#147. Every week on the podcast we’ll challenge a recently-announced business strategy to understand the upside and downside of the brand’s approach. We discuss Elite Model Management’s decision to launch its own apparel brand and whether or not the modeling agency can run a fashion label.

Check out the full transcript below.

Richie: [00:00:03] Welcome to the Loose Threads podcast, where we challenge a recently-announced business strategy to understand the upside and downside of a brand’s approach.

Richie: [00:00:10] I’m Richie Siegel, the founder of Loose Threads, which analyzes and advises next-generation consumer companies and FaceLift by Loose Threads, a retail incubator and accelerator for leading brands and retailers. For our latest analysis and insights, check out our free weekly newsletter at LooseThreads.com.

Richie: [00:00:24] Joining me for our discussion this week is Rebekah Kondrat, a partner at FaceLift by Loose Threads and Caroline Tibbits, who leads our research at Loose Threads. This week, we analyze the launch of a new apparel brand called e1972 by Elite Model Management, one of the leading modeling agencies. The brand aims to leverage the relationships Elite has across the modeling and fashion industries to create a revolving roster of designers and spokespeople. But can a modeling agency succeed in running a fashion brand, and might this time be better used focusing on its core business? Here’s what we thought.

Caroline: [00:00:58] So, one of my reasons why I think it’s a good idea is Elite’s—I don’t know their current roster right now of who they represent, but if you think about it, whoever the “it” model is, it’s constantly changing in our culture, right? People grow tired of celebrity faces and influencers quickly. And, with Elite, it’s this pool of talent, and they have the proven history, so chances are they’ll continually represent the next “it” person. And these people, also, are their brand ambassadors on the runways, off the runways. I just think, from a marketing standpoint, they can attract an audience more quickly and for a longer period of time than a celebrity brand. So it’s kind of like a superpower celebrity brand.

Rebekah: [00:01:43] So, I guess the thing with a celebrity brand is people buy it because they recognize the celebrity. Aside from people in fashion who, automatically, you say “Elite” and they automatically think of the Elite modeling agency, representative of Gisele and all of these other people. I would be like, “What? Who’s that? Why should I buy their stuff?” So, I feel like there’s a very specific audience for this, if they’re touting it as like, an elite brand, Elite modeling agency clothing brand e1972. But there’s no like, automatic recognition for like, say, a non-fashion-model person.

Caroline: [00:02:21] But maybe that’s not their goal. They presented at Fashion Week, so maybe they just want fashionistas to buy into the brand, which I wouldn’t be surprised, because they have this sustainable angle. I don’t think they’re trying to be mass-market.

Richie: [00:02:36] So, when I heard about this originally, I thought that they were basically helping create infrastructure for celebrities to launch their own mono-face brands. And I go, “Okay, that’s really smart. That makes sense.” When I read the article, though, they’re building a brand that has no face but has a rotating cast of faces, which is interesting through the lens of basically—back to our favorite like, bundling/unbundling construct—every other celebrity brand said, like, “Instead of being a spokesperson or having multiple ambassadors, like, we’re just gonna build our own brand. It’s gonna be our brand, à la Kylie, à la Gaga, etc.” They’re saying, “Wait a second, let’s bundle them back under a brand that we as Elite own, and have this rotating cast of characters.”

Richie: [00:03:21] Initially, to me it didn’t fully make sense because we’re living in this age of, people follow specific people and buy from those people. What’s interesting, though, Caroline, as you alluded to, is these celebrities have a shelf life, effectively, at which they’re relevant. They can do something at any moment, à la, say something [controversial], [get a] DUI, etc., etc., that makes them kind of quickly fall out of favor with people around them. And that will 100 percent kind of jeopardize the brand. Elite is interesting now because they can effectively swap out who they want, depending on what that is. And they’re basically kind of like, instead of it being Kylie Jenner’s store, it’s Nordstrom, at which all of these other celebrities are gonna kind of stop by or do pop-ins at. And there is a consistent, I guess, customer relationship between the brand itself and the customers. And then, you would hope that the different celebrities followings will kind of bleed off into this brand as well.

Richie: [00:04:17] I guess the biggest thing for me is like, I don’t know what the goal of this is, in a sense, for [Elite]. Like, I don’t actually think this will drive much revenue, because building a brand is very different than running the modeling agency, and they likely just structurally won’t have the incentives to actually make this work because it is not their core business. Like, it is effectively a side project. It’s a very interesting one, but it’s a side project. And then, also, if you’re a celebrity like, are you just gonna do this or have to do this because you’re a client of theirs and like, you’re doing them a favor? If so, you’re not gonna try that hard to make this thing actually work, versus like, “This is Kylie Cosmetics. I own 100% of this thing. I’m gonna make a shit ton of money building it.” It’s this weird average between a spokesperson and an owned brand which, again, theoretically is interesting, but I don’t know if the incentives are right to the point that it actually encourages everyone to like, really make this thing work versus just to be a vanity project.

Caroline: [00:05:08] That’s when the product comes into play. If the product’s great, then, easy, and the models will be happy wearing it and whatnot. And then to your point of, will it be worth their while, yeah, again, if the product sucks, then no, the brand will dwindle. But if it’s a great designer—which, again, that’s another aspect—there are already focal points within the fashion industry in general. So they have these existing relationships with creative directors at all the luxury houses who might jump ship or do a collaboration that could be fun and buzzy and marketable. And then also, with the models that they represent, this is their representation, the agency that provides them with money and jobs. So it’s kind of like a built in family, like a Kardashian status. There’s a sense of innate loyalty, I think, associated with it. But you’re right. It depends where Elite wants to go with this. What’s the point?

Rebekah: [00:06:01] I see that there may be celebrities who either don’t carry quite the recognition that they need to carry their own brand or they don’t have any interest in it who would jump on board with this. I’m a little bit stuck on the whole cut-to-order thing and like, how that scales. They say that they expect revenue to increase by 20% this year. They don’t necessarily say that that’s because of this, but when you say it in the same breath as this announcement, it kind of makes it sound like they’re thinking this will go somewhere.

Richie: [00:06:31] Sorry. You’re saying the agency revenue will increase by 20% because of this?

Rebekah: [00:06:34] For this year. It’s agency revenue, but when you say it kind of in the same sentence as this announcement, at least the media picks up on, “Oh, they’re looking to make money off of this.” Although it doesn’t seem like they are. I guess I’m like, then why?

Richie: [00:06:49] Right.

Rebekah: [00:06:49] Because you don’t need to market yourself. You’re already the best modeling agency in the world, arguably. So this isn’t a marketing play.

Caroline: [00:06:56] They’re maybe future-proofing themselves, if you think about, like, the role that influencers play in fashion today, right? So maybe in ten years modeling agencies will be obsolete, and influencers and celebrities represent themselves and they’re just trying to figure out another avenue of revenue to go down.

Richie: [00:07:16] There is a sense of like, captivity to this. You work with us, we make your career. You’re gonna do these favors for us, we’re maybe gonna pay you—who knows what the arrangement is? But I guess if you take it from the influencer side, I don’t really know what the incentive is, beyond you kinda have to do it.

Caroline: [00:07:31] To wear the stuff?

Richie: [00:07:33] Just to be a part of it. If you’re XYZ model from that company, I think I’m doing this ’cause I have to, because my manager or my agent says, “Hey, we’re now doing this thing. It’s like the family business,” etc. I don’t know why independently—I mean, maybe if I get a percent of sales, maybe that’s kind of interesting. But at a certain point, if I as an influencer believe I have selling potential, I’m gonna go do my own thing.

Rebekah: [00:07:57] Yeah. I could see them—if this was a test to see which influencers or which models garner the most support and interest, and then spin off brands kind of with them, where they take some sort of profit share or give them a profit share and then they own the whole line, however that would work for them. I could see that being worthwhile. Because, then, you’re right, you do kind of future-proof yourself because, kind of like—not that I see publishing houses going away anytime soon, but it’s very easy to self-publish now. Now, it’s not easy to promote those published works.

Richie: [00:08:31] Right. But with that same analogy, what’s interesting is, the modeling agency here is effectively controlling the supply, but the influencers control the distribution, right? The agencies don’t own the Instagram account. They don’t own what actually made the influencers influencers. So, in that same sense, like, it seems that they’re—they being Elite—is like coalescing around what seems like the wrong part of the value chain. At a certain point, for a lot of these influencers, I think some of the agency work becomes purely logistical, in a sense of like, they get so much inbound at this point that they can just decide who they want to work with. And you could have an executive assistant or something, who just helps you filter, helps you schedule, do all these things.

Richie: [00:09:08] The premise in the past, which goes back to Elite and the other agencies having all those industry relationships, is that they were the ones that had the distribution. Elite controlled whether you were in this Vogue or that Vogue, this runway show or that runway show. But now, if you’re an influencer, there’s just gonna come to you if they want to use you. They don’t need to go through the agency. Unless, obviously, the agency is like, “Well, we’re here. You have to go through our official channel.”

Caroline: [00:09:31] Well, they used to discover people. Now, the internet and social media is facilitating that. So that’s where my mind went when they decided to launch this brand. Yes, it’s a little weird. However, I think if they could get the product right, it could be great. And then also think about like, the models of the 90s, the Cindy Crawford, the Naomi Campbell, who they represented. And it was this girl gang of female models. And I feel like they’re trying to recreate that and its marketing built within.

Rebekah: [00:10:01] We keep saying influencers, and Elite is a modeling agency—is there a difference anymore?

Richie: [00:10:05] No, I think the answer is “no” to both. I think some influencers are models, à la Kendall Jenner, and some models are influencers, but it’s not “yes” for both automatically. But I do think what they work on is very similar. Like, I think Elite does both now.

Caroline: [00:10:18] Exactly. Probably more than 50% of the models they’re dealing with are just runway/catwalk and you don’t know their names, right? They’re just thin, tall models that can wear the clothing. But there is a large percentage of them that are Cindy Crawfordesque famous—Kendall Jenner—and have the ability to influence people’s buying decisions. But I think to this mass market point, I think they want to remain in the premium luxury realm.

Rebekah: [00:10:43] So this is just Elite wanting a slice of that pie.

Caroline: [00:10:46] And just another channel of revenue, just as we talked about. Like, the role of agencies are inevitably going to change.

Richie: [00:10:54] I would almost analogize it to like, a brand trying to sell on Amazon. Which is, Amazon controls the distribution, which in this analogy is the influencer, not Elite. So, if the premise is basically, “We’re gonna use our stable of talent to build the distribution channel to sell our stuff,” they are so reliant on that group of talent to be the distribution. If the talent leaves, goes through a different agency, decides they don’t need an agent anymore… In a sense, there’s just as much risk in their own business as there is in this business, because this brand is built directly on top of their own business.

Caroline: [00:11:27] Right. And I think it requires little upfront investment. They’re creating things made to measure, so if they get no orders, they don’t create anything.

Richie: [00:11:35] But think of the money on the runway show. The time and the energy to build this thing, design them, and hire the creative directors and… I mean, that’s the thing. Often it’s like, the companies don’t realize, okay, Economically, I can launch this for, call it a hundred grand or two hundred grand, but think of the resource drain on the whole company of having to think about this and figure it out and set the logistics.

Rebekah: [00:11:53] Well also, last year, they launched two new divisions dedicated to growing the digital presence and production capability of their talent.

Richie: [00:12:03] That to me is so much more, one, interesting, and two, in line with what a modeling agency evolves to in the 2020s than trying to just be a brand.

Rebekah: [00:12:14] I think it’s a much smarter play to take a behind-the-scenes role than to try to produce the product themselves.

Richie: [00:12:22] For Elite, you mean?

Rebekah: [00:12:23] Correct, yes. I think they should keep this behind-the-scenes role, become the right hand of all influencer brands. And then, it doesn’t matter if they get old and fall off the radar ’cause there’s like, 20 million more coming up behind them that all want their own brands.

Caroline: [00:12:39] Right. But I guess what I don’t understand is—because these exist, right? They’re beauty incubator companies. Marie Claire owns France Lab, which you—I’m a celebrity influencer, I go there, I say, “Please help me to create a brand.”

Richie: [00:12:51] Right. Kendo, Sephora, same thing.

Caroline: [00:12:52] They’re able to do that because they have the relationships with the factories, they have packaging people all in-house. Elite has none of that. So why would they then go in that direction?

Rebekah: [00:13:04] Well, they already have the industry connections. They kind of have the know-how.

Richie: [00:13:10] They have the connections on the front end, though, not on the back end, right?

Caroline: [00:13:13] So maybe that’s where they should stick to.

Richie: [00:13:15] Because, at the end of the day, Elite’s business is serving models, it’s not serving shoppers. And I think that’s what probably becomes problematic here, is they just don’t have experience doing that. If they know some of their clients want to go build their own brands, give them capital to do it, take an equity stake in the business. And, yes, build up a rolodex and help connect the dots. And that’s what agents are so good at, is helping connect the dots. They don’t like, do this work.

Caroline: [00:13:39] Right.

Richie: [00:13:39] They don’t go launch brands, sit in design meetings. It’s just so contradictory to how they operate. But that doesn’t mean they can’t make a difference helping their clients get to the same place.

Rebekah: [00:13:51] Well, right. And now they will have two customers. They will have the model/influencer who is their customer, and then they will have the actual customers, who is their customer, who’s purchased these items. And, “I’m unhappy with my dress, and the hemming came out, and the whatever-whatever. And it was cut to order and why isn’t it higher quality?” Because no matter how hard they try, those things will happen. They happen to everyone who’s in manufacturing. So, do you now have a customer experience team? Like, do you now need to hire people to deal with your customer and your agents deal with your original customer, who is the model?

Richie: [00:14:23] And what happens when one of your clients says something stupid, promoting the brand that you now have and then you have to somehow discipline or fire them? Like, they were fine, just let them deal with all the other brands. What if what if something slips and they go, “Yeah, I don’t really wanna do this. Like, they’re not paying us for it. They’re just making us do this because we’re on the roster.” That doesn’t look great.

Richie: [00:14:42] To me, the lesson is like, definitely find ways to expand what you offer your client, but don’t change your client and don’t go do something that you’ve never really done before. When, broadly speaking, there is a lot of runway to build more services up to help influencers/models build their own businesses, but don’t try to become their business.

Richie: [00:15:05] Thanks for listening to Espresso. A Loose Threads Podcast, you can read full transcripts of the podcast and join the newsletter at LooseThreads.com. Feel free to leave our view on iTunes, we always appreciate it, and thanks to George Drake, Jr. for editing this episode. We’ll be back with more.