Setting the Trends: MBAs and the Fashion Industry

Autumn/Winter 2016 fashion week season came to a close in early March, with trends in Milan, Paris, New York and London including print blocking, velvet and…big sleeves. The four fashion weeks bring to the fore the artistic, creative and colorful side of the fashion world. There is another side to the fashion industry, however, evident in the latter word in that very formation.

Yes, fashion is big business – and is only set to get bigger. It was estimated to be worth over $1.1 trillion in 2012, but by 2025 we may well be looking at an additional trillion dollars on top of that. Significant portions of this total figure are contributed by the biggest and best-known names in the global business: Gucci is valued at US$12.4 billion, H&M at US$15.3 billion, and Louis Vuitton at a staggering US$28.1 billion. Notably, these companies – and others in the luxury sector – came out of the Great Recession in rude health compared to those in other industries.

Companies do not grow to this size – and sustain it – without business acumen. Naturally, this has not escaped the notice of the world’s great institutions of business education or their prospective student bodies, and we see schools like NYU Stern in the US, and SDA Bocconi in Italy offering specialized tracks focusing on luxury brand marketing (notably they are based in New York and Milan respectively).

“The financial results of companies that operate in the luxury sector have piqued MBA students' interest. Many more people wish to understand why is it that these companies can weather most financial crises practically unscathed,” reflects Thomaï Serdari, a professor specializing in luxury brands at NYU Stern. She notes that after the school introduced the specialization, there was increasing interest in high-end product development across the board – quality and prestige, it seems, will always out.

A name is not enough in the fashion industry…

A business cannot thrive on the quality of a product, or the ubiquity of its name alone – just look at Ford’s struggles. SDA Bocconi’s Paola Cillo, notes that part of the reason industry players have been able to keep their heads above water while many in other industries have floundered is their ability to move with the times. “The industry is in continuous evolution, because of the impact of technology, which affects communication and distribution. Now consumers can immediately get a snapshot of new trends, after a fashion show. This is causing big changes for companies; they need to see what is happening and adjust – not just on their websites, but also in terms of physical distribution. Consumers don’t want to wait six months to buy what they see in the shows.”

She notes examples of designers such as Michael Kors having their Fashion Week collections ready to buy the next day, as opposed to the several months later. “This affects how the company thinks about the product; affects the supply chain, distribution – everything has to be completely re-planned and reorganized.” The ability of companies to adapt in this fashion has played no small part in their continued success.

The evolution Cillo is talking about isn’t just with regard to quick turnarounds on fashion show lines of course, but a larger scale transition to the digital age. These are companies built on prestige and tradition, but they are trendsetters in this regard. Online sales rose by 185% between 2007 and 2012, with further growth anticipated. The online luxury goods market, it is thought, will account for 17% of the market in 2018, up from 3% at present, and will be worth an estimated US$12 billion!

Fashion brands’ intelligent utilization of big data to target customers and multichannel marketing have been credited for these impressive figures. With 50% of consumers using search engines to find what they’re looking for in some markets, it’s important to be digital savvy.

The transition to digital is not the only change that has affected the industry. There is also the changing face of global business, specifically, the increasing significance of emerging markets for Western businesses.

The changing landscape of the fashion market

In some cases, such as China, it might even be something of a misnomer to call the world’s second-biggest economy ‘emerging’. It is estimated that China will overtake the EU as the biggest fashion market in the next 10 years, while India’s market will quadruple in size; the EU and the US will grow healthily but more modestly.

Emerging economies will account for 50% of women’s apparel sales in a decade, says McKinsey. It’s not simply a case of looking to the BRIC economies though; fashion companies would do well to look to target the specific cities around the world which boast the highest growth rates, 80% of which are in emerging economies. This extends to middle-weight cities as well as ‘megacities’, though the latter will double in number to 60 by 2025, together accounting for a quarter of global GDP.

Naturally, companies cannot simply wade into these young markets and employ the same strategy as in their traditional strongholds. “All markets require a different approach, and this is where most companies make mistakes,” confirms Serdari. “Each culture has established norms that need to be respected without compromising the brand's own code of ethics and design philosophy. Both the Indian and Chinese middle classes happen to desire Western products and specifically American products/brands. While this is propitious for American companies, these brands need also to keep innovating and strive for long-term growth rather than short-term gains.”

To reiterate a point made above, a name alone is not enough; it must be paired with business acumen and strategic vision. “We have already observed what happened to those who went into China for the short-term gains and how big of a capital expenditure that has been for them. What I think is missing is a heightened sensibility to cultural differences so that brands actually learn from their new audiences. Cross-pollination of ideas that lead to new creative directions should be top priority for companies that enter new markets.”

Cillo echoes this sentiment, but believes that, in time, the transition of markets from emerging to developed will have a normalizing effect across global markets. She also identifies two strands in the market – exclusive, top-end luxury, and affordable luxury to meet the needs of the world’s growing middle classes.

What makes the fashion sector unique?

So, we’re looking at a sector in a time of flux and exciting market expansion – but this could be any number of industries; let’s take a step back and consider what makes the sector – and being a manager within it – unique.

“Luxury brands market products that push the boundaries of traditional design, craftsmanship, and innovation,” says Serdari. “While it would be a mistake to look at the luxury brand sector as flat, one needs to remember that the ultimate luxury brands strive to excel in all of the areas mentioned with at least one product or a product line. Regardless of product excellence, all luxury brands have mastered the skill of communicating a specific narrative that is aspirational. In fashion, similar criteria apply. Not all fashion brands produce luxury but those that do focus on innovation – engineering of garments, textiles, and aesthetics, design – being trendsetters rather than trend followers, and craftsmanship – investing in people with a particular skillset.”

“What makes luxury brand – and particularly fashion – unique is the combination of creativity and rationality,” Cillo posits. “It’s not like art, where the artist produces something based on their own creativity, disregarding the business side; in this industry creativity has to bring results. There is a high requirement for analytic skills in this industry, but clearly they need to be able to interact with creative people, designers that speak a different language. You don’t need to be creative but you need to have a passion for these products. You need to be able to interact and brief creative people, to explain where you want to bring the company and what you need from them. But then you need to leave them alone in doing their own work, giving them freedom in what they do.”

Soft skills, then, are extremely important in conjunction with the analytical skills demanded by these businesses. You don’t need to be able to design a catwalk collection or an It bag; you do need to be able to understand how the people who do think and work.

And, of course, you need an appreciation of the ethos of a company as well as what makes the all-important product special. Again though, it is not enough to simply expect brand prestige to do all the work, says Serdari: “Luxury fashion brands need a creative director at their helm who understands the established code of the brand and uses it as a set of parameters from which the brand needs to break away. This obviously is a paradox and this is why there are not so many creative directors who manage to hold on to their tenures with luxury fashion houses.”

What do you learn on a luxury brand marketing track?

So how, then, can one be prepared to capitalize on the huge potential of the unique names in the fashion space, to meet the challenges of respecting the heritage of the brand while also maneuvering through the fast-changing environment of 21st century business? These are the questions facing the academics that teach luxury brand and fashion MBAs; so, how do these specialized degrees prepare students for the world of luxury brand management?

“I teach them the fundamentals of luxury,” says Serdari. “I define luxury as a concept, its origins and evolution through history, then focus on the luxury object or experience and what that could be, followed by a luxury brand and how it operates within the luxury market. Finally, and most important for our curriculum in the marketing department at NYU's Stern School of Business, I spend a lot of time on what is a luxury business model, a framework I published in Luxury: History Culture Consumption. Understanding the luxury business model as an abstract framework is what empowers my students to take leadership positions in luxury brands and help them evolve without diluting their brand equity.”

At Bocconi, Cillo emphasizes, exposure to key industry players lies at the heart of the specialized track. “We have partnerships with brands like LVMH, which allow a contextual viewpoint on top of that provided by the academic, giving them the opportunity to see two different perspectives on the same problem.” Cases are based around the challenges outlined by those professional additions to the faculty roster which represent these partner companies, and their companies offer those all-important internships to students on the track.

These partnerships also afford students an opportunity to understand what it is that makes the luxury products on offer so special. “We complement the activities we do on campus with company visits. For instance, to the jewelry labs of Bulgari in Rome, to see people working on the stones and creating the pieces of art that go on the market; to the Fendi lab in Rome; to where Gucci bags are cut in Florence. It’s important they see these products being made – you can only really appreciate the value and difference when you see how long people spend working on these products.”

Bringing business and creativity together

Enrolling on such a track will certainly help give you a global view of the industry and how it is changing and developing. As mentioned above, the challenges of moving into new markets and the importance of staying abreast of developments in digital technology and the consequent ramifications of these, in terms of manufacturing and the supply chain, will be key issues for fashion managers in years to come.

“You need to envisage trends and work out what is happening in the industry,” says Cillo. “There is some creativity involved but it’s essential to have strong management skills. Look at the managers and CEOs of these companies, and you’ll see that most of them come from consulting or large multinational companies, very structured companies, driven by data. Analytical skills are important in this industry, as in others. This is even truer if we think about technical innovations, with big data allowing you to take decisions based on yesterday’s data.”

Serdari echoes these sentiments: “MBAs who are looking for opportunities in the fashion industry also need to develop their creative side. They don't need to learn how to design themselves, but they must be able to articulate why a specific design or creative direction is worth pursuing in terms of corporate growth. They need to develop their interpersonal intelligence as well because fashion designers are emotional and unstructured, which is great in creative practice but not so much when huge investments are at stake”

What, then, is an example of a current trend in the fashion industry that students will learn on a luxury brand MBA? “Sustainable fashion is the most interesting trend,” Serdari thinks, “and it is still evolving. There is a misunderstanding about it as most people think of ‘granola sacks’ as sustainable fashion when in fact that area encompasses much more than how the clothing looks. It is really about production processes, operations, organization of home industries in other parts of the world, respect for workers' rights and improvement of labor conditions, innovation in manufacturing to reduce waste of natural resources as well as post-production waste.

“But”, she adds, “let's not forget that when it comes to fashion innovation, design matters. Therefore, the challenge for fashion designers today is to be creative, bold, and ahead of established norms while also facing many more restrictions. This is a great challenge that is impacting how fashion companies are organized but also how they market their products. Needless to say, the other extreme of sustainable fashion is fast fashion with tons and tons of discounted inventory eventually finding its way to landfills. One hopes that this will eventually stop.”

The fashion industry is clearly an exciting place to work, for those who appreciate the product, for those who appreciate working in industries in an exciting period of growth, and finally for those who relish the challenge of steering business behemoths through the complex challenges thrown up by the 21st century.

To conclude, Serdari offers one last warning that the industry must heed: “In the last 15 years, we have seen an increased emphasis on the celebrity creative director. We are often more interested in in-house politics, for example who is the creative director, why she or he was chosen, how long she or he will last, rather than focusing on the product itself and the creative direction of the brand as a whole. This has hurt the fashion industry; it has not helped it at all. Companies that manage to bring their business and creative leadership closer are the ones that will survive all sorts of structural shifts the fashion industry is experiencing and will be around for the long run.”

To avoid this, it is clear that the industry requires strong, business leadership. Maybe with the training one can get from a specialized track, you could be part of this leadership.