3.1 Phillip Lim:

Fashion’s Next

Mega Brand?

By Richard Collings

Published: December 24, 2009

   3.1 Phillip Lim has emerged in but a handful of years as a brand that will soon generate $50 million a year in wholesale revenue, capitalizing on designer Phillip Lim’s sensibility for creating desirable sportswear and Wen Zhou’s experience with boutique luxury manufacturing in Asia, primarily China.

   These days, fashion is having a love affair with China as it becomes the second largest market for luxury goods and a leader in boutique luxury manufacturing. These are developments that have gained increased traction due to the recession as brands seek new markets for growth and places to produce goods more cheaply as consumers are on a mission to stretch their dollars further.

   This is not news to Zhou, who leveraged her years of experience building deep relationships and knowledge of sourcing in her native China—once known primarily for producing quantity, not quality—to jumpstart the label 3.1 Phillip Lim back in 2004.

   It was her focus on manufacturing luxury goods in China to provide a quality product at a more affordable price before it was a dominant trend that has paid off for her and her partner providing a blueprint for other fashion businesses with hopes of surviving, perhaps even thriving during the downturn.

   The company’s strategy hasn’t gone unnoticed. During the spring 2010 fashion week presentations one of the dominant themes was undeniably a contemporary take on sportswear, and a number of labels are now aggressively pursuing boutique luxury manufacturing in Asia, two major trends to influence the foreseeable future.

   Indeed, a number of brands are under pressure from retailers to lower prices, and sourcing production to Asia is seen as one of the best ways to achieve this.

   It could be argued that the team behind 3.1 Phillip Lim, even though it has not quite garnered the accolades of other labels, could prove to be one of the most influential forces in fashion today.

   In fact, like fashion mega brands that have come before such as Ralph Lauren—which harnessed the power of marketing and branding in its day—3.1 Phillip Lim quickly identified large voids in the marketplace and focused on them with laser-like precision, attracting customers by balancing design, quality and cost, arguably offering better value.

   Rather than undermining or slowing the brand, the Great Recession has lent credibility to 3.1 Phillip Lim’s strategy, with revenues likely to grow this year by 15-to-20 percent, achieving nearly $50 million in turnover within its wholesale business, up from $42 million, Zhou said.

   When I caught up with Zhou after the label’s women’s wear presentation in New York for spring 2010, I asked her about how she felt to be one of the pioneers in an area so many labels are now pursuing, by copying or imitating a business model she helped to establish.

   Zhou, who is sometimes coy about how she has achieved such success, acknowledged the company’s focus on boutique luxury manufacturing in places such as China and on sportswear, and then rhetorically wondered what took others so long as 3.1 Phillip Lim has been doing such for years.

   Zhou explained, “We have a small network of factories and suppliers that we work with, therefore, we are able to have a very good control on our quality and on-time delivery. I have been working with these factories for many years and they are not limited to China.”

   She agreed that the forces fueling boutique luxury manufacturing in China were the willingness of factories there to take on smaller orders to compensate for a drop in the demand of mass-produced goods.

   Boutique luxury manufacturing also provides larger margins than mass-produced goods, the manufacture of which is also struggling due to the rise in labor, material, and transportation costs. In addition, consumers, even on the high-end, have been impacted by the economic downturn and are more price-conscious as a result.

   Zhou emphasized, however, that the company has not felt pressure to decrease its prices due to the downturn, as offering value in relation to quality has always been a part of the equation.

   Zhou explained, “The value of our products far exceeds the price tag. Our beginning price points are $75 for a t-shirt, to $2500 for a gown or shearling coat. While no one is immune to the economic downturn, we have been fortunate that we have not needed to change our pricing strategy and if anything, have been able to reinforce the brand by staying consistent.”

   The challenge for the label going forward may well be to continue to differentiate itself in a more crowded marketplace as copycats abound. Will the label continue to be as appealing if every other brand begins to offer a similarly priced diffusion line of sportswear manufactured in China? 3.1 Phillip Lim, though, has built up years of experience, a key advantage over newcomers.

   At some point, rapidly growing labels take on private equity partly to fuel growth, but also, to stave off competitors quickly catching on. In 3.1 Phillip Lim’s case, Zhou rules out private equity. She said the company can continue to grow itself out of its own revenues.

   And there are plenty of opportunities for growth, as the brand eyes Asian markets for expansion, and seeks to enter new categories, particularly footwear, fragrance and accessories, Zhou said.

   But don’t expect 3.1 Phillip Lim to begin opening new bricks-and-mortar locations here in the United States, despite deals available in commercial real estate. Zhou said the company will launch new stores when it is ready, but would rather focus on penetrating Asia first and then Europe, particularly with its wholesale business.

   As to the company’s internet strategy, Zhou said, “The digital platform as a whole is something we are interested in and planning for whether it be e-commerce or e-marketing. Our brand prides itself in its accessibility and so online activities make sense for us because it provides a very democratic platform. The challenges are in maintaining the sense of mystery and allure when online is so much about instant gratification.”

   “Like any company, especially smaller companies like ours, we have to pursue marketing opportunities in the unexpected or the alternative.  But It shouldn’t be viral versus traditional, they can work together as part of a bigger communication plan. It depends on where your customer is getting their messages from. And in this day and age, it’s never from one source,” Zhou added.

   Explaining the label’s spring 2010 collection, Zhou elaborated, “Phillip  was inspired  by Picasso’s style of abstract cubism, Phillip wanted to explore working with different shapes, forms and colors and collaging ideas together to create new lines, textures, perspective and a refreshing  palette.  There is a clear language from inspiration to execution, I think he did that beautifully.”

   Zhou said that the collection will target a core customer not really defined by demographics, but rather by her inherent attributes.  “She is a lady, elegant , understated, youthful in spirit, and effortlessly chic—and that kind of woman is ageless and is cross-cultural,” she said.

   Zhou concluded, “Our key to success, besides its design, sourcing, marketing, and distribution, is the people in our company, every one of us have been instrumental to our growth.”

   A few seasons ago, Vogue’s flagship American publication named a number of up-and-coming designers to keep an eye on. One of those designers was Phillip Lim. Although his label, 3.1 Phillip Lim, has received industry support, the clothing line certainly hasn’t received the press other young labels such as Proenza Schouler, Rodarte, Alexander Wang and others have accumulated either in the form of awards or reviews from fashion critics.

   Designers such as Rick Owens and label Balmain’s designer Christophe Decarnin have also been noted for their influence over others in the fashion world. The real story of the rise of a single brand and its influence this past year, though, could be 3.1 Phillip Lim.

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