Since the late 1990s, Fast Fashion entered the market with such a massive strength to literally twist it, changing the leading dynamics of the fashion industry.
Developed in the USA in the 1980s, Fast Fashion moved the market from a product-driven concept, based on a manufacturing model, to a market base model in the late 1990s and 2000s.
Nowadays Fast Fashion forefront is Zara's group Inditex SA, but it isn’t the first mover in this area. In fact there were other retailers who worked with this concept before the Spanish label applied itself to, such as Italian United Colors of Benetton.
Benetton Group SpA success in the 1980s and 1990s laid in its franchise system, which was a great innovation for those years: on the contrary, its condemnation was the lack of adaptability to the changes of the fashion market, instead.
Its distribution system worked in the early years, when the company was young and lacked the capital to buy and manage its own flagship stores. Becoming a global company, Benetton Group SpA’s system became a weakness, because of the lacking control over independent distributors worldwide. In addition to this, Benetton Group SpA wasn’t able to keep up both with the changing tastes of the consumers and the market demand. This can partially explains Benetton Group SpA’s reluctance to update its main collections more than twice a year.
In financial terms, this equals € 428 million of net revenues in the first quarter of 2012, with a 5.5% fall at current exchange rates and 5.7% currency neutral, compared with the same period of 2011. In spite of it, direct sales performance was positive on equivalent basis, with 6.1% growth, compared with the same period of the previous year, to which is added a further increase, following the takeover of some stores previously managed by partners, especially in fast growing markets, such as Russia, Mexico, Korea and India.
With regards to traditional western markets, Benetton Group SpA recorded growth in continental Europe and modest growth in the USA, even if Southern European countries were down (mainly Italy), influenced by economic turmoil. In general, total revenues in these markets reported a 7.9% fall at current exchange rates and 8.4% currency neutral.
In addition to this, the orders for the SS 2012 collections closed with a reduction of about 3% compared with the SS 2011.
Gross operating profit for the quarter was € 188 million (-7.39% in comparison with the same period of 2011).
In general, the reduction is attributable to the high costs increase, especially for raw materials.
Another important brand in the Fast Fashion scenario is Swedish H&M, which reported e constant growth in the last four years, recording a 14% rising in total revenues from 2008 to 2009, 7% growth from 2009 to 2010 and 1.5% from 2010 to 2011. The 2010 and 2011 slowdowns were due to the economic crisis that afflicted Europe, H&M main market.
Despite the baffling European economic situation, H&M’s March 2012 sales reported a 26% increasing in comparison with March 2011. April 2012 represented a negative period, instead, due both to unfavorable weather and a very negative calendar, which brought fewer shopping occasions to the consumers, reporting a 1% decrease, compared with April 2011.
H&M’s critical factor of success consists in collaborations, mainly with high-end fashion designers (Viktor & Rolf, Jimmy Choo, Versace, Marni, Sonia Rykiel, to name a few) or fashion icons (Madonna, David Beckham and Anna Dello Russo, recently). In this way, the Swedish brand developed its own way to create interest and desire around its products, increasing their perceived value by consumers.
Through the years many things have changed in Fast Fashion market, first mover lost its market stakes in favor of follower brands, which became market leaders.
This is the case of Inditex Group with its leading brand Zara, right now the Spain’s most valuable listed company, after the acquisition of telecommunications company Telefònica SA.
Thanks to its impressive sales performances and 411 new stores openings last year, Inditex SA reported net sales grew 10% to €13.8 billion and net profits increased from € 1.73 billion to € 1.93 billion.
Unlike Benetton Group SpA’s outdated model, Inditex SA’s succeeds because it is focused on direct control over the entire supply chain, from production (which is placed as closer as possible to La Coruña headquarter) to distribution. In fact the Spanish group sources just over half of its products from Spain, Portugal and Morocco. In this way the production process is more expansive, but Inditex can react quickly to new trends, since its supply chain is short. Instead of betting on tomorrow’s trend, Inditex SA brands can wait to see what consumers are actually buying and start a production on that. While others are stuck with unwanted stock, Inditex SA sells at full prices.
Despite its flawless management structure and organization, its model has not worked everywhere, yet. For example Zara has struggled to stand out in America. In this case the matter is more stylistic than logistic; in fact Americans prefer classic clothes, though this trend is changing.
Also China is a hard market to penetrate, this time for price issues. Another trouble of Inditex SA’s model is that clothes are more expensive in far-eastern areas because of the taxes due to the distance. Since the production is mainly European (or near to Europe), Inditex SA brands have to charge more in absolute terms. In this way Zara's (as well as Bershka's, Massimo Dutti's, Pull & Bear's, Oysho's, Stradivarius') products are less competitive than other Asian fast fashion brands’. That’s why Inditex SA may have to adapt its model for Asia, having both logistics and design in China.
Despite these issues, what really makes Inditex SA Group succeed is the rapidity to understand what the market needs and the ability to adapt its dynamic structure.