Aesthetics + Economics

3D Histogram

During a recent "you have reached the end of the web"-style browsing session, I stumbled upon what looks to be a powerful tool for color research: 3D Histogram, an open source web application from Minneapolis-based Third Ave Design.

3D Histogram "provides a visualization of the overall color composition of an image by placing cubes in a 3D space whose X, Y, and Z values correspond to the R, G, and B values of the color being graphed." Each cube is "painted with the color it represents, and then sized according to its relative frequency in the image." 

The fashion-related applications are endless--you could use it to research color trends, to get a firm grasp of color theory, or to understand the effects of lighting and texture on color. Above are yields from a "swatch" image of the Fall '08 Thakoon dress pictured at left. Now if only the data were downloadable in spreadsheet form...

The Economics of the Affair

Cathy Horyn of the New York Times recently wrote a rather sobering article titled "The End of the Affair" about the state of the fashion industry. Specifically, she discussed the seemingly stark outlook for talented designers which she attributes to a general decrease in appreciation for creativity in favor of the big, bad bottom line.

She raises many good points, and given her knowledge of the business, this negative take may be warranted. Plus, the recent closure of Rochas was a highly visible case of a talented designer losing his job and probably has much of the fashion world thinking pessimistically. However, from an economic standpoint, the situation does not seem quite so dire.

It seems that the fashion business (and by "fashion business" I mean the business of designer or high fashion) is becoming more competitive. As Horyn notes, thanks to forces like reality television and the internet, "fashion has never touched more lives than it does at the moment, and by so many different means." Additionally, it seems the barriers to entry into the fashion business have lessened, and smaller designers and houses abound. (Just look at the number of shows at this New York Fashion Week!) Designers must also work faster now that precollections are a vital part of sales. Finally, as a result of the explosion of diffusion lines and massclusivity-type ventures, there is an abundance of moderately priced clothing on the market which is on trend and of decent quality--which many consumers will gladly take over more expensive offerings.

To survive in this environment, a house or designer must combine talent with business savvy; fashion houses must all accept certain basic economic truths. As a firm in any industry, a fashion house must acknowledge that there are tradeoffs. Exclusivity, prestige, perfection in design, loyalty to one's vision, or innovation can be increased only at the expense of revenue, high salaries, or investment in the future of the brand. Greater competition does not necessarily mean that "a tide [has] turned against designers and even perhaps against talent." It simply means that talented designers should try to partner with equally talented businessmen and women. Let's consider some specific cases, shall we?

Ventures in Massclusivity

The news that Vera Wang is partnering with Kohl's Corp. to produce a moderately priced line, "Very Vera by Vera Wang," for fall 2007 has got me thinking about the current trend of "massclusivity." In recent years, a slew of high-end designers have worked with lower-end firms to offer "designer" products at low prices. This trend came to be termed "massclusivity"--the idea being that a lower ticket price would make high fashion available to the masses.

However, not all massclusivity partnerships meaningfully further the democratization of fashion. Moreover, this is not always a bad thing. Let's take a look at the cases of Stella McCartney for H&M and the Nine West Front Row Project in order to better understand what I mean.

Why Designers (Or At Least Their Business Partners) Hate Knockoffs

One of these things is not like the others. Yep, you guessed it: the shoe on the far right is a genuine Christian Louboutin Bruges pump. As for the others: knockoffs. In this post, I'm using the term "knockoff" to refer to a copy or imitation of an item which is distinctive because of its design. For example, an imitation Bruges pump or Balenciaga motorcycle  bag would be a knockoff. I am not talking about trendy items that merely look alike.

In economic terms, knockoffs are substitutes for a good. Economists often talk about substitutes as negatively impacting demand for a good by raising the price elasticity of demand for that good. Generally speaking, the more substitutes there are for a good, the less people are willing to buy the good as the price increases. Substitutes reduce the price elasticity of demand for a given item and thus reduce overall sales.

Knockoffs can negatively impact demand for a fashion good in two ways: by increasing price elasticity of demand for a good, as just discussed, or by eroding the exclusivity of a good. The manner in which a knockoff reduces demand for the original product depends on whether it is a close substitute or a weaker substitute--a distinction which, in fashion, it seems, has to do with market segmentation.

To be clear, a close substitute is a well-executed knockoff; one that is nearly indistinguishable from the original good or else possesses all of the defining characteristics of the original design. Poorly executed knockoffs are weaker substitutes. The fact that they are copies is immediately apparent to the discerning fashion consumer as these substitutes are often made of low quality materials and look cheap. WWD's Fashion Dictionary characterizes the fashion market as comprising five segments or "price levels": budget, moderate, better, bridge, and designer. (We could add to this list a category called "low-end" on the bottom and "haute couture" on the top, perhaps even "demi-couture" between "designer" and "haute couture," but this list provides a decent picture of segmentation in the fashion industry for the purposes of this post.) Well-executed knockoffs are generally produced for the "better" segment, and occasionally the "bridge" segment. Poorly executed knockoffs are usually made by "budget" and "moderate" producers.

To understand why market segmentation and the closeness of the substitute matter, let's consider a specific case in which one or more brands knock off the design of another. We'll look at a case involving shoes because as I write this post I am finding it much easier to identify knockoffs of shoes than knockoffs of pieces of clothing. We'll take a look at what happens when a shoe designed for and originally offered by a producer in the "designer" segment is knocked off by producers in the "budget" and "moderate" segments. Then we'll consider what happens when a producer in the designer segment is knocked off by a designer in the "better" or "bridge" segments.

Lessons From the Rochas Experience

The impending closure of Rochas' fashion brand illustrates two lessons we can learn observing the fashion industry. First, as ready-to-wear (and particularly couture) operations are susceptible to losses, the sustainability of a fashion house requires a revenue generating activity such as a fragrance operation to support its fashion business. Second, keeping a fashion house alive is a labor of love. The brand's bottom line is important, but not more important than the fashion line itself. Thus, beauty companies and other companies for which fashion is not the core business typically are not as good at sustaining fashion houses as firms with a fashion focus or luxury groups with several fashion brands under a single "umbrella."

The Changing Face of the Luxury Department Store

Yesterday's Wall Street Journal had an interesting article about the changing face of the luxury department store. The jist: Luxury department stores have focused their attention on middle aged customers for years and are now beginning to target bright young things--the "echo boomers (teens through early 20s) and Gen-Xers (30-somethings)" as well. How are they doing it?

First, the stores are becoming aware of the differences between their bread and butter customers and the younger generations. They realize that St. John and Valentino are not the names young shoppers are looking for. (I can appreciate Valentino, but at my age I'd rather wear Balenciaga). Younger shoppers balk at the idea of wearing head-to-toe Chanel and much prefer high-low mixing. They are savvy, looking for the latest thing--and currently the perception is that "by the time a particular designer is carried in department stores, it's usually already gotten too publicized."

Barneys is opening additional freestanding Co-op stores all over the country. (I should know; we residents of DC now have two in the area within 20 minutes of each other.) Neimans is opening their own version of the Barneys Co-op, the Cusp stores, in Georgetown, McLean, and Los Angeles. The Cusp stores will carry items you would expect to find at Barneys Co-op or Intermix--i.e., Chloe bags, J Brand jeans, etc. Interestingly, Nordstrom recently bought a majority interest in the Jeffrey New York and Jeffrey Atlanta boutiques. Jeffrey is right on the money in terms of targeting the style conscious 20 to 30-somethings, and their shoe department is to die for. Hopefully Nordstrom will watch and learn from Jeffrey Kalinsky.

So what's the story? Intermix and other early adopters of the retail model aimed at younger women, offering a mix of "downtown cutting edge style with uptown chic," have been hugely successful. (Intermix opened in 1993, can you believe that?) The big luxury department stores see that this market is nowhere near saturated and are now entering this market themselves to expand their companies' customer bases to include the younger shoppers.

My take: While Intermix, Barneys Co-op and the Cusp stores will surely be successful in drawing in customers in their 20s, there is still a gaping hole in the market for more sophisticated women in their thirties and even twenties. Barneys (not the Co-op, just Barneys) and boutiques like Kirna Zabete serve these customers at the moment, but generally this group is underserved outside of cities like New York and Chicago. In any case, I'll review the Georgetown Cusp store when it opens, and I am anxious to see how Jeffrey Kalinsky's influence plays out at Nordstrom, but my business will still go to the more sophisticated boutiques that remain few and far between.

Photo of Jeffrey New York from newyorkmetro.com.

The Rise of Demi-Couture

Balenciaga - Bottega Veneta - Rochas

The July issue of Vogue contains an article about demi-couture--a recent development in fashion which, it seems, began to pick up speed in Fall 2005. Demi-couture is essentially an intermediate level of luxury between pret-a-porter and couture, and a number of designers are sending it down the runway.

What can we attribute this trend to? I think there are a few possible arguments we can make. First, plain old pret-a-porter has become somewhat democratized and no longer boasts the cachet it used to. Additionally, the movement toward demi-couture could be related to increases in the number of millionaires and billionaires in the world. Finally, it's highly likely that demi-couture is part of a sound business plan for designers and design houses.

Let's call the consumers who have the wherewithal to purchase demi-couture "high-end consumers." In general, a fashion consumer can tolerate a product's spreading through the population to a certain degree--let's call this the consumers democratization threshold--before he or she no longer demands the product. I would argue that a number of processes--globalization, the trend of designers launching diffusion lines, the phenomenon of "trading up" that seems to be occurring economy-wide as well as in the fashion marketplace, massclusivity-type ventures (Lagerfield et al. for H&M, Target's GO! International, et cetera) have resulted in democratization of regular ready-to-wear and designs characteristic of ready-to-wear beyond the democratization threshold of high-end consumers. Hence the move towards demi-couture.

Additionally, we could propose that this development might be related to the increase in the number of the world's millionaires and billionaires of late. I don't know the exact figures, but I do know that, even adjusted for inflation, there are more people today with the means to purchase demi-couture than there were one and two decades ago.

And of course, this could also be a shrewd business move on the part of designers and houses. When it comes to the clothes (we all know that luxury brands make a considerable amount of revenue selling perfumes and such), ready-to-wear has long been the profit-generating product offered by fashion houses, whereas couture has largely been a way for houses to develop and maintain their cachet. As run of the mill ready-to-wear has become more democratized, the gap between RTW and couture has widened--so much so that there is room for an intermediate level of luxury: demi-couture.

Jing, a fashion blogger, bout a demi-couture jacket from the Balenciaga Spring 2006 collection. Check out her take on the experience (and pictures!) here.

Fashion Trends + Diffusion Theory

How do you decide whether or not to buy that trendy item? When is it fashion forward to adopt a trend? How do you know when you've "missed the boat," so to speak?

In 1962, Everett Rogers put forth the famous theory of diffusion of innovations. According to Rogers' theory, a given innovation (or recycled innovation as often is the case in fashion) will go through a process of diffusion in the population over time. This process will proceed in phases as the five types of consumers adopt the product. The first to adopt the innovation will be the "innovators" (enthusiasts), or about 2.5% of the population. Once the "innovators" have adopted the innovation, the early adopters will start to pick up on it. Once acceptance reaches a certain level, usually between 5 and 20 percent, there will be a takeoff and the product will sweep the early and late majorities. The last to adopt the innovation will be the laggards. Eventually the innovation will reach saturation.

Rogers 1995

The theory of diffusion of innovations is often useful in understanding how new technologies spread through populations. I like to think of trends in fashion this way.

When we consider a specific trendy fashion item, we can simply identify which stage of diffusion an item is in at present, or we can illustrate the entire process up to the current stage. I like to make a mental map of the diffusion of a given trend in fashion before I decide whether or not to adopt it.

To do this, I find it is helpful to draw on the ideas of Malcolm Gladwell as well. Malcolm Gladwell drew inspiration for The Tipping  Point from Rogers' work. In The Tipping Point, Gladwell puts forth several ideas about how a given innovation or product reaches critical mass and "tips," becoming an epidemic (i.e. sweeping the majorities and eventually the laggards). He describes certain actors who are instrumental in causing products to reach a takeoff point and applies his theoretical framework to the hushpuppy--a major fashion trend of the 90s. When I think of the diffusion of fashion trends in terms of Rogers' theory, I find that one of these types of actors who we can observe causing epidemics to tip is those who Malcolm terms "connectors," or people who have high visibility and thus influence the masses. Celebrities are the classic connectors. Going back to this idea of Gladwell's helps me mentally map a trend along the Rogers bell curve.

To illustrate the ideas described here, let's first consider a fashion trend which has just about reached saturation, and then we'll consider a trend that has yet to tip.