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Can Copycats Succeed In The Fashion Industry?

With so many entrenched names, the best market opportunities for mid-size companies sometimes lie in making knock-offs.

Last week, we covered some new research suggesting that imitation is a better approach for mid-size companies looking to innovate. Innovation is risky when competitors in an industry are large and internal resources are limited, the research suggested. Building on existing innovations, especially those already in use among industry leaders, works better because it boosts output without the high cost of investing in research and development of new products.

The fashion industry is a prime example of how the dissemination of innovation can boost sales at mid-market retailers. Fashion designers send their collections down the runways of New York, London, Paris, and Milan with great fanfare every spring and fall. Think of them as the chickens and the clothes—and the tableaux created to showcase them—as the eggs. The eggs hatch almost immediately as images are eagerly snapped by photographers at Vogue, Elle, Harper’s Bazaar and other style bibles, as well as by bloggers who sprinkle their Instagram and Twitter feeds with shots of the latest styles. A celebrity or three will soon be photographed by paparazzi, sporting some item or other while emerging from a Starbucks. Wannabe fashionistas will soon be scouring stores and sites, eager to snap up the coveted threads. See also: Meryl Streep’s monologue on the cerulean sweater in The Devil Wears Prada.

The transition from high to fast fashion is where retailers can make a killing. Take for example the time in 2010/2011 when designers such as Roberto Cavalli, Gucci, and Louis Vuitton trotted out graphic Aztec-inspired tribal prints and harem pants in their collections. Celebrity chanteuses Beyonce and Rihanna were quick to hop on that trend wagon.

Along the way, retailers were watching. Zara, owned by Spain’s titan of commerce Inditex, is famous for peddling trends that closely mimic the stylish looks seen on the runways and bagging big profits. Zara’s in-house designers mashed up the two trends and sold its composite version, a bright crimson and blue pair of tribal track pants, about six months later.

The company’s supply chain, which relies on sourcing materials close to home in Portugal and Morocco, has saved the company the cost of markdowns. In the business of fashion, this is key as supermodel Heidi Klum famously intones on Project Runway: “One day you’re in. The next day, you’re out.”

The appetite for loose trousers and graphic prints hasn’t slowed down a bit since the big designers debuted their creations four years ago. That’s good news for the likes of middle market retailers such as Charlotte Russe and the U.K-based e-commerce site ASOS which are currently flogging the bright, baggy bottoms, along with a host of other shops.

ASOS doesn’t just sell a few items that imitate high-end designs: It actually launched with the intent to offer all its clothing and accessories to trend-hungry fashionistas on a budget. The original name was As Seen On Screen, which was shortened to its current moniker. An extensive breadth of offerings pushed the e-commerce company to profitability in its fourth year and rapid global expansion followed. Though it has been posting gains steadily, the company warned that sales were slowing due to higher warehouse costs and startup losses in China. At the same time, ASOS is touting itself as a trendsetter, rather than an imitator. Could this be a sign that the company is also spending too much on conceptualizing potential new trends?

Imitation may be the sincerest form of flattery, but is it possible for a business to coast on the coat tails of another’s original design indefinitely? Charlotte Russe, a mid-market teen retailer found in malls, is peddling a plethora of this same style of pants.  The profitability question isn’t entirely clear as the company is currently privately held. One thing is sure, though: When Charlotte Russe was taken private in 2010, CEO Jenny Ming was making sweeping changes to the assortment. While still copying trends, Ming invested in pricier details like better buttons to compete with the likes of fast fashion juggernaut Forever21. Charlotte Russe is now said to be in talks about going public again.

On the other hand, Rue 21, another teen retailer with a full complement of its own tribal-inspired print pants, was carrying a hefty debt that its banks finally sold off at a steep discount. The once-public mall chain is now in the hands of private equity firm Apax.

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