How can fashion hang on in the financial crisis?

Life&style Ksubi, the trend-setting label started by three Australian surfers, is just the latest high-profile company to go to the wall. M looks at the way savvier brands are using the internet to keep in touch with today's more frugal shopper - and stay afloat.

Christian Northeast

Ksubi, the trend-setting label started by three Australian surfers, is just the latest high-profile company to go to the wall. Fiona Killackey looks at the way savvier brands are using the internet to keep in touch with today's more frugal shopper - and stay afloat.Staring out from a newspaper portrait taken in 2005, George Gorrow, Dan Single and Gareth Moody epitomise success. Young, good-looking and sporting the type of tan that results from years of surfing Sydney's northern beaches, they represented the ultimate in nonchalant hipster cool - as indeed they should. In 2000 the Aussie mates began experimenting with jeans - including dragging them behind cars to give them a "distressed" look - before selling the results to friends and fellow surfers. Within months they had been transformed from adolescent surfer dudes to internationally acclaimed fashion designers with their label, Tsubi, sported by everyone from Jude Law to Gwen Stefani.

Tsubi quickly became a label synonymous with rebellious fashion, artistic store fit-outs, hedonistic parties and over-the-top antics including sending live rats down a catwalk and having models jump off a ship's plank into Sydney Harbour. Buyers loved them, celebrities adored them and the world's most cutting-edge media saturated them with attention. Even a name change - resulting from an out-of-court settlement with US shoe manufacturer Tsubo - didn't appear to lessen their glow. The newly named Ksubi were living large and enjoying every second.

A decade of international success followed, including collaborations with the likes of the designer Richard Nicoll and stylish celebrities such as Kanye West, and a place on the 2009 Young Rich List published by the influential Australian business magazine, BRW. So it was a huge shock when Gorrow and Single (Moody left the label in 2005) bade farewell to their fashion fairy tale and filed for voluntary administration last month.

While some Australian financial experts suggested the drop of the Australian dollar in 2008/09 coupled with a sharp increase in textiles prices led to Ksubi's demise, fashion insiders claim Ksubi was spending lavishly (despite a decrease in sales) on marketing, shows and wild parties in the midst of a global recession. In order to fuel their company's reputation for outlandish events and over-the-top marketing tools, Ksubi increased loans and delayed repayments on their debts. Admitting their attempt to secure a licensing agreement with "an Australian-based company with overseas production experience and networks" failed, Gorrow and Single were forced into voluntary administration, becoming the latest in a long list of fashion houses that have fallen victim to the global financial crisis.

Shocked by the swiftness of the latest recession, former slaves to fashion are buying one item instead of five and choosing quality over quantity. Not surprisingly, many retailers and designers are finding themselves short on sales, overdue on repayments and scrambling to make ends meet. In early 2009, American Apparel, the LA-based label that boasts more than 250 branches worldwide, admitted it was about to file for bankruptcy before being bailed out by Lion Capital, a UK private equity firm. Six months later, Versace announced the closure of its Japanese shops and cut 350 staff from its international workforce. But while Versace, American Apparel and Ksubi are attempting to ride out the financial crisis, many others have given up the fight.

In August 2009, following a ?70 million (Dh361 million) loss in 2007/08, the German fashion house Escada filed for insolvency, making 2,300 staff redundant. Three months later, after winning the Designer of the Year award at the 2008 British Fashion Awards, fashion journalist-turned-designer Luella Bartley was forced to close her business after she failed to find new investors. In November 2009 Christian Lacroix, one of the world's leading haute couture houses, launched insolvency proceedings, after 22 years of trading. Subsequent attempts to buy the label failed due to a lack of proven future earnings.

Across the Atlantic, Susan Dell, the designer behind PHI and wife of the founder of Dell Computers, also ceased trading. Despite international attention, positive editorial and a huge fan base, each of these labels failed to abide by the number one rule of any business: adapt to a changing market. "Shoppers are looking to connect with the person behind the brand. The new luxury is about experience," suggests Andrea Pfeffer, director at the Sales and PR agency, Robinson Pfeffer. "Contemporary brands like Dress Up, Tina Kalivas, Lucy Hutchings and Alpha60 maintain a sense of exclusivity by targeting only specific suppliers and are [consequently] faring best under the current economic climate. Ultimately, the shopper wants to feel personally connected to the brand."

One way in which brands are altering their public perception and developing a dialogue with customers is through social media websites such as Facebook, YouTube and Twitter. Eager to engage with their client base and promote their products in a "free" and accessible way, brands like Oscar de la Renta, Cosabella, Louis Vuitton, Urban Outfitters, Rachel Roy, Calvin Klein and even Target are updating their profiles and twittering frequently. Brands are now in a position where failure to nurture genuine (albeit online) relationships with their customers may result in decreased sales, negative brand association and, ultimately, a failed enterprise. To counteract such an outcome many formerly traditional labels are employing social media experts to create projects and forums that directly link shopper to product.

In 2009, following an estimated £19 million (Dh113 million) drop in pre-tax profits, Burberry launched The Art Of The Trench (TAOT) project, allowing anyone to upload a picture of themselves wearing a Burberry trench to the label's website. Within a week TAOT had three million page views and 200,000 unique visitors. In December 2009 Burberry announced a 12 per cent increase in sales (from September 2009), a figure far higher than their anticipated three per cent increase. In similar fashion, Gucci targeted their younger customers with the launch of Gucci Eye Web, a site that, according to creative director Frida Giannini, allows followers to "reflect and connect with friends around the world."

While Gucci Eye Web has been popular, according to Imran Amed, editor of The Business Of Fashion, it has not been as effective as Burberry in increasing brand awareness and/or sales. "The trench coat has been identified by Burberry as the brand's key item," wrote Amed on his site in November 2009, "By launching [TAOT], Burberry further cemented ownership of the luxury trench coat category. On the other hand, Gucci's site is highlighting sunglasses, which may be an important category, but isn't really a core part of the brand's DNA."

"If you're not marketing and selling online, you're limiting the growth and reach of your label unnecessarily," says Andrew Apostola, founder of Swappler.com, an online retail hub that allows emerging and established designers to set up their own web store, blog and site for a monthly fee. "It's smart for any brand - emerging or established - to move online as quickly as possible. Not only do you allow a steady stream between seasons, you can speak directly to your customer base and get a sound understanding of how people relate to your design, production quality and brand. Online fashion retail is really the new frontier and, as with all frontiers, those who are there first often dominate and lead the others."

Ksubi is not the only fashion label for whom the future is uncertain. In a time of economic change, many labels are looking beyond traditional methods of communication to ensure their label can maintain its existence. If George Gorrow and Dan Single succeed in securing investment for Ksubi they will need to alter their practices to ensure they accommodate this ever-changing marketplace, one that according to Pfeffer is "much tougher, more transient and faster than ever before".