and they work with the top brands in the industry. All of our production unless it is a collaboration with Levi’s or Reebok is happening in Italy and Portugal. On a seasonal basis, we are going to each factory to check on what is going on inside. The moment we receive an invoice we are paying it the same day. Now what we do with a lot of factories is when we place an order, we actually pay them upfront. This way we make ourselves a priority even though they may have bigger brands with bigger production numbers. At least, we are getting the best deliveries just because we are being respectful.

WWD: You once told me, “If your business isn’t making money, it’s a hobby.”

G.G.: The whole industry is a big hobby — I can tell you a secret. I have so many friends — go to Madison, all the big names — then I’m reading 50 million here, 80 million there. I just had dinner with a friend a few weeks ago and I said, ‘Oh my God, you are so lucky you have such an expensive hobby.” I understand if you start the business and say, ‘OK, this is my three-year plan or five-year plan. When it goes on for years and years and years and you’re not making any money, then you are doing something wrong. We were profitable from season one. That was the main strategy.

WWD: Can you tell us how profitable you are today and how you achieved this?

G.G.: We are at almost 70 percent net profit on our turnover. That is insane. I know. The trick behind it — it’s not how much money you make — it’s important to make a lot of money, don’t get me wrong. It’s about how much money you spend. In the industry, a lot of people talk about turnovers. Not many talk about how much they spend or in my opinion wasted on things they shouldn’t have spent the money on. We moved to Switzerland a few years ago and the net profits are between 63 and 65 percent at the moment. The reason is very expensive human capital. Basically, the salaries went three times up. The goal is to get back to 70 percent by the end of the year just by analyzing what we spend to make sure we don’t spend too much.

WWD: Would you like to specify turnover?

G.G.: We are a privately run company and we’re not intending to sell the company. I find that teasing people does not make sense. Imagine you want to have a one-night stand and you start teasing someone in a bar two years before you have this one-night stand. You won’t stand a chance in two years. I think the moment we decide that we need to get an investor or we need to sell for whatever reasons we will be very lucky to share the numbers with you. And then we start the bidding war. We are at 8 zeros behind our numbers so write it down.

WWD: WWD got the scoop last month that your brother Demna stepped down from his role as creative director at Vetements. How do you respond to detractors and Internet trolls that Vetements is finished now that Demna is gone?

G.G: Since I was a child, I had this big dream that was to one day be ceo of Chanel. I think it is such an incredible house, such a powerful house with such an amazing history. I think young people need to learn more about fashion history. When Mademoiselle Chanel stepped down from her position, Chanel was not over. In my opinion when Karl Lagerfeld joined Chanel, he made it much more Chanel than it had ever been. Rolls-Royce Phantom is a beautiful car. Do you know who designed it? The Rolls-Royce company, whoever is behind the design of this beautiful car. I had lunch with a friend during Paris Fashion Week, who is one of the biggest clients of Hermès. I asked her if she knew who the creative director was. This poor woman was so puzzled with my question that she actually asked me if there was one.

I think we all need to get a reality check about what we’re doing and for whom we’re doing it. We live in this little industry bubble and we always assume that the final consumer is informed, knows everything about everyone. But at the end of the day, the only thing the consumer cares about is the final product. If you manage to create a good product, you will have the right following who will invest in this product. I sometimes felt that all the big names are just there for big events or big scandals. But it is not about the clothes. I sometimes think the whole industry is about the Met Gala — dressing up and going there. I think it is a beautiful event. It has become such a celebrity-driven culture. In 2019, we need to think of strategies that are current for today and do not come from the beginning of the Nineties.

WWD: So, you don’t believe in this cult of personality in fashion. I don’t think you even like the word “fashion.”

G.G.: I think if you are a movie star, you need to have a cult of personality. We are trying to make clothes that people will want to wear. I remember many years ago Kim Kardashian wore something from our collection — I think it was a sweatshirt — and she said, ‘Oh my God, I can finally breathe.’ I  said, ‘I’m so happy you can breathe.’ No, she came during fashion week, wearing this corset dress and she couldn’t even sit in it.

WWD: Do you see Vetements as a brand for eternity? You once told me we can’t think long-term any more.

G.G.: As a parent, you do everything in your power to invest in your child. It doesn’t matter how much money you have. You invest all your love and finances to make sure your child gets the best education and makes the right choices in life. It doesn’t matter how much you try. Your child can still grow up and be a train wreck or a drug addict. The good thing is as a parent you’re allowed to dream and dream big. As long as I’m involved in the company and have such an incredible team, who believes in what we’re doing, we’re really taking care of this baby and making sure this baby learns the right life lessons. I’m doing everything in my power. We discuss things with everyone involved so they understand the goal. We managed to build a powerhouse in five years. Now the question is, “How do you sustain this?” The mistakes that everyone else would do, if they were in our place, would be to do a public offering, really involve people, open 150 stores worldwide. We’re taking things slowly. Growth is good when it’s organic. If you have a baby, your baby needs to grow slowly.

I hear a lot of people saying, “We have 3,000 employees or 5,000 employees.” The question is, “Do you know what your employees are doing and how much of the working day they are spending on social media?” It’s true. I go into all these stores that people have spent millions and millions to look beautiful, and all of the shop assistants are just scrolling on their phones. Once we were at a department store and one was sitting on a sofa looking at her phone. She said, “Hi, do you need some help?” I looked at her and said, “Do you think you might need some help? Why are you getting paid, if you are not interested in doing your job?”

I was visiting a department store with a fashion director and head buyers going through the stores. There were things on the floor. The sales assistants on their phones. They were not engaging. I said, “I am sorry but I have to hang up this jacket. I cannot see it on the floor. It’s just not normal.” It feels like there is the disconnection. The important thing is to understand what you’re doing. It’s not to get this valuation — in my opinion this very fake valuation. It is to really live and breathe the company that you have. We actually refer to Vetements like a living, breathing being.

WWD: What can we expect from Vetements in the years to come?

G.G.: There is one part of this industry that is missing — spirituality or spirituality management. I am thinking what the owners of Hello Kitty do. If you work at the company, they refer to Hello Kitty as “she” and it’s about all of the accomplishments that she has made. That is one of the biggest licensed businesses. They are turning over $6 billion with a character that never existed. This is something that we all can learn from because it comes from Japan and Japan is so connected with tradition. We all need to go back to old-fashioned models of running a business. Where you are actually buying things, put your modules, sell things, don’t spend more than you earn and build the business organically. In terms of Vetements, we have decided to develop it into something bigger than it already is.

WWD: What are your plans for the new platform?

G.G.: We’re creating a platform that is going to support young talent. There is a lot of talent out there, but when you look at the fashion industry — not the beauty department — it’s extremely monopolized. There are the big brands who take in a lot of designers, get all of their ideas, spit them out and move on to the next best thing. There is always the misconception, “What is a brand?” A brand is not a talented person who is doing the design. It’s probably not one person doing the design. There are big brands that have 60 people on their design teams. To put everything together, you need the design people, the developers. It’s a job that no one teaches and is one that is higher-paid — at least in my company — than the design job would be paid. It’s design people, financial people, the supply chain, warehousing, it’s the origins certificate, it’s the customs people — there is so much that comes together to create the brand. It’s the deliveries, the delivery windows — it’s making everything work in the company.

What we do is put the right people with the right talent together in groups, and we give them the possibility to create something that is new and that does not already exist. We give them the opportunity to use our production facilities. If you go to a factory that produces Hermès and want to do a leather trenchcoat with them, they are not going to work with you as a young brand. If they’re launching 25 products and I ask them to do two more products, they will do it because they know we’re going to pay, we’re going to be respectful — and so on. What’s extremely important with all this young talent even if you put them all together, you need to inject a lot of money for the brand to happen, to make sure you have a show, you have a nice showroom and that you can hire even good young people who can do the job.

But in order to accomplish that, the team ensures that the production team is in sync in executing the idea. If all goes according to plan, this platform will be introduced next year. The talent will not be owned by Vetements, but they will keep their own structure.

We are starting a few projects next year. We have a 30,000-square-foot office building and we will use a part of it for a coworking space for young talent. They can share the building, participate in the rent, get a barista to make their coffee, but make it more of a community thing. I’m also going to visit schools to speak about the truth of the industry, what they need to be aware of and to give as much support as we can. We are going to start some scholarship programs because talent does not necessarily come with money. If they can’t afford to study at Central Saint Martins, we help them to do so. So all these people can share the building and participate in the rent, but make it more like a community thing.

WWD: Can you give an example of the type of talent that you might want to launch with this platform and when we might see the first one? Are these new ideas or concepts in fashion? Will these be brands that exist within Vetements?

G.G.: The first one, next year hopefully. They will not be part of the company. They will have their own structure so we will be like a big brother. If anyone ever were to upset a younger sibling, we would come and protect it.

Gvasalia also shared some strategic plans when fielding a few questions from the audience.

Audience: How do you grow in a mindful and sustainable way?

G.G.: Growing is not so difficult if you do the right things. What we need to learn is that when we want to grow, we need to make sure that we make the right product. Imagine if I have 10,000 clients around the world who are willing to buy my products, there is a certain amount of product that I can create that these clients are going to buy. Even if I sell it to twice as many stores, the clients are not going to come out of thin air. Basically, what you need to do is to engage with the final consumer to make sure you get more clients away from your competition. In my opinion, the only way that you can grow is to take the consumer away from the competition. Competition today can be anything — young people today are deciding whether they are buying the new iPhone, a hoodie or going on a holiday. It’s about giving the values to those young people that they don’t get anywhere else.

Referring to the power of social media and Instagram, he said, “We at the moment are at the point of 3.6 million people [on Instagram.] I am very proud to say we never bought a single follower…the reason that we never did it was because we actually get full insight about our following through Instagram. We know exactly their statistics — who is our client, whether it is a male or a female, what is their age group, where they are located in the world…if I look at my top five cities in the world, maybe the place for my next event will be Korea. That has been one of the top few cities [for Vetements] for the past two years. I think it’s about understanding and analyzing. The other thing that we’re doing is reposting pictures of people who wear our clothes. We find the pictures that are aesthetically correct for us and we repost. We are spending a lot of time posting Stories and there are a lot of stories of people wearing our clothes…the trend that happens is those people, who are engaged directly with the brand  — they have 3.6 million people looking at their pictures and sometimes clicking to start to follow their profiles — what they do is they go and buy more clothes and take more pictures and post them of those pictures.

A few days ago on Instagram, I think we saw more than 6,000 Stories that tagged us in one day. In terms of engagement, we have incredible engagement — we have 30 million impressions on a weekly basis and 120 million impressions on a monthly basis. Whoever has a big company, look at your impressions. I have a friend with 20 million people [followers] and she gets fewer impressions than we do because it’s about engagement. Then you see other brands that are starting to do the same thing that we are doing but they are doing it differently. What they are doing is they have huge production companies who are sending samples and spending hundreds of thousands of dollars on shipping costs to cool people, not even influencers on Instagram. And they pay them for every post. It looks right what they’re doing. But at the same time they completely misunderstand the logic behind it. We’re actually engaging with the final consumer who goes and buys the product. I think engagement with the consumer away from the competition is important. Also, sometimes you have to think about growing the company in a different direction. For example, we have a big ready-to-wear business and we’re going to start separate businesses around the company. Shoes, for example, we will create a separate distribution for the shoes. The same will go for underwear and sunglasses. You take your company and you build small businesses around your company. This is the way for me to grow.

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