While creativity and design remain at the heart of a clothing business, the success of a fashion brand may be determined by the business model they choose to utilize. In the past, a clothing brand could succeed by designing items, marketing those items, and waiting for those items to fly off of the racks. However, as consumer behaviors change, the clothing industry has to respond with business strategies that make sense.
The clothing and fashion industry is one of the top 10 most competitive industries in the world. With so many designers, creators, wholesalers, and other clothing businesses out there, brands need to utilize different models to help their clothing business grow.
If you’re a budding fashion entrepreneur seeking the right model for your brand or a fashion enthusiast curious about the business side of your favorite labels, this article will help you understand some of the best and most effective business models for clothing brands.
What is a Clothing Brand Business Model
Before we get started, let’s define what a clothing brand’s business model is. A business model outlines the products or services the business plans to sell, its identifies the target market for the clothing brand, and any expected expenses. Specifically for a clothing brand, a model is how that brand intends to make money and to whom will be buying its clothing.
Much like many industries in the past 20 years, the internet has allowed the fashion industry to grow and change. This has helped it create new business models while making the older models more efficient and convenient for both customers and brands.
While there are more options for business models today, not all brands will benefit from all models. This is why fashion entrepreneurs need to evaluate which model will work best for their brand.
Let’s take a look at 5 possible models that a clothing business could pursue.
A manufacturer is a business that creates goods from raw materials. In terms of a clothing business, this is where the actual creation of items begins to be sold in your own stores, online, via a marketplace, or wholesale items to another retail store.
Manufacturing your products allows for a direct relationship between the design and production team. Meaning, since you are in control of the entire process, you can make sure the finished product is true to the envisioned design.
This is in contrast to when you outsource the manufacturing of your designs to an external manufacturer. You’re not in control of the process so if there are irregularities that happen and are not caught, you won’t know it until your customers contact you. Or worse, leave negative reviews.
For a clothing business that intends to sell in its own boutique (online or a physical location), this model works well if uniqueness of design is important. Cost is another significant factor. With direct control over the supply chain, brands can identify cost-saving opportunities or areas that need investment.
Uniqlo, for example, streamlines its manufacturing process by limiting its color palette and fabric types. This results in economies of scale that drive down production costs. This efficiency is reflected in the brand’s affordable yet quality product range.
Dropshipping Model: Streamlined E-Commerce Evolved
On the other end of the spectrum is the dropshipping business model. Imagine a clothing company that designs items but never produces them, sells them in a store, or even receives the items so they can be stored in a warehouse. Instead, the company designs the items, and the rest is done by a clothing supplier.
They produce the items, store them in their warehouse, or print them only when an item is purchased. They also ship those items directly to the customer. This is essentially how dropshipping clothing, works. The dropshipping company never has to physically touch or have the clothes they sell.
This business model has truly transformed the e-commerce landscape. This model offers businesses an entry point without the burdens of stock management. Brands or retailers act as intermediaries between manufacturers or wholesalers and customers.
Brands like Zara have effectively used a modified form of dropshipping. While they don’t use third-party suppliers, their fast-fashion model involves quickly producing designs in response to trends and directly shipping them to stores, minimizing warehouse storage.
One significant advantage of dropshipping is its low-barrier entry. Entrepreneurs can set up online stores with diverse product ranges without massive capital.
A real-world example is the rise of niche Shopify stores selling everything from custom jewelry to specialized tech gadgets, all sourced from third-party suppliers and without the owner ever touching the inventory. The downside to this model is the profit margins are typically lower.
A dropshipping clothing company can expect margins to be around 15%-20%. This, as you have probably guessed, is because there is very little overhead and risk to the seller. The dropshipping supplier is doing much of the work so they require more of the profits.
Subscription Clothing Box Model
This relatively new business model for clothing businesses seems to only gaining popularity. Subscribers receive a curated selection of fashion items, often tailored to their style preferences, delivered to their doorstep at regular intervals. The allure of these boxes lies in the blend of convenience, personalization, and the thrill of unboxing.
- Stitch Fix
- Wantable Style Edit
- Urbane Box
- Rent The Runway:
- Dia & Co:
- Short Story
Beyond personalization, these subscription models are brilliant for brands looking to manage inventory. It also works well for introducing customers to new product lines or simply ensuring consistent customer engagement. By keeping subscribers eagerly awaiting their next box, brands create a recurring revenue stream and build long-term relationships with their clientele.
Retail Clothing Model
The brick-and-mortar retail clothing model is still thriving today. In fact, the entire retail sector has seen significant growth. In 2023, for the first time since 2016, U.S. retail stores more retail stores opened than closed. This has benefited traditional retail stores that sell clothing. For example, Macy’s opened 30 new locations this year.
Stepping into a physical store provides customers with a multi-sensory experience that cannot be replicated online. Store design, background music, and hands-on customer service help a clothing retailer set the mood for customers to purchase. For example, luxury brands like Gucci or Chanel transform their boutiques into art galleries of fashion.
While physical retail stores are seeing a resurgence, using the e-commerce retail model is still a viable option for many clothing companies. Of overall fashion retail sales worldwide, nearly 21% are e-commerce transactions.
Multi-Brand Business Model
The multi-brand business model is a type of business model that involves a company owning and managing multiple brands under its umbrella. The purpose is to use each brand to target different market segments or needs. This strategy allows the company to cater to a diverse customer base, minimize the risk of market fluctuations impacting all its products, and capitalize on different market trends all at the same time.
In this model, each brand operates independently. Also, each has its unique identity, marketing strategy, and customer base. The sweet spot for the clothing company is that it benefits from shared resources and expertise from the parent company.
Luxottica is a prime example. While many consumers may not recognize the company name, they certainly know its brands: Ray-Ban, Oakley, and Vogue Eyewear. By housing multiple brands, Luxottica can appeal to different market segments from the lovers of Ray-Ban to the sporty audience of Oakley.
Similarly, LVMH (Louis Vuitton Moët Hennessy) boasts a multi-brand empire encompassing domains from luxury fashion to fine wines. Brands like Louis Vuitton, Dior, Fendi, and Marc Jacobs, each with their distinct identity. However, they all coexist under the LVMH umbrella.
While these are not the only business models used by clothing companies, they are some of the most effective. New clothing brands need to consider who their competition will be and which model will best suit them. Keep in mind that many brands utilize multiple models simultaneously. While bigger brands can do this more easily, new clothing businesses should work to find their niche and target markets where they can best serve their customers.