POMS Abstract Number: 020-0545

REDESIGNING SUPPLY NETWORKS IN THE FASHION INDUSTRY

Laura Macchion1, Pamela Danese2, Andrea Vinelli3, Romano Cappellari4

1Department of Management and Engineering, University of Padova,

Stradella S. Nicola, 3 - 36100 Vicenza, Italy

macchion@gest.unipd.it +39 444 998789

2Department of Management and Engineering, University of Padova,

Stradella S. Nicola, 3 - 36100 Vicenza, Italy

pamela.danese@unipd.it +39 444998703

3Department of Management and Engineering, University of Padova,

Stradella S. Nicola, 3 - 36100 Vicenza, Italy

andrea.vinelli@unipd.it +39 444 998740

4Department of Economics and Management, University of Padova

Via del Santo 33 - 35123 Padova, Italy

romano.cappellari@unipd.it +39 049 8274211

ABSTRACT

The Fashion industry is a global industry, where competition is planetary. Nowadays companies

have to face the challenges posed by demand unpredictability and adapt to a new competitive

environment. Competition from low-wage countries is increasing and consumers’ behaviours are

radically changed, being more price sensitive.

This research aims at studying Italian fashion companies to:

evaluate new managerial and organizational models that support business development in

fashion industry;

examine what variables should be leveraged and what strategies implemented in response to

the crisis to remain competitive.

Firstly, 16 in-depth case studies have been conducted. Then, a confirmatory survey has been run to

test and assess case study findings. Research provides fresh knowledge on fashion industry

“successful” business models, by revealing the existence of different clusters of firms that have

found alternative ways to compete in the new global context. This research indicates avenues of

strategic innovation within the industry.

INTRODUCTION

The Fashion industry is a global industry, where competition is planetary, beyond Europe in

many other areas, like Russia, Turkey, China, India, Mexico, United States, Brazil (International

Textile Organization, 2003; Woolmark, 2003). The attention on this industry has been recently

growing. In particular, in Italy it represents an important constituent of the Italian industrial system

with a turnover of 46.3 billion Euros in 2009, which is around 10% of the whole Italian

manufacturing system (The European House Ambrosetti, 2010). However, after many years of

continuous growth, the industry has been hit hard by the financial crisis and in 2009 data show a

general turnover decrease of 15.4% (SMI, 2010). Therefore today fashion companies have to face

the challenges posed by demand unpredictability (Priest, 2005), but they have also to adapt to a new

competitive environment. Competition from low-wage countries is increasing and consumers’

behaviours are radically changed, being much more price sensitive.

Because of the large reorganization of markets following from the crisis, companies rethought their

marketing strategies but also operations in order to realign their whole supply chain with the new

contest. According to Brun et al. (2008), it can be argued that the design and communication

management is only one of the important elements that contribute to company success, while the

whole supply chain is relevant for fashion and luxury industry success.

In particular, this research project aims at studying Italian fashion companies to evaluate new

managerial and organizational models that support business development in fashion industry and

examine what strategies can be implemented in response to the crisis to remain competitive.

Given the nature of the research questions, initially we conducted 16 in-depth case studies

using a semi-structured interview protocol. Case studies focused on brand companies, export-

oriented and with a turnover of over 5 million Euros. Within and cross-case analyses helped to

highlight significant managerial choices related to product design, process management, business

strategy, as well as new configurations of relationships within the supply network. The case studies

allow us to make business models in fashion industry emerging. Afterwards we decided to design

and run a large-scale confirmatory survey to test and assess case studies findings.

The paper is organized as follows. The second section provides a review of the main specific

contributions in the field, the third section outlines the research aim and the forth one the

methodological background and research design. Finally, conclusion discusses findings and

managerial implications, highlights the limitations of our study and outlines avenues for future

research.

LITERATURE REVIEW

The fashion and luxury industry

The focus of this paper are companies operating in fashion & luxury industry. According to

Christopher and Peck (1997), this industry is characterized by a short product life cycle and high

volatility and low predictability of product demand. The term “fashion” is a broad term that

encompasses any product or market. However, when analyzing economic data, it is common to

distinguish between apparel, textile, leather goods and so on, while some authors make a distinction

between luxury and fashion companies (Corbellini and Saviolo, 2007; Kapferer, 2008). The

ambiguity of the term “luxury” emerges from the several definitions available in the literature.

Danziger (2005), for example, wrote: “Luxury is what makes life more comfortable, more

enjoyable, more fulfilling”. Some authors examined also Critical Success Factors (CSFs) for a

company to align them with the industry’s strategy (Nueno and Quelch, 1998; Reddy and

Terblanche, 2005). Caniato et al. (2009) summarized the main CSFs for those companies operating

in the luxury segment:

consistent delivery of premium quality across all the products of the line and along the

whole SC, both in terms of compliance with the specifications and superior material quality;

heritage of craftsmanship;

exclusivity pursued through the use of naturally scarce materials, limited editions, limited

production runs and creation of waiting lists;

marketing approach that combines emotional appeal with product excellence;

global reputation of the brand;

recognizable style and design;

association with a country of origin with an especially strong reputation as a source of

excellence for a certain product category;

presence of elements of uniqueness;

superior technical performance when the brand has a technical content. Therefore,

continuous innovation can become the way to sustain the product positioning;

creation of a lifestyle so that the customer can feel to be part of a unique style, which can be

recreated in everyday life by possessing special luxury products.

In particular, Caniato et al. (2009) report that “a luxury product typically includes four or five of

such factors” described above. However it is clear the subjective nature of the definition of the word

“luxury” and CSFs that allow the creation of a luxury product. Therefore in this study we prefer to

adopt a broader definition of the “luxury and fashion industry”. In fact there is a growing

convergence of business models in the fashion industry toward offering lifestyle products where the

idea of luxury is becoming less relevant for the consumer (Cappellari, 2008). Furthermore the

diversification process of most companies made it difficult to make a distinction among different

sectors since most apparel companies are now selling also shoes, bags and even perfumes and

cosmetics or home furnishings while shoe and bag manufacturers are diversifying into apparel or

even jewellery.

Literature highlights many different classifications of fashion and luxury companies. First of

they can be classified by the positioning of the finished products. Waddell (2006) segmented the

market distinguishing between haute couture, prêt a porter and mass market. Other authors analyze

this industry by the timing of new product introduction (Vona, 2004), distinguishing between

“market-makers” companies that follow the traditional season (spring-summer and fall-winter) and

companies that launch several small collections following the trends of market-makers.

From the literature review it emerges that there have been two recent main changes in the

fashion and luxury industry because of the reorganization of markets. The first one concerns the

new way to compete in the market. Because of the global crisis, in fact, fashion companies today

don’t have to face just the challenges posed by decreasing demand, they also have to adapt to a new

competitive environment. First of all there is an increasing competition from companies of low-

wage countries (mainly from the Far East and the Maghreb region). That wasn’t such a big problem

until a few years ago since these companies were targeting a different kind of consumer, a more

price conscious consumer, while Italian fashion companies were selling higher priced products to

more affluent and fashion conscious consumers. Recent studies, however, have demonstrated that

during recession times consumer price sensibility increases even for luxury products and that even

rich consumers are ready to trade down to lower priced products since “frugal is becoming the new

chic” (Roche et al, 2009). This doesn’t mean there is no more room for high quality and high price

products, but that companies are forced to put more emphasis on the idea of “value”. High price

should be justified by superior intrinsic and extrinsic quality because the consumer is no longer

willing to pay a higher price just for the brand name.

The second major change in the new competitive environment involves demand predictability

(Priest, 2005). In recent years it has become even harder to guess both how much consumers will

buy and what they will buy. This is not a new trend since fashion companies have always been at

the mercy of rapidly changing styles (Abernathy et al, 1999), but in the past the high margins

gained on sold goods could be seen as a compensation for the risk of not selling a large part of the

assortment. Nowadays the increased pressure on prices makes it harder to sustain the “traditional”

model where the sold goods “pay” for the unsold and it becomes more important to adapt fads to

what the market is demanding. New business models are required for the fashion industry such as

“fast fashion” (Ghemawat and Nueno, 2003; Barnes and Lea-greenwood, 2006), where companies

develop the capability of reacting faster to market demand minimizing thus the risk of having stores

full of merchandise which differ from what the consumer is asking for.

In such context competition level is high and differentiation advantages are built on brand

image and product styling (Richardson, 1996). The literature deals with topics of brand

management (Keller et al. 2002; Reddy and Terblanche 2005) for the mass and luxury market.

Kunde (2002) highlights that consumers nowadays are heavily influenced by an appropriated brand

management and that brands are “the world’s new opinion makers”. According with Kapferer

(2008) a brand is not only as a name, a logo, but at a much more profound and abstract level is a

collection of values, a relationship and a promise to the customer. A correct brand management

becomes very strategic for the company and must be integrated into the core of the firm and the

importance of brand management involves thus all phases of product realization.

Supply Chain Management literature on fashion and luxury industry

The fashion and luxury industry has attracted also the attention of researchers in the area of

Supply Chain Management (SCM) mainly because this sector in recent years is becoming

increasingly complex and dynamic. The globalization of markets, the high level of outsourcing of

activities and the evolution of consumers changed the way to make business in fashion industry

requiring a growing number of innovative and customized products. The evolution of markets has

led to the globalization in the logistics and operational side of supply chain in terms of three

dimensions: the replenishment level, time and distance. Additionally, the changing consumer

purchasing behaviour has distorted the previous models of supply chain management and has raised

awareness between professionals of fashion industry that "one size does not fit all" (Shewchuk,

1998).

In the nineties the studies in this area focused in particular on Quick Response. Lowson et

al. (2000) defined QR as a state of responsiveness and flexibility in which an organization seeks to

provide a wide range of products and services to consumer in the exact quantity, variety, quality and

at the right time, place and price as dictated by real-time consumer demand. The Quick Response

(QR) is a movement originating in the USA textile and apparel industries and described in the

research of Blackburn (1991). It can be seen as an excellent model for time-compressing supply

chain because of its emphasis on cooperative efforts among all members of the chain from raw

materials right through to the end customers (Forza and Vinelli, 1996; Christopher and Towill,

2002).

Many authors studied SCM issues and underlined different relevant aspects for the

organization of the supply chain in this business. Some of them highlighted the importance of lead-

time reduction to improve sales forecasts and increase flexibility (Jacobs, 2006), someone else

emphasized the characteristics of this particular kind of industry (i.e. type of product, channel and

brand) to figure out the right supply chain (Brun and Castelli, 2008). In particular, product features

influence the configuration of the whole supply chain. Fisher (1997) proposes a model for

classifying SCM strategies based on the nature of products that distinguishes between functional

and innovative products, identifying a physically-efficient supply chain and market-responsive

supply chain. Functional products tend to have stable and predictable demand with long lifecycles.

Innovative products, instead, generally have unpredictable demand with short lifecycles. Also in

fashion industry it is possible to categorize products in functional (basic and continuative products)

and innovative (more fashionable that follows new trends). Fisher's model was then improved by

Lamming et al. (2000) that consider other important categories of variables to identify a taxonomy

of strategies: degree of innovation, product complexity and product uniqueness. The characteristic

of uniqueness, that identifies in particular luxury products but not only these ones, often depends

from the brand reputation, especially in market segments in which the brand name is a determinant

of company success (Bruce et al., 2004). Moreover Barney’ study (2004) presents a model based on

firm resources. He highlighted the importance of entry/mobility barriers, rare resources, imperfectly

imitable resources that are very important also for fashion and luxury industry.

In addition, other authors agree on the need to formulate a focused supply chain management

strategy, coherently with the product/market considered (Lee, 2004). Childerhouse et al. (2002)

developed an integrated framework for the development of focused demand chains. The

classification system utilized five key product characteristics, called with the acronym of DWV3,

Christopher and Towill (2002), that influence decision making in the selection of demand chain

strategies: duration of lifecycle, time window for delivery, volume, variety and variability. Other

contributions to the literature concerns the lean and agile paradigms. The lean paradigm was

developed within manufacturing (Womack et al., 1990) and the main focus is efficiency, which is

realized through waste elimination and activity streamlining. The typical domain of application is a

predictable and non volatile environment. The agile paradigm focused mostly on speed, flexibility,

and responsiveness and is appropriate for highly unpredictable markets. However, lean and agile

approaches are not mutually exclusive and are not conflicting paradigms. In many cases there is a

requirement for a hybrid “leagile” strategy (Naylor et al., 1999) that considers the base level

demand, satisfied by lean supply chain, and the surge demand, satisfied by agile supply chain

(Christopher and Towill, 2002). In particular Christopher et al. (2006) identified the right supply

chain strategy evaluating the predictability of demand and the replenishment lead time.

RESEARCH AIM

From the above, it emerges that, being competitive in the fashion and luxury industry, it is no

longer enough to just act on traditional levers (Forza and Vinelli, 1996). Companies must pay

attention to how processes and business networks are organized in order to recover efficiency (Lin

et al., 1994) and responsiveness too. This research aims to study the main effects of the crisis for

companies in the fashion and luxury industry, and to examine what variables in this industry should

be leveraged and what strategies implemented in response to the crisis, in order to remain

competitive. It seems important to figure out what drivers could reinforce industry competitiveness,

and what role operations could play in shaping the new global strategies. Therefore this research

focused not only on the manufacturing side but also on the retailing and marketing, the other

important side of supply chain management. For the success of a fashion and luxury firm is

necessary, in fact, not only an accurate product design but also an appropriate communication and

customer service management. All the levels of a supply chain are important in the fashion and

luxury industry to remain competitive in the market (Brun et al., 2008). Moreover it should be noted

that few contributions focus on the supply chain of fashion companies trying to individuate the

strategic reorganizations following the crisis.

This paper aims therefore at filling the literature gaps, on the one side by analyzing both

operational and marketing aspects, and on the other side by considering the effects of the crisis in

this particular industry. Fashion industry is a very relevant sector for Italy and therefore it is crucial

to understand its features and strategies to support and improve the competitiveness of Made in

Italy. For this kind of industry it is important to investigate production operating processes and

marketing policies along the supply chain from the consumers up to suppliers. Given its relevance

for our country, it is necessary to develop specific competences in order to know and monitor this

industrial field and to support its growth. The target result is a reference model focused on the most

critical decision areas, especially as regards the process of supply chain strategy formulation and

implementation. Such strategy will be defined in terms of goals (critical success factors that are

specific of the fashion/luxury industry), configuration choices, inter- and intra-firm management

practices. The match between the supply chain strategy and its implementation results in supply

chain performances. Therefore, the unit of analysis will not be the single company but the whole

supply chain.

Specific research questions are:

RQ1: What are the new managerial and organizational models that support business

development in fashion industry?

The primary purpose of the research is to develop and validate new managerial and organizational

models to increase the competitiveness of the supply chains of Fashion Industry. Due to

globalization and the other new challenges in this market, in recent years the major players are

discovering market-driven innovation and are looking to structure an integrated approach for the

design of Supply Network. Indeed, SCM has become a critical area, given the actual production

volumes and the growing internationalization of the market.

RQ1.1: What are the strategies implemented by companies in the fashion industry because of

the crisis in order to remain competitive?

RQ1.2: What are the distinctive variables in terms of supply-network design that should be

implemented in response to the crisis?

RESEARCH METHODOLOGY

First of all to investigate the research questions, the available international literature has

been analyzed, in order to define an updated framework of the state-of-the-art. Then the multiple-

case study method is adopted, using a semi-structured interview protocol specifically designed for

this research. This study involved a sample of 16 apparel companies operating within the Fashion &

Luxury sector. According to Yin (2004), Eisenhardt (1989) and Voss et al. (2002) this number of

cases can be considered sufficient to give an accurate account in an exploratory research.

The nature of this phase of the study is explorative, describing the different business models –

denoted in terms of organizational capabilities, structures and strategies (Afuah, 2003) – that Italian

Fashion & Luxury companies have adopted in order to remain competitive. Case studies made it

possible to highlight significant links between industry critical success factors and managerial

choices taken in product design, process management and business strategy. Case studies are used

to explore the various issues and investigate such complex themes in depth. They concern

companies operating in the fashion and luxury segment of different industries, in order to assess to

what extent operations issues are regarded as relevant and to catch different approaches to supply

chain strategies.

In particular our research focused on companies operating in the fashion industry whose

headquarters are located in the North-East of Italy. In fact, this area is acknowledged as one of the

most representative for Italian Fashion and Luxury System with the highest density of innovation

and creativity.

This research is a theoretical sampling (Glaser and Strauss, 1977). Initially we compiled a list of

possible companies to be interviewed on the basis of some existing relationships with researchers.

Companies that agreed to participate in the research also had to possess all the following

characteristics:

brand ownership : We decided to focus only on companies that sell their own brand products.

Given the importance of consumers’ behaviour changes in driving industry reorganization,

this choice allows us to deal with issues relating to brand management and the strategic

decisions that determine supply chain and business model assets.

export-orientation: We selected companies that realize a significant part of their revenues

through exporting their products. This way we could study the implications of the

internationalization process along the whole value chain, both on the supply (i.e. production

and/or outsourcing in low labour cost countries) and demand sides;

turnover of over 5 million Euros : even though Italy shows an average firm size which is lower

than that of most of the industrialized countries, where almost 90% of Italian apparel

companies’ turnover is not greater than 5 million Euros, this research does not intend to be

country-specific, but offer more general insights at industry level.

Table 1 summarizes the main features of the analyzed sample.

Table 1 – The sample

Case Turnover Employees Type of product

A 27,000,000 € 50 Clothing

B 402,000,000 € 1,400 Bags

C 2,218,000,000 € 9,766 Clothing

D 140,000,000 € 780 Suits

E 900,000,000 € 14,000 Socks, underwear and swimsuits

F 892,000,000 € 2,900 Shoes

G 84,000,000 € 220 Clothing

H 58,000,000 € 60 Jackets and clothing

I 25,000,000 € 51 Clothing for woman

L 15,000,000 € 200 Suits

M 18,000,000 € 60 Shirt

N 55,000,000 € 120 Clothing

O 35,000,000 70 Clothing

P 125,000,000 270 Clothing

Q 42,000,000 600 Shoes

R 17,000,000 25 Clothing

The choice of such a heterogeneous sample is due to the purpose of exploring different business

models in terms of strategic decisions made and managerial choices taken by companies to

challenge the crisis. Moreover, in the selection phase we used the literal replication technique (Yin,

2004) in order to obtain both convergent and contrasting results.

To collect information a semi-structured interview protocol was used. The structure of the interview

protocol was developed through a careful review of the literature, focusing on the main issue and

studying more in depth what are the critical success factors for fashion and luxury companies to

compete. In particular, in order to have as complete and up-to-date overview as possible, several

sources were consulted such as books (Saviolo, Testa, 2005; Fiske, Silverstein, 2004; Kapferer,

2008; Fabris, 2003; Corbellini, Saviolo, 2007; Corbellini Saviolo 2004), research reports by

consulting firms (Boston Consulting Group 2009, Bain 2009, The European House Ambrosetti,

2010) and Conferences Proceedings. The main findings and trends highlighted by this preliminary

study were then discussed and summarized. On this basis, the interview protocol was designed. To

better identify variables and formulate questions to be included in the interview, and so check

reliability and validity, a pilot case study was conducted. This way the interview protocol was

further refined.

The final version deals with five main areas:

crisis and competitive environments: analysis of the main effects of the recession on

companies' activities and strategies of company;

supply chain management: supplier relationships, choices of reorganization, delocalization

and outsourcing;

collection management: number of product collections per year, flash collections, brand

extension projects;

distribution strategies: retailing vs. wholesaling, future investments, roles and importance of

channels such as e-commerce and outlets;

communication strategies: the marketing function and activities, and the budget for

communication.

The basic protocol structure was tailored to the company to be interviewed on the basis of data,

information and news obtained from websites, journals and previous research, combining different

techniques of data collection (Modell, 2005). All the interviews were conducted by researchers who

visited the company’s headquarters. To present the project and its goals, a letter including the

interview structure was sent to target respondents before the visit. Respondents were top-managers

and/or entrepreneurs who had full knowledge and responsibility in the company's organizational

and strategic choices. When possible, multiple interviews were conducted in each company to

achieve a broader perspective and perform data triangulation (Modell, 2005).

Each interview was conducted by two or three investigators. The team work of multiple

interviewers improves the effectiveness of the research and the probability of discovering tacit

knowledge (Eisenhardt, 2001). During interviews, a member of the team asked questions and took

notes while the other members, besides taking notes, recorded the interviews. In this way, we were

able to maintain a more objective point of view and hence, ask for additional explanations or

specify the questions. All the interviews were recorded to keep track of every conversation. We

created a database with all the recordings and then transcribed interviews on documents. While

company visits were taking place, periodical meetings were organized, during which the whole

research team highlighted and discussed any problems that had emerged and their perceptions in

order to identify common lines of action.

Afterwards we decided to design and run a large-scale confirmatory survey to test and assess

case studies findings (Forza, 2002). Confirmatory or theory testing survey was developed using the

model and propositions of the previous case studies. We want to test the adequacy of concepts

developed. A dedicated questionnaire was then developed in order to validate the findings

highlighted with the case studies and in order to expand the sample of respondents. Survey research

is adopted to look for a broader empirical evidence, thus allowing to generalize the results emerged

from the case studies.

Initially it was identified a list of companies in the North-East of Italy. In this step of the

research we have benefited from the collaboration of Confindustria, that is the main organization

representing the Italian manufacturing and services companies and that is part of the International

Organization of Employers (IOE). According with Flynn et al. (1990) it was necessary to

individuate a well established unit of analysis and we chosen to maintain the same characteristics of

the previous sample to test accurately findings obtained from case studies. The sample of

companies should therefore have the same characteristics of case studies: brand ownership, export-

orientation and turnover of over 5 million Euro. Our sampling frame included therefore Italian

Fashion companies that develop their own collection internally. Firms specializing only in the

production of fabrics or in the industrialization and production of clothes on a job-order basis have

been excluded, since these firms do not design their own collections

Respondents to the survey will be top management of companies, people professionally involved in

questions and problems related to supply chain operations.

Once the questionnaires and the identity of sampling units were defined we tested the

questionnaires. The phase of testing of the questionnaire was done by submitting the final version to

three types of people: colleagues, industry experts and target respondents (Dillmann, 1978; Forza,

2002). The role of industry experts is to prevent the inclusion of some obvious questions, the role of

colleagues is to test whether the questionnaire accomplishes the study objectives and the role of

target respondents is to provide feedback on everything that can affect answering by and the answer

of the targeted respondents (Forza, 2002). The testing and collection of questionnaires began in

September 2010 and will be finish in March 2011.

The questionnaire was dispatched via e-mail to all the firms selected. The respondents were asked

to complete the questionnaire on their own and to send it back. For non-responding sample

population were used telephone recall. Researchers used the telephone to improve the response rate

of mail survey (Forza, 2002). Till now 50 complete questionnaires have been returned. Companies

contacted for the survey are about 250 and the current response rate is 20%. The relatively partial

low response rate is not uncharacteristic for an in-depth survey in fashion industry (Fernie and

Azuma, 2004), which includes the “highly competitive nature in which company strategies must be

kept within the company walls” (Fiorito et al., 1999). In addition we want to note that the list of the

Italian firms that develop at least two new collections a year included a total of 455(Cillo et al.,

2010). For our research we contacted therefore the half of the Italian fashion industry.

Survey Questionnaire

A survey was designed based on the key elements identified through a sequence of in-depth

interviews. A 5-page questionnaire accompanied by a covering letter was sent to the CEO of each

company. The survey, that investigates the management of companies in the years 2008 and 2009

uses 4 question formats: semi-closed questions, Likert scales (1 fully agree, 5 disagree completely),

multiple response, and metric measurement.

The questionnaire is composed by 9 different sections in order to investigate the changes

implemented in fashion industry to remain competitive on the market.

The first part is an introductive tab of the company that requires the compilation of specific

business data, including:

name and type of brands managed;

sales channels percentage for wholesale channel, retail channel ad outlets;

economic performance (i.e annual turnover, ROI);

operational performance regarding the development and delivery time of collections;

locations of productions;

critical success factors (CSFs);

strategies for the reorganization of the supply network.

In particular, through the case studies we identified the CSFs that each of the involved companies

considered as critical for its success. These CSFs will be tested using the survey in order to

characterize the clusters obtained. The main critical success factors indicated by companies and

included in the questionnaire are:

craftsmanship: products made entirely by skilled craftsmen

style and design: superior material aspects are not enough for the luxury goods market,

products must also convey emotions to the customer. Product design and aesthetic are very

often the mean to make customers associate emotions to the products.

innovation: in terms of technical performance, improvement in raw materials or innovative

solutions of production process.

shopping experience: customers require to have a complete shopping experience, in which

even the shop atmosphere reflects the values of the brand

service for the customer: this aspect is becoming more and more important as the customer

requirements increase;

brand reputation: as a brand is seen through the eyes of the consumer.

value for money: is the term used by customers to assess whether or not have obtained the

maximum benefit from the goods and services acquired

quality: this aspect is to be considered both in terms of compliance with the specifics and in

terms of superior material quality;

made in Italy: there are products that are appreciated for being manufactured in a specific

geographic area;

flexibility: the ability of the supply network to adapt to market changes

cost containment: is the objective of companies that look for wastes in their organization to

achieve greater level of efficiency.

creation of a lifestyle: the customer has to feel that he’s part of a unique style, which can be

recreated in everyday life by possessing special luxury products;

exclusivity and uniqueness: this CSF shows that the model of Lamming et al. (2000) is still

very actual in the field of fashion.

The following section of the questionnaire, the second one, examines the policies of pricing,

the third the area of environmental sustainability, the fourth one marketing strategies of collections,

the fifth one the area of ICT and e-commerce, the seventh one the role of Made in Italy, the eighth

one the management and organization of the supply network and the ninth one practices (e.g. lean,

JIT, partnership). All these sections of questionnaire will be used to identify what alternative

strategies are adopted by different clusters of firms to compete under the same set of goals.

Statistical analyses will include cluster analysis and ANOVA.

PRELIMINARY FINDINGS

From the first exploratory phase of case studies emerges that there are many changing aspects in

fashion market because of the crisis. First of all, our research shows how the crisis acted as a

catalyst in driving changes within the supply network structure and firms’ collections. Traditionally,

companies in the fashion industry are classified according to two main business models: “pronto

moda” (i.e. quick fashion) and “programmato” (i.e. planned production) (Vona, 2004).

Companies following a “pronto moda” approach implement a pull strategy. During the sales

season, they continuously analyze the trends and styles dictated by the principal maison de couture

and other fashion-setter companies, and interpret ongoing market responses. This way, they can

design and produce products that customers have already shown they like. To implement this

business model it is necessary to design a very flexible supply network structure, able to obtain

finished products in a very short time and make them immediately available at affordable prices in

shops (Sciarelli and Vona, 2000). This strategy also helps companies to minimize the risks of both

obsolescence and out of stock. They create short-lived differentiation advantages that are easily and

rapidly eroded through imitation of new styles (Richardson, 1996). Today this kind of markets is

highly competitive and the constant need of “refreshing” products brings to an increase in the

frequency of change of the entire merchandise within a store (Christopher et al., 2004). However,

the price they have to pay is a lack of originality in defining their style (i.e. they are followers, even

though they are fast) and lower quality of the process and product, often due to the fact that to

compress lead times and keep profitability companies outsource most of the activities to external

suppliers.

On the other side, companies following a “programmato” approach implement a push

strategy. They act as market-makers, developing innovative ideas and fashionable products, that

should drive up demand (Vona, 2004). To do that companies need long lead times to design and

manage many activities along the whole supply chain, that are planned and executed in advance,

before sales to final customers take place (Varacca et al. 2002). Outputs are the two product

collections: spring-summer and fall-winter.

The main pitfall of this approach, that still could guarantee high quality and original stylish and

fashionable garments, is that the two main collections must be planned one year in advance based

on sales forecasting. This choice no longer seems to be aligned with turbulent and ever changing

global market demands. The crisis and changes in customers’ behaviours forced leading companies

operating in the fashion and luxury industry, most of which were used to following a

“programmato” strategy, to pursue a new business model, that maintains the strengths of the old,

but gains the agility and quick response of the “pronto moda”.

This hybrid model, that we label “pronto programmato” is based on a “push and pull”

strategy. Companies try to better respond to unpredictable customers’ needs, combining the two

seasonal collections (the push supply) with some flash, or secondary, collections (the pull supply),

designed and realised in very compressed times during the sale season. In our research, companies

A, B, C, D, E, F, G and H are all implementing this innovative mixed strategy. All these firms

augmented or introduced new, flash or capsule collections, or limited editions to be more responsive

to customer and market changes and trends. The two seasonal main collections (i.e. spring-summer

and fall-winter) continue to exist, but offer less variety and are constantly renewed by the latest

collection. Moreover, even the main collections are not delivered to stores in one batch, but in small

lots across the season, looking for alignment between demand and supply, whose effectiveness

depends on the ability of the company to read the market and react quickly. Interestingly enough,

companies’ capability of designing and supplying ever more innovative and fashionable products is

nurtured by this approach. Firm B, for example, patented the seams of its bags and invested in

product materials and design to improve and speed up product innovation. Implementing this

strategy is not an easy task and it cannot occur overnight. Increasing the number of collection

requires that a company reorganizes its supply chain, dedicating much energy to making it more

adaptable and agile. Our research has shown that it is not important if the supply chain is vertically

integrated with its own plants located in foreign low cost countries (firm E), or completely

outsourced abroad (see firm A) or still within the Italian fashion districts (firm B). The main goal –

and prerequisite at the same time – to implement the “pronto programmato” approach is that the

supply chain must be flexible, responsive, fast and efficient to manage the new collections.

Therefore, these companies reorganised their value chains to improve efficiency and better

coordinate all their network activities. The research highlights that integration between different

actors of the same supply chain can lead to relevant benefits in terms of competitive advantages for

the whole system. Indeed nowadays, for fashion and luxury apparel companies, supply chain

management is a feasible answer to challenge the crisis, when they are able to design, produce and

deliver fashionable products, create value for money, compress time to market and reduce all the

inefficiencies.

However our research also highlights that some companies – I, L, M – continued to follow a

“programmato” approach. These companies didn’t feel the need to change their supply chain

structure and increase product supply to meet new consumers’ needs. Collections are still two per

year. For example M, that had previously supplied four collections per year, returned to two

collections, because, in these times of crisis, its market could not absorb more than two collections.

The rationale behind this strategy is to reinforce the focus on its core products and business. So,

even this “programmato” approach is a new kind of model too. In fact, in order to strengthen the

“programmato” characteristics, these companies focus on their products, that maintain their

traditional style appreciated by customers over time, research for innovative raw materials and

partnerships with suppliers to increase the quality of final products and customer service. Therefore,

supply chain agility and adaptability are not so critical, since production times are still those

scheduled in a two collection framework and do not require rapid changes in the mix.

The research shows that companies adopting a “pronto programmato” approach are also trying to

develop and/or foster a retail channel strategy, especially in foreign markets such as China, Brazil

and India that do not have a tradition of multi-brand stores. The retail channel is developed by

companies also to augment and nurture their brand awareness. On the other hand, companies that

adopt a “focused programmato” approach and don’t have a brand evocative of a lifestyle, instead

they distribute their products through the wholesale channel and do not launch brand extension

projects.

In summary, as reported in Table 2, we can say that companies following Programmato model

develop original high quality and stylish garments, that should drive up market demand. These

companies need long lead times to design and manage in advance the activities along the whole

supply chain. By levering on agility and quick response, Pronto moda model helps companies to

minimize risks of both obsolescence and out of stocks. These companies are able to launch several

and different collections along the year, creating short-term differentiation advantages through

imitation of new styles (Richardson, 1996). The price they have to pay is that process and product

quality are not high, because, to compress lead times and maintain profitability, companies often

outsource most of their activities. The hybrid model, Pronto Programmato, tries to get the most out

of the other two, still offering the two seasonal collections (the push side), but enriched by other

small collections (the pull side), realised in short times during sale seasons. Moreover, even the

main collections are not delivered to stores in one large batch, but in small lots during the season,

looking for alignment between demand and supply.

Table 2. A taxonomy of strategies and business models

PRONTO MODA

MODEL

PROGRAMMATO

MODEL

PRONTO-

PROGRAMMATO

MODEL

Market demand Alignment between

demand and supply

Drive un market demand Alignment between

demand and supply

Number of

collections

Launch several

collections per year

Two traditional

collections per year:

spring-summer; fall-

winter

Two seasonal collections

per year, but enriched by

other small collections.

Delivery of

collections

Collections are not

delivered to stores in

one large batch but in

small lots during the

season

Collections are delivered

to stores in one large

batch

Collections (even the

main collection) are not

delivered to stores in one

large batch, but in small

lots during the season

Style of collections Follower: imitation of

new styles

Stylish garments Follower for smaller

collections

Development of

collections

Collections realized in

days

Collections realized a

year before the delivery

to shops

Some collections

realized in 20 days and

someone else a year

before the delivery to

shops

Lead time from the

development of

collection to the

delivery

Compressed lead times Long times to design Long times to design for

the main collection and

compressed lead time for

smaller collections

Outsource Outsourced most of The practice of outsource Outsourced most of

activities is less implemented activities

Table 2. A taxonomy of strategies and business models (continue)

PRONTO MODA

MODEL

PROGRAMMATO

MODEL

PRONTO-

PROGRAMMATO

MODEL

Process and product

quality

Low process and

product quality

High process and

product quality

Many different

approaches for this

aspects

Importance of Made

in Italy and

Italianity

Low importance of

Made in Italy

Different point of view High importance of

Made in Italy and

Italianity

Process phase

internally done

design, cut, finishing,

shipping. Intermediate

phases of process

delegate to

subcontractors

All phases design, cut, finishing,

shipping. Intermediate

phases of process

delegate to

subcontractors

Objectives to follow Minimize risks of

obsolescence;

Minimize risks of stock

outs

Manage in advance the

activities along the SC

Minimize risks of

obsolescence and

minimize risks of stock

outs for smaller

collections; Manage in

advance the activities

along the SC for main

collection

Partnership in

supply chain

Low High to find product and

process innovation

High to find product and

process innovation for

the main collection

Table 2. A taxonomy of strategies and business models (continue)

PRONTO MODA

MODEL

PROGRAMMATO

MODEL

PRONTO-

PROGRAMMATO

MODEL

Strategy Pull strategy Push strategy Push - Pull strategy. Push

strategy for traditional

collections, pull strategy

for other collections

Delivery

organization

wholesale distribution

points located in places

easily accessible to

retailers.

delivery system that

seeks to reduce the time

of delivery to retailers.

Use of retail channel

Type of supply chain Agile;

Quick response

Efficient/Lean Leagile; Agile and

Efficient

Objective of the

supply network

reorganization

Flexibility,

responsiveness.

Efficiency. flexibility,

responsiveness, speed

and at the same time

efficiency.

As described above, we developed a survey to test the case studies’ findings. Preliminary

examinations of the first 50 questionnaires confirm the competitive business models highlighted in

the case studies analysis. Three clusters emerge:

1) companies that act as market-makers according to a push strategy based on the traditional

spring-summer and fall-winter seasons (i.e. Programmato model),

2) companies that compete on short time-to-market according to pull strategy based on

following market-makers’ trends (i.e. Pronto Moda model) and

3) companies that adopt a hybrid solution according to push-pull strategy (i.e. Pronto

Programmato).

Each of this identified cluster will be then characterized by its critical success factors (CSFs) that

will address specific area of study:

1. Environmental sustainability;

2. Marketing channels (E-commerce; factory outlet stores, DOS) and the role of ICTs;

3. Pricing policies;

4. “Made in Italy” vs. “Italianity” (defined as creativity and design that recall the Italian

lifestyle);

These five areas concern findings identified during the first exploratory phase run with case studies

that will complete the existing knowledge in the literature. The changes in consumers’ purchasing

behaviour forced companies to implement many actions to deal with this change. Customers

become ever more aware, competent and exigent so companies and our analysis gave evidence the

main areas that companies are exploring to better respond to customers’ requests.

1. The first is the growing emphasis on environmental sustainability (Shrivastava, 1995).

Companies realized that this issue is becoming a critical decision-making characteristic in

customers’ purchasing behaviour. In fact, environmental and social concerns have become

important in consumers’ product choice and supplier selection decisions (Cleveland et al.,

2005). Therefore, companies tried to adapt to these new consumer concerns with the

introduction of a new variety of green products that reflect consumer’s changing (Kotler,

2003). As a consequence, several projects have been launched to improve the level of

sustainability of many items or the whole company itself. For example, firms C and A

developed and commercialized an organic cotton product line, and E created the first organic

stocking collection made of bamboo. Other companies went further, transforming their

entire business strategy according to the environmental sustainability revolution. Company

B, which is already certified ISO 14001, approved a corporate plan to reduce emissions and

select materials and components of their collections with very strict provenience. Firm H

designed a new brand entirely based on the idea of sustainability: starting from an

innovative product concept, H developed a brand that has no impact on the environment (i.e.

using sustainable and recycled materials, eliminating any fur inserts, and implementing

processes in line with a green approach). Company L installed a photovoltaic system in its

plant, and worked using organic wool without colorants and washed only with neutral soap.

The study of Kotler (2003) predicted that companies increasingly will seek to maintain or

improve both the customer 'and societies' well-being and nowadays the topic of green has a

great resonance, even in marketing and communications strategies (Chamorro et al., 2007).

2. A second area of investments for companies is the development of e-commerce and ICT

systems. The internet's contribution is twofold: on one side it improves direct sales, on the

other it favours marketing online that better supports customer relationship management.

Thanks to the web, consumers are more actively involved in communication with the

company, and themselves become potential suppliers of information. Indeed, the crisis

increased the importance of internet as an economic tool to sell products at a cheaper price,

but also to gather more information on products. E-commerce is becoming an emerging

distribution channel that is particularly exploited by young customers. These opportunities

have been rapidly taken advantage of by companies, such as firms B, A, I, G, E and F, who

hit on e-commerce as a new distribution channel. On the contrary M and L maintain a

different approach. They mainly produce sartorial clothes and do not believe that the e-shop

can substitute the personal feeling of unique retailing. Moreover, internet could cause some

conflicts with their traditional sale channels. Thus, they use their web sites mainly to share

information with supply chain partners (i.e. on the web shops can check in real time

availability of products and raw materials).

3. A third area concerns the pricing policies companies have adopted to face the fact that

costumers have less money to spend. Some companies lowered the prices of their products

and/or increased supply and range of entry prices. In any case to achieve these goals,

companies necessarily had to pay more attention to process cost rationalization and

efficiency within the entire supply chain. For example, companies F, E, A, B and C

rationalized their organizations, applying lean management techniques and principles to

eliminate waste. According with Waddington et all. (2002) a physically efficient Supply

Chain Strategy is very similar to the so-called lean Supply Chain. However, our study

highlighted internal rationalization is not enough to challenge the crisis and remain

competitive. Companies realized that they should also improve efficiency and

responsiveness of the entire supply chain to response quickly to market demands in terms of

both adequacy of commercial supply and price and product quality. The research effectuated

by Lee (2004) shows how a supply chain must be not only fast and cost effective, but for its

development is it also necessary agility, alignment, adaptability (the triple ‘‘A’’). Closer

partnerships and collaborations among companies within the value chain, such as

franchising, licensing and vertical agreements, become the wild card companies played in

this new game. This way, firms M and L co-develop their information systems with suppliers

to include new procurement policies that eliminate superfluous raw materials. Companies D,

A and B started new collaborative projects involving suppliers from the very early steps of

collection design.

4. The forth area regards the role of “Made in Italy” as a possible competitive answer to grow

differently from other global competitors in the fashion and luxury industry. Two different

strategies emerged from the cross case analysis. The first – largely expected - is to strongly

lever on this specific characteristic to build competitive barriers which makes entry on to the

market difficult – to not say impossible - for foreign competitors. The direct consequence of

this strategy is to produce exclusively in Italy, and clearly tag and market products

accordingly, i.e. using the Made in Italy label. This strategy is mainly followed by luxury

companies, with a sharp and long established tailoring and handmade tradition, that produce

luxury garments, often made to measure for the customer, with a relative high final price, as

firms B, L and D (the last company only for top-line collections). For these companies the

Made in Italy label continues to be a critical strategic factor, and through and thanks to it,

they want to convey more than just merely informing customers of state-of-the-art design

and high quality. The Made in Italy label acts as proof of a particular place, history, culture,

a set of feelings that are associated with the Italian lifestyle. Therefore, these companies

continue and manage all the production phases and activities in Italy, from raw material

supply to the finished goods. Even the outsourced activities are outsourced within Italy. For

example the only activity B carries out internally is the cutting of valuable leathers, while all

other stages of production are outsourced to a network of Italian handicraft workshops, each

of whom is specialized in a particular process or production phase. The high profit margin

and the still good market appreciation allow these companies to remain competitive, even

when pursuing this expensive production strategy, as no labour cost efficiencies are

exploited by producing in Italy. The second strategy which emerged from the cross case

analysis is in some way more interesting and counterintuitive. For many analysed

companies, Made in Italy is no longer a critical success factor in the fashion industry. They

do not consider the geographical origin of their products as a winning-order criterion, but

they still preserve and look for a strong linkage with Italy through the distinctive

characteristic of "Italianity", defined as creativity, design, quality, innovation, beauty,

aesthetic taste, all of which recall the Italian lifestyle. In this view, “Italianity” is a feeling,

and not a production origin label, that products necessarily have to show to customers. This

is the case of the firms F, A, M, E, G, I, H that – coherently with this strategy – learned this

long ago and chose to outsource their production activities to low labour cost countries

before the crisis. There are three main reasons why companies strive to globalize their

supply chains, either sourcing from around the world, or moving manufacturing to East

Europe, North Africa or Far East Asia: 1) to seek cheap labour for cost advantage

(companies F, M, E, G, H), 2) to search for particular competences (company I) or 3) to be

nearer to their markets (company A). The crisis, and the changes which have occurred in

customer’s behaviours and demand in global markets, has just confirmed the reasons behind

this strategy. For these companies outsourcing production on a global scale is not the

response to the crisis, but just a natural prosecution of a more articulated strategy. Countries

like China, and in the near future also India, where many of the Italian fashion companies

outsource their production, are becoming very profitable markets for the fashion and luxury

industry. This way, locating production close to or within these final markets, reducing

transportation costs and avoiding unnecessary journeys and passages, is a twofold winning

strategy. For example, A still designs its collections in Italy, but then outsources all the

production and logistic activities of its collections directed to the American markets in

Mexico.

CONCLUSIONS

This research project provides fresh information on how the fashion industry has challenged the last

global crisis. Case studies analysis helps to identify companies’ operations and value chain trims to

remain competitive. Then, survey will test and validates the 3 business models highlighted in

literature and case studies. Each business model is characterized by a distinctive set of strategies,

organizational structures and capabilities. Research provides knowledge on fashion industry

“successful” business models, by revealing the existence of different clusters of firms that have

found alternative ways to compete in the new global context. Proposed models will identify specific

strategies, in terms of practices and techniques. The final goal of the research is the definition of a

model that could help managers and practitioners, operating in the fashion products segment, in

understanding whether SCM could drive improvements for their business and identifying the most

appropriate set of choices regarding the different levels of any considered supply chain; such model

should include indications about contracts with customers and suppliers as well as risk and benefit

sharing. This way, this research indicates avenues of strategic innovation within the industry.

Our study suffers from some limitations that can provide indications for future research. The

research is limited to some North-Eastern Italian fashion and luxury companies. Next step could be

to expand the research to study other regions/countries. Finally, a longitudinal survey approach

could also be adopted to better examine the causal relationships among practices and performance.

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