Thread: The Business of Fashion

Since I'll be applying for an internship at Tom Ford later this year and might be starting my own line within the next 2-3 years, I'm interested more than ever not only about the latest fashion releases and news, but or rather especially about the whole process behind it.

So I was thinking if there's any interest on having a daily updated thread about various fashion news.I myself have a strong interest in rather classical brands and designers such as Karl Lagerfeld and Tom Ford, but would also try to combine it with street fashion and lifestyle such as presented on HighSnobiety for instance. My posts would contain basically everything from the latest fashion shows, interviews with various designers, basics you'd need to know before starting your own fashion brand, fashion films, behind the scenes footage and so on and forth.

I just hope I could somehow bring my point across and I'd love to see some others being interested in this topic as well. Having the "pressure" of constantly updating this thread might help me to stay updated as well.

So please let me know what y'all think.

In most definitely. Always been interested in the fashion industry.

i have been very close to dropping several lines, sidetracked by the big D, and have brokered foreign fashion from asia to usa for retailers here. I would be curious what u have to say and i have things to say and things i ain't tellin' no one till my dreams become reality. I was just in new york and it is so played out, the same Scotch and Soda parka in ten stores within five blocks. i recently had a great idea for sizing for high end product which would be to make paper cutouts of the shirts and pants and mail those to interested buyers to see the sizing of the line. I know that on Superfuture and the like they list all the measurements but most men won't bother.

The Business of Fashion is getting a lot of play of late. At the recent CFDA/Fashion Fund awards in November, Marc Jacobs spoke at length about the ups and downs (and downs) of starting a new fashion business. Many young designers rush into setting up a business, attracted by the perceived glamour and fun that is associated with the fashion industry. There are wonderful fairy tale stories of young talented designers graduating from St Martins or Parsons and then going off to achieve fame and fortune. The stories we hear less of are those that describe all of the failed companies and dashed hopes that are the cruel reality of this industry. I am glad that Marc shared his stories with some of the upcoming stars of American fashion who were in the audience, including Doo.Ri Chung, Proenza Schouler and Peter Som.

One of the most common questions I am asked by designers who have just come out of fashion school (at both the bachelor’s and master’s level) is: “Should I start my own business or should I go work for a big fashion house?”. The truth is, the right answer depends on you and your aims. In our first article on the Business of Fashion Basics, we will pose the questions that you need to ask yourself – so you can make the right decision.

“Do I really want to run a business?”
Beautiful people, fun parties, flights of creative fancy – what more is there to want from a career? Here’s a reality check: it’s not as glamorous as it sounds. Running a fashion business means that packing boxes at 2 am, steaming clothes over and over again, and pouring through receipts with an accountant will become part of your routine. You will likely spend less than 10% of your time designing, while the rest of the time you will be managing production, sending clothes to magazines, dealing with suppliers who want their money (now!), begging Anna Wintour’s assistants to grant you a meeting, managing your employees while hoping they don’t fall ill, and trying to eat and bathe in between. On top of all that, you have to worry about making enough money to declare some kind of dividend from the business for all your hard work. You will eat, live and breathe your business 24/7. If that doesn’t turn you off, then keep reading.

Starting any kind business requires tenacity, endurance and dedication. Setting up a fashion business is all the more challenging because this is a hyper competitive industry (who doesn’t want to be a fashion designer these days?) and a very complex one as well, even at the smallest of scales. What other kinds of start-up businesses so quickly find themselves with customers and suppliers scattered around the world, requiring so much coordination and organization? Managing to get all of your raw materials (fabrics, trims, haberdashery, etc) all to your manufacturer at the same time to start your production and then sending it all out to stores in different corners of the world (each with their own customs procedures) in only 2 months can be a nightmare, even for those with great forward planning and troubleshooting skills.

All of this is to say that one of the key drivers of success will be your entrepreneurial skills and your commitment to running a business. In order to be successful, you should think of yourself as a CEO first, fashion designer second. A CEO is a manager of people, finances and processes. Therefore, you will have a great deal of responsibility and important business decisions will face you each and every day. The buck stops at you and the business should always be at the forefront of your mind, not just an afterthought.

For some people this is an extremely exciting and energizing situation to be in. For others, it is their worst nightmare. What kind of person are you?

“Do I already have or can I find the necessary skills, contacts and funding to create a successful fashion company?”
Clearly, you won’t be able to do absolutely everything yourself. This is where you need to find other people who believe in you to join your team or provide support in some other way. Doing a self-assessment of your skills and abilities will tell you what gaps you will need to fill in order to make your business work.

You may assume that having completed a design degree, there are no skill gaps there. However, the design process in a business can often feel very different to that of the design process in school, where you don’t have to worry about things other than the product. Running fashion business means developing and following an organized creative process that works for you – and that other people can work to as well. One of the great things about designers who have previously worked in a large fashion house is that they have seen how other people organize themselves and can take lessons from there as they start. Having a clear design methodology is crucial to getting the best out of your abilities. If you don’t have this in place now, perhaps you may want to spend some time learning from someone else first.

Apart from mastering the design process, something that some of the smartest designers do next is to find a business partner they can trust, who brings different skills and connections to the table. Often it is a spouse (Patrizio Bertelli is married to Miuccia Prada), sibling (Christopher Kane’s sister Tammy runs the business) or a friend (Marc Jacobs has long time business partner Robert Duffy) who might take on this role. In this way, not only do you have someone to lean on in times of difficulty, you also have a division of roles, which allows you to focus on more on the creative aspects of the business.

You will also need to find people in the Industry who agree to support you and work with you. You’ll need a PR who will (at least initially) give you his services for almost nothing and a factory that will make your clothes in small quantities. You will also need accountants, lawyers, stylists, photographers, graphics designers, production managers and interns – hopefully all at discounted prices. You therefore need to ask yourself if you already have a set of contacts which you can leverage to make your business work. If not, you need to get out there and meet people so you can start your business on the right foot, with the right team behind you.

Finally, for most designers who haven’t come into an unexpected windfall inheritance in the millions, starting a business is also a question of finding money. There are many sources of funding, but each source will take time and effort before it bears its fruit. Family and friends who believe in you are obviously one place to start, but you will also need to deal with bank managers about loans, and think about taking on investors as well. Having a network of people who may be able to introduce you to potential sources of funding is imperative to setting up your business. You can have a brilliant business concept, a fantastic team, and all the energy in the world, but without funding in place from the start, it will be difficult to get up and running. You should also do research on grants, sponsorship and awards that many organizations make available to nurture new design talent.

“Do I have something unique to offer the market?”
If there is one crucial thing I recommend that you do before rushing off to start a business, it is to carefully craft your business concept. What is it about your business that will be unique? Why will people choose to buy your product over someone else’s? Is it the design, the price, the value or the dream that they are buying into?

You will need to think carefully about who you are designing for. It is cliché by now, but I almost always ask designers when I first meet them: “Who are you designing for? And why?”. Most of the time, this simple question is met with groans or blank stares or platitudes like “I design for me and my friends” or “A very glamorous woman with lots of money”. This is not enough. You need to get into the mind of your customer and understand what motivates them. Where do they spend their time and for what occasions will you dress them? What makes them buy a garment? Understand their psychology, emotional needs and relationship with clothing. Visualize all the aspects of their lives and assess how your business can blend into making them even better.

It’s worth pointing out now that not all fashion businesses have to operate at the high end of luxury, although it seems that that is where every designer wants to be. Remember, your business concept needs to offer a clear proposition of value to your customer, and that value could be world-class design at more reasonable prices. Look at Zara or H&M or Coach or American Apparel and how they have taken clear business ideas that allow them to deliver great fashion to the masses. While it may seem ideal to be a “luxury” brand, also remember that some of the most influential fashion businesses are on the high street and in your neighbourhood mall, because they dress thousands of people around the world.

The term “business plan” is casually bandied about like a hot potato in the studios of emerging fashion designers. Everyone knows you need one, but still, so few emerging design businesses take the time upfront to properly plan for their success. I use these words intentionally. Success is very rarely accidental. Sure, we all benefit from some good luck from time to time, but real success can only come through hard work and good planning. For this, a business plan is critical.

So, what is a business plan for? Many people think that the primary purpose is to secure funding – i.e. loans from banks or cash from investors. And while this is certainly one important objective, it is not the most important one.

The truth is, the business plan is, above all else, for you: the person or people who will drive the business forward. It is the document that lays out your vision and objectives. It is your roadmap for how you think it should evolve and grow to achieve this vision. It contains the budget and projections for how your business will manage is finances and fund growth. It is the document that helps you decide what to do, and just as importantly, what not to do. It is a living, breathing document that you should use to measure your progress, while still being willing to adapt it to reflect new insights, unexpected competitive threats, and changes in your business environment. In short it is like your company bible – except that this is a bible you can adapt as you go along.

You can also think about the business plan as a tool for communication. Anyone who has set up a new business knows that when you are looking for investors, employees, suppliers, office space, banking services, professional advisors and everything else that you need, you have to tell people about your business and its aims. When you have spent the necessary time in crafting a business plan, you will be able to more clearly articulate what your business is all about. This makes you seem more professional and organised and will enable you to attract the people, support and money that your business needs to succeed. Going through the business planning process will enable you to distill your business down into a short “elevator pitch” of concise points that together provide a good understanding of your business aims in a short period of time. When people understand your business, they will know better if it is something in which they would like to be involved.

Now, if that all makes sense, what then do you need to include in a business plan? Essentially, it should address all of the constituent parts of your business starting from the broadest vision of the business right down to the most minute operational issues of job descriptions and work plans. The first thing to do is create an outline for all of the topics that need to be covered, and then for each of those topics jot down all the ideas and thoughts you already have. If you don’t have a written plan already, then it’s likely that much of your business plan is in your head and so you need to start getting your current thoughts out on paper in a structured way so that you can then go and revisit each of the topics in more detail.

A sample outline for a business plan for a fashion business might look as follows:

1. Executive Summary – This is something you do at the end, once the rest of your plan is fleshed out, It will quickly become the so-called “elevator pitch” for your company, when you need to describe it in a short interaction. It only needs to be a few paragraphs long.

2. Vision and objectives – This section describes the vision of your business — essentially, why you set it up. What specific market need are you trying to fill? Which customer are you targeting and why?

The more specific you can be about these issues, the more compelling your business plan will be. If the reader (or listener) can really understand the market need you have identified, then they will be much more likely to buy into your overall business plan.

The importance of knowing your target market cannot be overstated. Therefore, one of the first questions I always ask when meeting emerging designers is about their target market. When they provide a fluffy answer like “I design for people like me and my friends” or “A young woman with lots of money,” it usually indicates that they haven’t spent much time thinking about this critical question. And if they haven’t done so, it makes me wonder exactly who are thinking of when they are designing. If they don’t have a specific person in mind, then how do they know exactly what that person needs, and what occasions they are shopping for?

Understanding everything about your customer’s lifestyle and preferences will make your job as designer and manager all the easier. You will not only know who you are designing for, but also where they shop, what magazines they read and what influences their buying behaviour. All of this will feed into important decisions you make everyday about how you design your collections, manage your business, and promote your brand.

3. Market and competitive landscape – This section describes the market you plan to operate in. What is the size of the market and how quickly is it growing? Who are the other players in this space?

To be clear, market size you need to describe is not the size of the global market for clothing, but your estimate of the size of the specific market you have identified, in the geographies you are focusing on. Yes, this information can be hard to find, but you can take larger market size figures and estimate what share of the overall market your business is going after.

As for your competitors, the better you can describe and understand their products, their style and aesthetic, and their positioning and strategies, the better you will be able to shape your business to stand out from the pack.

In general, quickly growing markets of a good size with few competitors (or few strong competitors) are usually quite attractive. However, if you have identified a clear niche market that is currently unfilled, then that can also be very compelling.

4. Implementation plan – This section clearly describes all of the resources you will need to make your business successful. How many staff will you need in which roles? What type and size of space will you need to design and sell your collection? What outside expertise may you require to operate successfully?

An implementation plan therefore contains a detailed description of all of the operating requirements in your business including Design, Production, Sales, Marketing/PR, and Retail. You should have a detailed plan for each of these core steps including human resources, expertise, space and timing. Thinking very clearly about the various roles and responsibilities that need to be filled will ensure that you find the right people to make things happen for you. In turn, attracting the right team will also make it easier to attract funding. Most investors invest in people and teams, not just ideas.

Without an implementation plan, your business plan can lack the concreteness and specificity required to convince people you can take your vision and make it a reality.

5. Financials – This section is absolutely critical to your plan as it will identify your projections for how the business will grow, in terms of both profits and revenues, and what financing you will need to make it happen.

An income statement uses carefully thought-out projections of how your business will grow at the top-line (i.e. sales and other revenues) and will also project the costs of delivering that growth, including the team and other resources you have identified in the implementation plan. This statement will then project profit, by taking projected revenues and subtracting projected costs.

However, the income statement does not tell you how much money you will need to raise as it does not reflect the timing of cash inflows and outflows. This is where the cash flow statement comes in.

The cash flow statement is one of the most important parts of your plan as it shows the peaks and troughs of your cash situation on a monthly basis and identifies what funding you will need to make it through the troughs. You can think of the cash flow statement as a monthly account of cash coming in and cash going out. The difference between these two figures is your funding need for that month – and you are better off knowing your funding needs in advance as opposed to finding out later when your bank account is empty and suppliers are asking for payment before they release your goods. This is particularly important in the fashion business where you incur many costs up front (designing, sampling, sales efforts) before any of your revenues even come in.

If you can, you should have a trained financial or accounting professional (a friend, family member or other contact) to help you with this section. They will have the expertise to sense check your assumptions to ensure that they are sound and believable. It’s better to have their input before you take your plan out to investors who will inevitably ask you the same probing questions and who will be looking for concrete answers.

Taking on financing is one of the most important decisions an emerging fashion company will make. This step is absolutely essential because the early stages of growth often requires significant amounts of working capital that cannot be generated by the business alone. So, unless you are independently wealthy and sitting on a pile of cash, financing decisions will be part of your critical path, early on.

What is the difference between equity and debt?
Financing can come in many forms, but it basically comes down to equity versus debt.

Equity investors (in this case, venture capitalists or angels) provide cash to invest in your company and therefore end up sharing ownership of the company with you. They invest in the hopes that your business will grow and that they will have some positive return through shared profits and upside. They may offer you resources and expertise to help drive the business further. In fact, this is much preferred to someone just giving you cash and leaving you to fend for yourself. If, however, you disagree fundamentally with your investor on where you want to take the company and how you will do it, then you may find their “help” a nuisance. Thus, when evaluating equity investors, choose someone who is aligned with your strategy and who has the industry and/or functional experience that your business needs to grow.

Debt financing, on the other hand, usually comes in the form of loans, where you are required to pay back the money you have borrowed, plus interest, using a fixed schedule of payments that can be spread out over many years. While debt providers won’t be actively involved in your day to day business, taking on debt will mean you will have an additional cash outflow that your business will have to be able to support each month to stay on good terms with your bank. If payments aren’t made regularly, you may quickly find yourself dealing with irate calls from your bank manager. In the worst case, taking on too much debt could drive your business into bankruptcy. Debtors are always paid back before profits are shared amonst the shareholders of your company.

The good news is that with your business plan in hand, you are in a good position to share your vision with potential financiers to sift through the various options and make the best decision for your company. Financiers may have advice to offer, and you should take this under consideration. But, keep in mind the need to stay true to what you originally set out to create. It is important that you believe in the strategy you pursue.

What legal precautions do you need to take?
Before sharing the nitty-gritty details of your company with anyone, you should request that they sign an NDA, or non-disclosure agreement, which legally restricts the other party from sharing your confidential company information with anyone else. Of course, you can’t control what they actually tell other people, but this is a good way of sending a message that you take your business seriously, and that there is value that needs to be protected. Often, NDA’s are reciprocal, so both parties are protected. Your lawyer will very likely have a template that you can use, with some small adjustments so that it is fit for purpose. It is customary to offer two copies for the other party to sign, so that they can also keep a copy for their files. Eventually, you may also need legal advice to ensure your interests are being protected in any subsequent financing arrangement that arises.

What are the equity and debt options available to you?

1) Venture capital – VC funds look for high-potential businesses with strong prospects for growth, often based on a core new technology or brand.

Many VC companies don’t even consider fashion as a core industry for investment, as it is a notoriously fickle place with all sorts of “fashion” risk. However, as the world has been awash investment capital lately and as the competition for traditional investment opportunities has increased, more people seem to seeing a gap in the market for investing in fashion. Initially, the money was targeted at larger investments that have seen the likes of Jil Sander, Helmut Lang, Jimmy Choo and most recently, Valentino, take on private equity. But now, new funds are being raised in London, New York and Paris to focus on earlier stage businesses:

* The Atelier Fund - Richemont has backed the Atelier Fund to invest in early-stage fashion businesses, spearheaded by Dawn Mello, former President of Bergdorf Goodman. The first investments made were in adampluseve, Mathew Mellon, and Mary Norton.

* Towerbrook Partners – Robert Bensoussan, formerly CEO of Jimmy Choo is raising a fund with Towerbrook Partners to invest in fashion businesses with sales of $30m — not quite start-up revenues, but still earlier stage than previously seen in private equity.

* Marvin Traub Associates - Marvin Traub Associates, the New-York based luxury business consultancy, has stated in Women’s Wear Daily that it is toying with the idea of raising investment capital for emerging designer businesses to pair with its business expertise.

* The Centre for Fashion Enterprise - With the support of Harold Tillman, Chairman of Jaeger, The Centre for Fashion Enterprise in London is trying to raise a fund of £5m to invest in early stage fashion businesses. The CFE is a government-funded body that, up until now, only provided small investments of £20-40k.

* Trapezia Capital – In the UK, there is also a venture capital fund called Trapezia Capital that focuses on business started up by women entrepreneurs.

With all of that said, venture capital firms, even the ones that are focusing on early-stage businesses, will often not consider any investment until the business has a proven concept – e.g. sales in excess of $5m, a compelling retail concept, and the potential for multiple product lines, etc.

2) Angel investors - If you’re looking to raise capital for a pure start-up businesses, Angel investors could be your best bet. “Angels” are independently wealthy individuals, often with backgrounds in entrepreneurship and business themselves. While the name might make them seem truly heavenly, angel investors can sometimes be anything but divine and this route needs to pursued with caution. Just finding angel investors (let alone convincing them to invest) can be tough.

The best thing to do is ask friends and family if they know people who might be looking to invest some cash. This will not only help you find angels, it also comes with a built-in personal reference from the person who puts you in touch. There are also networks of angel investors, like Pi Capital, The Go Big Network and The Angel Investor Network, which help to bring angels and entrepreneurs together.

When dealing with angels, it is mportant to ensure that there are clear roles defined before any investment has taken place. It is not rare to see angel investors, with the best of intentions, wreak havoc because they think they are fashion experts and end up interfering in the business. Make sure you agree what they will and will not be involved with based on a clear assessment of their skill set. Make sure you are confident you can jointly make business decisions with them. Test their response to pushback. It is better to know exactly what you are getting in advance, than taking the money and having to struggle later on.

Guy Kawasaki has some great lessons on raising angel capital on his blog, How to Change the World.

3) Banks - Bank loans are possibly the most readily available source of funding for young start-ups. Jasonwu_2 a bank loan usually comes down to:

* the quality (and length) of the relationship you have with your bank and bank manager
* the future prospects for your business
* the debt burden you are already carrying

Essentially, banks want to be confident you will be able to pay them back. While all banks have credit guidelines to assess this, the process is not as scientific as it might seem. A good relationship can go a long way.

Since you won’t have much in the form of collateral to offer the bank in return for your loan, the amount the bank can give you may be relatively small compared to your overall funding need. Therefore, a bank loan strategy may not be sustainable over the longer term as it requires constantly going back to your bank and offers no guarantees that future loans will come through.

Finally, keep in mind that loans also add another cash outflow to your business. To reflect this in your plans, use your cash flow statement to establish your funding gap for the next 1-2 years, and add in the loan payments that you will have to make each month to learn how taking on the loan will impact your monthly inflows and outflows of cash.

4) Factors – Factors provide capital to businesses based on the actual orders they have received on a season by season basis. This is very useful in the fashion business as it can help to finance production for sales orders that have just been completed. Once you hand over your order book to the factors, they will take a cut of the total value themselves, and in return provide you with the cash up fron while they take on the risk of collecting payments later when the goods are delivered. Factors may choose not to underwrite certain stockists which are too small or have bad credit records. One of the leading factors in the US is Hildun. Working with factors means giving away part of your revenues to the factor right from the start.

So you’ve done it. You’ve cobbled together some financing from family and friends or squeezed a loan out of your bank manager. If you’re a little farther along, perhaps you have managed to raise an injection of capital that will help take your business to the next level. The question is, now what to do with your funding? And, how do you make it last?

It’s likely that you will have had to agree fund allocation to some extent with your investors prior to securing the funds, but it will be important to re-visit and re-confirm this now that you are past the negotiation stage. In reality, you will make spending decisions every single day, how ever small. The fourth part of the BoF Basics discusses the allocation of your capital, or more simply, how and where to spend your money.

The easiest way to think about allocating capital is by using a series of principles. Allocating money is about tradeoffs, and making those tradeoffs means choosing between spending on things that might seem equally important, on the surface. For example, every fashion business will have to choose how much money to spend on building and shaping a collection and how much to spend on actually selling the collection. How do you make these decisions? By using the principles below combined with the priorities for your own business. The ultimate decisions may differ from business to business.

So here they are, the 5 principles of allocating money in an early-stage fashion business:

Key Principle 1 – Carefully manage product development costs

While fashion is a product business that often comes with exacting standards, it is still important to carefully manage your product development costs. Creating large, unfocused sample collections with very expensive fabrics can be a death knell for a young fashion company. Not only will you have spent a fortune on developing a set of samples, you may have also created a collection that could never sell at retail because it would be far too expensive. Always use a collection plan to specifically identify the size, structure and price points for your collection, and select your fabrics with this in mind. This way, you won’t need to buy a bit of everything and sort things out once you are back in your studio, wasting money and time all the while.

Key principle 2 – Advertising is a cash sink

As a young designer, you probably don’t need to spend money on advertising, and the expensive photo shoots and super slick branding that come along with it. You can still craft a very strong profile by building relationships with editors, journalists, photographers and fashion insiders who take an interest in you and your work, and may help you for free. Those relationships will not only generate valuable editorial, their impact will also be felt longer than even the best-placed one-page ad in Vogue. As a young designer, you have a new and interesting story to tell and people will want to tell it too — you don’t have to pay them for this privilege. Supplement this with a professional looking website that is in tune with your creative vision and a clear brand identity that speaks to who you are creatively.

Key principle 3 – Focus on growing sales

As a growing company, you will likely be best off allocating your capital to people and assets that help increase your revenues. While you must invest time and resources into your product, brand image and identity, it is crucial that you are able to then leverage this raw potential to sell. Even if you have a strong collection and a growing brand profile, this will mean nothing if you don’t have a professional sales organisation to support it. One of the first people you should consider hiring is someone who can help you with sales. Also, investing in an e-commerce portion of your website (or through a partnership) helps you to increase both sales and profits, as you begin to capture the full-retail margin.

Key Principle 4 – Don’t forget about working capital

Not all of your funding should be invested in fixed assets like sewing machines, office furniture and computers. You will also need funding to make sure you can counterbalance the difference between the cash coming into your business (e.g. from sales, sponsorship and consultancy) and the cash going out of your business (e.g. for fabrics, rent and salaries) In a growing fashion business, the amount of working capital tends to grow quickly as payments for clothes delivered to stores are often not received until well after the designer has made significant investments in everything it takes to bring that collection into a store – a large part of this is a variable cost of fabrics and productions costs that will increase with time as your business grows.

Key principle 5 – Use a budget

It is absolutely essential that once you have thought these issues through, you create a budget to track your spending against your plan. Without this roadmap of sorts, you could lose control of spending and suddenly find yourself without enough money to keep your business afloat. You should track your budget, at the very least, on a monthly basis, which means investing in a good bookkeeper to help you regularly track your accounts.

Interesting. Would love to hear the experience of all the L4P designers.

this is a great thread. Will be checking it out often

what will your brand entail kuester? are you doing cut and sew? or printed to start?