uk designer fashion economy

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December 2008

The UK DesignerFashion Economy

Value relationships identiying barriers and

creating opportunitiesor business growth

Dr Neri Karra

Report commissioned or:


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The UK Designer Fashion EconomyValue relationships identiying barriers and creating opportunities orbusiness growth

Foreword

It has become increasingly evident to us that the UK designer ashion industry is neither recognisednor understood by those outside it. The Designer Fashion Economy is a high-end luxury industry; itis very dierent rom the wider UK ashion industry, which embraces retailing, clothing and ashionas well as beauty products.

This research is an important rst step towards understanding the UK Designer Fashion Economy. Itwill provide a benchmark or the uture. The Centre or Fashion Enterprise proposed that the initialocus or research should be the relationships that make up creative businesses. NESTA concurred:

to understand how to grow designer ashion businesses, credible research into likely uturedevelopments was more important than a ull economic audit o the industry, as it would provideinsights into how these relationships could be managed and enhanced.

This research is a testament to the talent and resourceulness o UK designers and a remindero the opportunities we have to shape the UK economy. You can look at the Designer FashionEconomy and think it is relatively small based on its accumulated turnovers. However when you seeits global impact on international brands, retail and the media, you soon recognise its internationalinfuence. Then we can begin to gauge the sectors wider economic impact, in generating contentand revenue to those industries. Indeed, one might say that UK ashion designers are the mostinfuential global players o all.

Apart rom the report itsel, another signicant outcome o the research comes rom the groupsessions which steered this project. The group involved individuals rom all aspects o the DesignerFashion Economy, and they wondered why we had not got together beore to discuss our industry.Ater all, we all want a stronger, better represented and more co-ordinated designer ashionindustry.

The research also tells us to sharpen up and be cleverer in how we operate and compete globally.Being smart and thinking as one industry can make the most o the breadth o talent, opportunityand commitment in designer ashion, and help us towards long-term growth, sustainability andnancial success.

Wendy Malem MBA FCSD

Director, Centre or Fashion Enterprise

December, 2008


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Executive Summary

The UK is renowned as the birthplace o someo the worlds most creative and innovativedesigner ashion labels. These labels havean important economic impact on the UK,particularly London. British designer ashionlabels are largely wholesale operations,enhanced and underpinned by a wide-reachingsupply chain and intermediary community.

This research set out to show the added valuecreated within this wider supply chain andcommunity, and identiy where interventioncould support growth within the broad UKdesigner ashion sector. Our ocus was onassessing:

Key relationships that sustain designerashion businesses: with retail, withmanuacturers, with investors and withintermediaries.

Business categories operating in this sector.

Key barriers to growth in the sector.

New business categories

The research depicts a highly internationalisedsector, dominated by London-based smalland medium sized enterprises. We identiedseven distinctive types o business orbusiness categories, each with its own unique

characteristics:

Artisan Designer driven purely by aestheticmotivation.

Creative Partnership Two creative people.

Solo Individual designer ocused ongrowth.

Designer and Business Partner Onecreative and one business partner.

Designer and Licensing Partner Designerunder royalty contract.

Designer and Manuacturer Designer incontractual agreement with manuacturer.

Partnership with Investor Designer inpartnership with a ormal investor.

Enterprises typically adopt these businesscategories at dierent stages o theirgrowth. As a business develops and grows, itneeds improved management skills, capital,production capabilities and ar-reachingdistribution channels:

Micro and start-up businesses (turnoverunder 250,000 pa) typically adopt Artisan,Creative Partnership or Solo categories.

Small businesses (turnover 250,000-2million pa) typically adopt Designer and

Business Partner, Designer and LicensingPartner or Designer and Manuacturercategories.

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Medium businesses (turnover 2-8 millionpa) typically adopt Designer and BusinessPartner or Partnership with Investorcategories.

Key business relationships

The UK ashion industry is valued at 1.6billion.1 London has its own unique sellingpoint as the launch pad or many o the worldsmost innovative designer labels. Investigatingthe key business relationships has improved ourunderstanding o the designers operations andprovided much needed evidence o the barriersand challenges aecting the industry.

Investor relationships

The UK Designer Fashion Economy2 comprises

many micro and small businesses that generatesignicant media attention, but whose growthis impeded by lack o nance. The researchconrms that:

There are three types o investors in theDesign Fashion Economy:

Emotional investors: amily, riends andinvestors attracted by ashion itsel. Theyare the largest group o unders.

Strategic investors: typically equityinvestors, business angels or venturecapitalists. Exceptionally dicult to attractto small and even medium businesses, theyare unlikely to look at investments under20 million.

Debt nanciers: banks, loan schemes andinsurance schemes. Easier to secure, butoering little development assistance orexpertise.

The nature o ashion design makes it harderto access nance: Fashion businessesassets are intangible with copyright dicultto protect on new designs; returns areuncertain; and product innovation doesnot easily translate into ormal businessstructures.

While investors are aware o these risks,some see ashion as cool, dierent, excitingand more glamorous compared to otherinvestment opportunities.

Designers are generally nervous aboutpartnerships with investors, earing loss o

control o their company, and are reluctant toshare prots in return.

Designer ashion investment needs to belonger-term than other venture capitalinvestments. Typically investors want a returnon their investment in as little as three years.

Despite its high prole, designer ashion cantake much longer to become protable.

Manuacturer relationships

The relationship between designers andmanuacturers is, somewhat surprisingly, oteninternational: most designers manuacturein more than one country; 40 per cent othe sample make clothes in three or morecountries. Moreover, these relationships tendto be the most problematic o all the sectorsbusiness relationships:

Designers and manuacturers havemismatched expectations and dontunderstand each others business operations.

Key points o tension include: on-timedelivery; quality; high cost, particularly orsmall orders; payment terms and their eecton designer cash fow; lack o specialist skills;lack o investment in technology; trust.

Few manuacturers can aord to oer creditterms. Most demand cash on delivery, while

micro and small businesses generally haveinadequate capital in the early stages o theirventure.

Retailer relationships

Designers relationships with retailers are oteneasier. Stores oten want to be seen discoveringand supporting emerging designers: as thebrand grows, these relationships become moreproessional. But, there are still challenges andbarriers inhibiting growth:

High-end designer labels oten hold backon their early sales expansion, in the hopeo being picked up by one o the top storesor boutiques, which will enhance theircredibility.

Designers need international sales to sustaintheir business. Only 19 per cent o designersquestioned sold solely in the UK.

New York and Paris Fashion Weeks areconsidered the most important sales tradeairs, and London Fashion Week is oten

bypassed by international buyers, who tendto leave their buying decisions or Paris(which ollows London).

1. In retail terms.

2. The term we apply to thewider sector, including itssupply chain and widercommunity.


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Retailers increasingly want novelty romdesigners, expecting up to ve collections ayear compared with two annually in the past.Limited nance and production managementskills inhibit the smaller designer rms romtaking advantage o this trend.

Key buyers may not buy rom an emergingdesigner or ear o non-delivery or poormanuacturing quality, though they willcondently buy a designer brand backedby the credibility o the licence partnercompany.

Intermediary relationships

The UK has a dynamic network ointermediaries people who help to infuenceretailers and consumers in avour o particulardesigners who are oten not recognisedby those outside the sector. The research

demonstrates that successul designer-intermediary relationships underpin mostdesigners businesses:

There are three important types ointermediary or designer business growth:

Aesthetic service providers stylists,models and photographers. Stylists areparticularly important or managingeditorial work and exposure, developingportolios, advertising and gaining access

to retailers.

Sales agents providing designers withsales expertise as well as access to specicregional markets.

PR agents and the press communicatingthe designers brand to the trade andconsumer.

Building a consistent brand story or strategicbrand identity is crucial in establishingsuccessul relationships with intermediaries.

Intermediaries must believe in the brandsthey are helping to promote.

Designers must have a sales and retailerpresence beore any promotion so thatconsumers can buy the promoted productsimmediately.

Recommendations

There is a clear need to improve awareness othe sector as a whole and to develop a strongvision or it by engaging in dialogue at alllevels across the sector. Dierent stakeholders,institutions and agencies currently work

to support and strengthen the sector as itstruggles through the economic downturnand the jostling between the internationalashion weeks. Improved communications willhelp create a shared vision and should assist inwinning government support.

Develop an awareness o the sector asa whole and a vision or it throughdiscussions across the Designer FashionEconomy and by developing relationshipswith other key bodies.

Work to reverse the shortage o high-levelskills across the industry.

Develop investor relationships andinvestment readiness with designers.

Support investment into high-endmanuacturers to meet market need.

Create a plan to support designers buildingnew routes to market including exports.

While these are issues to which agenciesshould respond, this emphasis on barriersand recommendations does not detractrom the sectors resourceul and innovativecharacter. The research provides a rst valuableinsight into designer businesses, and a muchneeded evidence base to inorm any utureinterventions.


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Contents

The UK Designer Fashion Economy

Value relationships identiying barriers and creating opportunities or business growth

Part 1: Introduction 8

Part 2: Research methodology 11

Part 3: Key designer business relationships 13

3.1 Designer relationships with investors and nanciers 13

3.2 Designer relationships with manuacturers and value to business 15

3.3 Designer relationships with retail and new routes to market 19

3.4 Designer relationships with intermediaries 223.5 Designer relationships with other infuencers and value to business 23

Part 4: Key business categories in the UKs Designer Fashion Economy 24

4.1 Business categories 25

4.2 Micro business categories 26

4.3 Small business categories 29

4.4 Medium size business categories 33

4.5 Comparing business categories 35

4.6 Summary and conclusion 38

Part 5: Barriers to growth and recommendations 39

Part 6: Reerences 42

Appendix 1: The research team 43

Appendix 2: List o interviewees 45

Appendix 3: Steering Committee membership 46

Appendix 4: Centre or Fashion Enterprise business scale category rationale 47

Appendix 5: Centre or Fashion Enterprise business scale category or the 48

designer ashion sector

Appendix 6: Case studies 51

6.1 Artisan designer 51

6.2 Solo designer 52

6.3 Creative partnership 53

6.4 Designer with licensing partner 55

6.5 Designer with manuacturer 55

6.6 Designer with business partner 56

6.7 Partnership with investor 57


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Part 1: Introduction

The UK is renowned as the birthplace o someo the worlds most creative and innovative

designer ashion labels: these labels have amajor economic impact, especially in London.

The scale o the UK designer ashionsector

The designer sector is distinct rom thegeneral clothing sector: its more exclusive,high value products are oten marketedthrough international ashion shows and its

high-end designers are still the main ashiontrendsetters. These trends underpin the widerashion industry, as well as adding value tomany liestyle and consumer products thatincreasingly look to the designer sector orinspiration and content.

The UK designer ashion sector is recognisedby the Department or Culture, Media andSport (DCMS) as one o its Creative Industries,ocusing on its wholesale operations. Butormal denitions o the sector ail toinclude the wide-reaching supply chainand intermediaries, or to acknowledge thesignicant contribution that the sector makesto the UK economy. The UK adult designerclothing market alone reached 1.9 billion in2007,3 and represented 6.5 per cent o theentire adult clothing market. It grew by 2.5 percent or 2007.4

There is no ocial count o the number oUK high-end designer businesses. But a goodindicator is provided during London FashionWeek. The September 2008 ocial Fashion

Week Exhibition at the Natural History Museumhad over 200 brands exhibiting. Addingother showroom venues during the week, we

estimate that there are around 400 active UKdesigner businesses, rom start-ups through to

mature businesses.5

General characteristics o a designerashion business

The designer ashion sector, as dened byDCMS, largely comprises design businesseswith wholesale operations. Our researchconrms that they generally work toa minimum o a two-seasonal product

launch schedule, and that they share manyinrastructural characteristics:

Micro and small designer businessesgenerally tend to rely on signicant reelanceexpertise and student interns to build theirteams, rather than employing permanentsta. Larger businesses have the revenues tobuild larger teams.

The businesses undertake research anddevelopment activities, source abrics andtrims, and develop new collections at leastevery six months. However, this pattern ischanging, and additional collections arenow being launched more requently by thelarger, more established designer businesses.

The ashion industry has a dierentsales and marketing pattern rom manyother industries, in that ashion weeksand their associated trade airs have asignicant importance. Each collection isusually launched at one or more o theinternational trade airs, with the assistance

o a sales agent or the rst ew seasons oan enterprises development, ater which

3. Retail gures or 2007(Mintel, 2008).

4. Ibid.

5. Our estimate allows or theact that the main exhibitionincluded some non-UKbusinesses, in addition torms producing accessoriesas well as womens wear.Other venues included severalhotels, the Royal Academyvenue as well as sales agentsand PR agents showrooms.


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permanent in-house sales sta are typicallyemployed.

The goal is to build international sales airlyquickly (cash fow permitting) as the UKdomestic market is not large enough tosustain all its designer brands.

The businesses build their brands on verysmall initial budgets. They work withLondons PR agencies to generate pressinterest. Many also seek sponsorship togenerate urther media exposure throughcatwalk presentations.

Designers quickly build mutuallyprotable relationships with stylistsattracted to the capital, who can brokercelebrity endorsements, promote creativecollaborations, generate media coverage and

attract sponsorship.

Whilst the designer businesses are at themicro stage, most manuacturing is done inthe UK. As the business grows and ordersincrease, it can cut costs by developingrelationships with manuacturers overseaswhere volumes are higher and productioncosts lower.

As designer businesses grow, many attemptto expand into retail operations alongside

their wholesale activities. These range romfagship London stores to online boutiques.

Key research ndings

A key part o the research ocused onanalysing our key business relationshipswithin the industry: the relationship withinvestors, manuacturers, retailers andintermediaries. These were mapped againstseven business categories. The survey showedthat manuacturer and investor relationshipspresent particular challenges or FashionDesign Businesses: these challenges need tobe addressed to strengthen the sectors growthpotential. The relationships are discussed inSection 3.

Designer business categories

Our analysis identied seven dierent business

categories or types o business that haveevolved within designer businesses practices.As they grow, ashion design businesses

need to access external resources (nance,distribution and manuacturing) whichrequire the ormation o new relationshipswith external partners. Each o the sevenbusiness categories constitutes a dierentlevel o interaction, with its own advantagesand challenges. Each category has its own

identied barriers and stages that need to becleared beore growing to the next level. Thecategories are:

1. Artisan Designer driven purely byaesthetic motivation.

2. Creative Partnership Two creative people.

3. Solo Individual designer ocused ongrowth.

4. Designer and Business Partner One

creative and one business partner.

5. Designer and Licensing Partner Designerunder royalty contract.

6. Designer and Manuacturer Designer incontractual agreement with manuacturer.

7. Partnership with Investor Designer inpartnership with a ormal investor.

These are described in detail in Section 4.

An international business

Overall, our research has ound that UKdesigner ashion businesses have unexpectedlystrong international links, with many exampleso the overseas sourcing o manuacturingand abrics. They enjoy excellent relationshipswith the international ashion press, employinternational sales and PR agents, and takepart in international trade airs. As a result,their international sales are rapidly growing.

London as an opportunity

Although we interviewed ashion businessesacross the UK, reerences to London werecommon.

London Fashion Week is seen by mostdesigners to be very infuential, receiving

substantial press coverage, introducing newdesigners and setting new trends and styles inthe ashion industry as a whole. However, our

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interviewees believe that there are better salesopportunities in other ashion capitals.

The research conrms that London is viewedas the UKs designer ashion capital. Thecapital is seen as an infuential hub or talent,trends, and creativity. Designers noted that

the high concentration o stylists, models,photographers, and other creative businessesin the city created important opportunities ornetworking, collaboration and growth. Londonalso hosts many o the leading ashion collegesand specialist ashion service providers. Mostdesigners recognise Londons importance,regardless o their own location.

All the key ingredients or a successulDesigner Fashion Economy are already inLondon. Most UK buying oces, ashion press,sales agents, PR agents and model agencies

are based there, as well as some internationalintermediaries. The sector is also supportedby a vast number o reelance photographers,stylists, make-up artists, master pattern cuttersand skilled machinists who are attractedto London by the strong demand or theirservices. Future research should consider thelinks between ashion businesses and thereelance community, showing the size o thatcommunity and mapping its collaborationswith other sectors such data is not currentlycollected by regulatory bodies.

London is also the leading cluster or creativeindustries which are complementary to thedesigner ashion sector: lm, advertising andPR agencies, media, photography and modelagencies, as well as new media companies.There are particularly strong cross-linksbetween the sector and other creativeindustries including architecture, music, lmand advertising.

Not all the buying takes place in LondonFashion Week. Trade airs during Paris FashionWeek are seen as the place to sell, primarilybecause o the larger number o designersand retailers attending them. Designersscheduled to launch in London can also nd ithard to conrm sucient sales appointmentsduring London Fashion Weeks relatively shorttime span. Buyers preer to make their nalpurchasing decisions in Paris. Several designersnoted that as a consequence o this, Londondesigners who become established tend toleave the capital and start showing in NewYork, Paris or Milan.

The origins o this research

This research was developed because o a lacko knowledge about the scale and value o thedesigner ashion sector. This is why NESTA,the Centre or Fashion Enterprise (CFE) andLondon College o Fashion commissioned

research that will provide data about thesector, and give insights into how relationshipswithin the supply chain can be managedand improved. This should help to enhanceunderstanding o the sector and its barriers togrowth, and inorm the development o policiesbetter able to support creativity and expansion.

Our key objectives or the research are:

To investigate and evaluate the keyrelationships that characterise the designerashion business, ocusing on retail,

intermediary, manuacturer and investorrelationships.

To identiy the dominant business categoriesin the Designer Fashion Economy (DFE), andtheir characteristics.

To identiy actors driving the growth o theDFE and identiy key milestones or growth.

To identiy the key issues and barriers togrowth aced by designer ashion businesses

o dierent sizes.

From the research ndings and urtherpeer consultations, we have also identiedopportunities or intervention that couldreduce or eliminate barriers to growth,support the growth o ashion businesses, andcontribute to expansion. A range o policyrecommendations is proposed in Section 5.

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Part 2: Research methodology

The research addresses three key questions:

1. What are the characteristics, opportunities,barriers to growth, and challenges in theUKs designer ashion sector?

2. What innovative and sustainable businesscategories have emerged in the industry?

3. What are the eatures o the our keyrelationships we have identied withretailers; with intermediaries (e.g. PR,sales agents, stylists); with investors; withmanuacturers?

These questions were investigated through aqualitative, interview-based study ocused onwomens wear in the high-end luxury sectoro the market. The sample was split betweenUK-based designer businesses that havebeen trading or three to ve years and thosetrading or more than ve years, irrespective otheir marketing channels (catwalk, trade airs,private showrooms or sales agents). Start-upswho have been trading or two years or ewerwere excluded as they are less likely to haveestablished the relationships and businesscategories in which we are interested. Non-UKbased designers were also excluded rom thestudy. Future research to provide internationalcomparisons would be useul.

The research sample ocuses predominantlyon designers who operate as wholesale

businesses and whose operations typicallyinclude research and development, design,prototype development, marketing, salesand wholesale distribution activities. We alsointerviewed businesses critical to the industryssuccess: manuacturers, retailers, investors andintermediaries including PR, sales and licensingagents.

The sample refects the geography o thesector: 81.5 per cent o respondents werebased in London. Although the rest o the

research was conducted in the North Westo England and Scotland, regional designerbusinesses oten gravitate towards Londonater two or three years in business. Even thosethat remain in the regions turn to London orsales and PR activities.

A database o 80 companies meeting theresearch criteria was assembled throughinternet searches o London Fashion Weekexhibitors and through recommendations romPR and sales agents specialising in this market.In-depth interviews were conducted with atotal o 52 businesses, ace-to-ace and/or bytelephone (see Appendix 2). Identities havebeen anonymised where requested.

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Region Total Sample Designers Manuacturers Retailers Intermediaries Investors

London 41 20 6 4 7 4Regional 11 7 1 0 3 0

Total sample 52 27 7 4 10 4

Table 1: Sample composition by type and location


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We analysed the data in three stages. First, welooked at the history o the designer businessesto understand how they were ounded anddeveloped, and which particular innovativepractices contributed to their survival. Then,we ocused on relationships between designersand manuacturers, retailers and intermediaries,

paying particular attention to the respondentsperceptions o opportunities, challenges andinnovative practices in the industry.

Finally, we went back to several respondentsto pursue emergent themes and to gainmore detailed insight into emerging businesscategories. We held monthly meetings andworkshops with key industry insiders andSteering Committee members (listed inAppendix 3). During these workshops, wepresented emerging themes and ndings tothe participants in order to urther validate,

rene and analyse the ndings, and to steersubsequent research.


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Part 3: Key designer business relationships

This section uses our research data to explorethe relationships that designer businesses orm

with investors, manuacturers, retailers andintermediaries to support growth. We discussthe dynamics o these relationships, how theyare ormed, what tensions and barriers togrowth may exist, as well as an assessment owhere the relationships oer added value tothe designer companies.

3.1 Designer relationships withinvestors and nanciers

Designer businesses o all sizes ace barriersin obtaining unding. The unding gap orUK entrepreneurs has been well documented(Storey, 2000) and stems initially rom theirhigh level o intangible assets (Stiglitz andWeiss, 1981). The value o designer ashionproducts is concentrated in the design andthe brand, and in the head o the ounderdesigner. Protection o design is dicult,i not impossible, or both micro and smallcompanies; even ater a brand has establisheditsel, the design label only aords someprotection. Consequently, investors ace aparticularly high level o risk. Innovationnance or ashion is deterred by thediculties o collecting investment returnsrom the highly visual inormation-intensivegoods epitomised by high-end ashion. Andashion designer businesses like high-techentrepreneurs may demonstrate a limitedability to translate innovative designs intosustainable businesses. A lack o ormalorganisational and managerial competencedeters potential investors.

Nonetheless, designer businesses have apotential advantage over other investments.

Many investors perceive an element o glamourin being involved in a designer business,

compared to other investment, endorsementand licensing opportunities. Three investorstold us they invested in a label becauseashion is cool, dierent, exciting, and moreglamorous. However, investors rom non-traditional backgrounds can put the designerat a disadvantage, since growing a businessrequires good strategic management and newnetworks as well as money.

Many designers are satised with remainingas small businesses and have no ambitions

to scale up. However, or those that aim atgrowth, the decision to accept external nanceis one o the most important they will make.Many start-up labels can generate some marketpresence with their own money, or riends andamily unding, but a signicant level o capitalis required to jump rapidly rom a micro/small rm to a medium size enterprise. Ourinterviews, however, revealed a general lacko unding or designer businesses, alongsidea lack o awareness about existing undingoptions. This diers rom other comparablesectors where public support schemes6 aidearly-stage development and training ingoing through a unding due diligence.Because the designer ashion sector has onlyrecently attracted government interest, it hasno comparable programmes. Identiying adesigner businesss unding needs, developinga und-raising strategy and engaging withinvestors are key stages in the growth o theashion venture; these need to be tailored to itsbusiness category.

The research identied three main examples o

groups o investors/nanciers attracted to thedesigner ashion sector, as set out in Table 12.

6. Such as the Departmentor Business Enterpriseand Regulatory Reorm(BERR), R&D Grants andProo o Concept awards, orbusiness angel co-investmentprogrammes, includingNESTAs support or high-techentrepreneurs.


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Emotional investors

A striking nding o the research is that

emotional investment by amily or riendso the designer constituted the majority ocapital available to our case study designers:investors were predominantly in the riends,amily and ools category rather thanconventional business angels and venturecapitalists. One respondent, or example,emphasised that despite the unprotabilityo the label they had invested in, they couldnot get rid o it, because Mr. X (the investor)kind o bought it or his daughter, who, a long

time ago, thought she might want to become

a designer(Investor 3). Similarly, anotherinvestor supported a ashion label because oits glamour and coolness, and because shejust likes it(Investor 4).

Such inormal investors usually lack extensiveknowledge and expertise in the ashionindustry, and although they may be able toprovide designers with management andorganisational support, they are unlikely toknow how to access retailers, important tradeairs or manuacturers. For instance, whileInvestor 3 helped to manage the company, hedid not know how to sell the brand.

Strategic investments

Strategic investment typically involves equityinvestors, business angels or venture capitalistswho share ownership with the designer, withthe aim o generating a decent prot. Inaddition to cash fow assistance, these investorsalso provide management and expertise thathelp advance the ashion label. Seven o thedesigners interviewed had strategic investorsin their business. All the strategic investors

interviewed were involved in the managementstructure o the company, instead o simplyproviding cash to the designer.

Venture capitalists look or companies withat least the potential or very high growth.

Fashion brands were not traditionallyconsidered by these investors: they are seenas high risk, and not suciently protable.This perception has been changing in the lastew years, with some investors adding ashionbrands to their portolios.

Debt nance arrangements

By contrast, debt nance providers are usuallynot involved in a designers business decisionsand are unlikely to provide management orbusiness advice. Debt nancing is usually

generated through banks or insurancecompanies, and is mostly used by Solo,Designer with Partner and Creative Partnershipdesigners, usually in the early stages o thebrand. However we also ound examples omanuacturers and other suppliers providingshort-term debt unding by extendingavourable supply terms.

Investor relationship issues

Investment is considered risky because theailure rate among start-up companies is high.Unless the designer has got his or her businessingredients absolutely right (signature,stockist prole and support network), and thisis a brand with clear potential, the businessis unlikely to attract the investors it needs togrow.

We have absolutely no idea how you go

about getting investors.

Moreover there is a signicant lack o

inormation available to both designer and

potential investor: designers have little

understanding o external investment, othe investors role and o the reasons or

giving up an equity stake. There is also

Emotional investors

Strategic investors

Debt nanciers

Family or riend investors

Private investors who invest in luxury, ashion, and liestyle because they loveashion

Investment consultants who are also private investors

Large brands who invest and bring access to manuacturingManuacturing groups who invest in a designer or credibility and access to designcapabilities

Invoice actoring schemes available through banks

Small rms loan schemes (bank and DTI co-secured)

Insurance schemes

Table 2: Main groupings o investors in the Designer Fashion Economy


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a lack o awareness about the unding

options available.(Designer 18)

Similarly, investment in ashion requiresparticular skills in managing branddevelopment and sales and marketing, as wellas a good knowledge o the industry.

I a designer comes to me with a good

business manager, somebody thats helping

him write his plan, manage his business,

hes got my attention. Investors look at

brands and PRs build brands as long as

the product stands up, so strong value

relationships with an investor and a PR are

a good combination.(Investor 4)

Investors in our study claimed that designersdo not want to give equity in return orinvestment, even i their company is worthlesson paper. I investment promises to make orbreak the business, investors eel that the sharebalance should refect both the investmentand the shared responsibility o driving thebusiness orward. Designers nd this hard toaccept. They tend to be emotionally unable toapproach investment as a business opportunity.Designers see their business as very personal

although some eventually recognise the needor investment to expand.

Investment needs to be longer-term thanis typical with venture capital. Guccisinvestments in Stella McCartney and Alexander

McQueen suggest that it takes ve years onancial support beore companies return aprot. Ater that, the potential to scale up canbe enormous, but ashion is not suitable orinvestors with a two to three-year exit strategy.Indeed that could de-stabilise the business. Itneeds a longer term engagement to benetboth parties.

Our interviews with investors showed thatmost private equity rms will not look atinvestments o less than 20 million. Otherwisethey expect little return. Some investors mayoperate around 5-10 million, but intervieweesthought that smaller capital is hardest to raise:it is harder to nd 100,000 200,000 thanseveral million pounds.

3.2 Designer relationships withmanuacturers and value to business

Despite the importance o the relationshipbetween designer and manuacturer,

manuacturers are seen as outsiders by thedesigners creative (and commercial) networks.Other designers, opinion ormers, the press,

Awareness

Investment has a badreputation

Dont want intererencerom an investor

Reluctance

Greed

Too early

Risk

ValuationUnder-estimated

Inrastructure

Return on Investment

Lack o awareness o what investment is and how to get it

Every designer knows someone who has had a bad investment experience

Designers reluctant to accept intererence, despite acknowledged lack o strategicand management expertise

Reluctance to give up equity in the brand, as designers are emotionally attached totheir name

Perception that investors want too much equity

Some designers accept emotional investment too early on, because its easy

Perception that ashion is high risk

Dicult to value a brand; no xed assetsDesigners underestimate value o investment needed

Investors will not invest in a single person without business inrastructure

Investors are generally looking or a return over a 2-3 year period (but it needscloser to 7-8 years)

Table 3: Key points about investment the designers viewpoint

Table 4: Key points about investment the investors viewpoint


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stylists, PR agents, sales agents and retailersrarely see manuacturers as partners. So,manuacturing is one o the rst unctionsthat a micro business is likely to delegate to anew ull-time member o sta (either a studiomanager or production manager). Designersgenerally view manuacturing relationships as

problematic and tense, particularly those inmicro businesses. Manuacturers and designerswere critical o each other: there is a mismatchin expectations, lack o understanding o eachothers business operations, workfow, andnancial restrictions.

Everybody wants their clothes made at the

same time and so trying to accommodate

that and you know, grow the business

organically the rest o the year, can be

dicult to balance.(Company 2)

Moreover, many designers production timingsare currently polarised within the two-seasonmodel, compounding pressures within both the

designers and manuacturers operations: theproduction window is extremely condensed,and capacity is stretched to the limit. This canresult in some manuacturers dropping smallorders, in quality issues and late delivery.

A list o the challenges presented by designersand manuacturers is given in the ollowingtables:

On-time delivery

Perceived quality

High cost

Payment terms

SurchargesPoor marketing

Disconnected rom theashion industry

Lack o specialist skills

Lack o investment ontechnology

Services

Supply o raw materials

Lack o loyalty

Language

Small order values

90 per cent o designers named this the biggest challenge in dealing withmanuacturers. Two designers mentioned that they could rely on the timing odelivery o UK manuacturers

One o the most cited problems. Designers who use manuacturing in severaldierent countries, report problems o quality only with UK

UK perceived as high cost manuacturing; many designers preer other European orAsian locations or manuacturing

Most designers are expected to pay cash on delivery (COD) which is dicult ortheir cash fow

Surcharges are made on small quantities which make clothes more expensiveDesigners nd it hard to identiy high quality local manuacturers

One designer acknowledged that the Turkish and Italian manuacturers were betterthan UK manuacturers at marketing themselves to the UK

Manuacturers seen as the outsiders in the ashion industry. They are not in thenetwork o the ashion designers, retailers and intermediaries

UK is seen to lack specialist skills, whereas designers report that other countriessuch as India, Italy and France have competitive advantage

In the UK there is little evident training or sta (except one manuacturerinterviewed)

Hired sta oten have poor spoken English language skills

Signicant lack o investment in technology among UK manuacturers, who citelack o unding and cash as the main reason

Lack o high level skilled sta

Manuacturers rarely oer grading, sourcing o buttons, trims etc, provision odistribution services

Designers are generally responsible or supplying abrics, trims and raw materials.They are generally ordered rom Europe and delivered late, thus playing havocwith dates o delivery

Designers have diculty in sourcing abric; because o this designers are requiredto attend trade airs and to identiy agents

Manuacturers push designers small orders to back o production queue i a largeorder comes in

Can be a problem when dealing with overseas manuacturers

Not cost eective. New designers cannot aord to reuse even very small orders

Table 5: Key designer/manuacturer relationship challenges the designers viewpoint


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17

On the other hand, manuacturers also noted diculties and challenges in their sector:

Designers have infatedexpectations

Lack o knowledge

Small order values

Sampling

Poor organisational skills


Lack o internationalopportunities

Overseas manuacturers

Payment

Lack o governmentsupport

Sampling

Poor organisational skills


Lack o internationalopportunities

Overseas manuacturers

Payment

Lack o governmentsupport

Most designers not aware o how manuacturing process works, and haveunreasonable expectations o the nal product

Designers lack necessary knowledge and technical background or constructing a

garment

Poor communication with manuacturer i designers not amiliar with technicalprocesses

Last minute orders, with no clear specications

Not cost eective. New designers cannot aord to reuse even very small orders

Several manuacturers were critical o designers doing sampling in-house andbasing wholesale prices on their estimated costings, beore getting a manuacturerto conrm a price

Designers sometimes do costings ater they have been selling

Designers oten late delivering abrics to the manuacturers, which impacts onability to meet delivery deadlines

Evident lack o structured network to bring together manuacturers and designers,although 50 per cent o manuacturers interviewed attended Fashion Expo andFashion Capital hosted database, and noted benets (new clients; understandingo designer ashion sector)

50 per cent o manuacturers interviewed said they would like to do work ordesigners rom US, France as well as UK and could see opportunities, but lackedmarketing capabilities

Can be communication problems

Do not accept small orders

Concerns expressed over IP

Manuacturer asks or payment in advance, or cash on delivery

Surcharges imposed or small orders.

Manuacturers reported lack o unding, and thereore, inability to hire and trainskilled sta and to invest in technology

Several manuacturers were critical o designers doing sampling in-house andbasing wholesale prices on their estimated costings, beore getting a manuacturerto conrm a price

Designers sometimes do costings ater they have been selling

Designers oten late delivering abrics to the manuacturers, which impacts onability to meet delivery deadlines

Evident lack o structured network to bring together manuacturers and designers,although 50 per cent o manuacturers interviewed attended Fashion Expo and

Fashion Capital hosted database, and noted benets (new clients; understandingo designer ashion sector)

50 per cent o manuacturers interviewed said they would like to do work ordesigners rom US, France as well as UK and could see opportunities, but lackedmarketing capabilities

Can be communication problems

Do not accept small orders

Concerns expressed over IP

Manuacturer asks or payment in advance, or cash on delivery

Surcharges imposed or small orders.

Manuacturers reported lack o unding, and thereore inability to hire and trainskilled sta and to invest in technology

Table 6: Key designer/manuacturer relationship challenges the manuacturers viewpoint


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3.2.1 Internationalisation o manuacturing

Our research indicates that designer businesseshave a highly internationalised manuacturingbase: the majority o designers in our studymanuacture in more than one country (seeFigure 1). Strikingly, only 34 per cent orespondents have a manuacturing relationshipwith only one country; while close to 40 percent have manuacturing relationships in morethan three countries. The research indicatesthat this is a highly global industry, even ormicro designer businesses.

Figure 2 shows the key countries where our

interviewees had their products made. Twenty-two out o the 26 respondents worked with aUK manuacturer: such links tended towardssampling and small volume production. TheUK manuacturers interviewed say they oermicro businesses an agile supply chain, andprovide valuable (although costly) advisorysupport to designers who are not competentin communicating sampling/productioninstructions.

8

Figure 1: Internationalisation o Respondents Manuacturing Base

Figure 2: Key Countries o Manuacturing or Interviewed Designers

One country 34%

Two countries 27%

Four countries 12%

Three countries 27%

UK

Ital

y

Chin

a

Franc

e

Portuga

l

Indi

a

Turke

y

Polan

d

Thailan

d

26

24

22

20

18

16

14Number of

Observations

Number of Designers with relationship in

12

10

8

6

4

2

0


19/60

While many designers work with Chinese andIndian manuacturers, European countriessuch as Poland, Portugal and Turkey wereas requently cited as India and China takentogether. This challenges the prevailing viewthat the latter countries are the dominantoutsourcing destinations.

Creative Partnerships appear to be the leastinternationalised o the business categories,with their manuacturing concentrated in theUK, Italy and France. This pattern refectstheir ocus on low-volume, high-quality nichemarketed product: respondents in this categoryemphasised their greater ocus on the UKmarket, their reliance on London Fashion Weekrather than the other international shows,and their concentration on the high-end UKniche markets as sales outlets. Neither theproduction volume nor the cost benets would

justiy the investment necessary to developmanuacturer relationships in India, China orother high-volume manuacturing destinations.

3.3 Designer relationships with retailand new routes to market

The designer businesses covered by this studyare predominantly wholesale businesses thatgenerate revenues largely through domestic

and international sales to key boutiques andstores.

Wholesale

Sales agent relationships are crucial inincreasing stockists, particularly outside the

UK. Eighty-one per cent o the respondentsindicated that their ready-to-wear is stockedboth within and outside the UK. Thereis signicant variation between businesscategories. The Designer and Business Partnerand Partnership with Investor categorieseach have twice the number o stockists as

other individual categories. These types obusiness tend to have greater management andorganisational capabilities, and more intensiveuse o marketing channels (they oten havetheir own store and sales agent). Greatermarket presence underpins the strong revenuedata that we saw earlier.

Securing stockists early is a huge hurdle.Designer labels oten hold back in the hopeo being picked up by key stores (like Colletteand Maria Louisa in Paris, or 10 Corso Comoin Milan) which will quickly enhance the

designers credibility. Interviewees regarded theLondon and Milan trade airs as unimportantor sales: Paris and New York are where ordersare placed. Designers tend to sell through tradeairs, but London Fashion Week is squeezedbetween New York and Milan Fashion Weekswhich means sales opportunities are beingmissed.

Once a new label is in a department store orboutique, the relationship requires open andconstant communication: the more monitoring

and communication, the better the sales.New labels are usually carried or at least threeseasons, with retailers who want the newlabel to become a success, because i they do,then we do as well. Retailers are hungry ornew, resh and changing labels. This keeps

19

Access is dicult

Selective

Adjacencies

Support rom retail

Retail networks

Selling skills

Payment terms

SOR (sale or return)

E-tail

There are now so many trade airs. There are over 150 private showrooms and

trade airs at Paris Fashion Week. With negligible sales in LondonDesigners are very choosy about the early stores they sell to, as they begin tobuild their brand. This might be to the detriment o sales

Designers are very concerned about what labels they hang alongside in-store

Emerging designers strongly value the sponsorship and l icensing collaborationsoered via High Street stores

Can oer designers new networks such as to manuacturer

Designers generally do not eel comortable undertaking sales activities themselves

Are extremely challenging or a micro business Italians expect 90 days credit

For the US you have to quote landed prices, which are more dicult to cost

Despite crippling cash-fow problems, designers still accept SOR terms in order toposition their brand in key stores

Steering Committee discussion groups highlighted the need or all designerbusinesses to develop their own e-tail stores, no matter how small initially

Table 7: Key points that designers make about retailers


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the retailer abreast o new ashion, and evenhelps them borrow rom the identity o thenew designer label: We carry X designer, sowe must be OK. Collaborative work betweendesigners and retailers, such as store window

promotions or special collections strengthenthis relationship and support or the designerthrough publicity and press events. Allretailers try to educate their customers aboutthe brands they carry, by training their staabout their products and arranging personalappearances by designers, as well as talk-insto sta and trunk shows.

Breaking the two-season per year mould

The dominance o US retail in the sectorbecame apparent throughout the interviews.

The American buying pattern is aecting thesmall and medium sized designer businesseswhich are now developing up to ve annualcollections to meet the US appetite or newproducts. Their buying pattern is mirroredby many major department stores across theglobe, and we ound key boutiques are alsostarting to ollow this trend. Buying pre-collection is making news. Selridges had itsHalston Autumn/Winter 2008 pre-collectiondelivered in June 2008, and reported that itwas selling out ast. On the rst day individualcustomers were spending up to 4,500 to bethe rst to wear the re-launched label.7

Product innovation by adding morecollections each year is a signicant trend andmarket opportunity. However, research anddevelopment activity or each o the ashioncalendars two seasons is already extremelycompacted or micro designer businesses.These businesses usually operate with smallteams and they do not have the brandpresence, inrastructure or cash fow to expandinto more collections on their own. However,

not embracing this opportunity means losingpotential revenues, as well as not providingsucient business to local manuacturers who

need a less compacted production workfow.In our study, none o the Creative Partnershipsinterviewed were doing pre-collections or morethan two collections a year.

Consultancy and collaborationsAn important source o revenue or microand small designer business categories isconsultancy collaborative and creativeprojects between young and talented designerlabels and established retail chains, suchas H&M, New Look and Gap. TopShop andDebenhams were oten quoted. Most designersviewed this as brand endorsement and crucialto their cash fow. Exceptionally, the retailermight sponsor the designers ashion showsin return or developing a capsule collection

or the retailer. Recent and well knowncollaborations include TopShop with labelsincluding Richard Nicoll, Marios Schwab andAlice McCall; H&M and Stella McCartney;New Look and Giles; Mango and OsmanYousezada, Jean Pierre Braganza and others.This type o collaboration has the advantage ointroducing new and emerging designer labelsto a ashion-conscious mass consumer market,while providing the retailer with much neededashion edge and creative fair.

Flagship stores

We love having our own store. It is us. It is

our story, and customers come there to have

un, not just shop. It is our playground.

(Designer 1)

Thirty-eight percent o the designers who hadtheir own fagship stores were small to mediumsize businesses. They reported benets notonly to brand prole but also to being in touchwith their customers and understanding howthey respond to the designs.

0

Opinion ormers matter

Supportive

Exclusivity

Test marketingNewness

Delivery

E-tail

They listen to the honest opinions o key journalists and commentators

They want to support emerging designers

I they support emerging designers, many will expect exclusivity or a certainperiod o time

They will aim to stock the emerging designers or at least three seasonsThey want designers to produce more collections every season

They are very critical o designers ability to delivery on-time

Retail is very excited by online shopping

Table 8: Key points that retailers make about designers

7. See www.vogue.com, 17 June2008.


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Online retail or e-tail

We have our own shop on the website and

it is a really ascinating thing to see what

people like and what people go ora

buyer might buy one thing, the press might

go or something completely dierent and

actually a customer might go or somethingcompletely dierent(Company 19)

Online retailing is a relatively new andimportant direct sales route to reach thecustomer. Nineteen per cent o designershave their own online sales capabilities andthe benet o better margins; 52 per cent othem sell online, either directly or through athird party by wholesaling to an online retailer.Online retailers can access better customerinormation to gain a better understanding owhat they want: several designers noted how

they sold particular styles online that havebeen ignored by store buyers.

According to the Luxury Institute (a NewYork-based research rm) 99 per cent othe target customers o new ashion brandsshop online. Many websites now cater to thismarket. Two retailers interviewed are aboutto launch their online stores: We will be ableto better see what sells and what doesnt

and it is an area or huge growth, with huge

potential.Thereore, it is not just about

getting more customers to buy more products,but also about capturing valuable inormationabout their shopping habits and preerences.According to an online retailer, customers areopen to new items that you cannot normallynd in stores, especially i they are limitededition or only available rom the onlineretailer. This is particularly true o young

labels not readily available across all storesand regions. The interest seems to be evenhigher i there has been press coverage o adesigner without a fagship store, or without adepartment store presence.

Three o the designers we interviewed use

online blogs, but most elt it was not relevantas a business development or sales andmarketing tool, although it could be usedto generate trac to their websites andonline stores. This remains a huge potentialopportunity to develop brands and increasesales. But it appears considerably under-capitalised.

Trade airs

I think London is great or publicity or

press exposure and introducing what you do

to people, but I think in terms o selling itis mainly something that happens in Paris.

(Designer 4)

One key nding relates to how the traditionaltwo-season ashion sales calendar is changing.Our analysis indicates that international storesspend 60-80 per cent o their budget aheado attending trade airs; this pattern is nowbeing mirrored by some leading independentboutiques. As we have seen, this has led to pre-seasonal collections becoming more common,

with buyers oten expecting designers toproduce ve new collections a year. Whilethe typical trade air cannot accommodate somany collections, they remain one o the mostestablished and accepted ways to sell in theashion industry: every ashion capital has oneand they oer important access to buyers andthe press.

21

Figure 3: Trade airs used by respondents

London 36%

Berlin 2%

Paris 42%

Milan 9%

New York 5%

Barcelona 2%

Denmark 2%


22/60

Figure 3 shows that the key trade airs ordesigners are London, Paris, Milan and NewYork. Only one o the respondents in oursample does not use any trade airs and 78per cent said Paris and London were the mostimportant, with Paris seen as the place to sell:Paris is or selling, London is or press, was

the view o designers, a statement supportedby the main retailers and buyers.

Our study reveals several reasons why salesare higher in Paris.8 All the big internationalretailers go to Paris. Buyers typically decide topurchase in Paris ater taking time to view allthe collections in New York, London and Milan.A womens wear buyer suggested that Londonis usually where the latest trend and talentis showcased, where the buyers can see nextseasons trends, beore fying to Paris to buyaccording to the trends showcased in London.

So, while London is not seen as a placeto sell, it is very infuential in introducingdesigners, setting the ashion trends, andintroducing new ideas and styles to the ashionindustry. Thirty-nine per cent o businessesinterviewed hold ashion shows during LondonFashion Week; these are all micro or smalldesign businesses. London can be pivotalin building emerging designer brands andintroducing their collections to key opinionormers and press, however there are also

ashion designers who preer to show in theirown showrooms and not at the main exhibition.

They may not always be seen in the press, butthey have built strong businesses.

3.4 Designer relationships withintermediaries

Intermediaries such as PR agents, licensingagents, sales agents and distributors areintegral to most designer businesses,particularly in communicating the brand to nalcustomers and securing access to the retailers.Our data shows use o a reasonable range omarketing channels (see Figure 4), thoughblogging is underdeveloped and the highrequency o website use is undercut by therudimentary character o many o these sites.

Three main issues in relationships with

intermediaries emerge rom the research.

First, the importance o building a story astrategic brand identity around a label guidesthe use o intermediaries. Designers otenthink only o making beautiul products, butintermediaries argue that a consistent andrelevant story is the rst step in building thebrand and securing consumer receptiveness.

Second, hiring a PR or communicationscompany is not always eective or sales

during the early days. Several leading PRagencies pointed out that stories they placed

2

Figure 4: Marketing strategy used: overall

Sponsorship

Celebrity

Blog

WebsiteP

R

E-tailing

100

90

80

70

60

50

40

Percentage

30

20

10

0

8. Based on evidence rom andinterviews with buyers romkey UK department stores.


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in the press could not translate into sales ithe product was not available in the stores.Our data points to the need to prioritise sales,using either an online or retailer presence tomaximise press coverage.

I think it is a real mistake when PR is the

rst thing you invest in with brands andespecially with new designer brands... I

they concentrate on production, on delivery,

and nurturing relationships with retailers,

once they have got those three things

accomplished, then they are in a much

better position to be able to take advantage

o the benets that PR brings.(PR Agent2)

Third, the right t between designerand intermediary is important. Designersusually rely on word-o-mouth or personal

recommendations to choose intermediaries,but these relationships should be careullyresearched:

We had a case where we had to stop

working with a designer. It was just very

wrong or usThey should do their

homework beore they approach us. We are

not right or everyone.(PR Agent 3)

3.5 Designer relationships with otherinfuencers and value to business

Other infuencers aesthetic serviceproviders, opinion ormers, network supportgroups and organisations were not originallypart o the research but their importance todesigner businesses emerged in interviews:they connect designer businesses to new routesto market.

Aesthetic service providers, such as stylists,models and photographers, are key togaining access to retailers and press and orthe exchange o inormation. Stylists areparticularly important or:

Editorial work or ashion media.

Editorial exposure/coverage o the designerlabel.

Developing private client portolios.

Advertising campaigns and/or catalogues.

Potential entry and access to retailers.

Evidence rom this study illustrates theimportance o close relationships betweendesigners and stylists who have a high degreeo autonomy and power in deciding whichclothes will be exposed in editorial coverage. Asone designer explained:

A riend o ours, who works or MTV andall these musicians, got Beyonc to carry

our bag, and it was uncontrollable ater

thatWe had to work day and night to

meet the orders, and we were getting non-

stop requests rom our website.(Designer12)

Another designer says:

Patty Wilson, a stylist who works or Italian

Vogue, used a lot o our pieces, and that

was really helpul or our brand.(Designer

21)

A managing director notes:

Many times the stylist would decide

which brand to eature in an editorial,

and o course, they are more likely to

pick someone i they are riends with the

designer, or i they know him well Not

always, but it happens a lot.(Designer 16)

Opinion ormers are well-known and respected

ashion authorities in the industry: editors,ashion critics or writers who set the tone ortrends, identiy the latest designer, or indicateup-and-coming young brands.

In the UK, these gures include Sunday Timesjournalist Colin McDowell, Sarah Mower andthe Daily Telegraphs Hilary Alexander. As onedesigner business put it:

We would not be here today i it was

not or people like Fashion Fringe, Colin

McDowell, The Sunday Times, Sarah

Mower, that ...denitely has been huge or

our success.(Designer 15)

Opinion ormers are seen as honest andtruthul by the retailers who rely on theseinfuential authorities or inormation onupcoming designers and their collections.Designers agree: the honesty o opinionormers is very helpul or the success o theirbusiness, especially when they lack resourcesor PR and advertising.

All these infuencers are important storytellers,playing a key and independent role in buildingashion brands and acting as brokers to helpretail relationships.

23


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Part 4: Key business categories in the UKs Designer

Fashion Economy

Itsvery DIY in the UK, its very much

about people really having to have a

passion or what they want to do, to kindo get it going and I think thats very

admirable and it still exists in the UK,

whereas it becomes much more corporate in

Italy or Americaand Paris even; it is much

more about a brand and selling, whereas

here its about a good idea, hopeully it is

still about that.(Designer 1)

There is nothing that can train you or the(whole business operation) experience.

(Designer 24)

Throughout our research, we ound thatdesigner ashion businesses ollow an intuitiveapproach to their structure and managementpractices, resulting in some highly individualand non-conormist ways o doing business.The needs o the business oten change overtime, during which they develop dierent

relationships with retailers, manuacturers,intermediaries and investors. We were,

however, able to identiy seven dierentbusiness categories o designer ashionbusiness. Dierent categories occur morerequently at specic scales o operation. Asenterprises reach higher stages o growth anddevelopment, they oten change as a meanso overcoming challenges and barriers togrowth. So a business that was once a CreativePartnership or small Solo enterprise mightevolve into a ormal partnership with a specicmanuacturer or investor. This section presentsour typology o designer businesses and an

analysis o the advantages and challenges thatcharacterise each o them.

Further research would be valuable in exploringhow (or indeed i) any o these businessesprioritise the drive or competitiveness,innovation and growth.

4

Figure 5: Designer Fashion Economy Respondents Composition

Solo

Creative Partnership

ArtisanPartnership with Investor

Designer and Manufacturer Group

Designer and Licensing Partner

Designer and Business Partner


25/60

4.1 Business categories

The seven business categories we identiedthrough the research are:

1. Artisan

2. Creative Partnership

3. Solo

4. Designer and Business Partner

5. Designer and Licensing Partner

6. Designer and Manuacturer

7. Partnership with Investor

Please reer to Appendix 6 or detailed casestudies o each business category. Figure 5indicates the number o businesses in thesample operating according to each category.

These categories are typically present atdierent stages o a businesss growth, asillustrated in Figure 6. Following the Centreor Fashion Enterprises (CFE) business scale

classications (see Table 2), we also breakthem down between micro, small and mediumbusinesses (see Appendix 5). A micro businessis dened as one with a turnover below250,000; a small business rom 250,000-2 million; and a medium business between2 and 8 million. These business scaleclassications have been made by CFE usingbusinesses cash fow data rom CompaniesHouse, nancial statistics rom the nationalpress and dialogue with investors. Our purposein such categorisation and classication is to

identiy where nancial intervention is mostneeded to stimulate growth and capitaliseopportunity. More detailed descriptions oeach classication can be ound inAppendices 4 and 5.

25

Figure 6: Designer Fashion Business Category Progression

Creative Partnership

Designer with

Licensing Partner

Artisan

Medium

Designer and

Business Partner

Designer andBusiness Partner

Solo

Designer and

Manufacturer

Partnershipwith Investor

Micro

250k

Small

2m

8m

Classication Annual turnover

Superbrand Up to 2 billion plus p.a.

Designer brand Up to 1 billion p.a.

Large Up to 249 million p.a.

Medium Up to 8 million p.a.

Small Up to 2 million p.a.

Micro (including start-up) Up to 250k p.a.

Table 9: CFE designer ashion business classications (simplied)


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4.2 Micro business categories

Micro businesses all into three maincategories: Solo, Artisan and CreativePartnerships. The Artisans main motivation isaesthetic rather than commercial; the CreativePartnership involves two creative people

choosing to set up a business together; and theSolo designer is ocused on growth, typicallyemploying only one other person. We describethe specic eatures o individual categorieslater in this section.

In establishing themselves, micro businessesace signicant marketing overheadsdisproportionate to their early turnover. In theirrst ew seasons, they might be able to benetrom the sponsorship or licensing platormsthat High Street stores and well known brandsare increasingly extending to support new

designers. But once they have outgrown theirnovelty, this support is likely to disappear. Theyneed then to develop independent strength asa brand.

Typical eatures o micro businesses mentionedby respondents include:

Use o reelance sta and student interns tocover stang gaps.

Cash poverty: 25 per cent had revenue

streams rom consultancy (all o these wereCreative Partnerships).

Lack o resources to register namesand trademarks (in the UK or globally);lack o resources to contest a copyrightinringement.

Majority o micro business designers teachashion design in colleges to supplementtheir incomes.

Some Artisan businesses in our sample havechosen to trade or ten years or more withoutincreasing in size. Nonetheless, where microdesigner businesses try to grow into a smallbusiness, they ace common issues, as ollows.

Manuacturing

Cash problems: Initial success with keyretailers leads to accelerating sales, whichin turn makes it necessary to increaseproduction. However, poor communications,

planning and unding oten mean that thecash fow rom sales doesnt match the costso production.

Low margins: Volumes required by micro andsmall businesses are signicantly lower thanthose o larger companies. Micro businessesoten also lack negotiation and designhandover skills. As a result, they are chargedmore by manuacturers.

Limited knowhow: They lack the scale,experience, contacts and capital necessary tocontract high quality manuacturers overseas,let alone establish their own actories incheap labour locations.

Late payments: Respondents cite continualproblems with late payments and quality.

Investment

Emotional investors: Investors in micro

businesses tend to be emotional (amily,riends or ools with limited resources whowant to get into ashion). They generally donot appreciate the time and capital requiredor a ashion business to grow, becomeestablished and generate prot (see Section5.1).

Control ears: Micro designers are reluctantto consider other external investors. BothArtisan and many Solo designers ear thatinvestors will take over their businesses,

leaving them with little control over theirlabel.

Retail

Six month cycle: The very rapid productdevelopment cycle exerts a key pressureon micro businesses. The need to introducenew designs and products every six monthscompounds their operational problems:they have little time to identiy new reliablemanuacturers, solve cash fow issues, orcapture economies o scale. Moreover, eachcollection is make-or-break or a non-established brand.

Catwalk costs: All stage catwalk shows at anaverage cost o 40,000 (including prototypesamples) twice a year. This has to be undedrom an annual turnover o under 250,000,an exceptional marketing spend thatcomes straight o their bottom line, unlesssponsorship is secured.

Growing demands: Compounding thisproblem is the growing propensity or major

6


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27

Relationships with:

Manuacturers

Investors

Retailers

Opinion ormers

PR

Sales agents

Stylists

Key eatures

Poor experience o manuacturing

Poor communication and brieng to

manuacturers leads to poor understanding

Solo designers and Artisans are reluctantto consider any investment or preerinvestment rom amily and riends

However, Solo designers can sometimesgive a large stake in their businesses or a

relatively small sumCreative Partnerships are more receptiveto other partners and investors to growtheir brand

They are all attractive to top retailerslooking or new names

Artisans tend to have limited stockists, butoten inspire copycats

Solo designers are less selective, as theywant early growth

Creative Partnerships oten rely on salesagents

Artisans are the most inspirational orpress and opinion ormers

Creative Partnerships have well developedrelationships with intermediaries

Solo designers hope to get star presstreatment as emerging names, particularlyin London

Press interested in resh talent and lookingor unique angle

Artisans and Solo designers generally havetheir own PR person, whereas CreativePartnerships rely more on agencies

Creative Partnerships and Solo designersaim to have a sales agent in the UK,whereas Artisans dont tend to use salesagents

Solo and Artisan Designers are generallyconnected with a particular stylist at thisstage, whereas Creative Partnerships arenot

Solo and Artisan Designers are attractiveto stylists who are interested in workingwith unique talents

Key challenges

Late deliveries

Insucient experience and communication

problemsHigh costs as designers have to paysurcharges to get small volumes produced

Dependent on one or very ewmanuacturers

Paying or production beore the retailerspay

Businesses not attractive to corporateor venture investors due to risks oinexperienced business and diculty invaluing the brand

Buyers not coming to London to buy whilemany designers at this stage cannot aordto show in Paris

Artisans are wary o consultancy, as theysee it devaluing the brand

They also lack experience and capital tocontrol their deliveries to the stores. Itis oten luck rather than judgement i itworks well

Solo designers are unsure about how tomanage retailer relationships or how toeducate them about their products

Solo and Artisan designers can be ocusedon press and events to attract the press;but this does not always translate intosales growth

Creative Partnerships are not as good atnetworking

However, PR companies warn that adesigner should concentrate on their

product and getting stockists beore theytake on PR

Where agencies are used, they charge 10-15 per cent o sales, which designers mustrefect in their costing strategies i they areto make money

Artisans nd it dicult to entrust theircollection to a sales agent

Creative Partnerships and Solo designersmay have diculty gaining access to theright stylist or network because o theirsel-suciency

Table 10: Common eatures o micro businesses and dierences between them


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international buyers to demand up to vecollections per annum.

We now consider in more detail thecharacteristics o the Artisan, Solo and CreativePartnership ashion design business.

4.2.1 Artisan

I it is just creativity expressed, it is not

really a business, it is more artisan and

artistic. It can infuence the ashion industry,

the media, the press with its notoriety but

very rarely becomes a business.(Designer 2)

The dening eature o Artisan businesses istheir concern with intrinsic goals rather thannancial or market imperatives. Artisan valuestend to be artistic and highly personal, ratherthan commercial. Artisan ashion designers

develop clothes or their aesthetic or emotionalattraction. They build a strong ollowing andare well respected amongst their peers but arevery selective in their business and consumerrelationships.

Artisan designers can be very infuentialopinion ormers and are thereore important tothe ashion industry as a whole. Their speciccontribution is in their individual talent andoriginality, which ashion stylists and magazinesacross the world rely on as a source o new

and resh ideas. These are the designers thatprovide the biggest inspiration or other designlabels, retail copycats and the press.

They (retailers and press) need this kind

o young energy that the designers can

produce, like new ideas all the time, just

like that. The industry really needs it to be

inspired, otherwise it is just commerce.

(Designer 1)

Artisan designers can still be business savvy:two o the Artisan designers in our sampledata had management degrees. They are morelikely than other businesses to have registeredtheir trademark in their areas o operation, ithey have sucient resources. They are waryo entrusting their collection to sales agents,preerring strong personal relationships witha select ew retailers, whom they trust torepresent their brand well to target their corecustomers. The designer may have a dedicatedsmall team, but might take lead responsibilityor creativity, sales and marketing, humanresources, production and other key parts o

the process.

The Artisan designers we interviewed wereless likely than other business categories todevelop relationships with investors, earingloss o control. They worried about unethicalbehaviour by investors, whom they believedwould not respect their aspirations; theywere aware o ellow designers past bad

experiences. All our interviewees had reusedexternal investors looking or resh talent,because they did not trust them.

Artisan designers will become consultants iit ts their own prole and artistic vision. Butthey are araid o jeopardising their credibility,as one o our interviewees stated: you dilutethe brand beore it is even strong, so its like

killing it beore it actually exists. It is veryrare or an Artisan designer to enter intoconsultancy or purely nancial reasons.

4.2.2 Creative PartnershipCreative Partnerships involve two creativepeople choosing to set up a business together,oten immediately ater graduation, or throughworkplace contacts. Creative Partnershipdesigners claimed in our interviews that thisexperience made them much more receptiveto urther collaborations: these partnershipsprogress steadily at the micro business leveland oten attract a business, manuacturer orinvestor partner, allowing them to move quicklyto the small business stage.

Creative Partnerships tend to ocus oncommercially viable creative outputs, ratherthan the more purely artistic endeavours othe Artisan. They have a well developed senseo consultancy and its value to the business;they also rely on sponsorship. Their strongrelationships with intermediaries also allow oreective PR and sales activities.

4.2.3 Solo

The goal o the Solo business category isgrowth. Whereas the Artisan designer is drivenby artistic integrity and creative vision, the Solodesigner aims to establish their brand and makethe transition rom micro to small size business.

Solo designers may only employ one otherperson (oten as an assistant or studiomanager). All other unctions are perormed byreelancers. Solo designers are generally highlymotivated individuals who build relationshipsand drive the business orward with greatenergy. However their inrastructure isgenerally too immature to support the growth

and ambitions o the designer-owner. The Solodesigners interviewed had oten had a previouscareer, a previous Creative Partnership, or a

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licensing tie-up that had allen apart or variousreasons. Solo designers that successully moveon rom the micro-to-small business sizetended to acquire a business partner.

Solo designers talk in terms o long-termbudgeting, continual growth and ocus on

building the range. They are in business tomake a prot. They are aware o the utureneed or investors who will be expectinga return. Solo designers want to have asuccessul ashion business and are lessselective than Artisans in their investors orpartners. This can have a negative impact onthe value o the brand. It can also lead themto give a large stake in their business or arelatively small amount o money. Moreover,they do not know how to develop relationshipswith retailers, or how to teach them about theircompanys brand and design ethos.

4.3 Small business categories

The small businesses in our study mainlyadopted one o three categories: Designerwith Business Partner, Designer with LicensingPartner and Designer and Manuacturer.They tend to employ more than our ull-timemembers o sta and at least our studentinterns. In our sample, 42 per cent o the

small companies had previously been Solobusinesses and 42 per cent had been CreativePartnerships, all o them having teamed upwith business, licensing or manuacturingpartners to progress to the next level. However,there were exceptions: we saw some ormermicro Solo or Creative Partnership businessesthat had grown without adopting one o thesecategories: these two examples grew slowlyand stalled at an annual turnover o around 1million.

Small business retail relationships

Show through an agent or private showroomin London.

Work with one to three sales agents, showat trade airs in Paris and perhaps NewYork; less than hal stage a catwalk show inLondon.

Are involved in small-scale productendorsements or consultancies.

Design or two seasons per year (however,25 per cent also produce a cruise or a pre-collection each season).

29 per cent have their own on-line store;47 per cent have their own shop to showull collection concept and get customer

eedback, rather than or prot.

90 per cent o small businesses hadregistered their trademark in the UK and 15per cent had registered it in more than threeregions internationally.

Investment and management

Small stage businesses are building theircapacity, capabilities, prole and order-book:this requires capital and diligent cash fow

management.

Still too small to attract capital investmentand so they rely on banks. Likely to seek aninvestor when annual turnover rises above500,000.

Wary o giving away their autonomy.

A third o small businesses were engaged inconsultancies or had licensing agreements.Sixty per cent o those with consultancies

also had licensing.

All business categories were similarly inclinedto consultancy and licensing. Intermediariessuggested that these opportunities dependon the perceived strength o the brand;hence brand development needs to be seenas part o business strategy to create newrevenue streams and investments, and attractstockists and consumers.

Manuacturing

Long-term partnerships with manuacturersand licensors are a source o value, expertiseand support.

The Designer and Business Partnercategory involves low value manuacturingrelationships and problems maintainingconsistency in quality. Licensing andmanuacturer partnerships are a way otackling the challenging problem o cashfow, ensuring that businesses are not orced

to reduce production because o delays inpayment by retailers.

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4.3.1 Designer and Business Partner

In this category ound at both the smalland medium stages o business development designers have a business partner at thesmall stage or employ a managing directorat the medium stage. There are several keycharacteristics o this business category:

Strong brand identity and clearly articulatedbrand values.

Long term and consistent value relationshipswith retail, nance, intermediaries andmanuacturers.

The designer is the ace o the company,acting as a brand ambassador in pressevents, and establishing relationships withopinion ormers and intermediaries. Onthe other hand, the partner ocuses on

the management and organisation o theventure.

Smaller designer businesses knew they neededcapital investment but many did not know howto access investors. Our research indicates thatwhile investors are interested in ashion designenterprises, given their promise o growth andstrong brand value, they may be more reluctantto invest because ashion businesses otencant provide high returns quickly.

Manuacturer relationships tend to beproblematic, with problems in maintainingconsistency in quality o production and longterm relationships. Designers particularlycite diculties with delivery and quality,but the evidence rom our research is thatthey are constantly seeking to improvethese relationships and reconsider theirmanuacturing support. The costs o samplinggrow because small business collections havemore styles than micro business collections.Increased orders put increased pressure oncash-fow to und production.

Companies in the Designer and BusinessPartner category tend to have goodrelationships with retailers. They usually workthrough sales agents rather than in-housesales teams, and they sell at international tradeairs. The more established brands will havedeveloped a strong and consistent signaturestyle and design aesthetic. This helps themattract a good level o press support andcoverage, giving them media visibility in theirtarget market and allowing them to grow each

season. The disadvantage is that success canlead to over-distribution, so growth has to becareully managed. Exclusivity is a selling point:

high-end designers dont want to be stocked inmore than one or two A-list stores or boutiquesin any city.

4.3.2 Designer and Licensing Partner

This business category arises when a designeror design duo is spotted by a manuacturing

group or White Knight and then enters intoa contractual agreement with the company.This category oten involves an Italian licensingpartner, so there may be cross-cultural andlanguage issues. Designers are typically paid 10per cent o gross turnover, although anecdotalevidence suggests that designers who are morecondent o their market value can negotiateup to 15 per cent.

The advantage or the designer is that thelicence partner company provides access toextensive manuacturing capabilities, quality

control support, assistance in sourcing andbuying abrics, and managing and unding allsampling and production. Key buyers, who maynot buy rom an emerging designer or ear onon-delivery or poor manuacturing quality,will condently buy a designer brand backed bythe credibility o the licence partner company.Designers with a strong creative textile or printelement to their work benet by avoidinghigh print development costs and concurrentbarriers to embroidery and hand-workexpertise. The designers have greater reedom

to concentrate on creative activities.

We have everything at our disposalits a

dream thing.(Designer 9)

These designers generally retain their ownPR agent to keep control over their brandrepresentation. They are thus better able toestablish their brand and their own names inthe industry and among the general public.This also allows uture expansion outside o thelicensing business category or the opportunityto negotiate a better deal with their licensingpartner.

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