fast fashion speeding toward ultrafast fashion may 19 … · according to the company. zara also...

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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

May 19, 2017

Zara and H&M, the two largest global fast-fashion retailers, pioneered the fast-fashion business model. Now, the two companies are competing head to head with a new set of younger online-only competitors.

New players such as Boohoo.com, ASOS and Missguided are bringing products from design to sale in as little as a week or two—faster than traditional fast-fashion retailers, and even faster than Zara. Fast fashion is turning into ultrafast fashion.

Consumers’ demands for immediacy are increasing and production cycles are becoming ever quicker. Retailers that have the shortest and leanest supply-chain cycles are posting the strongest sales growth results.

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BringingUltrafastFashiontoMarketFastfashionisturningintoultrafastfashion.NewplayerssuchasBoohoo.com,ASOSandMissguidedarebringingproductsfromdesigntosaleinaslittleasoneortwoweeks—evenfasterthantraditionalfast-fashionpioneerssuchasZaraandH&M.

Thenewcropofonlinefast-fashionretailersisprovinghighlyadeptatrapidlyrespondingtoconsumers’increasingdemandsforimmediacyandconstantnewness,inturndrivingtheirrapidsalesgrowthandsuccess.

Boohoo.com,ASOSandMissguidedarenowabletoproducemerchandisein2–4weeks,comparedto5weeksforZaraandH&Mandthe6-to9-monthcyclefortraditionalretailers.

Thefashiondesignprocessisfasterthanithaseverbeen,duetothedigitalrevolution.Itismucheasierforretailerstocopyorobtaindesigninspirationfromfashionrunwaysanddigitalinfluencers.Socialmediaisnowakeytoolinformingsourcingstrategybecauseitprovidesdataonemergingandpopulartrendsandstyles.Pure-playonlinefast-fashionretailersareabletocontinuouslyrefreshandrotatealargepartoftheirassortmentstodrivecustomershoppingfrequency.Forexample,BoohooandASOSaddupto100and4,500productsdailytotheirwebsite,respectively.

Figure1.NumberofNewItemsAddedWeeklytoWebsite

Source:Companyreports/FungBusinessIntelligenceCentre/FungGlobalRetail&Technology

“Test-and-Repeat”ModelUltrafastfashionretailersalsoavoidthehistoricalretailerdilemmaofproductshortagesversusexcessiveinventory,andensuingmarkdownsandlowermargins.Ultrafastapparelretailersoperateagilesupplychainstoquicklymatchinventorysupplywithchangingdemandandstrictlycontrolinventorytocreateabalancebetweenundersupplyandmarkdowns.Initialdesignsaremadeinsmallbatchestotestdemand,and,ifsuccessful,moreitemsarequicklyproduced.Thesourcingbusinessestargetsellinggoodsatfullpricesandreducedmarkdowns,hencefast-fashionretailershavemuchlowermarkdownlevelsthantraditionalretailers,asdepictedbythetablebelow.

4,500

100

ASOS Boohoo.com

Boohoo.com,ASOSandMissguidedarenowabletoproducemerchandisein2–4weeks.

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Figure2.ProductMarkdowns(%)

Source:FungBusinessIntelligenceCentre/FungGlobalRetail&Technology

NearshoringandOnshoringFast-fashionretailersareabletobringproductstomarketandadjustinventorylevelsrapidlybybasinglargequantitiesofproductionclosetoheadquartersandkeycustomermarkets.

• Boohoosourcesover50%ofitsproductsfromtheUK,whichallowsthecompanytoofferthelatesttrendsandstylesveryquickly.

• ASOS’sCEOstatedthatheexpectsagrowingresurgenceofclose-to-shoreandonshoremanufacturingtoincreaseleadtimes,asyoungerconsumersarebecomingmoredemandingandfashiontrendsarechangingmorequickly.

• InditexhasstatedthatZarasourcesapproximately60%ofproductinEurope,mainlySpainandPortugal.

• H&MhasrecentlyannouncedthatitwillinvesttospeedupitssupplychainandisconsideringmovingmoreproductionclosertoEurope,tocountriessuchasTurkey,inordertobringproducttoEuropeanstoresfaster.

50%

15%

IndustryAverage FastFashionRetailers

Boohoosourcesover50%ofitsproductsfromtheUK,whichallowsthecompanytoofferthelatesttrendsandstylesveryquickly.

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FastFashionandUltrafastFashionPlayersBoohoo.com:FromTwoWeeksBritishonlinefashionretailerBoohoosellsown-brandclothing,shoesandaccessories,andtargets16–24year-olds.Earlierthisyear,Boohoo.comacquireditsremaininginterestinPrettylittlethingandUS-basedNastyGal.

Source:boohoo.com

Thekeytothecompany’ssuccessisitsbusinessmodelfocusedonspeedtomarket.Boohoo.comreportedlyhasthecapabilitytogetproductfromconcepttosaleinjust2weeks.

Thecompanyoperatesatest-and-repeatmodel,whichrevolvesaroundtheconceptofproducingitemsinsmallbatchesinitiallyandquicklyreorderingstrong-sellingproduct.Thesourcingmodelreducesinventory-holdingriskandenablesrapidmarketresponsetoquicklysatisfycustomerproductdemand.

• Boohoohasupto29,000productslistedonitswebsiteandcustomersarecontinuouslycheckingthewebsitefornewstyles.

Boohoo.comcollaborateswithcelebrities,artistsandsocialmediainfluencerstopromotestylesandtouncoverthemostrecentfashiontrends.

• BoohoominesInstagraminteractionstoidentifywhatstylesaretrendingwithitstargetcustomeragegroup.

Boohoohasupto29,000productslistedonitswebsite,andcustomersarecontinuouslycheckingthewebsitefornewstyles.

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• Thecompanyalsocreatesuniqueseasonalcapsulecollectionsandentersintodesignpartnershipswithdigitalindustryinfluencersandcelebrities.

BoohoohasseenrobustgrowthintheUK,ContinentalEuropeandtheUS,andthecompanyclaimsitisnowtheUK’sthird-largestonlinefashionretailerbymarketshare,followingASOSandNext.

• Boohooreportedconstantcurrencyrevenuegrowthof49%to£294.5millioninthefiscalyearendingFebruary28,2017,andexpectsrevenuestoincreaseby50%yearoveryearinfiscalyear2018.

ASOS:2–8WeeksUKonlinefast-fashionretailerASOSoffers60%own-labelproductandtheremainderbypopularinternationalbrands.Thecompanyisabletobringproductfromdesigntostorein2–8weeks,dependingonthecomplexityoftheproductandsourcinglocation.Theaveragetimetomarketisaround6weeks.

Source:asos.com

• ASOSisabletodesignandgetproducttocustomersin2weeksifitisasimpleproductmanufacturedintheUK.Moredetailedandembellisheditems,calledfashionitems,takelonger.

• ForitemsmadeinTurkey,thesupplychaincantake4–6weeks,anditemsmadeinMauritius,whereASOSsourcesaround16%ofitsproducts,cantake4–8weeks.

ASOSteamsaretryingtoreduceleadtimesonASOSown-labelproducts.ASOShasincreasedthenumberofnewown-labelitemslaunchedperweekby10%yearoveryearinfiscalyear2016.

LikeBoohoo.com,ASOShaspostedverystrongsalesgrowthinthepastfewyears.

• ASOSreportedfirsthalffiscalyear2017salesfortheperiodendingFebruary28,2017up38%yearoveryear,andthecompany

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increaseditssalesforecastforfiscalyear2017,expectingrevenuestoincreasebetween30%and35%.

Missguided:From1WeekPrivately-heldBritishonlinefashionretailerMissguidedhasgrownrapidlyoverthepastfewyears,andisconsideringasaleorflotationduetothisrapidgrowth.

Source:missguided.co.uk

• Missguidedrevenuesincreasedby75%to£206millioninthefiscalyearendedMarch31,2017.Internationalsalesincreasedby130%yearoveryear.

• Thecompanylaunches1,000newproductseachmonthandupdatesitssiteonceadaywithnewstock.Ifapopularfashiontrendsurfaces,thecompanystrivestohaveitavailableonitssiteinunderaweek.LikeBoohoo.com,thecompanyalsorunsmarketingcampaignsthatfeatureinfluencerstospotandpromotenewfashiontrends.

Missguidedlaunches1,000newproductseachmonthandupdatesitswebsiteonceadaywithnewstock.

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Zara:5WeeksTraditionalfast-fashionpioneerZarausedtoproduceafewcollectionsayearandnowthebrandlaunchesover20collectionsannually.Zara’sdesign-to-retailcycleis5weeks,whilethecompanyneedsonly2weeksforrepeatordersofhigh-sellingproduct.Storesworldwidereceivenewproductstwiceaweek.

Source:zara.com

• Zara’sfastsupplychainisbasedongeographicproximity.Europe,especiallySpain,accountsfor60%ofZara’smerchandiseproduction,accordingtothecompany.Zaraalsosourcesaround10%ofitsmerchandisefromnear-shoremanufacturersinMoroccoandTurkey.Onlyabout30%ofproductissourcedfromAsia,mainlybasics.

Zara’ssalesgrowthcontinuestostronglyoutperformthatofmostotherapparelbrands.However,salesgrowthhasbeenbelowthatofyoungpure-playonlineretailers.Zara’scomparablestoresalesincreased10%yearoveryearinfiscalyear2016,belowthe30%+ratesforASOSand40%+forBoohoo.

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H&M:AFewWeekstoSixMonthsSwedishretailerHennes&Mauritz(H&M)hasalongleadtime(lessflexible)supply-chainmodelcomparedtothenewultrafastfashionplayers,aswellasZara.

• H&Mlaunchesupto16collectionsayear.Whilenewproductsaredeliveredtostoresdaily,H&Mleadtimesvaryfromafewweeksto6months.Newgarmentssuchasbasicsandchildrenswearareorderedinadvance,whilemoretrendyclothesthatrequiresmallerquantitiesmaybeproducedatshorternotice.

• H&Msourcesabout80%ofitsproductfromAsia,accordingtothecompany.SuppliersareusedinEuropeforfashion-sensitiveitemsandthosethatrequirerapidreplenishment.

H&M,inparticular,hasseensalesandmarginssufferduetolowercustomerdemandandhighersourcingcosts.Thecompany’sfirstquarterconstantcurrencyrevenuesforthefiscalyearendingFebruary28,2017increased4%,missingitsfull-yeartargetof10%–15%year-over-yearannualgrowth.

Source:hm.com

Toaddresslacklustersales,H&Misinvestingsignificantlyinitssupplychain,suchasnewlogisticssolutionswithgreaterlevelsofautomationandoptimizedleadtimes.

Toaddresslacklustersales,H&Misinvestingsignificantlytospeedupitssupplychain.

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KeyTakeaways• Fastfashionisturningintoultrafastfashion.Newplayerssuchas

Boohoo.com,ASOSandMissguidedarebringingproductsfromdesigntosaleinaslittleasaweekortwo—evenfasterthantraditionalfast-fashionpioneers.

• Thenewcropofonlinefast-fashionretailersisprovinghighlyadeptatrapidlyrespondingtoconsumers’increasingdemandsforimmediacyandconstantnewness,inturndrivingtheirrapidsalesgrowthandsuccess.

• Thefashiondesignprocessisfasterthanithaseverbeen,duetothedigitalrevolution.

• Fast-fashionretailersareabletobringproductstomarketandadjustinventorylevelsrapidlybybasinglargequantitiesofproductionclosetoheadquartersandkeycustomermarkets.

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DeborahWeinswig,CPAManagingDirectorFungGlobalRetail&TechnologyNewYork:917.655.6790HongKong:852.6119.1779China:86.186.1420.3016deborahweinswig@fung1937.comEvaKubickaSeniorResearchAssociateHongKong:8thFloor,LiFungTower888CheungShaWanRoad,KowloonHongKongTel:85223004406London:242-246MaryleboneRoadLondon,NW16JQUnitedKingdomTel:44(0)2076168988NewYork:1359Broadway,9thFloorNewYork,NY10018Tel:6468397017

FungGlobalRetailTech.com

fast fashion speeding toward ultrafast fashion may 19 … · according to the company. zara also...

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