On July, Custo Barcelona announced that will license its brand to Aeffe Group and move its activity to Italy. Custo was founded in the 80s as a result of an inspirational trip to USA by the Dalmau brothers. Two decades later, the company had revenues of 40 million euros and presented its collection during New York´s Fashion Week. But then started bleeding for many years…
Brands can be scalable, but small companies need to strengthen their business pillars before accelerating their growth. A company with revenues of €50-100 million might easily suffer after taking a wrong strategical decision. A wrong decision could be buying commercial real state instead of leasing, growing to fast in wholesale or franchising, or selling your products/clothes to a hard discount retailer that will devalue your brand.
Custo Barcelona created a collection for LIDL, the german supermarket chain, in 2014. Other designers are also creating capsule collections for mass-market retailers or department stores but it could put brand positioning and loyal customer in risk. Most of the times, the problem of being a small company is that you are focused in the short term and fire-fighting instead of working on long term goals. What seems to be a benefit today may turn out to be a problem tomorrow.
Companies of such a size shouldn´t try to compete in a F1 but many are “obliged” after being acquired or gone public. In this regard, El Ganso business case is worth to analyze. The spanish fashion brand was acquired (49% of shares) in 2015 by L Capital, private equity fund sponsored by LVMH. While funds look for the short term return and speed, familiy owned companies want to last several generations. Therefore, two different strategical business paces for people seating in the same board… 4 years later, in 2019, the fund sold its shares back to El Ganso family after investing a huge amount in CAPEX and putting the company at risk due to a high level of debt.
Scalability is key and concerns the ability to replicate a value proposition with little additional resources. But first, business pillars should empower this proposition that is clearly illustrated in the business canvas of Decathlon group: the right people, processes, supply chain (e.g. suppliers, logistics), defined customer segments, clear omnichannel strategy, cost structure, revenue streams, innovation… Many designers excel in creating a brand but fail when building a consistent business. Other companies just fail finding the right partner.
As described in Fashion corporations, in a volatile economy, having the know-how of a specific industry is a key lever when diversifying in the same segment. Luxury is a clear example of how brands can take profit of being part of a conglomerate and take advantage from economies of scale, centralization of capabilities (e.g. purchasing power, technology, advertising), access to an exclusive network of suppliers, access to capital, access to professional talent, amongst others. The bigger the corporation is, the more control of competitive advantages in a specific industry will have. By corporations we mean not only conglomerates but large retailers such as H&M, Fast Retailing or Inditex.
Back to Custo Barcelona deal, Aeffe Group is an italian luxury group created in 1988 by Alberta Ferretti. In 2018, achieved revenues of €346,6 millions and EBITDA of €43,3 million. Its brand´s portfolio includes Alberta Ferreti, Moschino, Philosophy di Lorenzo Serafini, Pollini and Velmar.
Velmar was created in 1983, producing and distributing its own brands of lingerie, beachwear and homewear. In 1990 it increased its portfolio by cooperating, under license, with some of the most famous Italian fashion brands: Alberta Ferretti, Anna Molinari, Genny, Prada, Ferrè, Exteè, Byblos, Blugirl and Moschino.
With Custo Barcelona license, the company will use its platform to optimize resources and allow the scalability. Velmar will produce and distribute Custo Barcelona starting with a capsule collection for the next spring.
Finally, to mention a fashion services platform, Suuchi Inc, a technology company that designs, manufactures, and ships clothing using its vertically integrated supply chain. Suuchi manufactures for three “tiers” of customers: startups, established brands and enterprise brands, offering the services each most needs.
Future is about collaboration and platforms is where those will happen: Liquid design, Fourth Party Logistics (4PL), flexible points of sale… empowered by fashion technology capabilities.
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