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The fashion industry can be divided into five segments: haute couture, luxury, affordable luxury, mainstream, and discount.
At the highest levels, the fashion industry is relatively insulated from economic changes. For example, recessionary fears in the United States have done nothing to harm haute couture, which is actually seeing an increase in customers in a time when so many other companies are fighting decreasing sales. The luxury market is doing well compared to mainstream, affordable luxury and discount brands, where its customers have less financial security and thus are not spending as much money on clothes and accessories as they used to.
[edit] Industry Breakdown[edit] Haute CoutureThe term "haute couture" is thrown around a lot in mainstream fashion circles. However, the term actually means something very specific. Haute couture consists of custom-made clothing made from expensive materials for the world's wealthiest consumers. Prices for a couture piece range from $25,000 to millions of dollars[1] and though the market is small it has been expanding due to the explosion of new wealth in emerging markets such as India, China and the Middle East.[2] In France "haute couture" is a protected term and only a handful of companies have the right to call themselves "couture houses." They must fulfill criteria set by the Chambre syndicale de la haute couture(Trade Union of Haute Couture), the governing body of the French fashion industry.[3] Some couture houses are:
All couture houses produce ready-to-wear as well as couture pieces. Despite its high prices, haute couture is much less profitable than mass-produced ready-to-wear collections. However, haute couture serves to preserve a high-fashion, luxurious image of the brand which fuels sales of its other collections, namely ready-to-wear, accessories and cosmetics.[4] It is also important to note that couture includes only women's garments. There is no such thing as haute couture menswear. [edit] Ready-to-WearReady-to-Wear is an umbrella term that applies to all clothing and accessories that are not custom-made. The ready-to-wear segment is further separated into different levels according to price, exclusivity, and quality of garments. [edit] LuxuryLuxury goods is a large category and includes all clothing, shoes and accessories from designer names such as:
Luxury goods are generally regarded by consumers to be of high quality with a price tag to match. [edit] ExclusivityThere are no clear-cut criteria for a brand to be classified as "luxury," however one important factor is the concept of exclusivity. A person who can afford anything does not want to own something anyone can buy; they want something special and unique. As a brand becomes more popular, it is not regarded as highly by the wealthy clientele. For example, around 2002 the trademark Burberry plaid was seen on everything from expensive bags and coats to cheap caps and scarves, becoming affordable to the middle and lower classes as well. Since the plaid was everywhere, it was no longer exclusive or "special," which turned off many of its wealthy customers. Today, in an effort to regain its exclusive status, Burberry has greatly reduced the presence of its trademark plaid.[5] As a result, Burberry has reported record sales (over $1.5 billion for fiscal year 2007, over three times more than its sales ten years ago)[6] and its stock price increased by 51% from 2006 to 2007.[7] Many luxury companies walk a fine line between increasing market share and maintaining the elite image that is so important to rich consumers with a lot of money to spend. Some examples of luxury retailers are: Saks (SKS), LVMH Moet Hennessy L.V. (LVMUY), and Bloomingdale's (owned by Macy's Inc. (M)). [edit] Current State of Luxury MarketThe luxury market is growing despite the suffering U.S. economy. In 2006 8 million American households earned more than $150,000 a year, which is a 7% increase since 2002.[8] Also, in 2006 there were 1.14 million "ultra high net worth households," which are worth at least $5 million. This number is four times more than the number of ultra high net worth households a decade ago.[9] In addition, due to the devaluing of the U.S. dollar, tourists have been spending more money in American stores. In 2006, 49 million foreign visitors spent a record $104.8 billion in the United States.[10] Increased foreign spending combined with an increase in the number of wealthy individuals means the luxury market is in a growth phase. [edit] Affordable luxuryAffordable luxury is an industry segment that is focused on providing high-end merchandise at a lower price in order to attract middle-class consumers.
These inexpensive items allow access to a brand and a lifestyle that lower-income consumers aspire to but cannot afford. However, fears of recession, in addition to rising credit card debt and gas prices, have hit middle-class consumers hard. While the wealthy continue shopping as much as ever, these "aspirational" shoppers, people who form the backbone of the affordable luxury market have begun to cut back on non-essential goods such as clothing and accessories, leading to decreased sales.[13] [edit] MainstreamMainstream brands such as:
are generally perceived by consumers as being of lower price and quality than affordable luxury goods. These brands market to middle-and-lower-class consumers. Since their prices are much lower than their luxury counterparts, these brands make less money per garment. Thus, they focus on volume, selling as many goods as they can and appealing to a large number of people. In this case the concept of exclusivity no longer applies, as their goods are made (and priced) to appeal to a large number of people. [edit] DiscountDiscount brands serve low-income consumers. This category includes not only those stores that sell goods from other stores at a decreased price (i.e. outlet stores), but also those that price their clothing lower than most other brands; such as:
Although haute couture and luxury have been doing well, the downturn in the United States economy has had an adverse effect on affordable luxury, mainstream and discount brands. Their target demographic is middle-to-lower class individuals who are more susceptible to poor economic conditions than their richer counterparts. These individuals are no longer splurging on clothes and accessories as much as they used to, which is bad news for all three segments. [edit] DemographicsDemographics are important to fashion companies. They need to know what kind of person is buying their products. It heavily influences the kinds of advertisements a company makes, what products they advertise most and where those advertisements appear. Below are brief descriptions of a number of important demographics to fashion companies: Note: Unless otherwise indicated, these demographics are subsections of the American population. [edit] Affluent HouseholdsAn affluent household has an annual income greater than $100,000. They make up only 18% of American households yet spend almost one out of every three dollars in the United States.[14] Affluent households are the fastest-growing segment of the American population, increasing 12.7% from 19.7 million in 2005 to 22.2 million in 2006.[15] Affluent Americans tend to be highly educated and work-driven. The above graph ranks the retailers affluent households are most likely to frequent. Affluent households are interested in value: highest quality at the lowest price, meaning that though they can afford luxury retailers such as Saks (SKS), they have no problem shopping elsewhere if they see more bang for their buck. Stores that cater best to affluent households are:
[edit] Middle-Income HouseholdsMiddle-income households have an annual income between $30,000 and $100,000 and form the primary market for affordable luxury. These are people who cannot afford high-end luxury, but are not so poor that they cannot splurge every once in a while. Brands such as: cater to this demographic by providing lower-priced merchandise in addition to their more expensive products. [edit] Low Income HouseholdsLow-income households have an annual income less than $30,000. A greater proportion of their money goes towards necessities like food and utilities than affluent or middle-income households, leaving much less to spend on clothing and accessories. These households are more likely to be attracted to discount brands such as:
in order to stretch an already tight budget. For that same reason, these households would also be more interested in sales. [edit] WomenBrands that cater to women include:
Women influence over 80% of consumer purchases in the United States and are even involved in a majority of purchase decisions involving stereotypically "male" products, such as electronics and cars.[17] The fashion industry is heavily focused on women. Although the brands and products they are most into depend on a number of other factors (such as wealth), there are some general trends in how women perceive fashion products. First and foremost, many women are influenced by trends. Also, women of all ages want clothing that flatters their figure and looks modern.[18] [edit] Plus-Size WomenAn especially important demographic in the United States is plus-size women. 62% of American women are overweight.[19] Many fashion companies do not make plus-size clothing. Some popular retailers that cater to the plus-size market are:
[edit] MenIn the past few years men have begun to have more of an interest in shopping, and thus the male demographic has become even more important for retailers.[20] Men ages 18-24 are most interested in shopping and brands, whereas older males tend to prefer bargain shopping; in other words to older men a brand is not as important as getting the best deal.[21] Some retailers that cater to men are:
Note: Both J. Crew and Hermès have opened menswear-only stores in New York City [edit] Young ConsumersYoung consumers, especially those aged 15-24, usually have much more time to shop than older consumers[22]; many of them are students and have more time on their hands, as opposed to older consumers who have many more responsibilities such as full-time jobs and children. In addition, many young shoppers use shopping as a social event, which, combined with their free time, means they are more likely to shop around at many different brands to find the particular item they want.[23] Brands that cater to young consumers include
[edit] Baby BoomersStores that cater to the baby boomer population are: Baby boomers compose about 28% of the American population, have an estimated spending power of about $2 trillion and are currently between 44 and 62 years old.[24] Boomers are most interested in the "experience" of shopping for clothes, meaning they want to enjoy the shopping process. They want to shop in stores they feel most comfortable in--meaning a store that does not cater to the 18-49 age group, and are most interested in value. Boomers can switch from one brand to another if they see higher value for their purchases somewhere else.[25] [edit] Trends and Forces in the Fashion Industry[edit] Increasing Focus on MenFashion was once seen as almost exclusively a "women's domain." However, in the past few years men as a whole have begun to pay more attention to their appearance[26] and the fashion industry has responded by focusing more on catering to male clientele. For example, J. Crew Group (JCG)[27] and Hermès both opened men’s-only stores in New York City.[28] Although women still do make the majority of clothing purchases, companies are beginning to take advantage of the male demographic and appeal to them in order to increase sales. [edit] Less Affordable Luxury, More "Genuine Luxury"The affordable luxury market, especially in the United States, is facing a problem due to the poor state of the U.S. economy. The middle-class "aspirational" shoppers who are integral to that segment's success are not indulging as much as they used to. In addition, there has been an increase in "extremely high net-worth" individuals in the United States and abroad. In the U.S. alone the number of "ultra high net worth households" increased fivefold from 1996 to 2006, to 1.14 million.[30] These people are able to afford whatever luxury brand they want and the brands that are able to follow the money. These trends lead to decreased sales of affordable luxury and increased sales of genuine luxury products. [edit] New Markets for Consumers of High Fashion are Emerging WorldwideNow, more than ever, the nouveau riche in China and Russia are developing a big appetite for high fashion. In China for example, the economy grew more than 10% annually during the last five years, and by the end of 2006 the country had 345,000 U.S. dollar millionaires, 33% of whom were women.[31] Chinese citizens are becoming increasingly fixated on luxury goods--they are viewed as a status symbol.[32] China, Russia and the Middle East present large, wealthy markets for luxury goods companies. [edit] Notes
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