May 4, 2014

Derek Lam Believes in Fashion for the Masses

ADWEEK – He’s part of a breed of hot designers making luxury more accessible

Derek Lam Believes in Fashion for the Masses

Derek Lam remembers a time when it would take years before an apparel brand was established enough to spin off a secondary line aimed at catering to the masses.But Lam, one of the hottest designers around, is not a man who likes to wait.He is one of a breed of contemporary fashion stars—including Alexander Wang, Jason Wu and Prabal Gurung—for whom accessible luxury is not just an afterthought but part of their DNA.

“Traditionally, the plan would have been to just stick to high-end,” Lam explains one April afternoon at his company headquarters and studio near New York’s Madison Square Park. “But I went into it saying, ‘I want to do as many different levels as possible because I want to reach a wider audience.’ It used to be that designers could sit and wait for the audience to come to them—now, they have to go to the audience.”

Lam’s lower-priced 10 Crosby line bowed in 2011, eight years after his runway debut.Lam made sure to adhere to one of the crucial tenets of a successful diffusion line: maintaining a brand identity. “I think that before, designers would do secondary lines that were maybe more derivative of their main collections,” he says. “I recognized that 10 Crosby couldn’t be just a knockoff of what I was doing [at Derek Lam]. So when we started marketing the line, we built an ideal of this 10 Crosby woman, and that was really key.”

With dresses in the $400 to $700 range, 10 Crosby is not cheap. But compared to the $3,000 to $4,000 dresses in the core Derek Lam line, it’s practically a steal. As a result, 10 Crosby is growing considerably faster than its pricier parent, says Derek Lam International CEO Jan-Hendrik Schlottmann. The number of stores carrying 10 Crosby has increased 150 percent in the last year, and the brand recently expanded into footwear. “I think the overall potential is much larger because you can sell in places where you can’t really sell [the main] collection,” Schlottmann says.

As sales of luxury goods have slowed for companies like Louis Vuitton and Gucci, business has been booming further down the price ladder.

Michael Kors, which launched in 1981 and has steadily grown its lower-priced offshoot Michael Michael Kors over the last decade, enjoyed a wildly popular IPO in 2011 and last year racked up $2.2 billion in sales. Kate Spade, which lost some of its luster following a sale to Liz Claiborne in 2006, underwent a major revamp as an aspirational lifestyle brand and is now looking at a near 70 percent year-over-year bump in its stock price, on top of $1.3 billion in sales for 2013. (Incidentally, Liz Claiborne sold its namesake brand and renamed itself Kate Spade & Co.) Meantime, Tory Burch, the decade-old brand rumored to be heading toward its own IPO, is valued at some $3.3 billion.

“A smart designer understands the importance of developing a business that’s profitable but without losing that creative spirit and losing that dream of what the runway is really about,” says Milton Pedraza, CEO of the Luxury Institute, a research and consulting firm. “They know that they need to often embrace the idea of the secondary lines to help fuel the financing of their main collection.”

Consider Victoria Beckham. In 2011, the entertainer-turned-designer added a diffusion line, Victoria Victoria Beckham, to her then two-year-old main collection. Within a year, the success of the secondary label helped put her company in the black for the first time.Of course, accessible luxury also continues to be an important enterprise for more established brands. Helmut Lang, Catherine Malandrino and Balmain have all launched diffusion lines in recent years, while Valentino has pushed its previously under-the-radar Red Valentino line. Another diffusion makeover is under way at Marc Jacobs. Last year, the designer left his post as creative director at Louis Vuitton to concentrate on both his high-end line and the more youthful Marc by Marc Jacobs, whose sales account for the majority of company revenue.

Blahnik Benchmark

To better understand one of the biggest drivers behind the growth of accessible luxury, take a trip back to the summer of 2008. The Sex and the City movie had just hit theaters, and women everywhere were swooning over the finale in which Carrie was reunited with Mr. Big while retrieving a never-worn pair of $525 Manolo Blahnik pumps from the couple’s old apartment. Fast-forward to 2014 and, despite a brutal recession in the interim, those Manolos run a cool $925.

Top-tier luxury brands like Chanel—whose classic quilted bag has skyrocketed 70 percent to $4,900 in the past five years—are inflating their prices and reducing access to entry-level products in order to create exclusivity and differentiate themselves from the lower-priced brands encroaching on their territory. At the same time, the high-end brands end up pricing out large segments of luxury consumers and as a result drive them to more affordable players.

“Granted, even a $500 handbag is an expensive handbag in many realms, but it’s not a $4,000 or $5,000 handbag, so you can engage in the fashion conversation at a more accessible price point and feel a little less guilty about it,” says Neiman Marcus fashion director and svp Ken Downing. “It doesn’t mean that a girl still doesn’t want a Chanel handbag or a Céline handbag,” he adds, “but she likes the fact that there’s actually options out there that aren’t at that price level.”

These price hikes can be seen having a negative effect across the industry. Sales at Gucci, which is owned by Kering, fell 2.1 percent last year, while luxury conglomerate LVMH reported that sales growth for fashion and leather goods slowed to 5 percent last year from 7 percent the previous year. U.K. fashion house Mulberry has become a cautionary tale for the price inflation strategy. Following a successful revival from a stodgy to a trendy brand, the company decided to raise its already substantial prices to appeal to a more upscale audience. But rather than elevating its profile, the move ended up pricing out existing customers and slashing the label’s market value by two-thirds in fiscal year 2013. Bruno Guillon, the CEO behind the shift in strategy, resigned, and the company recently announced plans to lower prices.

Another key factor in the growth of this space is the influence of millennials. “Young consumers are looking for quality and design, but they’re also looking for ‘new,'” says Pedraza. “They’re much more open to new and affordable brands than baby boomers.”There’s also the fact that the fashion industry overall has become more accessible than ever, thanks to social media. “You think back 10, 15, 20 years ago, fashion was elitist and much more of a velvet-rope industry,” Downing says. “With the onset of bloggers and Instagram and Twitter and Facebook, the fashion conversation has become enormous. Today, so many more people are aware of fashion and designers than ever before.”

Kardashian Fashion

Reality and competition TV shows are another important factor. Project Runway, which debuted in 2004, has made household names of designers like Michael Kors and Zac Posen. Then there’s the influence of the Real Housewives and the Kardashians, label-conscious “real” women who have made it no big deal to wear Louboutins to Starbucks or carry a Céline tote to the gym.

The publishing world is doing its part, too. Women’s service magazines, looking to attract younger readers, have bumped up fashion and beauty coverage. “The truth is that our reader had evolved quite a bit in her style sensibility, so we have been evolving with her,” says Jill Herzig, editor in chief of Hearst’s Redbook, who led a redesign last year that saw a significant increase in style content. The growth of accessible luxury, she adds, “has put chic within reach for so many of our readers. They’re ready to spend, as long as they can find good design.”

Considering their proximity to fashion, consumers are under more pressure to compete in the fashion space. “Even though we say we’re not a class-conscious society, this is a very status-conscious society, and these brands help elevate people who may not have a lot of money but want to show off these accessible luxury brands,” explains Pedraza. “They want that stature that comes with these products as well.”

That’s why the most successful affordable luxury brands are ones that cater to consumers’ desire for an entrée into a luxury lifestyle. Michael Kors has long positioned its main collection as the epitome of jet-set style, and continues to do so with its lower-priced line. Tory Burch’s preppy-chic aesthetic conjures up images of country clubs and summers in Nantucket. Kate Spade, once famous for its minimalist nylon bags, now sells a luxe version of retro femininity. For aspirational consumers, to own an item from one of these brands, even if it’s just a $30 iPhone case, is to own a piece of that lifestyle.

The faces behind midlevel luxury brands can be just as important in bolstering their credibility and attracting customers. “When you look at personalities like a Michael Kors or a Tory Burch and many others, there’s an authenticity there,” Downing says. “Tory’s not just a designer who hides behind sunglasses—she is her own muse and her own best brand ambassador.”

Michael Kors and Tory Burch are just two labels that benefit from the visibility of their founders, who are constantly pushing their brands’ respective lifestyles with savvy social media posts or TV appearances. Even brands without the benefit of a big-name designer have caught on: Kate Spade, whose namesake is no longer with the company, hired celebrity stylist Brad Goreski to act as its public face.

While top-tier brands have been notoriously slow to adopt digital media (in fact, several, including Chanel and Céline, have shunned e-commerce altogether), many of these new luxury labels have been early adopters, using the Internet and especially social media for raising brand awareness as well as marketing product lines. “We believe in developing a conversation [with our customers]. It’s never about holding back information,” says Lam, who makes sure that his diffusion line has its own social media personality separate from that of the parent line.

Other tech-savvy brands include Michael Kors, the first company to advertise on Instagram, and Marc Jacobs, which recently used that platform to cast models for a campaign. Rebecca Minkoff, another lower-priced luxury designer, used Snapchat to preview looks from her New York Fashion Week show.

There can be a downside to becoming too accessible, however. Flooding the market takes away from the feeling of exclusivity that makes luxury brands seem special in the first place. “Ubiquity does breed some backlash,” says Pedraza. “The problem with luxury retail is that you often don’t know where the line is until you’ve crossed it.”

Consider Coach, one of the first brands to embrace accessible luxury. After hiring designer Reed Krakoff in the late ’90s, the brand experienced explosive growth in the aughts. Soon enough, it became impossible to walk down the street without seeing a woman carrying one of its logo-emblazoned purses. At the same time, Coach was rapidly expanding its outlet stores, which began to cannibalize its full-priced business. Despite its growth, Coach had been downgraded from aspirational brand to the dreaded “mall brand.”

Now the company is struggling to restore its luster. Following Krakoff’s departure last year, Coach hired Stuart Vevers, the man behind Mulberry’s revival, from Spanish luxury house Loewe. Under Vevers, Coach has expanded its ready-to-wear line, shown its first full collection at February’s New York Fashion Week and moved away from its pedestrian logoed bags in favor of minimalist leather goods that echo Saint Laurent and Céline.

What’s nextAs the accessible luxury space becomes more crowded, existing brands are expanding into new areas to attract an even broader audience. Following 10 Crosby’s first foray into accessories last year, Derek Lam teamed up with Estée Lauder on a beauty capsule collection and is now dipping a toe into the jewelry space via a collaboration with designer Jamie Wolf. Both jewelry and beauty have proved popular for brand extensions. Lines like Marc by Marc Jacobs and Kate Spade now offer a large selection of affordable baubles, while Tory Burch and Michael Kors have launched cosmetics lines in the past year (see sidebar).

Designers also are eyeing the growing men’s category. Michael Kors aims to expand its men’s clothing and accessories lines into a $1 billion business and next year will launch a men’s fragrance with a heavy promotional push. Tory Burch is also rumored to be looking into a men’s accessories line.

And yet, the category with the most untapped potential might just be plus-size fashion. Despite the fact that the average American woman is a size 14, most designer brands only go up to size 10 or 12. And as a rule, the more expensive the label, the smaller its sizing.

Very few accessible luxury brands have yet to touch that space, which makes Michael Kors especially savvy for launching a comprehensive plus-size line that runs up to 24. Says Herzig, “I think the second wave of this big style revolution that we’re seeing right now is that accessibility doesn’t just mean price—it also means size.”

Bazilian, Emma. “Derek Lam Believes in Fashion for the Masses.” Adweek. Adweek, 4 May 2014.