Thursday, July 30, 2009
Strategic Planning Analogy #268: We're All in the Fashion Business
A few years back I was working on a project with a number of people in the recorded music industry. I noticed that most of the people who worked in that industry tended to wear black clothing—from top to bottom—nearly every day.
I finally couldn’t take it any longer, so I asked one of them why he (and the others) wore black every day.
He paused for quite awhile, with a puzzled look on his face. Finally, he said, “I don’t know. I guess it makes it easer to get dressed in the morning.”
It’s easier to get dressed when the element of fashion is taken out of the equation. If everything in your closet is black, you can grab just about anything and look okay.
For most people, however, clothing is not so simple. Fashion is a concern. Clothes need to be in fashion and coordinate together. If your clothes are out of fashion or not well coordinated, it will reflect poorly on your image. When clothes go out of fashion, they need to be replaced with the newest and latest. Wearing the right labels is also a concern.
As a result, when the element of fashion is added, getting dressed in the morning suddenly becomes a more complex affair. It takes some effort to stay on top of the fashion cycles, so that you are not looked down upon. There are even TV shows to help us understand fashionable dressing.
Most of us are aware that clothing is driven by fashion. However, as we will see in this blog, virtually all businesses have a significant element of fashion to them. Just as being out of fashion in clothing can hurt your image, being out of fashion in your business can hurt your company’s profitability. Businesses need to get in tune with the fashion complexities of their industry.
The principle here is that everyone is in the fashion business. You ignore the fashion element at your own peril.
Everyone? We’re all in the fashion business? Sure…things go in and out of fashion in business all the time. Take finance. Sometimes private equity is in fashion, sometimes stock is in fashion. We tend to be somewhat faddish over the latest new wrinkle in debt structuring. Sometimes entrepreneurs are in fashion, sometimes big business.
In the automotive industry, sometimes big ol’ trucks are in fashion, sometimes tiny little cars are in fashion. Even the fashion allure of some brands come and go out of fashion. When it comes to Japanese imports, first it was Datsun that was the fashionable one to have. Later, it was Honda. Then Toyota. And now the Toyota brand may be starting to lose its fashion appeal as the hot import brand.
Governments go in and out of fashion. Sometimes it’s more fashionable to be liberal; sometimes it is more fashionable to be conservative. Fringe political groups go in and out of fashion, too.
Food is fashionable. Sometimes Thai food is in. Other times, it’s Indian or Italian. Organic is now fashionable. Carbs were totally out. Now they are back.
In computing, netbooks are in, desktops are out. And mobile phones are extremely fashionable—an older phone really looks out of date and makes you look unfashionable.
The point is that nothing lasts forever and no purchase is 100% rational. Emotional/Fashion elements suddenly make things far more desirable than what makes rational sense. Just as suddenly, they become passé and out of favor. Look at those crazy foam-like Croc shoes. At first they were in such high demand that Crocs could not manufacture them fast enough. Now, sales have plummeted and Crocs is on the verge of bankruptcy. The shoes didn’t change. Demand changed due to a change in fashion.
This phenomenon affects more than just apparel. Consumer markets, business markets, industrial markets, governmental markets, and so on, go through fashion cycles. And as we all know, business management practices are among the trendiest of them all.
So if everything has an element of fashion to it, what can we learn from the fashion apparel industry? I think there are three important principles.
1. The First Markdown is the Best Markdown
When things start going out of fashion, it is usually not a long, slow drawn-out affair. The transition is rather quick. Just ask Hummer how fast they went from cool to embarrassing. When the mortgage market went sour, it killed the fashion for fancy new housing construction almost instantly. In the fashion apparel world, they understand how fast the latest hot thing can go cold. As a result, as soon as there is a small hint that things may be turning bad they go into action. Production is halted; huge sale signs go up; inventory is pushed out the door as fast as possible, regardless of cost. This is not a time to be tentative. Soon the value of that inventory will be nearly worthless, so get whatever you can right now.
Think of bananas. Once you start seeing a few black spots, you know that soon the whole banana will be rotten. You can’t sell a totally rotten banana at any price (you can’t even give it away), but you can sell one with a few black spots if the price is low enough. So mark it down quickly, when there is still a chance of making a sale.
This applies to all businesses. Don’t assume your offering will always be in high demand. Eventually, it will become obsolete, either through new innovation, changes in demand, or competitive moves. And when that time comes, the desirability of that offering will fall far faster than you think. Therefore, when things start to turn bad, be ready to liquidate quickly, even if it means severe markdowns. Don’t procrastinate. Ford got out of Range Rover quickly, selling at a reasonable discount. GM procrastinated with Hummer and will sell it for next to nothing. The first markdown is the best markdown. Take advantage of it by pushing to sell while there is still a bit of fashion in your favor.
2. Don’t Put All Your Eggs in One Basket
If all you sell are Crocs, and Crocs go out of favor, you are doomed. The US auto makers were moving closer and closer to being just manufacturers of big trucks and SUVs. Now that those are out of fashion, they are scrambling to become serious in cars again.
The smart fashion houses don’t put all their eggs in one basket. First, they diversify by holding a portfolio of brands/styles. Second, they keep the product development pipeline full. They are always trying and testing new things. They always have one eye looking towards the next fashion season.
You should do the same. Have a portfolio of products or offerings, so that you can easily shift your mix to the changing whims of fashion. Make product development a priority—keep the development pipeline full. Keep an eye out for the next big thing and pounce on it when the time is right.
3. Seasons Come and Go
People in apparel fashion know that their world operates in seasons. What is hot in the Spring Season will be gone by the Fall Season. Something new will be hot in the fall, which will be obsolete by the following spring. Even what is hot for fall changes from year to year.
Therefore, smart apparel people never rest on their laurels. They know that just because they succeeded in the spring, they have no guarantee that they will succeed in the fall. Each season is a new battle to be won all over again. Reputation only goes so far. You have to win each season by adapting to the new seasonal whims better than anyone else.
The same is true for your business. Although the seasonality may not be as predictable as it is in apparel, there are cycles and rhythms to your business. These cycles and rhythms will significantly alter the landscape, making the successes of the past fairly meaningless. When photography fashion moved from film to digital, the reputation of Kodak only went so far…not enough to keep them successful. It was a new digital season and they were still pushing the last season’s (film-based) products.
One needs to fight hard to win each season by reinventing your offering to meet the mood of the new season. Again, it is not a gradual thing. The seasonal shift is fairly swift. You need to proactively try to predict the next season—just like apparel fashion houses do—so that you are ready when the new season comes.
Every industry has an element of fashion to it, so apply some of the principles of the apparel fashion industry to your own industry. First, be prepared to make the most of the first markdown. Second, don’t put all your eggs in one basket. Third, realize that every season is a new battle.
Fashion people also realize that just because you blew it for the current season, all is not lost. There is always next season to regain the top. So cheer up. There is always the opportunity to win when the next fashion shift comes—if you are prepared.