London / Los Angeles — As UK online fashion retailer ASOS showed this week, supply bottlenecks, delayed product deliveries, and rising freight and labor costs risk shifting the fast fashion industry to slow lanes.
Business models that aim to bring new styles to stores about every three weeks and expect shoppers to see fresh, affordable products every time they visit are discovering their limitations.
“When it comes to fast fashion, it’s all about getting into the market first,” said Gus Bartholomew, CEO and co-founder of Supply Compass, a London-based company that specializes in fashion brand product development and distribution software. Mr. says.
“What we see with most brands is that they still struggle with visibility and control over delivery certainty, which means when it will be delivered and when it may go wrong. And I know how it really affects. ”
ASOS shares fell 16% on Monday after warning that annual profits could decline by more than 40% this year, partly because it expects delays in acquiring shares from partner brands to continue next year. Did.
Less than two weeks before rival Boohoo warns that full-year profits will fall due to higher fares.
UNIQLO’s parent company, Fast Retailing, will draw attention on Thursday when it announces its quarterly financial results.
The company announced in late September that the blockade of COVID-19 at its partner factory in Vietnam would delay the launch of clothing.
Companies from Abercrombie & Fitch to Nike are working to raise raw material costs and spend more on transportation, reducing margins in recent months.
According to Refinitiv data, Gap, American Eagle, Coles and Macy’s are expected to record the slowest margin growth to date this year when reporting results for the third quarter of next month.
Slow transit
Cheap supplies from Asia are at the heart of many fast fashion business models.
The downside of reliance on remote labor is revealed by increased transit times. Nike Chief Financial Officer Matt Friend revealed last month that the transit time from Asia to the United States doubled to 80 days.
In addition, Vietnam’s garment factory, a hub for fast fashion producers, faces a labor shortage, especially in facilities in closed areas.
Neil Saunders, Managing Director and Retail Analyst at Global Data Retail, said:
Fast fashion is “a very time-sensitive segment and poses a problem” because it is difficult to sell out-of-season inventories.
In the current situation, it could mean that no one wants them by the time the consignment goes through, but there’s almost nothing the store offers during the major sales season starting on Black Friday in November. There is a risk.
In the United States, about one-third of Zara’s black men’s blazer was out of stock in the third quarter, as well as more than one-fifth of all H & M women’s white T-shirts, according to data firm Style Sage.
StyleSage operates an online price monitoring platform to provide retailers with competitive intelligence.
According to analysts, H & M, second only to Zara’s owner Inditex in the global apparel market, depends on Asia for about 70% of its production.
Supply disruptions hindered H & M’s sales in September, and CEO Helena Helmersson told analysts and media on September 30 that H & M was preparing for further delays in delivery.
Nearshoring
One solution is to reduce global exposure. It also helps address investor pressures focused on environmental, social and governance (ESG) factors such as carbon dioxide emissions and worker rights.
Inditex in Spain has far less exposure to Asia than its rivals and is procuring more products near their homes.
Benetton, Italy, is also looking away from Asia’s global supply chain and low-cost manufacturing hubs with a shift known as nearshoring, which has the potential to prove the lasting legacy of the COVID-19 pandemic. ..
For others, the time and cost of designing changes is too great, and the profits haven’t been wiped out anyway.
Despite the pressure, ASOS’E earnings before interest and tax (EBIT) margin increased 70 bps to 5.3% in the year to 31 August. The medium-term (3-4 years) target is “at least” 4.3%.
ASOS, a rapidly expanding UK retailer, sources most of its products from China and India.
We also face higher inbound and outbound shipping costs, tariff costs associated with the UK’s withdrawal from the European Union, and labor wage inflation.
On Monday, supply chain pressure is expected to continue until the end of February, resulting in longer lead times for imports and restricted supply from partner brands, he said.
By James Davey and Lisa Baertlein
follow