The Knockoff Economy (8 page)

If we drill down a little deeper, we can understand the role of copying in this story in at least two broad ways. First, copying allows the marketing of less expensive versions, pricing-in consumers who otherwise would not be able to afford to purchase the design. A middle-class woman might be able to put a Louis Vuitton handbag on her credit card occasionally, but absent extraordinary measures (or very sticky fingers) it cannot be done regularly. Copying permits the design to spread to lower income consumers, who are far more plentiful than the top income tier of consumers to whom the most exclusive fashion goods are marketed.

Second, copying facilitates variations on an attractive design—what lawyers refer to as “derivative works.” These are garments that use the original design, but tweak it in some new way. Under standard copyright law, the originator has the exclusive right to make or authorize derivative works. The legal rule for fashion is the opposite, and the many variations on a theme this makes possible means that the stores will be full of countless versions of a popular design.

As we mentioned earlier, sometimes only a particular feature of a garment is copied—a certain sleeve or cut—and sometimes the entire garment is copied. And what is copied is not necessarily part of a hot trend. Consider the Foley + Corinna story that opened this chapter. The dress in question was striking and somewhat popular, but it was not the Must-Have-Item of the season. Still, the basic dynamic we describe applies. The Forever 21 version surely sold at levels that Dana Foley and Anna Corinna could only dream of. The Foley + Corinna customers, many of whom trekked to the Lower East Side for their dress, were not wild about seeing that dress in shopping malls across the suburbs and on the backs of thousands of more women.
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So they decamped for a new design or new trend earlier than they would have absent the copying.

The key point remains the same: existing rules, by permitting this kind of copying, act as a kind of turbocharger to the fashion cycle. And that spurs designers to create anew so as to ride the next wave of trends.

There is, of course, a downside to all this. While induced obsolescence generally helps the industry sell more goods over time, widespread copying can and does harm particular originators in particular cases. Certainly that is the view of Dana Foley and Anna Corinna. But the effect of a system of free and easy copying, across the fashion industry and over time, is beneficial. Because this effect is spread out over many products, it is less noticeable than the losses suffered by individual designers. But in the aggregate, it is much more significant. It creates more demand, and therefore more designs and more sales.

We now have some more precise and targeted data to back this observation up. We recently spent a few months working (with the help of our crack research assistant, Charlie Murry) at the US Bureau of Labor Statistics (BLS) in Washington, DC.
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The BLS is the federal agency that, among other things, assembles the official measure of US inflation. To do this, BLS employees collect price data every month on millions of goods and services.
Among the data they collect are many thousands of apparel prices. We looked at these data to see if the changes over time in the prices of apparel suggest any significant effect on elite designers from the knockoffs that often imitate high-end looks at lower prices.

To do this, we collected data on the prices of women’s dresses from 1998 to the present. We then divided the dresses in this dataset into 10 categories, or deciles, ranging from the cheapest 10% of women’s dresses, such as the stuff on the racks at Walmart, to the most expensive 10%, such as Prouenza Schouler’s latest design.
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Now, take a look at the graph.

FIGURE 1.1 Average Prices-Women’s Dresses.

What you see is price stability over the entire period for every decile pictured—except for one—the top decile—that is, the most expensive women’s dresses. What happened there? The average price of the most expensive 10% of women’s dresses went up, substantially. The top decile of dresses increased in price by over 250%. Even adjusted for inflation, the prices of the top-end dresses still almost doubled. But everything else either stood still, or even got a bit more affordable (adjusted for inflation).

So what does this mean? Virtually all knockoffs are cheaper than the high-end garments they imitate. And if a substantial number of consumers
who would have purchased the original bought the knockoff instead, we would expect to see that competition have an effect on the prices of those high-end garments. In short, competition from knockoffs ought to depress the prices of originals, just as greater supply generally lowers prices. But that doesn’t appear to be the case in fashion. The high-end items are the only ones that have any price growth during the period—and the price growth of this segment is very healthy indeed.

The official federal data on prices, in other words, is consistent with what the piracy paradox predicts. Over the long term, knockoffs do not harm the industry as a whole. Rather, knockoffs are actually a key part of the industry’s success. More copies mean a faster fashion cycle; a faster cycle means more designs and more sales. Debut, diffusion, decline, death—and then it starts over again.

The legal freedom to copy not only induces a faster fashion cycle; it also helps consumers figure out how to stay in style. In economic terms, copying lowers consumers’ information costs. It does this via a process we refer to as
anchoring.
Anchoring, like induced obsolescence, helps the fashion industry remain creative even in the face of extensive copying.

Despite a flood of new designs available at any one time, identifiable trends eventually emerge and define a season’s style. What drives these trends is hard to untangle. Trends are not chosen by committee, nor are they simply the accreted musings of god-like designers, as Meryl Streep famously suggested in the “cerulean sweater” scene in
The Devil Wears Prada.
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Instead, trends evolve through an undirected process of copying, referencing, and
reworking, coupled to communication with key retailers and commentary in the press. Insiders often talk of the convergence of designs as a reflection of the
zeitgeist.
Like a school of fish moving first this way and then that, designers follow the lead of other designers and tastemakers in a process that, while bewildering at times, results in the emergence of particular trends—as a quick look through any fashion magazine or blog will make clear.

We wouldn’t perceive fashion change nearly as well without fashion trends. And every hot trend, almost by definition, involves some copying. A trend is a series of things that look alike and that are widely sold in the marketplace. Unless many designers magically arrive at the same design or theme simultaneously, this necessarily must involve copying. In this way copying is essential to fashion. As one astute early observer noted, “If there were not imitation there could be no fashion.”
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Just as copying is necessary to a trend’s birth, however, it is also a predicate to its death. Copying first makes the trend, and then makes the trend obsolete.

Copying creates trends by anchoring the new season to a limited number of themes—themes that are freely workable by all producers. For trendy consumers to follow trends, they need to be able to identify them. Anchoring thus encourages buying by conveying to consumers important information about the season’s dominant looks.

Again, we can’t explain the sudden emergence of a trend—if we could, we would have stopped writing this book and gone to work in New York or Milan. But somehow, trends emerge; firms copy from one another, spin out variations, and diffuse them widely. The result anchors a season’s innovation around a small set of designs, and this helps drive consumption by defining, in a literal sense, what is and is not in style that season. We also see this process at work within a large adjunct to the fashion industry—magazines such as
Glamour
and
Vogue,
television shows such as
What Not to Wear,
and fashion blogs of various stripes, all of which (to differing degrees) provide fashion advice to consumers. These proclamations do not always take root, but they are a constant.

In the fall of 2005, for example, the
New York Times
described the appearance of a large number of women’s boot designs. The article highlights the unusual existence of
multiple
designs at once:

There are 60s styles a la Nancy Sinatra; 70s styles a la Stevie Nicks; 80s styles a la Gloria Estefan; and 90s styles a la Shirley Manson. It is a puzzling
sight for fashion seers used to declaring that one style of boot—Midcalf! Thigh high!—is The One for Fall.
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The writer’s expectation—which the style promiscuity of 2005 violated—is that the industry will anchor narrowly. And it usually does.

This is not to say that the styles produced by closely watched designers always resonate with consumers, or with retailers that must make decisions about purchases well before the clothes hit the racks. But it is undeniable that particular designs are identified as anchoring trends—“Midcalf boots are The One for Fall”—and that these trends wax and wane, only to be replaced by the next set of themes.

To summarize, copying plays two central but counterintuitive roles in fashion. By allowing others to imitate and rework successful designs, copying acts like a turbocharger that spins the fashion cycle faster. Designs quickly go up, and then even more quickly they come down. We call this induced obsolescence, and this process forces designers to innovate anew. Apparel designs don’t become obsolete because a “better” design comes along. They become obsolete because they become too popular. Copying also wraps the incredibly varied output of the fashion world around a few key trends—and it is through the emergence of trends that most of us understand what to wear that season or year. We call this process anchoring.

These twin forces have dished up a huge, vibrant, innovative market—with lots of copying. In fashion, the freedom to imitate turns out to be a very powerful economic spur to innovation. Copying helps to kill popular designs and birth new ones. And copying helps to reduce the search costs of style. This is the piracy paradox—and it is the primary way in which fashion reconciles imitation with innovation.

Let’s briefly consider some other arguments that might explain why fashion creativity thrives despite copying. The first focuses on the possible effect of social norms, which play an important role in some other industries we explore in this book. Norms have been the subject of a lot of academic research. The impact of social norms in the fashion industry, however, appears to be far more modest compared with other areas we look at later, such as comedy and cuisine. We are skeptical that norms
meaningfully influence either the level or type of copying that takes place in the apparel industry.

The second possible argument relates to what economists call “first-mover advantage”: the notion that a first mover in a market can reap enough benefits before others move in to compete to make innovation worthwhile. While first-mover advantage appears to have some role to play in fashion, that role is also relatively small. Finally, we take up some possible implications of our arguments about copying’s paradoxical effects, in particular the implication that if we are correct, fashion designers ought to sometimes knock off their own designs.

Some creative industries remain innovative in the face of imitation due to the power of social norms. These norms act as extra-legal checks on copying; they keep copying within certain bounds or act to exact costs for copying that goes “too far.” Do such norms matter among designers?

At the high end of the fashion world overt copying is sometimes frowned upon. To be derided as overly derivative can derail an ambitious designer’s career. A recent analysis of knockoffs argues that the American fashion industry indeed operates in a norm-based system. The norms about copying, it is said, constitute an effective control system which “can render stiff penalties on offenders, such as critical disparagement or neglect from the American fashion media, that can ultimately harm their brand name and their bottom line.”
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The evidence that norms really constrain copying by fashion designers is, however, pretty thin. As the example we gave earlier about Nicholas Ghesquiere and Kasik Wong illustrates, leading designers do copy. Fashion insiders can name many other examples, both high and low. Of course, the sheer fact that a norm is violated does not mean the norm has no power. And to be sure, Ghesquiere’s point-by-point copy of a lesser known (and dead) designer is, as a practical matter, different from copying the work of a living, breathing fashion titan such as Marc Jacobs.