Indie Brands Are Struggling

Over the past few weeks, the news in the fashion industry has felt eerily like the mid-1990s. It was when Barneys New York filed for bankruptcy in 1996. Thankfully, I was working at Chanel at the time. Due to their status as a major luxury brand, Chanel had the power to include a clause in their contracts stating that they would not ship merchandise until payment was received. This saved them from suffering losses like other brands did, especially independent ones who lost money, inventory, and employees during that bankruptcy fallout.

As the saying goes, history repeats itself and independent fashion brands are currently facing a crisis as multiple issues converge. The cascade of closures kicked off with Mara Hoffman, who announced she was shuttering her 15-year-old business, after years of trying to make her brand both financially and sustainably viable. Then, New York City-based designer Calvin Luo decided to put his namesake label on hold indefinitely.

But by far the most alarming news came from across the pond as Susie Cave’s beloved gothic dress label The Vampire’s Wife and Australian-American designer Dion Lee both called in administrators, while Roksanda Ilinčić just narrowly escaped the same fate after selling her namesake label to The Brand Group. Wrapping up the month was Richemont, which announced that AZ Factory, originally launched by the late Alber Elbaz, will cease operating as a fashion label and instead become an educational program for independent designers.

Business Headwinds

There is no denying that there are major headwinds blowing for the fashion industry. Like the US, Europe is dealing with inflationary pressures and post-pandemic supply chain issues. The UK is experiencing these as well, plus a full-blown cost of living crisis brought on by Covid and Brexit and the loss of VAT-free shopping for tourists. All of this has limited the spending power of aspirational shoppers, something luxury brands have been warning investors about for months.

But another major contributor to this series of closures is the implosion of British retailer Matches. Brands across the spectrum have been affected by the luxury, multi-vendor retailer’s collapse from Burberry (reportedly owed 500,000 BP) to Anya Hindmarch (out 200,000 BP). The Guardian’s reporting states that there are more than 500 unsecured creditors owed money by Matches.

For a luxury brand or a label with investor backing, this kind of financial loss is damaging, but usually manageable; for an independent label, however, an unexpected financial hit of this magnitude is devastating. Indie brands typically operate on tight budgets and with limited cash flow, making it difficult to recover from any delay in payment, let alone the bankruptcy of a wholesale partner where there is little chance of receiving payment or the return of unsold merchandise. With no way to pay production costs for the next collection, the brand can experience a financial crisis.

Why is wholesale still attractive to independent brands?

One would expect that the possibility of going bankrupt would discourage independent brands from seeking wholesale partnerships.

While much has been made of the DTC business model, it is expensive from the high customer acquisition costs to the ballooning expenses of shipping and returns. Plus, using digital advertising to drive brand awareness and customers to a site is not only pricey but also ineffective: According to WordStream’s analysis of $3 billion in annual Pay Per Click ad spend, the average click through rate is 2.35% and more than 90% of those clicks bounce.

Going the investor route can be an answer, but it is extremely difficult to find one that aligns with a brand's goals and vision. Investors typically want fast returns and quick exits, which does not always make them a great match with fashion brands - especially for a label looking to build gradual, sustained growth. While Roksanda was fortunate to find a white knight at the last minute, her situation is the exception and not the norm.

This is why wholesale is still a major point of discovery for independent brands, even with all its challenges.

Is this the beginning of a bigger market shake out?

It is frustrating that nearly 30-years after the Barney’s debacle it is still impossible for independent brands to survive these kinds of wholesale bankruptcies. We all know life isn’t fair, but there is just something wrong when a brand works hard to do everything right - from crafting a unique DNA with original, high-quality products to building a fan base and receiving critical acclaim - and is still not able to make it as a business.

The only solution I see going forward - and one I have been championing for a while - is for independent brands to go to a make-on-demand model. Parts of the industry are moving toward this solution with the expansion of microfactories, especially in Europe, but this business model will take time to catch on and grow.

As of now, according to journalist Chloe Mac Donnell at The Guardian, one fashion insider believes that half of the independent brands previously carried by Matches “would not make this month’s payroll.” And if you think this insider is referring mainly to British designers, here is a reminder that Mara Hoffman was carried at Matches. Like many in our industry, I hope this list of bankruptcies remains short, but my fear is that we are in for more business closures over the next several weeks.

Mara Hoffman image courtesy of Lev Radin / Shutterstock. Dion Lee Fall 2019 image courtesy of FashionStock.com / Shutterstock.