BoF Insights is The Business of Fashion’s in-house consultancy. We partner with leading fashion and beauty brands and investors to help them sustainably grow for the long term. Get in touch to find out how we can support your business.

This article is part three of a series by BoF Insights that outlines today’s playbook to translate cultural heat into commercial success. Read part one and part two.

For many fashion founders, generating buzz is the easy part. Where these creative visionaries often struggle is with how to build a strong business foundation that will allow their brands to scale.

For that, they need help.

“You can drive a business by being a very hot brand with the consumer begging and wanting and desiring it. But that’s just one small component of what makes the brand successful,” said Christopher Burch, founder and chief executive of investment firm Burch Creative Capital, which invests in LA-based contemporary label Staud. “If you were to say to me [that] you have a great creative [founder], I’d say to you, then we need the best CFO or COO in the world.”

This is especially true in today’s cooler financial market. Leaders who make good choices on financing, choose the right path to profitability and are willing to take a hard look at their brand’s DNA are primed for success.

“The world’s changed,” said Burch. “VCs around the world have learned that profitability is more important than growth.” Brand leaders need to flip the growth playbook and double down on strategic fundamentals before moving onto riskier, capital-intensive expansion activities.

By strengthening their internal cash flow position, recruiting executive talent and reinforcing the distinct DNA that gave them their initial start, independent labels can lay the groundwork for a sustainable scale journey that effectively translates buzz into performance.

In conversations with BoF Insights, The Business of Fashion’s in-house consultancy, independent brand leaders and investors outlined the imperative to foreground business fundamentals to secure future growth in the long term. In the third and final part of this series, BoF Insights breaks down the formula for transforming community buzz into lasting commercial performance by strengthening a brand’s foundations.

Recruiting at the Top

Investors and experts concur that lack of executive leadership is one of the main obstacles for unlocking growth past the $10 million revenue mark in the fashion industry.

Pivotal roles like the chief executive officer, chief financial officer and chief operating officer are natural complements to the skillsets typically found in creative founders. By recruiting executive skills, creative founders can prioritise the development of a vision and cultural positioning without sacrificing commercial discipline.

“[2024 is] a year to work on the foundations,” said Frederic Court, founder and managing partner of venture and growth investment firm Felix Capital, which invests in fashion labels Ami Paris and Anine Bing among other brands. “It’s a great year to hire people. There is a lot of instability in teams [so] it’s a great time to support talent and attract talent.”

According to Court, Ami Paris creative founder Alexandre Mattiussi brought on chief executive Nicolas Santi-Weil when Ami was generating around €1 million (approximately $1.09 million) in annual revenue. Court said this hire played a key role in the label’s successful scale journey. As of 2023, Ami Paris generates over €300 million (approximately $327 million) in annual revenue.

Represent, the British luxury streetwear label, found itself at a relative standstill until bringing on new chief executive Paul Spencer to complement the founding team in 2022.

“Before I hired my CEO . . . I felt like I was out of my depth when we were around £20 to £30 million, and everyone was working way more than what they needed to,” said co-founder George Heaton. “But when [Spencer] came in, he put a really strong team in place . . . [and we] were able to actually scale at a much faster rate than what we would have been before.”

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Setting Your Own Pace

In periods of slower economic activity, growing brands should put measures in place to protect their financial positions. To do so, several indie labels have eschewed the external financing route to focus solely on organic growth as a means of forcing discipline and cost management.

“We have great relationships with banks and debt financing. It was all about organic [growth] from the beginning,” said Emily Adams Bode Aujla, founder of the American luxury label Bode. “I wanted to make sure that we were always going back to my mission statement of what I wanted to create, and not have outside voices.”

This approach enables brands to dictate their own pace of growth and avoid burning out too quickly. Bode recounted that she knew it was the right time to open the brand’s first flagship based on natural demand indicators. “It was an intuition that it’s time. We had enough people coming to the [studio to shop for private appointments that,] if I could sell two more jackets, I could make rent,” she said.

Bode also leveraged fashion prizes as a key funding source to fuel a brand’s early growth. She won the CFDA’s Emerging Designer of the Year award in 2019, as well as CFDA Menswear Designer of the Year in 2021 and 2022. She was an LVMH prize finalist and Woolmark prize winner in 2019 and 2020 respectively. However, while the prize money was helpful in Bode’s early stages and empowered her to prioritise sustained organic growth, the amount of work and travel required to compete for these titles may render prize monies a less dependable funding source.

Brands that opt to take external financing can maintain a sustainable pace of growth by ensuring clear alignment with prospective investors on timelines, objectives and performance metrics.

“[Brand leaders] should not be afraid of asking where the money is coming from,” said Court. “They should not be afraid of defining success together [with investors], because if success for an entrepreneur is to run the business for 10 years before looking to liquidity and [the] investor is at five years, that’s going to be a problem.”

Regardless of the funding strategy, cash flow discipline is a key differentiator for the brands that scale successfully. Profitability is imperative, and in order to ensure a strong cash position, companies must pursue aggressive cost control. For some, this may mean pausing capital intensive expansion activities for the time being.

“The fashion industry as a whole is temporarily out of fashion as an asset class . . . organic growth and cost control is the only way forward,” said Stefano Martinetto, chief executive and co-founder of Tomorrow, a growth and development platform for fashion brands. In this environment, cultural heat can only take a label so far. “You can be very relevant and entirely broke. So it’s important to acknowledge the relevance is important as much as it translates into a financially sustainable model.”

Maintaining an Edge

For many investors, a clear DNA is a key ingredient for a brand’s staying power. This may mean revisiting specific values and narratives at regular stages in the growth journey.

Péter Baldaszti, chief executive of Budapest-based contemporary label Nanushka, recounted that the brand has been “soul searching [to define] who we are and what we stand for” amid today’s tough climate for indie labels. This enabled the company to refine its approach to expansion into other categories such as handbags and “gave us this beautiful foundation of… what a Nanushka bag should be, in terms of branding, shape, form, material, size,” he said. “We really needed to nail down that identity part to be able to deliver on these categories.”

In an industry where innovation is increasingly scarce, brands that can break through the homogeneity and commit to preserving the cultural relevance that gave them their start will stand out. “There must be something very, very specific because there’s so much noise in the world . . . you need to have a distinctive voice,” said David Belhassen, founder and managing partner of NEO Investment Partners, which has invested in luxury brands Victoria Beckham and Ami Paris among others. “The [brand] DNA is a differentiating factor.”

Without access to the free-flowing capital and cheap digital ads that characterised the 2010s, this focus on the fundamentals is now more important than ever. The brands that reach the $100 million revenue threshold will be those that manage to turn buzz into long-term business performance by combining cultural relevance with well-managed, well-timed commercial plays.

“It felt a little bit too easy to start [an independent label] for a period. That window of opportunity, I’m afraid, is gone for quite a long time now,” Martinetto said. “But I also think there’s a bit of justice in that. Funding and [enabling] a successful independent brand [to survive], it’s not a given; it’s one in a million or one in 10,000 or one in 100,000. And so be it, because the reward is so big.”

This article is part three of a series by BoF Insights that outlines today’s playbook to translate cultural heat into commercial success. Read part one and part two.

BoF Insights is The Business of Fashion’s in-house consultancy. We partner with leading fashion and beauty brands and investors to help them sustainably grow for the long term. Get in touch to find out how we can support your business.

Rōz, the prestige hair care line founded by celebrity stylist Mara Roszak, announced on Monday a growth investment from Silas Capital and G9 Ventures. Terms of the deal were not disclosed.

The line, which is carried in stores such as Credo and Neiman Marcus, leans on Roszak’s experience and pedigree as a Hollywood hair stylist. The line launched in 2021, with a range of eight products.

“I’m really excited to have Silas Capital as an extension of our team because they are true supporters of the brand and have seen every stage of a beauty business. It’s great to be able to rely on them for support,” said Roszak.

Silas Capital has also invested in buzzy beauty brands like sunscreen line Vacation, skincare brand Herbivore and prestige cosmetics line Makeup by Mario, while G9 Ventures has backed the likes of luxury beauty brand Westman Atelier, as well as wellness brands Goop and Athletic Greens.

In addition to the institutional investors, actress Lily Collins joined as an angel investor. Actresses Mila Kunis, Daisy Ridley, Zoe Saldana, and Brooklyn Decker previously invested.

In order to further scale the business, funding will be used to accelerate retail expansion, introduce new products and increase headcount.

In a statement, Brian Thorne, a partner at Silas Capital, celebrated the brand’s red carpet credentials, saying that it marries together performance with clean claims that consumers are increasingly looking for, filling a “true whitespace”.

“We’re thrilled to partner with Mara, alongside her unmatched roster of A-list clients and community of professional stylists, to support Rōz’s impressive momentum across channels,” he said.

Learn more:

What Investors Are Looking for in a Beauty Start-Up

Private equity shops and venture capitalists are being more discerning with their dollars, and yet capital is still critical for emerging brands seeking to stand out in a competitive landscape.

In recent weeks, luxury fashion’s biggest players, including LVMH and Kering, sounded the alarm about slowing global demand and an uncertain outlook for the remainder for the year.

Macro-economics and shifting consumer preferences are mostly to blame. China’s economy remains in the doldrums — with real estate values depressed and youth unemployment high — while Americans and Europeans, especially more aspirational shoppers, are still struggling to recover economic enthusiasm amid the lingering effects of post-Covid inflation. Meanwhile, travel, restaurants, concert tickets, wellness and cosmetic procedures feel like more tempting purchases than expensive handbags — particularly in the light of dramatic price hikes for luxury fashion goods.

Where does that leave the accessible luxury segment, and its leading player Tapestry — the Coach, Kate Spade and Stuart Weitzman owner — which Thursday reports quarterly sales as well as results for its full fiscal year?

Investors will be watching closely to see if the group’s long-term drive to curb markdowns is on track in a softening US economy (slower-than-expected growth numbers sparked a market panic last week) as well as updates on a takeover bid for rival Capri, which was challenged this spring by US competition authorities.

They’ll also be watching to see whether customers who are forgoing purchases from top luxury brands might still be in the market for a decent looking bag if the price is right. Conversely, accessible luxury brands’ reliance on lower-income, aspirational customers could pose a problem: in recent weeks, luxury groups pinpointed falling demand from that cluster as the principal issue in the United States.

Sales at Michael Kors owner Capri fell 12 percent excluding currency shifts last quarter, the company reported Thursday in a gloomy sign for the segment. But Ralph Lauren’s business held steady, with 1 percent sales growth and higher-than-expected profits.

Meanwhile, in Europe, the ubiquity of Polene and Sézane shopping bags on the Paris street suggests that hunger for new accessible luxury concepts persists.

Where will Tapestry fall?

The Week Ahead wants to hear from you! Send tips, suggestions, complaints and compliments to brian.baskin@businessoffashion.com.

This week, global stock markets reeled following news of a slowdown in the US job market in July.

On Monday, the Dow Jones Industrial Index as well as the S&P 500, two blue-chip indices, posted their worst daily loss in nearly two years; Japan’s Nikkei 225 tumbled 12 percent — its largest drop since the 1987 Black Monday crash.

By Friday, the fear had more or less subsided and the equity losses had largely recovered, but that didn’t stop economists from once again contemplating the likelihood of a recession this year. On Thursday, J.P.Morgan put the probability of a recession at 35 percent, up from a previous assessment of 25 percent, citing the slowdown in American job growth and the global stock sell-off.

The move followed a cue from Goldman Sachs, which on Sunday also raised its probability of a recession by 10 percentage points.

Indeed, there are some concerning signs for the economy, beyond the rising unemployment rate. More American shoppers have fallen behind on their credit card payments, resulting in a record high in collective debt: $1.14 trillion, according to a Tuesday report from the Federal Reserve Bank of New York.

The one bright spot, however, has been resilient consumer spending. US retail sales remained stable from May to June, Census data showed last month, and reflected a 2 percent increase from June 2023. A number of fashion companies, in fact, are holding strong or even posting growth in the face of external volatility.

Ralph Lauren, Revolve Group and VF Corp. all beat Wall Street estimates in their latest earnings results this week, though the latter saw sales drop by 8.6 percent as it continues to struggle with one of its key brands, Vans. Michael Kors-owner Capri Holdings posted less rosy results, missing on analyst projections with a 12 percent drop in revenue.

The uneven performance shows that while consumers are still buying fashion, they are judicious in how they are parting ways with their money. “The consumer has accrued debt, so we’re on shaky ground when it comes to consumer spending,” said Jessica Ramirez, retail analyst at Hali & Associates.

Right now, shoppers are vulnerable to the wider economic conditions. Inflation has tempered since hitting a peak in 2022, but in recent months, prices have levelled. Even so, analysts are counting on the Federal Reserve to cut interest rates in September — by either a quarter percentage point or half — which will alleviate pressure on the consumer economy.

“The US economy is in an indecisive mood. Some indicators are pointing negative, but others remain robust,” Neil Saunders, managing director at GlobalData, told BoF in an email statement. “Consumers see this too, which is why sentiment has been very changeable.”

Recession or not, the strongest retailers in any challenged environment are able to convey a sense of value to shoppers — and that doesn’t just mean an off-price positioning.

“Some retailers, like Abercrombie & Fitch, are powering through all the economic noise because they have very good products that consumers want,” Saunders added. “Others, like Under Armour, are struggling because they have brand issues and consumers are happy to cut back. What is certain is that a more constrained economy will sharpen the contrast between the winners and losers.”

THE NEWS IN BRIEF

FASHION, BUSINESS AND THE ECONOMY

Bangladesh garment factories reopen. Textile factories that supply retailers including H&M and Zara resumed full operations after violent protests that resulted in the ousting of Prime Minister Sheikh Hasina this week.

Ralph Lauren beats estimates driven by stable demand in Europe and China. Its net revenue rose 1 percent to $1.51 billion in the first quarter, above Wall Street projections of a slight decline. North America sales fell by 4 percent. For the current quarter, the retailer expects revenues to grow in the range of 3 percent to 4 percent.

VF Corp posts 8.6 percent drop in sales. Its first-quarter results were better than analyst estimates, in part driven by promising demand in China. VF’s marquee Vans brand continues to struggle; sales fell 21 percent in the same period.

Under Armour’s raises guidance as restructuring shows progress. The company raised its annual forecast for earnings per share to as much as 22 cents. Analysts expected 20 cents. Under Armour’s shares rose 15 percent after trading began Thursday. The stock had been down 26 percent this year through Wednesday’s close.

Allbirds meets revenue expectations and narrows losses. Allbirds’ sales fell 27 percent year over year to $52 million in the second quarter. The company narrowed its net losses to $19 million, down from $29 million in the same period last year, in part by lowering operating costs and reducing digital advertising spend.

Warby Parker’s online business returned to growth in the second quarter. Overall revenue grew 13 percent year over year to $188 million in the second quarter of 2024. The eyewear maker grew its bottom line and improved two of its weaker spots: e-commerce sales and active customers.

Coupang posts first loss since 2022 as Farfetch deal saps profit. South Korea’s largest online retailer posted a net loss of $77 million in its latest earnings report, its first loss in two years after the acquisition of unprofitable Farfetch Holdings Plc and a government regulatory fine offset strong growth in its core e-commerce business.

Hugo Boss sells Russian business to wholesale partner Stockmann. The German fashion company suspended its retail business in Russia after Moscow invaded Ukraine in 2022.

Bloomingdale’s taps Rebag as its new resale partner. The Macy’s-owned department store will offer pre-owned luxury handbags online and in select stores via New York-based resale platform Rebag. Shoppers will also be able to sell their own pre-loved pieces.

The World’s fastest man wants his own signature Adidas shoe. After winning gold in the 100-metre sprint at the Paris 2024 Olympics, Noah Lyles called for his own signature sneaker with Adidas, highlighting the untapped market for sprinter-branded footwear.

THE BUSINESS OF BEAUTY

L’Oréal to acquire 10 percent stake in Cetaphil-owner Galderma. The deal will help L’Oréal with product development, analysts said. Galderma was originally set up as a joint venture between Nestle and L’Oreal before the latter sold its 50 percent stake in 2014.

Olaplex sales fall but company said recovery is on track. Sales dropped 4.8 percent to $103.9 million, the sixth consecutive quarter of declines. Specialty retail sales jumped 22.4 percent in the quarter, the company said Tuesday, but it was not enough to offself the DTC decline of 18.4 percent.

Nivea maker Beiersdorf’s sales grow despite China’s luxury slowdown. Group sales rose to €5.2 billion ($5.7 billion) in the first six months of 2024, from 4.9 billion in the same period last year. Sales at key businesses Nivea and Derma grew by 11.1 percent and 8.3 percent respectively, while luxury brand La Prairie saw its sales drop 7 percent.

Shiseido sales drop 4 percent as US business slumps. The company’s net sales decreased 4 percent to $1.7 billion in the second quarter. Operating profit for the first half declined 31 percent year-over-year. Bright spots in the first half included skincare line Drunk Elephant, whose sales grew 11 percent.

Dolce & Gabbana launches €99 perfume for dogs. The Italian house debuted this week Fefé, a luxury alcohol-free dog perfume with notes of ylang-ylang and musk, tapping into the booming pet luxury market. Animal advocates warned the strong smell could come across as unpleasant for dogs.

MEDIA AND TECHNOLOGY

CFDA and Vogue partner on a campaign to encourage voting. The Fashion For Our Future march will bring together more than 1,000 participants from across the fashion industry on Sept. 6, the first day of New York Fashion Week.

Compiled by Yola Mzizi.