Does Cheap Fashion Undercut Designers?

Lynne Kiesling

Last Friday, the day now known as “Black Friday” because so many retailers hit their profit margin in the run-up to Christmas shopping, I did not go shopping. Nor did I write. But plenty of others did. Almost Girl (another Chicagoan, yay!) organized Black Friday blogging, with participants including Virginia Postrel and the inimitable Manolo.

Virginia in particular hit on some of the interesting aspects of the economics of fashion. One recurring tension in many of the posts is expense vs. affordability and craftsmanship/design vs. “fast fashion”. Lots of people argue that these things are mutually exclusive, but they needn’t be. Look, for example, at Fey’s lovely new dancer sculpture, $9.99 at Ikea. It’s not unique, but it’s beautiful and well-enough made that the quality does not interfere with your impression of the beauty. Furthermore, I have been pleasantly surprised to find some of the items I’ve bought at H&M lasting for years, both in style and substance.

This quote from Final Fashion illustrates this argument that I find analytically problematic:

I can’t support H&M, because of the way it undercuts my own design opportunities. I can’t support the high end of the market either, because of financial impossibility. (This reminds me of the lamentable situation of designers who can’t afford the clothes they design… yuck.)

Why can’t she support H&M? Because she thinks that they cheapen design, and that by serving the low end of the market they either reduce her employment opportunities or affect design in some way that diminishes her ability to exercise and benefit from her design skills. I don’t think that’s true at all. The fallacy in the argument is to think that clothes from H&M and more expensive, artisanally-designed clothes are substitutes. They are not. More technically, I would expect the elasticity of substitution between those two to be low; not zero, but low. The argument that they are substitutes also relies on focusing on the substitution effect in the comparison, that is, the relative prices of the two categories. But there’s also an income effect to take into account, and that income effect may affect Ms. First Fashion’s argument considerably.

Take this counterfactual: suppose all things equal, except that H&M does not exist. In that case, would we substitute into buying more expensive, artisanally-designed items? For the most part, no. We’d spend more at the Gap, at Old Navy, at outlet stores, at Target. Notice how those options do not provide perfect substitutes for the clothes at H&M, because they generally are not as “fashion forward”. I think this is the case because most of us face budget constraints. Given our incomes, if H&M did not exist, we wouldn’t substitute Marc Jacobs or Michael Kors or Tocca or Theory, for the most part.

Indeed, I would argue that H&M and artisanally-designed fashion are complements (meaning that the elasticity of substitution is positive, not negative) to some extent. Again, take the budget as given. The H&M option allows you to purchase fashionable items that have some fashion aspiration attributes, even if they aren’t the best-made garments in the world. But by being able to achieve the look, it encourages you to pay attention to fashion, to learn how to mix items to achieve the looks you want. Then as your budget changes, you can apply that learning to your choice of more haute items. This effect implies that the demand for Ms. First Fashion’s design skills will not decrease.

I would also argue that if you take the budget as given, buying fast fashion items from H&M relaxes the budget constraint a bit, so that you have more resources available to buy the craftsmanship when it matters. Like in shoes. What woman doesn’t delight in putting together outfits that mix her Old Navy t-shirt and H&M skirt with a Nanette Lepore jacket and Prada pumps? That is another sense in which the two are complements.

Hmmmm, maybe I’ll go shopping tomorrow …


32 thoughts on “Does Cheap Fashion Undercut Designers?

  1. Great stuff here! I will point my readers towards it. I am so glad that someone with a little more econ know how than me is attacking this problem!

  2. From Manolo:

    Manolo loves the Capitalism! Nothing is more worthy of the ridicule than the fashion sense of the dictators, politburos, autocrats, and tyrants.

    Can I get that on a T-shirt?

  3. Thank you for reading, and it’s interesting to read your take on it.

    My take:
    My market is the indie-local market, which is not high-end, but rather just slightly higher priced than H&M. “Haute”, Kors, Jacobs… I am not competing with these designers/definitions. For local boutique designers, H&M was a fashion bomb. Not that our customers didn’t want to support local talent, but the downward pressure of the cheapie price point did have a noticeable effect on locally made, fashion forward merch. And for our customers, the H&M temptation can be too much. In a world without H&M (in Toronto, that was last year), getting “funky, fashiony, yet affordable” clothes was difficult enough to give local designers a fighting chance. Now it’s so accessible, it’s a bit more difficult to make our stuff worthwhile to buy when we simply cannot reduce our prices to compare with H&M and still cover the cost of local production… it pushes us into a new position. I’m doing my best to connect with my market personally, which is one advantage I have that H&M does not… and of course doing everything I can to differentiate myself in a saturated industry… we shall see what happens next year, hm?

    Your analysis makes sense… but not in my actual context (which to be fair, is buried in the archives of my blog, not in the actual post you refer to)

    …And that’s just one of the reasons why I don’t like H&M.

  4. Long before there was H & M, there was Orbach’s, the home of the “ine for line” copy. No one who wore couture was fooled, and those who shopped Orbach’s perhaps had their tastes elevated a little. And the little dressmaker down the block could use her skills to copy the original. Everyone won.
    But when Stella McC knocks off her own styles at a cheaper price point, she undercuts herself.

    Local designers would be well advised to take a tip from Bill Blass, who seldomly had his work appear in the pages of Vogue, but sold huge amounts of clothes. His secret: trunk shows, where customers could order his styles tweaked for their hips, in theiir choice of fabrics, colors, skirt lengths. Service is where the mass market can’t compete. But I suspect many small designers don’t like that aspect of business as it seems to lessen their notions of “creativity”.

  5. Great points, Rachel… I used to work in the costume archives, where there was a lot of line-for-line copies. It’s an industry that seems to live and breathe by intellectual theft, so I thought it was a good thing when Stella actually profited from her designs rather than having them outright stolen like the Balenciaga knockoffs her stuff is hanging beside in H&M. But you’re right, it may be better for H&M than it is for her… it’ll be interesting to see how this develops.

    It’s funny how you mention trunk shows! Traditional fashion shows were such a money pit I was looking at alternatives, and I read about trunk shows in a book about Oscar De La Renta. The customers and press get to meet the designer personally and actually try on and feel the clothes without the moderation of models or “industry insiders”… they get a little discount and a little gift, and like you say, that’s how De La Renta’ and Blass’ brands were made! I personally love the idea and am planning my own trunk show. Not only will I be able to tell my story directly to the people who are wearing my clothes, but I will be able to learn from them what they look for in a garment purchase… now that’s what I call win-win.

  6. Great points, Rachel… I used to work in the costume archives, where there was a lot of line-for-line copies. It’s an industry that seems to live and breathe by intellectual theft, so I thought it was a good thing when Stella actually profited from her designs rather than having them outright stolen like the Balenciaga knockoffs her stuff is hanging beside in H&M. But you’re right, it may be better for H&M than it is for her… it’ll be interesting to see how this develops.

    It’s funny how you mention trunk shows! Traditional fashion shows were such a money pit I was looking at alternatives, and I read about trunk shows in a book about Oscar De La Renta. The customers and press get to meet the designer personally and actually try on and feel the clothes without the moderation of models or “industry insiders”… they get a little discount and a little gift, and like you say, that’s how De La Renta’ and Blass’ brands were made! I personally love the idea and am planning my own trunk show. Not only will I be able to tell my story directly to the people who are wearing my clothes, but I will be able to learn from them what they look for in a garment purchase… now that’s what I call win-win.

  7. Ms. Final Fashion,

    Thanks for clarifying; yes, I certainly assumed that you were designing for a different market segment. Your actual situation does sound like one where they are more substitutable than I was considering.

    I like the trunk show idea a lot. The boutiques around Chicago do a lot of trunk shows, and I get the sense from talking to the designers (especially the jewelry designers) that they find them a really profitable way to market their designs.

  8. Now I have a question here for Rachel and everyone in general about liscensing agreements. You mentioned Bill Blass and trunk shows but that got me thinking about a critical issue here and that is designers licensing. I was under the impression that it was licensing agreements that actually destroyed Bill Blass’s business. Isn’t that exactly what Stella is doing here? Just wondered if anyone had any insight into the history of this

  9. Now I have a question here for Rachel and everyone in general about liscensing agreements. You mentioned Bill Blass and trunk shows but that got me thinking about a critical issue here and that is designers licensing. I was under the impression that it was licensing agreements that actually destroyed Bill Blass’s business. Isn’t that exactly what Stella is doing here? Just wondered if anyone had any insight into the history of this

  10. Appreciation for the arts only grows through exposure. Make something well designed and cheap and people start thinking of design as a value. Frankly if your design is insipid enough that people can’t keep them separate, maybe you should take some more risks. H&M and these other chains prey on what mediocre people think is edgy for the most part…

  11. What I’m gathering from this discussion is that gift certificates would be a really good way to go this Christmas.

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