Saturday, August 14, 2010

Do Plus Sizes Belong in Luxury?

There’s all this talk about Saks Fifth carrying a very limited stock of size 14 to 20* for some luxury designers such as Chanel, Dolce & Gabbana, Akris, Armani, Carolina Herrera, Escada, Donna Karan, Oscar de la Renta, Valentino, Yves Saint Laurent, Alexander McQueen, Fendi and Roberto Cavalli.

That’s great news but I was wondering why it took them so long to expand into this segment. I found that some luxury and premium brands may be apprehensive about expansion into this area because of the additional costs incurred by making larger pieces of clothing (more fabric needed), more variances in body proportions for plus sizes as you progress on the size scale compared to those for smaller sizes (apparently this makes it more difficult for patternmakers to predict how and where a plus size woman will gain weight in order to modify patterns accordingly). Other factors are that the fabric cutting techniques and garment construction machinery are significantly different compared to those for smaller sized apparel. Limited retail space for the storage of plus size clothes are also an issue. Furthermore, some designers may feel that creating plus sizes might diminish their brands.

To deal with the storage constraints some retailers such as J Crew and Ann Taylor only sell their plus size clothes online – which can be frustrating for the customer who wants to try on her product before committing to buy it!

While I feel that the factors above might hinder profits margins for this segment, luxury and premium brands need to remember the obvious facts: 64 percent of the women in the U.S. fall within the “plus-size” range and “the plus size market increased 1.4 percent while overall women's apparel declined 0.8 percent in the 12 months leading up to April 2010 versus the same period a year earlier.” They can also evaluate high earned brands like Marina Rinaldi which has been successful worldwide. Currently, Marina Rinaldi sells 3 million clothing pieces per year in 93 countries (average retail price for each piece ~ $400).

The bottom line: A properly planned (and executed) and cautious expansion into the plus size market for luxury and premium brands is the way to go.

Wednesday, August 11, 2010

Made in Sub-Saharan Africa?

Paul Collier, the author of Bottom Billion explains that one of the reasons that Asia has taken over the manufacturing industry is a term in Economics, called “Agglomeration of Economies.” The premise is that initial costs for a manufacturing company are higher when it first opens up in a particular area of lower cost labor where no other such firms like it exist; however, after subsequent manufacturers begin operating, costs reduce because of reduced labor costs and economies of scale (reductions in unit cost as the size of a facility and the usage levels of other inputs increase). This process spearheaded the transition of manufacturing from the rich world (Europe; US) to the Asian economies in the 1980s.

According to Collier, African countries lost their opportunity to become the manufacturing centers like some Asian countries such as China, India, Malaysia due to poor governance, poor trade regulations or international regulations like Africa Growth and Opportunities Act (AGOA) that didn’t last long enough. As a result of this lost opportunity, Collier argues that it will be difficult for the African countries to “break in” and become manufacturing centers due to their reduced efficiencies and increased labor costs compared to the Asian countries. For example, although, South Africa, Egypt, and Tunisia have been able to become manufacturing power houses their labor costs are considerably higher (about twice the costs of those in China according to this report from McKinsey).

So how do countries in sub-Saharan countries move from their current state to a more optimal one? They can create export processing zones thereby attracting outside (and inside) manufacturing firms to manufacture goods and continue to take advantage of legislation like AGOA