LONDON/LOS ANGELES OCT 13 (Businesshala) – Supply constraints, slow product deliveries and high freight and labor costs risk shifting the fast fashion industry into the slow lane, as reported this week by British online fashion retailer ASOS (ASOS. L) has been shown.
A business model that aims to bring new styles into stores every three or so weeks and is exploring the limits of where shoppers expect to see new, reasonably priced merchandise on each visit.
“When it comes to fast fashion, it’s all about being first in the market,” said Gus Bartholomew, CEO and co-founder of SupplyCompass, a London-based firm that specializes in product development and distribution software for fashion brands. is expert.
“What we are seeing with most brands is that they are all still largely struggling with the control of visibility and delivery certainty – knowing when things are going to be delivered and when things are going to go wrong. likely to happen and how exactly it would affect them.”
Shares of ASOS fell 16% on Monday as annual gains could fall by more than 40% this year, partly because it expects delays in acquiring stock from partner brands to continue until next year. does.
Rival Boohoo (BOOH.L) warned less than two weeks ago that its full-year profit would be hit by higher freight costs.
Uniqlo’s Japanese parent Fast Retailing (9983.T) will focus on Thursday, when it reports quarterly financial results.
The company said in late September that the COVID-19 lockdown at partner factories in Vietnam would delay the release of its clothing.
Companies from Abercrombie & Fitch (ANF.N) to Nike (NKE.N) have seen their margins shrink over the past few months as they grapple with higher raw material costs and spend more on shipping.
According to Refinitiv, Gap (GPS.N), American Eagle (AEO.N), Kohl’s (KSS.N), Macy’s (MN) are expected to post their slowest margin growth so far this year, when they return next month. Will report third quarter results. figures.
Affordable supplies from Asia have been central to many fast fashion business models.
Nike’s chief financial officer Matt Friend said last month that transit times from Asia to the United States doubled to 80 days.
Simultaneously, textile factories in Vietnam, a hub of fast fashion producers, face labor shortages, especially in facilities located in lockdown areas.
“Manufacturing in countries like Vietnam, Bangladesh and even China is a big pain point,” said Neil Saunders, managing director and retail analyst at GlobalData Retail.
Fast-fashion is “a very time-sensitive segment, which leads to problems” because out-of-season stocks are difficult to sell.
Under current circumstances, this could mean no one wants them by the time the consignment arrives, while the risk is that the offer is near stores during the major sales season starting on Black Friday in November. There would be very little to do.
Data firm StyleSage found that, on average, in the United States, nearly a third of Zara’s black men’s blazers were out of stock in the third quarter, as did more than a fifth of all H&M women’s white T-shirts.
StyleSage operates an online platform that monitors pricing to provide retailers with competitive intelligence.
According to analysts, H&M is second only to Zara’s owner Inditex (ITX.MC) in the global apparel market, which is dependent on Asia for nearly 70% of its production.
Supply disruptions hampered H&M (HMB.ST) sales in September, and chief executive Helena Helmerson told analysts and the media on September 30 that H&M was prepared for more delays in deliveries.
One solution is to reduce global risk, which could also help relieve investor pressure focused on environmental, social and governance (ESG) factors, including the carbon footprint and workers’ rights.
Spain’s Inditex has little exposure to Asia compared to its rivals, sourcing much of its products closer to home.
Italy’s Benetton is also turning away from Asia’s sprawling supply chains and low-cost manufacturing hubs in Asia known as near-shoring, which could prove to be an enduring legacy of the COVID-19 pandemic.
For others, the engineering time and cost is enormous and in any case, the profits are not wiped out.
Despite the pressure, ASOS’ adjusted earnings before interest and tax (EBIT) margin rose 70 bps to 5.3% from the year on August 31. Its medium-term (3-4 year) target is “at least” 4.3%.
ASOS, which has rapidly expanded into UK retail, sources most of its merchandise from China and India.
It also faces high inbound freight and outbound delivery costs, fee costs related to the UK’s withdrawal from the EU, and labor wage inflation.
On Monday, it said supply chain pressures were expected to continue through the end of February, resulting in more time for imported goods and supply disruptions from partner brands.
“I think it (availability) will be weak in terms of third-party brands, but we’re definitely building it up now and we’re still looking for some decent (sales) growth in this first (half) period.” are,” Chairman Adam Crozier told Businesshala.