July 20, 2010

59) Levi’s

危 wēi  danger

I have always been slightly skeptical of established US & European fashion brands’ ability to succeed in emerging markets, after all the average income per person in China is around $3,500 and in India it’s $1,000.  Counterfeiting is rife and unlike super-premium brands they seem particularly vulnerable to low end disruption.  The Indian jeans market is no exception – home-grown companies such as Arvind Mills have addressed the low end market with huge success.  The company, founded in 1931, grew to be the fourth largest producer of denim for wholesale over the course of the following 60 years. It realized that India’s poorest couldn’t afford jeans and launched its own label – Ruf n Tuf – in 1995 to address the opportunity.  Its approach was to focus on the Indian consumers at ‘the bottom of the pyramid’, completely redesigning its business model with an emphasis on value.  Arvind Mills succeeded by selling a jeans kit to local tailors for $6/pair – minimal kit variants kept manufacturing costs low and the local tailors quickly became an effective marketing channel.   Subsequently the company has continued to innovate, adopting a full franchisee system for the manufacture and distribution of Ruf and Tuf jeans in 1995.

Surely the established jeans companies of the developed world, including Levi’s (the inventor of jeans) will be unable to service the ‘bottom of the pyramid’ and will be unable to compete, perpetually being disrupted by companies like Arvind Mills and being undermined by counterfeiting?

机 jī opportunity

Although the 1994 entry of Levi’s in India received a tepid response its fortunes have improved recently – it banks heavily on celebrity endorsement, product innovation and a superior retail experience to drive growth.  Most recently it has adopted an innovative “pay as you wear” model in India – the company offers cash-strapped Indians the opportunity to buy their jeans in three interest-free installments.  “A monthly installment scheme makes it easier for people to build their wardrobe with a premium brand like ours” says Shumone Chatterjee, MD of Levi’s in India.  The approach is smart – it enables more of India’s fashion conscious consumers to wear the Levi’s brand without eroding its brand equity or dropping its price points – although Levi’s will never completely straddle the pyramid it might manage to straddle a few more levels…

How About…

  • Defending your market position from disruptors using creative pricing?
  • Examining straddling the pyramid in emerging markets?
  • Empowering another part of the value chain to finish your products and services?

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March 15, 2010

44) Zara

危 wēi  danger

The $300-billion fashion industry has always struck me as a tough industry to disrupt – after all it’s dominated by global fashion houses that have enjoyed a near monopoly on trend-setting – trends that they drive through expensive fashion shows and enormous marketing campaigns.  The industry is highly seasonal (conveniently improving the fashion houses’ product turnover) and consumers have grown to accept that they have to wait 6 months or so to buy the clothes that they see on the catwalk (the time it takes the incumbents to organize manufacturing through third parties).

机 jī opportunity

Zara’s contrarian approach has turned this model on its head – instead of investing in setting trends (for many years it had a zero advertising policy) it is almost entirely reactive and focuses on keeping its costs low.  Its whole model is geared around speed to market and low cost experimentation – for example unlike other large fashion houses, Zara owns all of its designing, manufacturing and retailing operations – enabling it to retail product that it designed less than 2 weeks earlier. It relies on its frontline employees to feedback on emerging trends, and use PDAs to feedback instantly on the success of its new lines (which are initially made only in medium size to limit investment).  Stock is made to order and can be replenished within 36 hours in any store in the EU.  Zara’s pioneering approach, often described as ‘fast fashion’, has helped it overtake GAP to become the largest fashion retailer in the world – in part driven by the fact that its rapid stock turnover leads its patrons to visit its stores 17 times a year versus the industry standard of 4 visits.  Zara rightly is changing the industry and scaring the traditional firms - Louis Vuitton fashion director Daniel Piette described Zara as “possibly the most innovative and devastating retailer in the world”…

How About…

  • Harnessing your front-line staff to feedback consumer responses and set strategy?
  • Question the status-quo in industries that are structured in a way that detract from the consumer experience?

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