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U.S. Retailers Aim to Chase Europe’s Fast Fashion Juggernauts

Fast fashion retailers are redefining how the apparel world looks at supply chain strategy and decision making, but American companies have been forced to play catch up with more advanced European retailers. An increasing number of U.S.-based companies are figuring out how to incorporate the fast fashion retailing DNA into their models by speeding up their supply chains, incorporating customer feedback loops and changing decision models, but they have far to go to overtake their overseas competitors.

Apparel industry experts note that European companies like Inditex (parent company of retailer Zara), Hennes & Mauritz (parent company of H&M) and others have been successful after turning away from traditional retail sourcing and merchandising models that focused on price over all other factors. More mature American brands have struggled to gain a toe hold in the changing retail environment, but a handful of chains are starting to move toward a more nuanced model.

“The first stage of success is getting it right: right trends, right prices and right service.  Zara and H&M do a great job of both.  It isn’t always about getting the trend right but making the trend as well.  And they both have been around long enough now to set some of the trends which helps a lot in the fashion business,” said Marshal Cohen, chief industry analyst with the NPD Group Inc. “American retailers are chasing the business, European fashion retailers tend to set the trends.  This is a big advantage as it creates a sense of trust, loyalty and even urgency.  American retailers tend to chase price more, look at how J.C. Penney has struggled when they removed the discounts that consumers were used to.  It is because that is what they expect from them.” 

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U.S. retailers’ traditional focus on price meant a rush to source products in the countries with the cheapest labor, creating the current diversified global supply chain model. Chasing the cheapest labor helped American retailers keep their prices down, but it also led to a system with long lead times. As fast fashion retailers grow by leaps and bounds, buoyed by a model that allows them to respond to consumer demand quickly and accurately in weeks instead of months, more traditional apparel retailers have been forced to evaluate their sourcing models.

A report from Societe Generale in June 2012 said that fast fashion retailers enjoy some “decisive advantages” over their more traditional competitors. The stores benefit from selling a less discretionary product to consumers than value fashion or mid-market clothing chains, and they capitalize on the greater appeal of new product. In addition, the report noted, fast fashion retailers’ strengths –centralized inventory, close-to-home sourcing and globally appealing products – have helped them capture more mature markets and insulate them from rising manufacturing wage costs in Asia.

“Fast fashion takes its initial inspiration from influences such as popular culture, celebrity style and the designers/catwalks, and so it has global appeal for a connected and mobile younger generation. This makes it particularly exportable. As there tends to be centralized distribution, product can be sent to any country with equal potential for profitability. There is no need to leverage investment in local overheads (e.g. warehouses) because it hardly exists,” the report noted.

As a result, fast fashion retailers are having an increasing impact on American apparel retailing, said Dana Telsey, chief executive officer and chief research officer of Telsey Advisory Group, but the more mature U.S. retailers have taken longer to adapt to the changing retail environment.

“Everyone is studying H&M and Inditex to see how they are doing it,” Telsey said but, she added, “it’s a work in progress.”

Some U.S. chains like Macy’s and teen retailers such as American Eagle, Gap and the Limited are working to shift their supply chain model and speed up the production cycle, but it’s a multi-year process, Telsey said.

American retailers are trying to gain momentum and speed their production time up by putting pressure on their manufacturers, Cohen said, as they learn that it’s increasingly important to put product into the stores when the consumer wants it, not when headquarters decides it should be there. Traditionally, he noted, American retailers have pushed to put product in the stores far in advance of the wearing season, meaning that coats were in stores in August and swimwear appeared in February.

“Timing now for consumers is more about buy now, wear now (coats in October/November, swimwear May/June).  So American retailers still need to do a better job of getting the product timed right,” Cohen said.

Joanne Kane Offerman, assistant professor of fashion merchandising management at the Fashion Institute of Technology in New York, said historically those longer lead times required U.S. retailers to come up with strategies to help minimize the risks of designing and manufacturing goods months and months in advance of when customers were expected to wear them.

For example, she said, American retailers used to test their new products in geographic areas where the weather made it possible before rolling out a full line. A company might choose to test new colors for a line of t-shirts as a small batch in a resort area before rolling them out across the country for summer, for example. The strategy was developed initially as a way to cope with the long lead times inherent in the traditional sourcing model, which American companies were very good at, Offerman noted.

But with the advent of fast fashion retailers, a focus on more nimble, smaller batches of individual designs became the norm because of a faster turnaround time. Offerman said the long lead time needed to develop, test and then manufacture garments that anticipate consumer needs is not the only model anymore. U.S. companies are competing with a European fast fashion supply chain that ends after six weeks, she said, while they struggle to cut production down to eight months.

The U.S. retailing model developed over a long time, Offerman observed, with a focus on culling the costs out of the manufacturing process by sourcing all over the world. Fast fashion retailers focus first on quick response to customer input, and less on cost, which is entirely different from the U.S. retailers’ traditional focus. Fast fashion retailers absorb higher costs in order to manufacture items closer to the ultimate consumer, ensuring that they can meet customer demands in a significantly shorter period of time.

“The idea of developing products in more locations and countries for location advantage makes more sense, but the process of building that infrastructure and having that comply with our needs from ethics and quality perspective? That takes time, and time is not a nice word in product development and supply chain management,“ Offerman said.

Time, in other words, is a luxury that U.S. companies no longer have, experts noted. More companies are figuring out how to cope with that reality and incorporating some fast fashion supply chain concepts into their models in some way. Companies like the Gap, for example, that rely in part on “key items” that consumers can count on have been able to incorporate a faster turnaround on some of their more fashion oriented items. And larger retailers like Macys have been able to incorporate fast fashion principles into specific lines in an effort to compete. The repercussion of the success fast fashion companies are having is likely to continue to be important.

“Overall, fast fashion influence on American apparel retailing will become more impactful over the next several years,” Telsey said.