Since the 1990’s, when little-known clothing retailer Zara announced it could take a garment from concept to rack in just 15 days, “fast fashion” has captured the minds of consumers. Brands like Zara, H&M, and Forever 21 peddle cheap clothing—and they win huge market shares by getting it to market in time for buyers to keep up with volatile trends. However, this dynamic industry is now facing the same challenges as some traditional retailers—unsold inventory and profit losses. How can fast fashion take its supply chain into the future to stay in business?
H&M made headlines last month by announcing that it was holding $4.3 billion worth of unsold inventory. Q1 had hit the retailer with its first unanticipated quarterly drop in sales in two decades, forcing it to offer more items on clearance as part of a damage control strategy. CEO Karl-Johan Persson stated that moving forward, the company will need to “ensure a faster, more flexible and more efficient supply chain” to address misalignment of inventory and demand. Similarly, Inditex, which owns Pull & Bear, Massimo Duttie, and Zara, has also reported a slowdown in sales and its weakest profits in a decade. Stocks reportedly fell 3.1% in March.
Amidst falling profits, retailers should consider a few things in order to stay relevant with consumers:
Know What Your Customers Want
It seems intuitive, but customers care about a range of things outside of getting the latest trend cheaply and abundantly. People are increasingly demanding personalization. Demand for unconventional or exclusive products and shopping experiences is growing, as is demand for flexible delivery options in e-commerce transactions.
A prime example is Amazon, the e-commerce juggernaut that’s set to overtake Macy's as the largest apparel retailer. The company normalized premium subscriptions and free 2-day shipping, forever altering shoppers’ expectations of how speedy and flexible brands should be.
With sustainability remaining a hot-button issue, many consumers are also starting to care more about the source of their clothes and to prioritize quality over quantity. Yet there is still a large market that values low prices and trendiness. Being able to cleverly cater to both of these consumer categories is what will set fashion retailers apart.
One brand that made early attempts to walk this line is Urban Outfitters. Below, the fast fashion purveyor’s website describes their “Urban Renewal” line—a line that respects consumers’ desires for both sustainability and originality:
Get Your Platforms Straight
H&M’s CEO admitted that his company probably made a mistake by not adapting fast enough to online trends.
Millennials now wield an estimated buying power of $2.45 trillion, and many of them are making fashion choices based on trends that start in the blink of an eye and spread through social media. Keeping a pulse on what’s trending on social platforms is therefore just as important for fashion brands as it is for beauty companies. To achieve success in the global market, businesses should make sure their supply chains aren’t just built to churn out fashion fast. Rather, they should build a supply chain that is receptive to the signals customers are sending through social media, and that can respond to both temporal fads (think ripped jeans) and bigger trends like sustainability.
Leverage Sales Channels, The Smart Way
The online ecosystem is more than just a way to monitor consumer trends. By partnering with online retailers, brands can leverage the sophisticated e-commerce supply chains of those companies to improve their own omni-channel sales. JD.com, one of China's biggest e-commerce platforms, recently launched luxury shopping platform Toplife. The app allows brands to sell directly to consumers within JD’s network of online stores, customer service, delivery and marketing, and warehousing and inventory systems.
Whether through partnerships or by ramping up their own e-commerce supply chains, fast fashion retailers need to jump on the e-commerce bandwagon now if they really want to remain “fast.” Online shopping will continue to grab bigger shares of the fashion market thanks to its accessibility and convenience. A recent Zebra Technologies report showed that a number of retailers are already leveraging in-store inventory to fulfill online orders, reducing overstock and shortening delivery times. More retailers will probably adopt this strategy as two-hour delivery becomes the norm.
Customer experience, responsiveness to trends, and the timely availability of products, are now driving customer satisfaction more than brand name. Meeting these requires two things: a demand forecasting team that keeps a steady pulse on the online community and can anticipate trends before competitors do; and a supply chain that is agile enough to pivot with trends.
After a rough start to its year, H&M seems to agree. The company’s mission for 2018 is to adjust to new market dynamics, leveraging a more flexible supply chain (including automated warehouses) and advanced analytics for better trend detection. If more clothing companies can start to think about how to make their supply chains not only fast, but responsive, they will have a better chance of ensuring that inventory woes don’t affect their bottom lines.