America’s Favorite Retail Imports
They’re fast fashion. They’re cheap chic.
They’re moving up on America’s favorite places to shop even though they
were definitely not made in the U.S.A.
As a piece on Forbes.com points out,
consumers here are increasingly drawn to the high style and low prices
of chains such as Sweden’s H&M and Spain’s Zara.
Others including Uniglo from Japan and Mango from Spain are still relative
newcomers that have achieved some success. Another import in the same vein, Topshop from the U.K., is scheduled to open its first store
in the U.S. next week in Manhattan.
Zara was the first to make its way to the U.S. market back
in 1989. The company uses an in-house
design staff, its own factory and tightly controlled distribution network
to get new product to the stores in as little as two weeks. This year the
chain is looking to add 10 stores in the U.S. It currently has stores in
13 states and Washington, D.C.
H&M, which has 169 U.S. stores, came
to the U.S. in 2000 and plans to open 16 new locations in 2009.
"Foreign
retailers deliver an [inexpensive] product that is not perceived as a uniform,"
Marshal Cohen, chief retail analyst at The NPD Group, told Forbes. "They
offer what you want, when you want it, as well as self-expression through
fashion."
Discussion Questions: What is it that makes Zara,
H&M and other apparel retailers from outside the U.S. successful
here? Do you see domestic chains picking up ideas and competing more
effectively in this area? Is there one – Zara,
H&M,
Mango, Uniglo or Topshop –
that you are particularly impressed with?
Mike Tesler makes an important point about creating a sense of urgency with customers. Bringing new product to market quickly and frequently requires extremely shallow inventories. By its very nature, this creates an acute sense of urgency with customers. If they see it and like it, they must buy it now. This also encourages frequent visits, which further drives sales. Markdowns are minimized and margins are protected.
Contrast this with a typical volume-driven specialty retailer. The shear number of units in any given style at any point in time is a direct incentive for customers to defer purchases, and wait the retailer out.
I’m currently working with a boutique client on this very point. She used to bring in 3 to 4 units of a size. Her conversions and turn were weak, and markdowns heavy. She has started to bring in only 1 unit of a size, and is finding that traffic, conversions, turns and sales are up. And customers are telling her they now understand they have to jump on an item that catches their eye because it won’t be there the next time they’re in.
It’s all about fast fashion for less.
The styles at these retailers knock off runway looks, and capitalize on street trends, within weeks not months. Inventory changes fast too. Women can get the latest looks for a lot less than say, Saks. Sure, the clothing isn’t as high quality, but the garments will be out of fashion in 18 months anyway.
Even higher end shoppers can find buys there. Fashion conscious people mix in trendy items with their higher end staples.
I haven’t really seen American companies doing this. TJMaxx and others, offer labels for less. But these are not as fast. The environments aren’t as fun to shop either. Certainly there are American firms offering discounted clothing, such as Kohl’s or Old Navy. But these aren’t fast runway knockoffs. These cater to a different customer.
H&M, Zara and Uniqlo cater to a need for stylish speed in the market. And being on trend now, is still a need.
If you were out shopping for fashion, and had a choice of going into a retailer where the inventory was only refreshed 4 or 5 times a year, or one where every week there was something new to look at, where would you shop?
Inditex (Zara) is the master of fast fashion, getting ideas from their head into the showrooms in about 2 weeks. This mastery of the demand chain means they don’t have to go deep on any item, resulting in few markdowns, customer excitement and a protected brand. Turning inventory as fast as they do gets them so much customer feedback they can’t help but ‘win’, as is evident from the increase in same store sales. Fashion comes before price, so even if you’re slashing your prices in an effort to keep up, if you don’t have the right looks, you’re going to lose.
It’s not that they are ‘foreign’ that makes them successful, it’s just that they’ve reinvented the game before ‘we’ have.
We call it “Fresh Fashion.” Gap, Limited, A&F and a great percentage of our “stores as brands” have a model that is outdated and based on huge quantity and high mark-up with lead times frequently in years as opposed to months. They created the opportunity for Fast Fashion based on quick selling smaller quantities that create a sense of urgency to purchase…because it will be gone if you don’t.
When people are worried about their money and slow down on shopping, they think it’s smart to purchase a few inexpensive new pieces that can update their look. H&M does an outstanding job of making fresh and exciting looks affordable and appealing. Watch for them to take market shares from stodgier retailers for the next 18 months.
Being foreign has little to do with the success of stores like H&M and Zara…it’s the clothes. The inventory is constantly refreshed with new styles and those styles are appealing. The prices are right. These retailers are giving consumers what they want and consumers are responding accordingly.
These retail stars were shining well before the current economics made their formula a darling of the media. Zara and H&M have been in the US for a while now and not only are their openings huge local ‘events’, but they seem to maintain their followings of teen to 40-something fans effortlessly as they consistently add small quantities of fun, cool fashions for cheap. Now Uniqlo and Mango are gaining traction with Topshop coming soon. American fashion fans are eating up this foreign feast as they have tired of the majority of American specialty and department stores’ miles of boring overstocked sameness. Simple message: fun, fast, affordable fashion, constantly refreshed. Forever 21 is one exception to the rule, but most of American retail now buried in debt and teetering has to wake up to what the customer is looking for.
My students know and love Zara and H&M. They love the variety, the style, the constant new fashions, the price, and the stores.
Note the critical difference between ZARA and ‘retail’. They are manufacturers, not merchants. They understand operations. They know production. They don’t advertise. They just turn quick. They have an extraordinary commitment to design and product development technology. They store greige goods. They try small runs then ramp up to high volumes. Their consumers drive what it is in the store simply by asking for it or seeing a need for it. They are hard to partner with but once you are, as a factory, you are part of the solution, not part of the problem.
US retailers by and large compete with their own suppliers. and that is my note–I could and am writing a book on this, it will be on apparelpedia….
Put me in the fast fashion for less camp. The more interesting question is will America embrace the aesthetic that underlies the fast fashion concept, i.e., begin to look at the “life” of a garment as one or two occasions?
If you were to start a new fashion retailer and did an analysis on what single part of your operation can ruin you, it would be inventory management. You would do an analysis and find that half or more of your merchandise would be selling as off-price and a good portion ultimately below cost. You would find that the carry on the inventory was an extraordinary expense. You would find that you were turning your inventory less than four times per year against expenses that were fixed. By all financial measures, this business would be a disaster.
So you say, ok, we will focus on limiting inventory, turning it dramatically, and minimizing markdowns. What is the answer? Fast fashion.
Not only do you substantially increase your financial position but you create urgency for a customer to buy now, because it won’t be there next week. If the customer wants to wait for mark downs, the risk that the item won’t be available is very high.
The real question is why more U.S. companies haven’t adopted this model. The answer is lack of vision, lack of creativity, and inertia. It is the same reason that so much of U.S. business has been leap-frogged by foreign operators.
I wouldn’t call these imports runaway successes. They too have struggled in the current retail climate (even as some U.S. specialty retailers such as Urban Outfitters have flourished).
Interesting that this discussion sits with the one on Liz Claiborne outsourcing manufacturing since Liz’ fast fashion retail holding, Mexx, is said to be on the chopping block! The fast fashion model of complete process and inventory ownership, from design inspiration through to retail sell-through, is a killer advantage; one that has thrown a wrench in the traditional fashion calendar, compromised the relevance of the catwalk to retail floor journey and set an impossibly high performance bar for other apparel retailers.
These vertical retailers can get designs interpreted (from the runway shows, of course), executed, produced and sold at an astounding speed. The mega cost savings realized from their highly efficient operations help offset the expense of airing new designs to stores; providing yet another speed-to-market advantage. Alliances with celebrities and well-known designers create excitement in the stores and keep the assortments from getting too generic.
I do wonder if the demise of the very fashion system that these retailers have compromised will in the end cause them problems. If there is no system to buck and outperform (or if that system continues to conform to the new standard they have set), where will they be?
I’m not a fashion expert. But it does seem that both H&M and Zara have figured out how to sell fashion at a very inexpensive price. Both chains tend to scour Europe for the latest in fashion, and then they are very quick to bring those styles to the masses, at mass prices. I have never seen people actually fight over clothes as I did at a Zara store in London. The same is true at H&M stores throughout the world. Both chains seem to have tapped into the mind of youth, and understand exactly what they want, and then are able to bring it to market, FAST!
Another chain to watch that is very similar is UNIQLO, a Japanese clothing retailer that is opening throughout the world. They will give H&M a run for their money.
Gap can learn a bit from all three of these chains.