Chanel Cruise 2018 Show: All the Looks

LONDON — That cliché remains as true as ever: Fragrance and branded accessories are the drivers behind the big branded businesses, while clothing remains a loss leader.

According to a report from Luca Solca and his luxury team at Exane BNP Paribas, the economics of ready-to-wear are “daunting,” with most brands losing money and using clothing simply as a communication tool.

“We consider high exposure to rtw as a structural weakness” among companies, said the Exane report, which is ominously titled “The Truth About Ready-to-Wear.” The bank worked on the report with VR Fashion Luxury Expertise, a consulting firm that provides strategic advisory to luxury and premium fashion designers and brands.

Historical designer brands struggle in the modern luxury market: Rtw, their brand-defining core category, is hardly profitable; multilayer branding and licenses make money, but dilute brand equity. This creates a structural weakness.” It argued that the major listed European luxury groups are no fools when it comes to finance: “They have limited exposure to apparel, and even less to rtw.”

The report went on to say that rtw has become a “niche” in the broader luxury goods market due partly to the democratization of fashion. “Trendy fashion products are available from several brands and retailers — from rock-bottom price points, to rtw and haute couture. Fashion has a lower ‘recognition factor’ than accessories, and is therefore less relevant for consumers to display.”

The report pointed out what fashion brands — and beleaguered designers — already know: Collection development costs are high; fashion shows are very expensive; full-price sell-through is poor, and brick-and-mortar stores must be large to properly display collections, “hence sales and operating margin” are low for clothing.

The bank said in most cases, the goal of the rtw division of any fashion house is “not to lose too much money. The value of maintaining a rtw business is in the aura it creates for the brand.”

The Exane report also addressed brands’ pricing strategy. It analyzed cocktail dresses from 29 brands, among them Chanel, Dolce & Gabbana, Valentino, Alexander McQueen, Balmain and Saint Laurent.

Chanel had the highest prices by far, with a median price of 11,700 euros, or $13,050, versus the median price of its competitors at 2,000 euros, or $2,230.

The report said multiline fashion brands can safely venture into the realm of higher prices, as they have lower-priced lines to capture consumer demand.

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