In financial terms, the deal is very small beer. Industry sources estimate that Coats will be backing Ally Capellino to the tune of pounds 250,000 a year, supporting the cost of fashion shows, advertising and marketing activities.
Despite its small scale, this agreement may come to be seen as a landmark for the UK clothing industry. It follows the acquisition by Courtaulds Textiles last January of a majority stake in Arabella Pollen, another British designer.
Alistair Macdiarmid, chairman of CV Apparel, a subsidiary of Coats Viyella, said: 'The problem is that designers want small quantities of product that are not easy to make in a cost-effective way.'
But in recent years, the winds of change have swept through clothing factories. With high street retailers demanding shorter runs (and shorter lead times), manufacturers have had to introduce 'quick response' technology.
Now this same technology is being put to use to benefit designers. Already CV Apparel makes clothes for Paul Smith, the biggest British designer, with sales worldwide of pounds 56m.
CV Apparel chose to back Ally Capellino after encouraging results from three years of working together on the production of Hearts of Oak, a lower-priced 'diffusion' collection that is one of the Capellino labels.
CV Apparel will also be looking for international licensing agreements for the Ally Capellino brand, which includes womenswear and childrenswear.
Coats Viyella envisages the link-up with Ally Capellino as a two-way partnership. Alison Lloyd, Capellino's designer and co-owner with John Platt, is to join the design committee of CV Design Group, and work on high street and own-label ranges.
Mr Macdiarmid said: 'We see the company bringing a totally different design handwriting to our business.'
The UK clothing industry is often accused of producing unadventurous products. The criticism has hit home during the prolonged recession, during which, perhaps more than ever, customers need to be enticed into spending money on clothes.
Coats Viyella, which last year reported a rise of 9.9 per cent in pre-tax profits to pounds 111m, has had its own share of problems, complicated by the integration of Tootal, acquired in 1991. In April, the company made 500 workers redundant in its shirt-making operation in Northern Ireland.
Manufacturers are coming round to the view that improved design and brand development, rather than 100 per cent reliance on volume orders from retailers like Marks & Spencer, will strengthen their hand.
John Wilson, director of the British Clothing Industry Association, said: 'The benefit to manufacturers of working with fashion designers is that they will get more design input into their factories, which will ultimately translate into increased sales.'
Founded in 1979, the privately owned Capellino business is a typically small fashion firm, with turnover of pounds 1m. Twenty-four per cent of sales are to export markets. The company, which has a shop in Wardour Street, central London, is best known for its unfussy and well-cut linen and cotton separates.
Ms Lloyd is one of the new breed of fashion designers: more commercially minded with a sound understanding of the market. 'We are sensible rather than outrageous. We have made mistakes in the past, but we have learned from them and we made them with our own money rather than relying on hand-outs.'
The fashion designer business in the UK is worth just pounds 185m, according to a recent report from the British Fashion Council. Sixty per cent of companies record sales of less than pounds 500,000.
However, the designers exert an influence out of all proportion to the size of their individual businesses. They represent the high-profile tip of a pounds 6bn industry, the country's fourth largest industrial sector.
In 1990, Courtaulds Textiles signalled its interest in the fashion designer business by acquiring a minority shareholding in Arabella Pollen. Last January, it increased its stake to 75 per cent. Ms Pollen has benefited from substantial capital investment and from Courtaulds' experience of sourcing garments worldwide.
Sir Ralph Halpern, chairman of the British Fashion Council and former head of the Burton Group, has urged other manufacturers and retailers to follow the lead of Courtaulds and Coats Viyella.
A working party set up by Sir Ralph is tackling the historic failure of designers and mass-market retailers and manufacturers to link up. Among its first fruits is a deal between Miss Selfridge, the 95-outlet chain owned by Sears, and Red or Dead, a designer company. From next month, Miss Selfridge is to sell clothes, shoes and accessories designed for the chain by Red or Dead.
Designers hope that this and similar agreements will prompt a change of attitude across the clothing industry.
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