• FAST Fash­ion a Boon or Bane?

Perfect Sourcing - - Inside -

The Fash­ion in­dus­try is no stranger to dis­rup­tion, and it’s fac­ing a global re­form. Driven by con­sumer trends, it’s now strug­gling to cope with the Fast Fash­ion busi­ness model it cre­ated. In or­der to re­main prof­itable, the mar­ket must now pro­duce mul­ti­ple, sea­son-less col­lec­tions on de­mand and that’s no easy task for large and small com­pa­nies across the globe. With the ad­vent of fast fash­ion there are new set of chal­lenges to be coun­tered. While the prob­lem of stocks ex­isted be­fore also but the pace, vol­umes and pe­ri­od­ic­ity is huge as com­pared to last few years. The re­cent ex­am­ple is H&M which re­ported an ac­cu­mu­la­tion of 3.4 bil­lion eu­ros of cloth­ing stock on Fe­bru­ary 28, 2018, a 7% in­crease com­pared to the same date in the pre­vi­ous year.

The com­pany’s CEO Karl-Jo­han Pers­son has an­nounced that due to stock lev­els be­ing higher than fore­cast, there will be an in­crease in mark­downs in the sec­ond quar­ter of 2018. In­ven­tory cur­rently ac­counts for 17.6% of H&M’S sales and up to 32.3% of to­tal as­sets. Pers­son also ex­plained that the grow­ing vol­ume of stock was re­lated to the need to fill the racks of 220 new stores.

Signs of its ex­pand­ing un­sold in­ven­tory be­gan emerg­ing last year, when it re­ported an un­ex­pected quar­terly drop in sales. The de­cline was the first in two decades, a pe­riod in which H&M ex­panded from a lone women’s wear store west of Stock­holm to a gar­gan­tuan net­work of 4,700 stores around the world.

The scale of the prob­lem il­lus­trates H&M’S vast size — as one of the world’s largest cloth­ing man­u­fac­tur­ers, it pro­duces hun­dreds of mil­lions of items each year. There are so many that a power plant in Vasteras, the town where H&M founded its first store, re­lies partly on burn­ing de­fec­tive prod­ucts the re­tailer can­not sell to cre­ate en­ergy.

But while lux­ury brands have en­joyed a re­bound in for­tunes in re­cent months, fueled by mil­len­nial ap­petite and a re­cov­ery in de­mand from the lu­cra­tive Chi­nese mar­ket, mass-mar­ket com­pa­nies have had to deal with enor­mous changes. In the dig­i­tal era, the chal­lenges around of­fer­ing trendy ap­parel be­fore it goes out of style have mounted, par­tic­u­larly as grow­ing num­bers of shop­pers choose to buy from their smart­phones and be­come more qual­ity con­scious.

ASOS is an on­line-only re­tailer, and In­di­tex has man­aged to ramp up its dig­i­tal sales. But H&M, which also owns brands like Cos, & Other Sto­ries and Ar­ket, has fallen be­hind the pack.

H&M has in­sisted it has a plan, say­ing it would slash prices to re­duce the stock­pile and slow its ex­pan­sion in stores. It said it hoped its on­line busi­ness would ex­pand 25 per­cent this year.

It’s worth re­mem­ber­ing that the H&M group, which owns H&M, & Other Sto­ries, Cos and Monki (among oth­ers), and is cur­rently launch­ing new brands Ar­ket and Ny­den, re­ported a 44% de­crease in its net in­come in the first quar­ter of 2018, suf­fer­ing from a drop in sales (-1.7%) and a se­ries of mark­downs. As the group looks to re­vi­tal­ize its op­er­a­tions, it would ap­pear to be count­ing on its “new busi­ness” divi­sion which in­cludes all brands in its port­fo­lio other than H&M and saw a 15% in­crease in turnover in the first quar­ter.

Mov­ing the stale stock of mostly clothes, ac­ces­sories and elec­tron­ics is likely to lead to big­ger dis­counts and steeper mark­downs, which in turn would re­duce chances for a swift profit re­bound for most of the re­tail chains re­ported Reuters re­cently.

Dis­ap­point­ing sales by some of the big­gest re­tail­ers in­clud­ing Tar­get Corp (TGT.N), Macy’s Inc (M.N), JC Pen­ney (JCP.N) and Kohl’s Corp (KSS.N) are likely to lead to even more pro­mo­tions and dis­counts to woo cus­tomers. Ac­cord­ing to a re­port by an­a­lyt­ics firm Dy­namic Ac­tion, re­tail­ers sold 4% fewer items at full price in the first quar­ter than a year ago, while the per­cent­age of pro­mo­tional prod­ucts or­dered on­line jumped 63%.

Right now re­tail­ers have started cut­ting back on de­liv­er­ies for the third and fourth quar­ter; which would leave them with less prod­ucts for sell­ing by the end of the year, when most re­tail­ers make as much as 40% of their an­nual sales.

The world’s largest re­tailer, Wal­mart Stores Inc (WMT.N), bucked the trend and posted sur­pris­ingly higher sales as lower-in­come con­sumers spent more. That should mean Wal-mart sold much of the stock ear­marked for the quar­ter, eas­ing the pres­sure to of­fer steep pro­mo­tions and dis­counts, an­a­lysts said.

Other bright spots in­cluded home im­prove­ment chains like Home De­pot (HD.N) and Lowe’s Com­pa­nies Inc (LOW.N), which have ben­e­fited from a hous­ing re­cov­ery; and off-price ap­parel re­tail­ers like TJX Cos (TJX.N), which of­fer low-priced branded ap­parel and ac­ces­sories.

Off-price chains such as Ross Stores Inc (ROST.O) and Burling­ton Coat Fac­tory had been a neg­li­gi­ble force in the in­dus­try un­til a few years ago. But as con­sumers try to get more bang for their buck, chains that of­fer qual­ity branded goods at lower prices have be­come in­creas­ingly pop­u­lar.

In the dig­i­tal era, the chal­lenges around of­fer­ing trendy ap­parel be­fore it goes out of style have mounted, par­tic­u­larly as grow­ing num­bers of shop­pers choose to buy from their smart­phones and be­come more qual­ity con­scious.

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