Is it better to locate your fashion business in the fashion capitals?
As this is a fashion business, operations could benefit massively from being located in one of the four fashion capitals of the world, e.g. Milan. Being surrounded by hundreds of similar companies comes with its own benefits and drawbacks. One of the main benefits is the ability to benefit from economies of scale as specified in section 3. As it would be near similar businesses, the bulk buying of materials such as fabrics could be very beneficial. The lower the costs, the ability to lower prices making the business more competitive. They would also be able to share knowledge and expertise with surrounding businesses leading to expansion for all. This will also keep the industry at its very high level of competitiveness which forces innovation and brings prices down for customers.
However, this could also be a negative. With so many retail outlets in the same area, competition could become cutthroat and lead to illegal pricing strategies such as predatory pricing, also known as destroyer pricing. This is exactly as it sounds; a business will cut its prices to below a sustainable, profitable level which would ultimately kill off all competition in the area. The practice of these inhuman operations would lead to bad press and would put a bad name on the fashion industry, consequently resulting in a loss for all businesses in the area and perhaps anywhere on the globe. Also, as this business is rather small compared to the likes of H&M, it may not be able to sustain the level of competition necessary to survive. This would lead to the investment of moving to Milan being lost which would affect the company massively at all other locations.
Although this may be true, locating in Milan would also have the advantage of being near one of the big fashion weeks. This would allow them to try and take part in Milan fashion week easier than if they were located in another country. If they managed to participate, they would then gain access to the other fashion capitals: London, Paris and New York along with places like Tokyo. This would promote their brand and might even help with the possibility of entering these new markets in the future as they would be already known and begun building a brand internationally.