, ,

lo-res_mhhe006993-sThe industry is still healthy and growing. But are some recent signals—including slightly slowed growth and a few store closings—the canaries in the coalmine for fast-fashion retailers?

Consider a few observations in the industry. First, whereas H&M has enjoyed growth rates of 10–15 percent in the past few years, in a recent quarter, those rates slowed down notably. That is, sales still grew, but not as much as expected, which led some observers to express concerns about potential cannibalization effects. Second, Uniqlo closed five stores within the first seven months of 2016, mostly in suburban locations. Third, Forever 21 also closed several of its biggest stores while simultaneously slowing down its expansion efforts. This retailer cited the bankruptcy of one of its suppliers as a reason, but the result was still shrinking sales.

Still, other fast-fashion retailers continue to succeed; Zara enjoys consistent growth rates, for example. Analysts also offer a range of potential explanations for these shifts in the retailers’ strategies, from their poor match with suburban markets to an overall trend of low consumer spending in apparel in recent months.

But even if these explanations are legitimate and reasonable, they introduce some questions about the business model. For example, can fast-fashion expand beyond city centers into suburbs, or is its growth limited to urban locations? In a sense, fast-fashion retailers must continue to open new stores in new markets, because more stores help spread the costs of the local distribution centers that enable these retailers to get fresh products into their stores so frequently. If they expand too quickly though, they might be forced to pull back when revenues fail to support the continued expansion.

Finally, the drive toward sustainability in wider consumer culture stands directly in contrast with the premise of fast fashion. If a shirt costs only $5, buyers might come to realize that it is unlikely to have supported a living wage for the laborers who helped make it. They also might start to question the ethics of replacing an entire wardrobe each season. These latter factors have always been a challenge for fast fashion. The question is whether additional, new challenges are rising fast enough that the combination of effects will slow this retail sector so much that it stops flying altogether.

Discussion Questions: 

  1. Why are some fast fashion retailers not performing as well as they have in the past?

Source: Tom Ryan, Retail Wire, June 22, 2016