The fashion industry can be divided into five segments: haute couture, luxury, affordable luxury, mainstream, and

discount.

Haute couture is the most expensive and exclusive of the segments. It is made up of a handful of companies
which produce custom-made clothing for the world's wealthiest individuals.

The luxury segment is a step down in terms of quality and price, but still serves a wealthy clientele.

Affordable luxury targets "aspirational" consumers, those who are not rich enough to afford luxury brands but
will accept lower-priced alternatives.

The goal of mainstream brands is mass appeal; they sacrifice an air of exclusivity for popularity.

Discount brands cater to low-income consumers.

At the highest levels, the fashion industry is relatively insulated from economic changes. For example, recessionary
fearsin the United States have done nothing to harm haute couture, which is actually seeing an increase in customers
in a time when so many other companies are fighting decreasing sales. The luxury market is doing well compared to
mainstream, affordable luxury and discount brands, where its customers have less financial security and thus are not
spending as much money on clothes and accessories as they used to.

Industry Breakdown
Haute Couture
The term "haute couture" is thrown around a lot in mainstream fashion circles. However, the term actually means
something very specific. Haute couture consists of custom-made clothing made from expensive materials for the
world's wealthiest consumers. Prices for a couture piece range from $25,000 to millions of dollars [1] and though the
market is small it has been expanding due to the explosion of new wealth in emerging markets such as India, China
and the Middle East.[2] In France "haute couture" is a protected term and only a handful of companies have the right
to call themselves "couture houses." They must fulfill criteria set by the Chambresyndicale de la haute couture(Trade
Union of Haute Couture), the governing body of the French fashion industry.[3] Some couture houses are:

Giorgio Armani Priv (segment of Giorgio Armani)Christian DiorChanelGivenchy (owned by LVMH Moet
Hennessy L.V. (LVMUY))Christian LacroixEmanuelUngaro

All couture houses produce ready-to-wear as well as couture pieces. Despite its high prices, haute couture is much
less profitable than mass-produced ready-to-wear collections. However, haute couture serves to preserve a highfashion, luxurious image of the brand which fuels sales of its other collections, namely ready-to-wear, accessories

and cosmetics.[4] It is also important to note that couture includes only women's garments. There is no such thing as
haute couture menswear.

Ready-to-Wear
Ready-to-Wear is an umbrella term that applies to all clothing and accessories that are not custom-made. The readyto-wear segment is further separated into different levels according to price, exclusivity, and quality of garments.

Luxury
Luxury goods is a large category and includes all clothing, shoes and accessories from designer names such
as:Dolce&GabbanaPradaGucci(owned by PPR SA (PP-FR))
Luxury goods are generally regarded by consumers to be of high quality with a price tag to match.
Exclusivity
There are no clear-cut criteria for a brand to be classified as "luxury," however one important factor is the concept of
exclusivity. A person who can afford anything does not want to own something anyone can buy; they want something
special and unique. As a brand becomes more popular, it is not regarded as highly by the wealthy clientele. For
example, around 2002 the trademark Burberry plaid was seen on everything from expensive bags and coats to cheap
caps and scarves, becoming affordable to the middle and lower classes as well. Since the plaid was everywhere, it
was no longer exclusive or "special," which turned off many of its wealthy customers. Today, in an effort to regain its
exclusive status, Burberry has greatly reduced the presence of its trademark plaid. [5] As a result, Burberry has
reported record sales (over $1.5 billion for fiscal year 2007, over three times more than its sales ten years ago) [6] and
its stock price increased by 51% from 2006 to 2007. [7] Many luxury companies walk a fine line between increasing
market share and maintaining the elite image that is so important to rich consumers with a lot of money to spend.
Some examples of luxury retailers are:Saks (SKS), LVMH Moet Hennessy L.V. (LVMUY), and Bloomingdale's (owned
by Macy's Inc. (M)).
Current State of Luxury Market
The luxury market is growing despite the suffering U.S. economy. In 2006 8 million American households earned
more than $150,000 a year, which is a 7% increase since 2002.[8] Also, in 2006 there were 1.14 million "ultra high net
worth households," which are worth at least $5 million. This number is four times more than the number of ultra high
net worth households a decade ago.[9] In addition, due to the devaluing of the U.S. dollar, tourists have been spending
more money in American stores. In 2006, 49 million foreign visitors spent a record $104.8 billion in the United States.
[10]

Increased foreign spending combined with an increase in the number of wealthy individuals means the luxury

market is in a growth phase.

Affordable luxury

Affordable luxury is an industry segment that is focused on providing high-end merchandise at a lower price in order
to attract middle-class consumers.

Coach (COH) takes advantage of the idea of affordable luxury, selling bags that cost $138 and $1,900 sideby-side.[11]

Tiffany (TIF) has entered the affordable luxury market by offering a relatively inexpensive collection featuring
$200 silver earrings alongside $50,000 brooches.[12]

Nordstrom (JWN)

Hugo Boss AG (HUGSF)

Chanel (lower-priced items such as sunglasses and cosmetics)

These inexpensive items allow access to a brand and a lifestyle that lower-income consumers aspire to but cannot
afford. However, fears of recession, in addition to rising credit card debt and gas prices, have hit middle-class
consumers hard. While the wealthy continue shopping as much as ever, these "aspirational" shoppers, people who
form the backbone of the affordable luxury market have begun to cut back on non-essential goods such as clothing
and accessories, leading to decreased sales.[13]

Mainstream
Mainstream brands such as:

Gap (GPS)

Abercrombie & Fitch Company (ANF)

Dress Barn (DBRN)

Macy's Inc. (M)

Polo Ralph Lauren (RL)

are generally perceived by consumers as being of lower price and quality than affordable luxury goods. These brands
market to middle-and-lower-class consumers. Since their prices are much lower than their luxury counterparts, these
brands make less money per garment. Thus, they focus on volume, selling as many goods as they can and appealing
to a large number of people. In this case the concept of exclusivity no longer applies, as their goods are made (and
priced) to appeal to a large number of people.

Discount
Discount brands serve low-income consumers. This category includes not only those stores that sell goods from
other stores at a decreased price (i.e. outlet stores), but also those that price their clothing lower than most other
brands; such as:

Old Navy (owned by Gap (GPS))

Payless Shoesource (owned by Collective Brands, Inc. (PSS))

Cato (CTR)

Target (TGT)

Wal-Mart Stores (WMT)

Although haute couture and luxury have been doing well, the downturn in the United States economy has had an
adverse effect on affordable luxury, mainstream and discount brands. Their target demographic is middle-to-lower
class individuals who are more susceptible to poor economic conditions than their richer counterparts. These
individuals are no longer splurging on clothes and accessories as much as they used to, which is bad news for all
three segments.

Demographics
Demographics are important to fashion companies. They need to know what kind of person is buying their products. It
heavily influences the kinds of advertisements a company makes, what products they advertise most and where
those advertisements appear. Below are brief descriptions of a number of important demographics to fashion
companies:
Note: Unless otherwise indicated, these demographics are subsections of the American population