The Outside View: A Tragic Business Model for Fashion
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I have been financing, investing and advising in the fashion industry for a long time. Too long a time for me to mention. It actually scares me when I think hard about it. During all these years, our world has changed fundamentally since I began working with emerging brands. I’m anything but old school. I’m not nostalgic about the good old days. This industry was always an extremely challenging one. But what I do dearly miss is the passion and commitment to building a brand and staying with that brand for as long as the creative juices are flowing.
During a normal business week, I am presented with a minimum of five start-ups in all different segments of consumer products and services. I see product, business plans, financial projections, P&Ls, balance sheets, orders, inventory positions and so on. They’re piled up on my desk. They’re laid out before me by owners, designers, PE firms, accountants, lawyers and brokers. A credit to our industry is that entrepreneurial endeavors procreate indefinitely.
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During this crazy period of viral brands, instant imaging and apocalyptic mind-sets, the perspective of young entrepreneurs has changed so dramatically that the future of the fashion industry is being impacted exponentially. For many, many years, designers began their companies with the intention of creating a profession for themselves for a lifetime. Creativity drove them and decisions surrounding design and beauty and art sustained them. The simple possibility of creating great designs and products was so gratifying, and the additional prospect that people would fall in love with these designs, and buy and wear them, was exhilarating. If a magazine chose to editorialize a young brand, it was a coup. If a great retailer like the original Henri Bendel or Charivari or Barneys selected your designs for their stores, it felt like you conquered the world. So many brilliant designers like Betsey Johnson, Willi Smith, Yeohlee, Ralph Rucci, Rudi Gernreich, Steven Sprouse, Rebecca Taylor, Nanette Lepore, Daryl K and many more, embarked on creative endeavors that were frequently commercially inspired as a second thought. Designing fabulous clothing for a new generation of shoppers who wanted contemporary ideas, and who were transitioning from traditional gender roles, political roles and social roles into free expression and self-experimentation, who wanted comfort and cool clothing, outfits and accessories that told the world around you a story about who you were and what you believed in, became the gratification and the drug that fueled the passion and struggle. Stiff suiting gave way to contemporary casual. American style took over the world. Profit and acclaim followed accordingly.
Today, almost every young entrepreneur who comes to me with their concept begins the presentation with the business plan and the numbers, not the garment bags full of product. That has taken a backseat to the discussion about white spaces and building social media followings, DTC projections, financial opportunities — and then the exit strategy. Young start-ups actually have exit strategies. How extraordinary. How depressing. This perspective may be appealing to those who simply want to monetize a project, any project in any category. But the passion and love of design, the work ethic behind building and sustaining a brand over the long term, the commitment to a point of view and to an original design aesthetic inspired by a love of art and creativity, are infrequently the motivations of emerging brands. And this could be the downfall of American fashion globally, if it hasn’t been already.
I always used to say that fashion is the perfect blend of art and commerce. Clothing is not meant to be hung on museum walls and looked at. It’s meant to be worn. But it seems that more and more, fashion has morphed into a formulaic process of short-term goals and even shorter term monetization dreams and exits. Commerce has superseded art, and the cart is dragging the horse. The “perfect balance between the two” has tilted toward the commercial.
This takes the joy out of design. We’ve become less than merchants. We’re now primarily strategists, designing into trend, not creating new ideas. And always with one eye on an exit plan! Daily I’m told by brands that the Series A raise is around the corner. This comes from start-ups — from companies that don’t yet have revenues. There is no discussion any longer of building a sustainable company, utilizing seed money from friends and family and growing organically. The need for making money by cultivating proper margins and modest overhead to sustain the growth is rarely discussed. Margin needs are secondary to volume, cash flow is negative, retained earnings are not even a thought. The focus is on creating brand awareness through social, and finding investors who can help the company scale, regardless of profit and loss, on the way. The sad logic behind this way of thinking is that there’s always someone else out there who will take out the existing investors if the brand has become “big” enough, not “profitable” enough.
Hence we have ridiculous valuations on companies in the fashion space that have never made a penny for years, and in fact lose millions and millions each year, with the sole purpose and intention of the brand to sell to another VC or PE firm for an even more ridiculous valuation, wherein the founding partners can exit and start another venture. Sounds very much like a precursor to another dot-com” bust. But this is not fashion. This is not creative. This is not inspiring. This is harmful and self-defeating for the fashion industry, in my opinion.
This is a fine model for money movers and investors, but it’s a tragic one for fashion. It strips the heart out of our industry. It turns us into a commodity that can be bought and sold regardless of the integrity of the product, the design, the expression. Integrity, creativity, novelty and authenticity become catchwords and marketing phrases, not foundations of a brand. Fashion has always been the bellwether of change, the predictor of tomorrow. Fashion challenges the status quo. It allows the consumer to feel good, to experiment, to take advantage of self-expression. And it needs to be driven by designers who share that craving for great art, originality and design, not just spread sheets, exit strategies and white-space hunting. When we forsake what’s uplifting and inspiring about a profession and art form for the allure of impassionate, quick money, we spiral down the rabbit hole of irrelevancy. American designers need to be globally embraced. We once were. We once lead. Now we chase, and our talent, our designers, are losing the allure of their front row seats.
Gary Wassner is chief executive officer of fashion factoring company Hilldun Corp. and chairman of Interluxe Holdings, which has investments in A.L.C. and Mackage.
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