(sigh) more overpriced shit flooding the markets.
From The Wall Street Journal
Some fashion houses bolster lower priced lines
Monday, September 25, 2006
By Christina Passariello, The Wall Street Journal
At their Milan atelier last week, designers Domenico Dolce and Stefano
Gabbana were wrangling over the theme for their D&G fashion show
Monday in Milan. Which backdrop, music and props would render the
spring-summer 2007 collection more "sexy, glamorous and, I hope,
fashionable?" fretted Mr. Gabbana.
Messrs. Dolce and Gabbana have a lot riding on the show.
The design duo have built their top-line Dolce & Gabbana label into
one of the world's hottest and most profitable fashion brands over the
past 20 years. Now they're spending nearly $100 million to try a repeat
performance at the other label they own, the midprice D&G line.
Next year's spring-summer collection will be a key indicator of their
chances. Messrs. Dolce and Gabbana created D&G -- a street-chic
brand of dresses, jeans and the designers' signature tailored jackets
-- in 1993 and immediately licensed off production in order to focus on
the main Dolce & Gabbana line.
Last year, they took back the license from Italian fashion conglomerate
IT Holding SpA in an effort to regain total control of the brand. Among
their plans are trendier styles, lower prices and more D&G
boutiques around the world. From the D&G cruise collection hitting
stores in November: a $1,095 sea-green satin coat with brass buttons, a
$435 flowered dress with little puff sleeves and a pair of $475 silver
open-toed pumps.
The D&G revamp is part of a wider trend in which the world's luxury
fashion houses are looking to their lower-priced secondary labels for
growth. Many big fashion names -- including Giorgio Armani, Donna
Karan, Versace and Prada -- own cheaper, younger labels -- Emporio
Armani, DKNY, Versus and Miu Miu -- that ride on the visibility of
their high-end brands to ring up big sales.
These so-called diffusion lines, with lower margins than the luxury
lines but higher volume, are growing in importance as the top-end lines
struggle to find new areas of growth. Fashion brands like Armani and
Dior have already been extended into accessories, jewelry, home goods
and even hotels. In mature markets like Japan and Europe, growth rates
are slowing.
"The strategy of the most-effective fashion brands will be to count
more on diffusion lines because they can increase volumes world-wide,"
says Armando Branchini, managing director of Intercorporate, a fashion
consultancy in Milan.
Italian fashion house Versace is refocusing the lower-end Versus line
on higher-margin accessories, after having bought back the license from
IT Holding two years ago. Marc by Marc Jacobs, owned by France's LVMH
Moet Hennessy Louis Vuitton, is opening stores for that line that are
separate from the designer's top-line Marc Jacobs boutiques, in cities
such as Los Angeles and New York.
Brands such as D&G, Versus and Emporio Armani can be 50 percent
cheaper than top-end designer labels. But they are under increasing
pressure from another group of rivals, the cheap, high-street brands
like Zara, H&M and Mango.
Those "fast fashion" labels appeal to consumers because they are priced
lower than the designers' diffusion brands, and they update shelves
with new merchandise at a fast pace -- generally every two weeks,
compared with every two months for most diffusion lines.
Profit margins for designers' secondary brands are around 20 percent,
compared with margins of up to 45 percent for some high-end brands, but
the diffusion lines reap larger sales volumes. "While wildly
competitive, there is still enormous potential growth" in the diffusion
segment, says Robert Burke, head of the luxury consulting firm Robert
Burke Associates.
Since buying back the D&G license, Messrs. Dolce and Gabbana have
tried to increase production and improve distribution to get products
to stores faster. Some 70 percent of D&G manufacturing will be
outsourced to Asia and Mediterranean countries such as Morocco and
Turkey. In addition, the company has spent the equivalent of $47.1
million to double the size of two Italian factories that produce the
Dolce & Gabbana line to make room for some D&G products.
A newly hired corps of more than 300 production employees will
translate Messrs. Dolce and Gabbana's ideas into wearable clothes.
"When you can manage all phases of production, you have the freedom to
improve in all phases: creative, pricing and distribution," says
Cristiana Ruella, Dolce & Gabbana's general manager.
To set themselves apart from fast-fashion brands, D&G and other
diffusion brands are emphasizing their creativity -- something they say
cheaper, copy-cat brands lack -- by running glitzy ad campaigns and
fashion shows. In contrast, the fast-fashion brands run little
advertising, and when they do, the ads are functional, often flashing
prices. And D&G is increasing the frequency of its ads. Miu Miu,
the diffusion line of Prada Group NV's Prada SpA, recently cast the
actress Kim Basinger in a sultry bedroom scene in an ad campaign.
And then there are the fashion shows, which generate the buzz that pays
off in future sales. In one especially extravagant effort, Emporio
Armani held its fashion show in London this year instead of Milan. The
show was part of a "One Night Only" bash Mr. Armani hosted, packed with
celebrities including Leonardo DiCaprio and Beyonce. Prada, meanwhile,
has moved its fashion show from Milan to Paris, whose reputation as a
creative hub for fashion designers is on the rise again.
By the time fashion shows are staged, retailers have already spent most
of their budgets on more-commercial looks in collections that designers
show them earlier in the season. D&G has spent hundeds of thousands
of dollars on the blockbuster show it is set to put on Monday, although
Ms. Ruella says only 10 percent of D&G's $323.3 million in sales
comes from the line's runway collection.
As part of the D&G revamp, the designers in November plan to launch
a new collection of handbags and shoes, including patent-leather sling
backs and pumps in eight different colors. The designers have spent $48
million on a new D&G office in Milan, complete with a shiny silver
reception desk and curvy orange sofas to receive buyers, that is
separate from its Dolce & Gabbana headquarters.
D&G remains among the pricier secondary lines, but Mr. Gabbana says
one key strategy will be to narrow the price gap with rivals. A D&G
leopard-print, satin bustier dress sells for $425 and a burgundy-velvet
blazer for $895 -- much less than prices for comparable items in the
Dolce & Gabbana line, such as an $1,895 rust-velvet jacket and a
$1,250 sleeveless black dress, but still higher than many diffusion
competitors. "We want to become cheaper," says Mr. Gabbana. "Fashion is
for everybody."
Other diffusion brands are also repositioning their prices. Roberto
Cavalli's Just Cavalli and Gianfranco Ferre's GF Ferre have increased
their number of $190 jeans, T-shirts and other sportswear items in
order to be more competitive with Zara prices, according to Maurizio
Negro, chief executive of Ittierre, the IT Holding division that makes
Just Cavalli and GF Ferre.
The second stage of the D&G revamp will be to increase the number
of D&G boutiques, which now stands at 54 world-wide. For today,
however, all attention is focused on the show. Factory workers at the
D&G atelier near Milan have been working around the clock for days
to perfect the last samples. "They are so strongly committed to
presenting the D&G collection," says Mr. Branchini of
Intercorporate. "There will be fireworks."
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