What swimsuits and high heels teach us about intellectual property
co-authored with Dr Chris Donegan
Every July (my northern hemisphere summer) I walk into a clothing shop to find jumpers and scarves on the rack. When I ask for swimming trunks just before I depart for my August holiday, the sales assistant tells me: "We are showing our autumn range now." It seems insanity to me but the reason is the supply chain and the time it takes to design, manufacture and dispatch a clothing collection.
Brand development has always been about intellectual property. This is especially true in the fashion industry where trademarks and instantly recognisable designs dominate: the Chanel 2.55 bag, Ray Ban sunglasses, the Hermes scarf, the Burberry raincoat or Christian Louboutin heels. These high-end products provide differentiation and pricing power underpinning market and brand value. They also feed the rest of the industry as ideas trickle into the mass market.
The ability of mass-market retailers to pick up these trends and turn out collections quickly (and cheaply) has often been the difference between success and failure. In these tiers of the market, time really is money and the most valuable intellectual property is the knowhow and skill of management teams to turn on a sixpence.
In the past 20 years, as every transaction we make has been recorded and analysed, another type of intellectual property has become just as important for brands as design – the use of customer (and social media) data to pinpoint trends, drive pricing and feed just-in-time supply chains. Therefore, in modern fashion big data has created a convergence in strategy between brand and non-brand retailers, each trying to work out what we want before we know it ourselves.
The resulting business model for the fashion industry is to combine the lowest-cost manufacturing with algorithmic analysis of customer data to refine sales and marketing campaigns, generating more bang for the buck. Intellectual property + intellectual property = better performance.
However, at least one retailer has turned the logic of brand + big data on its head – the clothing chain Zara (Inditex Group). Founded in La Coruna, Spain in 1974, the chain has become the largest retailer of affordable fashion globally and propelled its creators to the top of the Forbes rich list. The market loves Zara (it has been a strong outperformer) because it delivers. But what does it do differently?
Perhaps as a consequence of its southern European heritage (Spaniards are a highly sensory people), Zara has put a premium on rich data. It is the data source that is surprising. Eschewing statistics, store managers are trained (and incentivised) to capture qualitative feedback that tells the story behind their numbers. The reasoning is that big data tells you what but not why.
In Zara's case, it does something revolutionary – staff watch customer behaviour and ask people why they like what they like when they buy it (and what they do not like). This textured feedback and the entrepreneurial savvy of empowered store managers provide real-time actionable data and reinforces an entrepreneurial corporate culture. It is very powerful “soft” intellectual property.
This approach is combined with another unorthodox strategy – the location of manufacturing is close to the consumer markets where the products are sold. This move is inspired. Despite a disadvantage in employee costs, without the logistics of long-distance manufacturing to contend with, garments that shop managers love can be prioritised and production runs repeated. Hot items restock quickly, while trends are still relevant and market share is acquired and defended. Each season the Zara share of wallet remains secure.
Zara produces on-trend, affordable clothing like many of its competitors but it outperforms them. Why? It understands the power of intellectual property and utilizes the intellectual property its staff create more effectively than others. The lesson is not just that intellectual property is commercially relevant to all companies today but that all forms of intellectual property, not just patents and trademarks but know how, big and rich data, design and content are all important.
Dr Chris Donegan is chief executive of EverEdgeIP UK. He is a partner at Azure Wealth LLP, a specialist wealth manager based in London, Geneva and Zurich, managing $1b. He holds BSc and PhD degrees in biochemistry and microbiology and molecular neurobiology from Leeds University and Imperial College, respectively
Paul Adams is chief executive of EverEdge IP,