Is This Fashion Trend Disrupting Your Supply Chain?

Retailers such as H&M, Forever 21, and Zara have changed the way clothes are sold. But how will fashion supply chains react to the shift?

You’ve heard of fast food. But you might not know that the principles that allow you to get quick meals from chain restaurants now apply to fashion brands, too. The term 'fast fashion' is a relatively new concept, but it has already gained notoriety for its impacts on the retail industry. The logic behind the trend is simple: Consumers are no longer interested in paying hundreds of dollars for a "unique" item when a similar piece, albeit of lower quality, is available for half the price. With trends changing every few months, consumers are far more willing to pay less for “temporary” styles, rather than investing in classic pieces.

Now, Classic Brands are Losing Out.

Banana Republic saw a 12 percent loss in sales last quarter. Experts attribute the loss to the company's inability to adapt to rapidly changing fashions. Increasingly, there is a stark contrast between successful and unsuccessful clothing brands—and it comes down to inventory changes. Clothing brands such as Zara manage to push new styles to their stores with little time passing from pieces debuting on the runways in New York, Paris, and Milan. That speed in moving merchandise from the designer's table to the retail floor has forced other companies to speed up their delivery times. J.C. Penney, for example, began accelerating their shipments by cutting more than half of their production and streamlining their supply chain. Real-time technology was also utilized to better coordinate and streamline manufacturing and shipping. What does that mean in terms of revenue? Fast fashion brands boast fewer markdowns because merchandise arrives and disappears quickly, creating a huge demand because of the assumed quick turnover rate (capitalize on customers’ fear of missing out). Companies no longer replenish stocks but replace sold-out looks with new styles. Consumers are driven by the created need to purchase the item in fear that they will not see that specific piece again. Zara's profits reflect this; strong gross margins have been recorded by the clothing brand due to less frequent markdowns.

But there’s always the risk of stocking out. Target, considered the predecessor for fast fashion, recently launched its Lily Pulitzer collection, which sold out in just an hour. It was considered a success, but the company could have further capitalized on it if they had optimized their forecast system for apparel demand. Experts reason the company's fluctuating market revenues are due to its frequent over-stocking of unpopular products and under-stocking of wanted ones.

Always Money in the Banana Stand?

Clothing brand Banana Republic seems to be facing a different problem altogether. Stocks are well-kept and analyzed, but the transition between styles is slow: Typical turnover rates are twelve to eighteen months. The slow turnover leads to consumer frustration, as they feel no desire to buy new items quickly—they will likely be marked down in the coming months. In addition, given the rapid pace of the fashion industry, the clothes can seem outdated before they go out of stock. How do you get rid of those perceptions? Your inventory needs a makeover.

Design Trends Translated To Volume

There are problems that come with mass production, too. Brands such as Forever 21 have been hit with several intellectual property lawsuits, each claiming that these clothing stores copied designs from higher-end brands. These allegations have not stopped these stores from moving forward and recording impressive sales. However, a crucial part of their success does indeed lie in their ability to have a continuous supply of new and fashionable clothes. This requires the ability to manufacture quickly, at a low cost. To reduce costs, fast fashion brands have outsourced to countries like China, where labor is cheap and yield is high. But recent scandals, such as the Wenling shoe factory collapse, have shifted global attention to the darker aspects of mass-production. Now, companies face the unique challenge of finding sustainable and responsible ways to produce cheap clothes—fast.

Supply Chain Sustainability

Certain retailers, like H&M, have risen to the challenge. The company has shifted their marketing and manufacturing strategy to promote sustainability. This is achieved through a three-point system:

Closing the loop in the apparel supply chain: This is done when a used garment is brought back to its original fiber form and then recreated into something new.

Reduction of energy consumption: By using pre-existing materials, clothing brands consume less energy in terms of electricity and production.

Organic sources: Many clothing brands have begun to seek more organic sources, cooperating with local farms to stir up the economy. These steps limit the number of reference points in supply chain logistics which keep costs to the bare minimum.

Beyond the Wardrobe

Many retailers have cut costs by working in close proximity with their factories and then setting up online stores. The relative ease of restocking warehouses—as opposed to brick-and-mortar stores—allows companies to replenish their stocks almost immediately. This addresses the earlier problems of under- or over-stocking. Brands can now produce smaller quantities of a line first, then have it replicated in bulk if it proves to be popular.

The future of fast fashion is in online retail—but companies need to have agile supply chains to match their agile, ever-changing industry.


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