Quotes of the Day

Karl Lagerfeld is used to being imitated. "Chanel called it flattery," he shrugs. "For me, it's good because it pushes me to things they can't copy." By Chanel, he means Coco, the founder of the label Lagerfeld has headed for 22 years. "They" are the fashion chains, whose skill at reproducing luxury looks at affordable prices is driving designers to new extravagance in their ready-to-wear collections. At the shows in Milan and Paris over the past two weeks, even the most jaded front-row fashionistas leaned forward for a closer look at the swathes of excess. On Chanel's runway, there were tweeds that on closer inspection proved to be feather-light embroidery on tulle; at Dior, loose inspiration from The Aviator resulted in a flight jacket in ruby-red mink trimmed with crocodile, and a trench coat mixing the exotic materials. "Will we sell the crocodile?" asks Sydney Toledano, Dior's CEO. "Of course. If you are competing based on production and cost, it's tough. If you go with a more unique position, then you can lead. You need to watch the top line, not only the bottom line."

Right now, the worst place to be in the fashion business is in the middle. Haute couture remains as haughty as ever, but chains at the lower end of the market like Zara and H&M have partially usurped the spots once occupied by moderately priced stores trading more on value-for-money than trendiness. And the upstarts' sprightly styles, often pinched from the designer labels, are forcing the big brands to rely on craftsmanship and the most extravagant materials to grab their customers' attention. "What's driving our business is the 'Bang, I'll have it' impulse that only occurs if something is special," says Fendi ceo Michael Burke. "It does not occur with the run of the mill." Hence Fendi's new evening bag, a reimagining of last season's big, squashy Spy, so-called because of the secret compartments in the front flap and the handle. For the fall-winter 2005-06 season, Spy can be spotted in a variety of incarnations, each signaling its exclusivity with a different twist on conspicuous expense, like rich purple velvet lined in tulle and trimmed with pearls. And they're selling well. At Fendi's flagship boutique in Rome, the Spy waiting list is growing. Lagerfeld is laying on the luxury, too. "Last season, we had a material that cost j100 a meter," he says. And this was not even for one of Chanel's haute couture collections; it was for ready-to-wear.

Lagerfeld is playing both ends of the market, designing couture and ready-to-wear for Chanel as well as collaborating last fall with H&M, where he brought his cachet to the masses with collections of T- shirts, pants, coats, blazers and sequined jackets, some of which retailed for under $50. "The most inexpensive things can be well designed," he says. "Instead of paying too much money for something not exciting, you should buy two or three things for fun from H&M and, if you have the money, a Chanel jacket." H&M stores reported lines around the block when Lagerfeld's collection arrived.

Maureen Chiquet, president and coo of Chanel Inc., likes the mix. "I like to wear jeans and a Juicy Couture tank top with a special piece," she says. "Head to toe in a fancy outfit doesn't look modern. And price is no longer the determinant of style." This from a senior exec at Chanel? "Well, you either want something super-expensive with beautiful detailing or you want something that's hip and disposable. What does the well-made, kind of nice stuff in the middle mean anymore?"

Not so much when it comes to the Dolce & Gabbana customer. "When we offer a shoe in leather and also in snake or eel, the first to sell will be the most expensive," says Stefano Gabbana, whose idea of casual is jeans trimmed with astrakhan fur. "But our customer is also practical," adds Domenico Dolce. He points to the new Dolce & Gabbana fur coat, which is made of mink blossoms hand-stitched onto chiffon. "She wants it to be light," Dolce explains — and "she" is shopping. Dolce & Gabbana revenue is up 20% this year, to about €700 million.

There are, it seems, plenty of wealthy customers out there. In Paris, Colette — the must-visit store for fashion fans — is packed. A woman spots a Russian sable scarf for €11,520 and buys it. Marko Matysik, the Anglo-German designer who supplies fur scarves and jeweled belts to the store, isn't surprised. "There were two of my chinchilla scarves here the other day and they've both sold, too," he smiles — for €10,800 each. "These days fabulous women see something marvelous — and they want it right now."

• MARION HUME | Paris
• Designers up the glamour to fight retail copycats