At the very end of 2016, McKinsey & Company and The Business of Fashion published their first joint report on the analysis of the fashion industry. The report examines the main commercial trends and presents a new global index that is intended to serve as a measure of the industry. The authors of Fashion Law Russia have prepared an adaptive translation of selected sections of the report, focusing on the trends in the fashion business in 2017. These business trends will also have an impact on the legal aspects of commercial activities, some of which are reflected in this article.
01. Increased volatility
The authors of the report highlight volatility as one of the main trends in 2017. However, uncertainty in geopolitics and the global economy also shaped the agenda in 2016. Among the main sources of volatility in 2017 were events such as the first year of Donald Trump's presidency in the United States, negotiations on the terms of the UK's withdrawal from the European Union, presidential elections in France, Iran, and South Korea, terrorism, and the 19th National Congress of the Communist Party of China. Not to mention the «black swans» that are impossible to predict.
These events have an impact not only on global premium companies, as was the case in 2016 when the fall in the value of the pound sterling after the referendum affected the financial performance of British brands. The consequences of instability are also felt at the local level. For example, boutiques located in Paris and the Côte d'Azur experienced a significant decrease in sales after the repeated terrorist attacks in France.
Roman Buzko: The growing uncertainty is leading companies to increasingly resort to legal instruments to mitigate risks. This can include various contractual provisions, such as currency clauses, variable prices, more flexible termination provisions, expanded definitions of "force majeure," and so on. It can also involve strategic decisions, such as insurance against political and commercial risks, establishing joint ventures (instead of outright acquisition of assets), and using local suppliers.
Anna Zabrotskaya: Volatility directly contributes to an increase in the number of legal disputes. For example, in 2016, we saw an increase in disputes related to rental rates in foreign currency, which are prevalent in lease agreements with large shopping malls. Additionally, St. Petersburg had its own local history of terrorism, where shopping malls were plagued by numerous false bombings for an extended period. This led to significant sales losses for stores and resulted in numerous disputes with landlords, and in some cases, even bankruptcy.
02. The return of China?
The slowdown in China's economic growth in recent years has been a concern for many. However, the CEOs of major companies surveyed by McKinsey believe that China will continue to grow. At least, the fundamental indicators suggest this. According to the report, 28% of the new middle- and upper-middle-class households worldwide will be in China by 2025. Russia, by the way, is also among the top 10 countries with a 2% share. In addition, the economic stimulus measures introduced in China in 2016 are expected to have an impact this year. This should lead to increased consumption. The development of online retail (Alibaba and Shangpin) will also improve access to luxury goods.
Roman Buzko: When it comes to the Chinese fashion market, many people are familiar with the stories of intellectual property (IP) neglect in China. However, we have seen significant improvements in recent years. For example, Chinese online retailers that entered the American market were immediately subject to the jurisdiction of American law, which forced them to take IP issues more seriously. However, in 2017, we should not expect a decrease in the number of disputes involving Chinese companies regarding plagiarism and counterfeiting.
Anna Zabrotskaya: Russian law enforcement is also active! Over the past year, there has been a clear increase in the efforts of law enforcement agencies to combat Chinese counterfeiting. Customs authorities identify and confiscate Chinese counterfeits at the border, Roskomnadzor blocks websites through which they are sold, and prosecutors conduct inspections and prosecute sellers of counterfeit products that illegally display the trademark of a well-known brand. This is understandable, as part of the support for the light industry, there is a clear focus on import substitution, including by displacing low-quality counterfeit products from the market and replacing them with high-quality domestic products.
03. Cities as a Center of Growth
Urbanization has been a global trend over the past centuries. One of the curious consequences of urbanization for business is the fact that companies are increasingly focusing on specific cities rather than countries as part of their international expansion. This is also reflected in the world of fashion. If we look at the largest cities (which have the highest sales of fashion products) through the lens of different product categories, we can see that by 2025, Hong Kong will lead in sales of jewelry and bags, while it will not even make the top 10 in other product segments.
The authors of the report believe that luxury companies will have to pay more attention to local and urban features in the future. It is also predicted that global brands will face more fierce competition from local brands, which will compete not only in terms of price, but also by offering faster collection updates and unique offerings.
Roman Buzko: We see that city authorities are increasingly focusing on urban planning. Land use and development regulations are being put to public discussion, which are designed to shape the appearance and dynamics of cities for decades to come. These factors should be taken into account when building a brand development strategy at the city level, for example, by determining the priority locations for stores.
Anna Zabrotskaya: Over time, cities have developed distinct shopping districts or streets, such as Via Montenapoleone in Milan or Bolshaya Konyushennaya Street in St. Petersburg. Many well-known brands want to locate their boutiques only in these prestigious areas as part of their marketing strategy. Could this lead to any problems? Yes, it could. First, in cities with historical buildings, there are obligations to preserve architectural monuments. This means that not every space in the center can be adapted to the needs and style of a particular brand. What Chanel did with its boutique in Amsterdam, completely rebuilding the first floor of the building with glass bricks, would never have been approved in the center of St. Petersburg. Second, with such a dense concentration of stores in a particular area, it can be challenging to maintain the brands' policies regarding prestigious neighborhood associations. Therefore, for example, the largest mass-market retailer, Zara, is located in the center of St. Petersburg, near luxury boutiques, DLT, and high-end Swiss watch stores.
04. Demanding customers
In 2017, consumers will become even more demanding and discerning. Now they are always on the alert with their mobile devices, well aware of the changing fashion trends, and social networks and blogs have an even greater influence on their choice.
In turn, fashion brands will be forced to pay more attention to multi-channel sales strategies. Investments in CRM will become a necessity rather than a luxury. Companies will also use new technologies (virtual reality, big data) more often to make their offers unique.
Roman Buzko: Customers are not only becoming more sophisticated in their tastes and preferences, but they are also becoming more aware of their rights. They are more likely to refer to their rights under the Consumer Protection Law. Customers expect complete transparency from brands, and they are suspicious if a website does not have a phone number or physical address.
Anna Zabrotskaya: Even if a customer is demanding, they must be attracted first. Therefore, modern brands are increasingly investing in FashionTech startups that develop innovative products that help attract customers' attention and persuade them to make more purchases. For example, the Massimo Dutti website uses a visual search technology that suggests additional products to create a complete look (for more information about FashionTech, see here).
05. Generational Connection
The authors of the report expect a rapid growth of two consumer categories located at opposite ends of the age spectrum: the over-60s and the Millennials born after 1981. By 2025, the over-60s will account for more than 30% of the global population, most of whom will be located in developed countries. In developing countries, young people and middle-aged individuals will predominate. Brands are encouraged to adapt their strategies to these consumer categories by identifying the values that are common to them, regardless of the consumer's age.
Roman Buzko: Indeed, in anticipation of the «generation gap», fashion brands are striving to maximize their influence in the market without focusing on a single age group. By creating a brand philosophy and associating it with specific values, the industry is fostering a «life cycle» of consumer loyalty and supporting them throughout their journey from infancy to old age.
Anna Zabrotskaya: Since the early 2010s, the fashion industry has been frequently accused of being biased towards older age groups and even discriminating against them based on their age. The industry has responded to this challenge with advertising campaigns featuring «older» models, such as Celine and Dolce & Gabbana in 2015, or the changing concept of the Pirelli calendar, which featured Yoko Ono, Julianne Moore, and Annie Leibovitz. However, the «youthful» trend still stands out. This is evidenced by the involvement of young celebrities such as Jaden Smith and Justin Bieber, as well as numerous collaborations with youth-oriented mass market brands (Kenzo, Alexander Wang, Versace, and Balmain for H&M). In 2017, Louis Vuitton collaborated with Supreme, a collaboration that has been hailed as a masterpiece. This collaboration symbolizes the integration of values between children and parents, the Y and X generations, without any generational conflict. Such projects are also interesting from the point of view of legal support, at least because the goods must be marked with the trademarks of two copyright holders.
06. Healthy lifestyle
Healthy lifestyle will continue to be in trend in 2017, and sportswear and active lifestyle clothing will not lose their relevance. It was this segment that showed the largest growth rate in 2016 with a figure of 8.5%.
Luxury brands will continue to experiment with sportswear collections. Purely sportswear brands will try to avoid the «commoditization» of their goods, offering more than just sports sneakers. Nike running clubs and Reebok mobile gyms are examples of creating an atmosphere around a brand.
Roman Buzko: Even though our team didn't win any medals at the last Rio Games, our athletes' costumes definitely won gold. It's a pleasant feeling. In all seriousness, sports have interesting applications in the world of law. This includes advertising contracts with athletes, doping scandals, and multimillion-dollar disputes over transfers. There's no doubt that this industry will continue to grow in the future.
Anna Zabrotskaya: Nowadays, sport is beautiful and fashionable, which is why many sports brands are collaborating with famous designers (Adidas and Stella McCartney), and major fashion stores are opening huge sports departments (like Selfridges in London), and global celebrities are increasingly promoting morning runs, yoga classes, and launching their own clothing lines (Kate Hudson's Fabletics). Russia is also keeping up with the trend. For example, Russian designer Gosha Rubchinsky and the German brand Adidas have already prepared a special collection for the 2018 FIFA World Cup. Of course, events such as the Sochi Olympics and the FIFA World Cup cannot but affect the development of the sportswear segment.
07. Acceleration of the cycle
As the next trend of the coming year, the authors of the report highlight the acceleration of the fashion cycle: the reduction of the time interval from the appearance of an item of clothing on the catwalk to its delivery to the store. According to the authors of the report, 2016 was a truly revolutionary year in this regard. From instant purchases during the show (see-now, buy-now) to joint presentations of women's and men's clothing. The financial results, which will be published soon, will show the success of these solutions.
However, an optimal model has not yet been developed. Moreover, representatives of many well-known luxury brands question the «urgency» of fashion in principle: according to François-Henri Pinault, the CEO of Kering, this accessibility of fashion undermines the dream of luxury, as it is the delayed gratification that creates desire.
Roman Buzko: The acceleration of the production and sales cycle exacerbates the problem of planning. This, in turn, is reflected in supply contracts, which contain special mechanisms for distributing risks between manufacturers, brands, and distributors.
Anna Zabrotskaya: «See now, buy now» is considered, perhaps, the main trend of this year. Online trading is developing rapidly, customers need convenience and speed, now few people are willing to wait several months to buy the thing they like. Such a «high-speed» approach by luxury brands does not yet fit into the usual pattern of work in the industry, which involves, among other things, time to interact with buyers, receive an advance for further production, etc. Such speed will undoubtedly affect all business processes and will inevitably lead to either a deterioration in quality or an increase in the cost of already expensive goods. In addition, the idea of immediate sales may jeopardize the existence of the fast fashion industry — these companies are more likely to become "slow" because they will copy fashion trends with a large delay.
08. Organic growth
It is noted that 2017 will be the year of organic growth. Brands will move away from the pursuit of opening new outlets. Instead, the focus will shift towards increasing like-for-like sales, increasing consumption in home markets, and abandoning the pursuit of volume. This will lead to increased investment in the brand and in creating the values it is associated with, in order to maintain uniqueness and avoid the «commoditization» of fashionable goods.
Anna Zabrotskaya: The trend of intensive development instead of extensive development can be traced in two directions. First, there is a growing trend of reducing the number of «second lines», as seen in the cases of Marc by Marc Jacobs, D&G by Dolce & Gabbana, and Sonia by Sonia Rykiel. These additional lines require the registration of new trademarks and the extension of their protection, which can lead to additional expenses for the companies. Second, fashion brands have been transitioning away from simply selling clothing and towards a broader lifestyle approach for several decades. As for «commoditization», UGG Australia, for example, is actively fighting the dehumanization of its brand by creating collaborations with well-known designers such as Phillip Lim and Jimmy Choo. These projects aim to prevent the word «uggs» from becoming a generic term and ensure that the company maintains the legal protection of its trademark due to its dilution.
09. New production technologies
New technologies will be actively used not only to increase sales (downstream) but also during the production and planning stages (upstream). Here we will see the continuation of production automation, full digitization of the warehouse inventory management process, the development of predictive analytics for predicting trends and volumes of demand.
Anna Zabrotskaya: At the fashion summit in Milan last year, an interesting B2B concept of an online boutique was presented, which does not require warehouses and finished goods. It involves the development of several shoe models, the selection of materials, as well as various decorative elements, which the buyer can view in the seller's corner and choose the appropriate design themselves, as well as take individual foot measurements using a special scanner. Then, the foot model will be printed on a 3D printer, and a custom pair of shoes will be made based on it. This idea allows the seller to reduce costs while providing an individual approach to each customer.
10. A shake-up for owners
The authors of the report predict that the challenging circumstances of 2017 may lead to changes in the ownership structure of certain fashion market players. On the one hand, shareholders expect continuous improvements in performance, which forces management to closely examine their brand portfolios to eliminate non-core areas. The sale of the Donna Karan brand by the LVMH conglomerate in 2016 is an example of this.
On the other hand, private equity funds have accumulated significant funds and are looking for opportunities to invest them. The largest private equity funds already have experience working with fashion brands, such as KKR with SMCP, Permira with Valentino, Carlyle with Moncler, and Blackstone with Versace. These trends may lead to many investment deals in the fashion market in 2017.
Roman Buzko: It is unlikely that the growth of investment activity in the fashion industry will have a direct impact on the Russian market. However, we can expect the emergence of new foreign brands on the Russian market, which were previously wary of entering the country due to the crisis. Some brands, such as Uniqlo, have actively expanded their presence in Russia during the crisis years, likely seeking to secure their positions for the future.
Anna Zabrotskaya: Luxury brands are currently exploring new market segments and diversifying their investment portfolios. Recently, it has been widely accepted that consumers around the world are gradually expanding their concept of "luxury" beyond the usual goods towards experiences, and food, along with travel, is a great way to get high-quality experiences. Therefore, for example, LVMH, in addition to its own hotel business, has also acquired the famous Milanese patisserie, which may expand its network around the world. In this sense, the task of lawyers will be to expand the scope of trademark action according to the international classifier of goods and services, depending on what the company decides to do, including the registration of service marks.
01. Increased volatility
The authors of the report highlight volatility as one of the main trends in 2017. However, uncertainty in geopolitics and the global economy also shaped the agenda in 2016. Among the main sources of volatility in 2017 were events such as the first year of Donald Trump's presidency in the United States, negotiations on the terms of the UK's withdrawal from the European Union, presidential elections in France, Iran, and South Korea, terrorism, and the 19th National Congress of the Communist Party of China. Not to mention the «black swans» that are impossible to predict.
These events have an impact not only on global premium companies, as was the case in 2016 when the fall in the value of the pound sterling after the referendum affected the financial performance of British brands. The consequences of instability are also felt at the local level. For example, boutiques located in Paris and the Côte d'Azur experienced a significant decrease in sales after the repeated terrorist attacks in France.
Roman Buzko: The growing uncertainty is leading companies to increasingly resort to legal instruments to mitigate risks. This can include various contractual provisions, such as currency clauses, variable prices, more flexible termination provisions, expanded definitions of "force majeure," and so on. It can also involve strategic decisions, such as insurance against political and commercial risks, establishing joint ventures (instead of outright acquisition of assets), and using local suppliers.
Anna Zabrotskaya: Volatility directly contributes to an increase in the number of legal disputes. For example, in 2016, we saw an increase in disputes related to rental rates in foreign currency, which are prevalent in lease agreements with large shopping malls. Additionally, St. Petersburg had its own local history of terrorism, where shopping malls were plagued by numerous false bombings for an extended period. This led to significant sales losses for stores and resulted in numerous disputes with landlords, and in some cases, even bankruptcy.
02. The return of China?
The slowdown in China's economic growth in recent years has been a concern for many. However, the CEOs of major companies surveyed by McKinsey believe that China will continue to grow. At least, the fundamental indicators suggest this. According to the report, 28% of the new middle- and upper-middle-class households worldwide will be in China by 2025. Russia, by the way, is also among the top 10 countries with a 2% share. In addition, the economic stimulus measures introduced in China in 2016 are expected to have an impact this year. This should lead to increased consumption. The development of online retail (Alibaba and Shangpin) will also improve access to luxury goods.
Roman Buzko: When it comes to the Chinese fashion market, many people are familiar with the stories of intellectual property (IP) neglect in China. However, we have seen significant improvements in recent years. For example, Chinese online retailers that entered the American market were immediately subject to the jurisdiction of American law, which forced them to take IP issues more seriously. However, in 2017, we should not expect a decrease in the number of disputes involving Chinese companies regarding plagiarism and counterfeiting.
Anna Zabrotskaya: Russian law enforcement is also active! Over the past year, there has been a clear increase in the efforts of law enforcement agencies to combat Chinese counterfeiting. Customs authorities identify and confiscate Chinese counterfeits at the border, Roskomnadzor blocks websites through which they are sold, and prosecutors conduct inspections and prosecute sellers of counterfeit products that illegally display the trademark of a well-known brand. This is understandable, as part of the support for the light industry, there is a clear focus on import substitution, including by displacing low-quality counterfeit products from the market and replacing them with high-quality domestic products.
03. Cities as a Center of Growth
Urbanization has been a global trend over the past centuries. One of the curious consequences of urbanization for business is the fact that companies are increasingly focusing on specific cities rather than countries as part of their international expansion. This is also reflected in the world of fashion. If we look at the largest cities (which have the highest sales of fashion products) through the lens of different product categories, we can see that by 2025, Hong Kong will lead in sales of jewelry and bags, while it will not even make the top 10 in other product segments.
The authors of the report believe that luxury companies will have to pay more attention to local and urban features in the future. It is also predicted that global brands will face more fierce competition from local brands, which will compete not only in terms of price, but also by offering faster collection updates and unique offerings.
Roman Buzko: We see that city authorities are increasingly focusing on urban planning. Land use and development regulations are being put to public discussion, which are designed to shape the appearance and dynamics of cities for decades to come. These factors should be taken into account when building a brand development strategy at the city level, for example, by determining the priority locations for stores.
Anna Zabrotskaya: Over time, cities have developed distinct shopping districts or streets, such as Via Montenapoleone in Milan or Bolshaya Konyushennaya Street in St. Petersburg. Many well-known brands want to locate their boutiques only in these prestigious areas as part of their marketing strategy. Could this lead to any problems? Yes, it could. First, in cities with historical buildings, there are obligations to preserve architectural monuments. This means that not every space in the center can be adapted to the needs and style of a particular brand. What Chanel did with its boutique in Amsterdam, completely rebuilding the first floor of the building with glass bricks, would never have been approved in the center of St. Petersburg. Second, with such a dense concentration of stores in a particular area, it can be challenging to maintain the brands' policies regarding prestigious neighborhood associations. Therefore, for example, the largest mass-market retailer, Zara, is located in the center of St. Petersburg, near luxury boutiques, DLT, and high-end Swiss watch stores.
04. Demanding customers
In 2017, consumers will become even more demanding and discerning. Now they are always on the alert with their mobile devices, well aware of the changing fashion trends, and social networks and blogs have an even greater influence on their choice.
In turn, fashion brands will be forced to pay more attention to multi-channel sales strategies. Investments in CRM will become a necessity rather than a luxury. Companies will also use new technologies (virtual reality, big data) more often to make their offers unique.
Roman Buzko: Customers are not only becoming more sophisticated in their tastes and preferences, but they are also becoming more aware of their rights. They are more likely to refer to their rights under the Consumer Protection Law. Customers expect complete transparency from brands, and they are suspicious if a website does not have a phone number or physical address.
Anna Zabrotskaya: Even if a customer is demanding, they must be attracted first. Therefore, modern brands are increasingly investing in FashionTech startups that develop innovative products that help attract customers' attention and persuade them to make more purchases. For example, the Massimo Dutti website uses a visual search technology that suggests additional products to create a complete look (for more information about FashionTech, see here).
05. Generational Connection
The authors of the report expect a rapid growth of two consumer categories located at opposite ends of the age spectrum: the over-60s and the Millennials born after 1981. By 2025, the over-60s will account for more than 30% of the global population, most of whom will be located in developed countries. In developing countries, young people and middle-aged individuals will predominate. Brands are encouraged to adapt their strategies to these consumer categories by identifying the values that are common to them, regardless of the consumer's age.
Roman Buzko: Indeed, in anticipation of the «generation gap», fashion brands are striving to maximize their influence in the market without focusing on a single age group. By creating a brand philosophy and associating it with specific values, the industry is fostering a «life cycle» of consumer loyalty and supporting them throughout their journey from infancy to old age.
Anna Zabrotskaya: Since the early 2010s, the fashion industry has been frequently accused of being biased towards older age groups and even discriminating against them based on their age. The industry has responded to this challenge with advertising campaigns featuring «older» models, such as Celine and Dolce & Gabbana in 2015, or the changing concept of the Pirelli calendar, which featured Yoko Ono, Julianne Moore, and Annie Leibovitz. However, the «youthful» trend still stands out. This is evidenced by the involvement of young celebrities such as Jaden Smith and Justin Bieber, as well as numerous collaborations with youth-oriented mass market brands (Kenzo, Alexander Wang, Versace, and Balmain for H&M). In 2017, Louis Vuitton collaborated with Supreme, a collaboration that has been hailed as a masterpiece. This collaboration symbolizes the integration of values between children and parents, the Y and X generations, without any generational conflict. Such projects are also interesting from the point of view of legal support, at least because the goods must be marked with the trademarks of two copyright holders.
06. Healthy lifestyle
Healthy lifestyle will continue to be in trend in 2017, and sportswear and active lifestyle clothing will not lose their relevance. It was this segment that showed the largest growth rate in 2016 with a figure of 8.5%.
Luxury brands will continue to experiment with sportswear collections. Purely sportswear brands will try to avoid the «commoditization» of their goods, offering more than just sports sneakers. Nike running clubs and Reebok mobile gyms are examples of creating an atmosphere around a brand.
Roman Buzko: Even though our team didn't win any medals at the last Rio Games, our athletes' costumes definitely won gold. It's a pleasant feeling. In all seriousness, sports have interesting applications in the world of law. This includes advertising contracts with athletes, doping scandals, and multimillion-dollar disputes over transfers. There's no doubt that this industry will continue to grow in the future.
Anna Zabrotskaya: Nowadays, sport is beautiful and fashionable, which is why many sports brands are collaborating with famous designers (Adidas and Stella McCartney), and major fashion stores are opening huge sports departments (like Selfridges in London), and global celebrities are increasingly promoting morning runs, yoga classes, and launching their own clothing lines (Kate Hudson's Fabletics). Russia is also keeping up with the trend. For example, Russian designer Gosha Rubchinsky and the German brand Adidas have already prepared a special collection for the 2018 FIFA World Cup. Of course, events such as the Sochi Olympics and the FIFA World Cup cannot but affect the development of the sportswear segment.
07. Acceleration of the cycle
As the next trend of the coming year, the authors of the report highlight the acceleration of the fashion cycle: the reduction of the time interval from the appearance of an item of clothing on the catwalk to its delivery to the store. According to the authors of the report, 2016 was a truly revolutionary year in this regard. From instant purchases during the show (see-now, buy-now) to joint presentations of women's and men's clothing. The financial results, which will be published soon, will show the success of these solutions.
However, an optimal model has not yet been developed. Moreover, representatives of many well-known luxury brands question the «urgency» of fashion in principle: according to François-Henri Pinault, the CEO of Kering, this accessibility of fashion undermines the dream of luxury, as it is the delayed gratification that creates desire.
Roman Buzko: The acceleration of the production and sales cycle exacerbates the problem of planning. This, in turn, is reflected in supply contracts, which contain special mechanisms for distributing risks between manufacturers, brands, and distributors.
Anna Zabrotskaya: «See now, buy now» is considered, perhaps, the main trend of this year. Online trading is developing rapidly, customers need convenience and speed, now few people are willing to wait several months to buy the thing they like. Such a «high-speed» approach by luxury brands does not yet fit into the usual pattern of work in the industry, which involves, among other things, time to interact with buyers, receive an advance for further production, etc. Such speed will undoubtedly affect all business processes and will inevitably lead to either a deterioration in quality or an increase in the cost of already expensive goods. In addition, the idea of immediate sales may jeopardize the existence of the fast fashion industry — these companies are more likely to become "slow" because they will copy fashion trends with a large delay.
08. Organic growth
It is noted that 2017 will be the year of organic growth. Brands will move away from the pursuit of opening new outlets. Instead, the focus will shift towards increasing like-for-like sales, increasing consumption in home markets, and abandoning the pursuit of volume. This will lead to increased investment in the brand and in creating the values it is associated with, in order to maintain uniqueness and avoid the «commoditization» of fashionable goods.
Anna Zabrotskaya: The trend of intensive development instead of extensive development can be traced in two directions. First, there is a growing trend of reducing the number of «second lines», as seen in the cases of Marc by Marc Jacobs, D&G by Dolce & Gabbana, and Sonia by Sonia Rykiel. These additional lines require the registration of new trademarks and the extension of their protection, which can lead to additional expenses for the companies. Second, fashion brands have been transitioning away from simply selling clothing and towards a broader lifestyle approach for several decades. As for «commoditization», UGG Australia, for example, is actively fighting the dehumanization of its brand by creating collaborations with well-known designers such as Phillip Lim and Jimmy Choo. These projects aim to prevent the word «uggs» from becoming a generic term and ensure that the company maintains the legal protection of its trademark due to its dilution.
09. New production technologies
New technologies will be actively used not only to increase sales (downstream) but also during the production and planning stages (upstream). Here we will see the continuation of production automation, full digitization of the warehouse inventory management process, the development of predictive analytics for predicting trends and volumes of demand.
Anna Zabrotskaya: At the fashion summit in Milan last year, an interesting B2B concept of an online boutique was presented, which does not require warehouses and finished goods. It involves the development of several shoe models, the selection of materials, as well as various decorative elements, which the buyer can view in the seller's corner and choose the appropriate design themselves, as well as take individual foot measurements using a special scanner. Then, the foot model will be printed on a 3D printer, and a custom pair of shoes will be made based on it. This idea allows the seller to reduce costs while providing an individual approach to each customer.
10. A shake-up for owners
The authors of the report predict that the challenging circumstances of 2017 may lead to changes in the ownership structure of certain fashion market players. On the one hand, shareholders expect continuous improvements in performance, which forces management to closely examine their brand portfolios to eliminate non-core areas. The sale of the Donna Karan brand by the LVMH conglomerate in 2016 is an example of this.
On the other hand, private equity funds have accumulated significant funds and are looking for opportunities to invest them. The largest private equity funds already have experience working with fashion brands, such as KKR with SMCP, Permira with Valentino, Carlyle with Moncler, and Blackstone with Versace. These trends may lead to many investment deals in the fashion market in 2017.
Roman Buzko: It is unlikely that the growth of investment activity in the fashion industry will have a direct impact on the Russian market. However, we can expect the emergence of new foreign brands on the Russian market, which were previously wary of entering the country due to the crisis. Some brands, such as Uniqlo, have actively expanded their presence in Russia during the crisis years, likely seeking to secure their positions for the future.
Anna Zabrotskaya: Luxury brands are currently exploring new market segments and diversifying their investment portfolios. Recently, it has been widely accepted that consumers around the world are gradually expanding their concept of "luxury" beyond the usual goods towards experiences, and food, along with travel, is a great way to get high-quality experiences. Therefore, for example, LVMH, in addition to its own hotel business, has also acquired the famous Milanese patisserie, which may expand its network around the world. In this sense, the task of lawyers will be to expand the scope of trademark action according to the international classifier of goods and services, depending on what the company decides to do, including the registration of service marks.