Sunday, July 13, 2008

Savile Row and the business of bespoke tailoring

On the Kilgour website a few years ago, I read an article which described some of the details of an earlier buyout of Kilgour. If I remember correctly, I believe it cited the acquisition price as 1.8 million pounds. What I find remarkable is how relatively inexpensive that is - only about $3.5 million for one of the best known Savile Row firms.

I suspect that a little financial analysis will tell you the acquisition price of bespoke tailoring firms is a very low (if any) multiple of revenues. This is not surprising since firm valuation is a function of revenues, profitability and future growth. And with bespoke tailors there are only a few ways to grow: (1) Lower price and increase volume (usually by adding RTW or MTM product line or using cheaper labor overseas for suit construction) (2) Maintain price and increase penetration of current markets or (3) Create or introduce a new set of customers. Options 2 and 3 are made possible by growth in new markets (e.g. Russian, Central Asian or Mideast petro-millionaires) or growth in the home market.

What's interesting about option 1 is the staunch criticism of Savile Row firms offering RTW. If done well, I'm quite supportive of such efforts to diversify. As I wrote in a recent London Lounge thread, here is why.

Imagine that you are a managing director of a Savile Row tailoring establishment. You see several options to ensure the future viability of your firm. One option is the dogged pursuit of a purist strategy - produce bespoke and only bespoke to the true connoisseurs of taste. If you produce a quality garment, the customer will come to you. However, as pointed out, the bespoke-buying elite is a "much smaller market" consisting of an "ever-decreasing circle of clients."

The purist solution, I'm afraid, is a rather passive, unimaginative and unattractive option because it simply preserves the business for the existing set of customers. It suffers from a fundamental flaw: consigning the business to the status quo (or even worse, to the past). There is no future envisioned to grow the business. Instead the firm is asked to cater to an aging clientele purchasing fewer and fewer garments over time. A principled strategy perhaps but one that ensures SR's gradual extinction.

The other option is to educate, cultivate and appeal to an entirely new set of customers (while preserving the existing clientele of course). The thinking is this: If the existing market is declining, find or create a new one (also known as blue ocean strategy). The upshot is that offering RTW does precisely this. It introduces a new pool of customers to the brand, brings them into the shop and perhaps more importantly gives the firm the opportunity to educate them and perhaps convert them over time to MTM or bespoke.

The tut-tutting of Kilgour or Gieves & Hawkes for diversifying into RTW misses a blindingly obvious business dilemma facing SR firms. If the existing customer base is declining (and has been for decades), how will you find new customers to replace the old? By conducting business as usual? I think not.

6 comments:

angrymachao said...

I agree with your observation, as a business especially one which wishes to stay prosperous, has to change with the times and more importantly, with its customers.

Obviously, that doesn't mean deviating from its core business values and tradition(e.g., A&S offering custom denim), but effectively evolving with its clients. The CEO of a Swiss bank will still want his vicuna pea-coat of course, but what about his high-flying subordinates who may want something more edgy, tailored or dare I say fashionable?

Porsche is a fine example of this. When the Cayenne came out, every 'purist' was complaining on how the venerable establishment from Stuttgart was selling out to the 'Soccer Mom' whims of the U.S.A. However, with the 997's and the incredible Carerra GT, Porsche has continued to be one of the most profitable car makers in the world, with enough equity to swallow VW if it wishes to. While still producing some of the most wonderfully engineered road-rockets money can buy.

I, for one, will be eagerly waiting for the legends of Savile Row to continue and thrive and innovate as they have done so for the past 2 centuries.

sleevehead said...

Very well stated. Even companies with great products, process or people will find themselves changing over time because of the simple fact that times have changed. Some argue that Savile Row can recover simply through savvy marketing or messaging.

I think that's part of the key to success but there is also the deeper matter of continually recalibrating the right balance between old and new in the product. Over time, we can be sure of one thing - some percentage of the customer base will have changed in terms of their taste, habits and style. If 100% of a firm's offering hasn't changed for decades, we have a problem, a gap.

The ability to stay current and exploit that gap is something that the Italians have been able to do quite well. But I'm hopeful that Savile Row is beginning to pickup up its game as well.

okdc said...

I completely agree with what you said. I think there are a few tailors who will maintain a niche market of the true old school, but these venerable houses need to see the power of brands in todays market. Tom Ford is exceptional at this and he does not even offer bespoke. I applaud Dunhill, G&H, and Kilgour (among a few others).

Bespoke as a service will become a niche market, one that has a small loyal clientell. It is sad to see it shrink, but I don't think it will disappear. Bespoke is starting to revive to some level, but it won't get its old market share back. It now has its due respect and the word is getting out that it the best option for suits, as opposed to buying high priced brands off the rack.

My fear is the lack of talent? How do you attract young people to come into the field. I think you need to appeall to the kids who want to be designers, but also revive it as a trade, taught in trade schools next to welding, carpentry, etc. Make it a respectable artisnal craftsmen job again and less of a manufacturing job to be shipped out to the lowest bidder.

Terry said...

Mr. Sleevehead, How do I subscribe to your blog? I can't figure it out.

tteplitzmd

sleevehead said...

Terry - I've updated the layout so that the subscribe/feeds link is clearly visible on the left hand side. Thanks for the question.

sleevehead said...

okdc, you're spot on regarding the talent issue. Every independent/solo tailor I've talked to in the US is having trouble finding someone to help out (say with finishing suits), let alone succeed him in the business.

I also think you're on to something with reviving the entire trade school apparatus. Instead of offshoring and outsourcing, we could keep those skills in-house by "near-shoring" them.