In 2019, fast fashion companies grew up
16 DECEMBER 2019
Online fast fashion retailers that succeeded in 2019 invested in logistics and worked to improve supply chains, aiding faster design-to-delivery.
Data capabilities are increasingly important for fast fashion brands to spot and forecast trends while keeping inventory levels in check.
International expansion aided by savvy marketing campaigns and influencer relationships will fuel growth for the sector in 2020.
Aided by globalisation, internet penetration, disposable income and low-cost supply chains, digital-first retailers like Asos, Boohoo, Revolve and Missguided changed the fast fashion market over the last 20 years as older plays like Forever 21 faded.
These companies all follow a similar playbook. They produce trend-driven garments and accessories designed for digitally native millennial and Gen Z customers. According to retail conference organiser RetailX’s Fast Fashion 2019 report, fast fashion will represent 10-20 per cent of total revenue share in key European fashion markets in 2019. In the £42 billion UK fashion market, this equates to £4.2 to £8.4 billion annually.
Despite the proliferation of the sector, the fast fashion model isn’t guaranteed to succeed, and some e-commerce players have fared better than others in 2019. To win, brands must master inventory and supply chain management as customers grow increasingly wary of wasted product, as well as keep up with consumer demand in a category predicated on speed.
Managing rapid design-to-delivery
Online fast fashion brands depend on short design-to-delivery lead times. “It’s something [that] has economies of scale,” says Martin Shaw, head of research at RetailX, adding that companies must be of a certain size to allow for bulk buying and low prices. Buying perennial clothing like basics in bulk lets companies produce trend pieces that will only sit on shelves for a few weeks, often sold at a break-even price point due to the higher cost of sourcing with a quick turnaround.
Selling these trend pieces extremely cheaply has raised governmental concerns about the use of cheap labour, resulting in an audit of Asos, Boohoo and Missguided in November 2018. Boohoo told the UK’s House of Commons Environmental Audit Committee that its cheaper £5 dresses are a marketing tool to attract customers to visit the website and that these loss-leading items make up only 80 of over 6,700 dress styles on the site. The idea is to attract people to the site with trend-led quick turnover items, sourced locally for speed, so that they then make purchases from the core product offering, typically with higher profit margins. Boohoo Group, which also comprises brands Nasty Gal and PrettyLittleThing, has seen pre-tax profit growth of 38 per cent since 2018.
Missguided also practices ‘near-shoring’ — sourcing production of trend pieces close to the company — to increase speed. But Nitin Passi, CEO and founder of Missguided, says a wider supply network is necessary to deliver product quickly. The company can turn around product from China in under four weeks, and from Pakistan in under two weeks. Staples like jackets and coats, meanwhile, are planned in March and April to land the following February. “A key part of our strategy is to be reactive,” Passi says. “We keep a lot of our buying budget flexible to react to what’s on trend, what we’ve landed, what we’ve maximised and what’s working on social media.”
Companies taking this tiered approach are set to perform better, driving site traffic with trends but driving the bottom line with basics that have better margins, says Shaw.
Retailers working with third-party suppliers, like Asos and Revolve, face challenges for fast design-to-delivery that companies working directly with suppliers don’t. Taking note, Asos outlined a focus on owned brands to drive newness in its most recent annual report. It launched unisex brand Collusion and a modest fashion edit this year, and refocused efforts on its Asos Design collection, increasing inventory by 4 per cent. Asos Design now represents 40 per cent of inventory, while its menswear collection saw double-digit sales growth in the second half of 2019.
Misjudging a style can have disastrous effects on inventory control for fast fashion companies, leading to markdowns.
“Inventory is a killer for fast fashion brands,” says Shaw. Companies that minimise inventory problems by using data to forecast trends are best positioned to succeed. Shaw adds that wasted inventory negatively affects the brand’s bottom line and its image, as customers grow increasingly aware of the environmental concerns of extra stock.
“In 2017-18, we were holding on to stock for too long,” says Passi. Missguided, which grew to £200 million in revenue in the first eight years, saw a widely reported loss of £46.7m million in the year to April 2018. Now, if an item doesn’t sell, it’s cleared out as quickly as possible, which in practical terms means diligently marking down more products to deplete remaining stock. To improve the bottom line, the company reduced marketing budgets and improved logistics to make smarter inventory buys, including merchandising and supplier management and trend algorithms.
“The key is using as much data and having our product teams on their A-game, so we don’t land stuff that doesn’t sell,” says Passi. Per the company’s 2019 annual report, released this week to Companies House, pre-tax earnings have returned to growth while losses were reduced by 91 per cent to £4 million after tax.
Smart fast fashion companies now rely on data to inform the buying process and buy into only what will sell; according to Shaw, these fast fashion trend algorithms have become extremely accurate in the last decade. For US online retailer Revolve, proprietary data tools allow the company to measure influencer impact and social engagement to inform product choices, according to chief brand officer Raissa Gerona.
“In the last 18 months, we strategically positioned the business, concentrating on the brands we really want to carry,” Gerona says. “By pulling back inventory and resetting, we’ve seen huge benefits.” These benefits include 15 per cent year-over-year net sales growth since 2018 and a return to profitability, with an $82 million rise in profits for Q3 following a loss in Q2. Despite a drop in the share price of approximately 40 per cent since its IPO in June, Revolve still has growth potential thanks in part to its proprietary technology and data tools.
According to Edited, the number of styles replenished this season compared to Autumn/Winter 2018 has grown, indicating these retailers are focusing on buying back successful styles that resonate. Boohoo’s replenished styles increased by 110 per cent this season, while PrettyLittleThing increased replenishments by 265 per cent. Boohoo and Missguided both saw a reduction in the volume of discounted products as well as the markdown percentage year-over-year, suggesting accurate trend prediction is leading consumers to buy at full price.
Acquiring new customers
Payment capabilities are expected to drive growth for fast fashion e-tailers in 2020. Asos, Missguided, PrettyLittleThing and Boohoo have all partnered with new pay-later payment service Klarna to lower the barrier to purchasing. The payment platform, which plugs into retailers’ checkout pages, is aimed at millennial and Gen Z consumers as customer acquisition and loyalty tools.
According to Klarna, merchants using the tool in the US reported a 68 per cent increase in average order value, a 44 per cent increase in conversion compared to credit cards and 21 per cent higher purchase frequency. Cash-strapped young consumers have long been responding positively to pay-later solutions, with platforms Afterpay and Affirm increasing their retail partnerships to reach millennial shoppers.
With better-managed inventory and smarter e-commerce capabilities in place, fast fashion e-tailers are equipped to reach new audiences and territories. For 2020, British fast fashion brands have their sights on global expansion, particularly in the US, where they have seen increased success in 2019, according to Edited. This is partially due to their attractive low price point for young US consumers: per Edited, British fast fashion retailers are priced more competitively on average than online players in the US.
Missguided plans to increase its investment in US expansion tenfold, according to Passi, and opened an LA office earlier this year. Boohoo Group increased international revenue growth by 64 per cent this over 2018, thanks to particular success in the US, where revenue increased 79 per cent to £166 million. The group’s US expansion has been fuelled by an influencer-heavy marketing strategy that drove growth. Asos chief executive Nick Beighton, meanwhile, blamed the company’s downturn this year on a badly managed logistical expansion in the US.
After ironing out logistical investments in inventory management and data capabilities, the next year will see the top fast fashion retailers competing for share of voice. Influencer marketing remains a key strategy: Revolve, Boohoo Group and Missguided all plan to expand upon big influencer and celebrity deals inked in 2019. But saturation and proper measurement is a growing concern. “Closing in on the influencer space is a challenge going into 2020,” says Gerona. “So many people are trying to figure out how to work with them. For us, it’s pressure to constantly evolve and push the envelope and stay ahead.”