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LEE Joon-Hwan

Fast Fashion Companies: Thinking Out of the Box

LEE Joon-Hwan

May 3, 2011

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In scanning Forbes' 2011 list of billionaires around the world three people merit attention --- Zara founder Amancio Ortega (Spain), H&M chairman Stefan Persson (Sweden) and Uniqlo founder Tadashi Yanai (Japan). All of them are chairmen of "fast fashion" companies, and in terms of owners' assets, they beat corporate behemoths like the Wallenberg Group of Sweden, which accounts for 30% of Sweden's GDP, and Japan's Toyota Motor.

Fast fashion is shorthand for designs that move from the runway to the store in the fastest time to seize the latest market trends. Since the late 2000s, global fast fashion companies like Zara, H&M and Uniqlo have been expanding rapidly, revamping the landscape of the fashion industry. These companies have posted average annual sales growth well above the industry's average. In particular, their operating profit growth is as high as 10%, sharing the lofty level with global IT giants' like Apple and IBM.

The business model of the fast fashion companies contrasts sharply with traditional clothing manufacturing, which is a lot less nimble in production schemes and prone to overshoot on designs. In the US, clothing manufacturers have largely ceded production to overseas sources. Clothing manufacturing is one of the 10 dying industries in the US, according to a report in March by market research firm IBIS.

The success of fast fashion companies comes from ways of thinking outside the box, which could be instructive to a host of non-fashion industries.

First, fast fashion companies adopted "response production" to respond swiftly to frequently changing market trends. Under the "production planning" system, the fashion industry unveils new lines twice a year through Spring/Summer and Fall/Winter fashion shows. This method helps achieve economies of scale by mass producing clothes in advance. The downside, of course, is expectations go awry; fashion companies ended up with bloated inventory and slow sales.

Global fast fashion companies produce new designs in small batches and check the reaction of shoppers to decide whether to produce in bulk quantity. To that end, fast fashion companies constantly monitor fashion trends and customer responses at fashion shows, stores, and on streets, and exploit their global networks to swiftly produce clothes at the "best company in a region to handle specific product designs."

Second, fast fashion has turned the fashion industry from a local business into a global business. The number of overseas stores opened by Uniqlo, Zara, and H&M has risen 47.3 percent, 19.6 percent and 11.6 percent, respectively. Above all, these brands are mounting concerted efforts to make inroads in newly emerging markets.

In view of the homogeneity of global consumption, they are supplying clothes closely following the latest trends to both developed markets and newly emerging markets. In addition, despite high rents, they opened stores in key commercial areas like Xintiandi in Shanghai, and Myung-dong in Seoul, increasing brand awareness and sales in a brief time. In Myung-dong, Seoul, there are three Zara stores, two H&M and Uniqlo stores each, as well as Forever 21, etc. within a radius of 200 meters. They are quickly building up a customer base.

Third, fast fashion companies have entrenched themselves as trend leaders, not as trend followers. In contrast to the existing fashion industry, which simply copies famous designer brands, they are creating new trends out of innovative ideas. In collaboration with world-renowned designers and celebrities, H&M was listed 21 st in 2010 Interbrand's annual ranking of the best global brands. By commercializing thermal fleece that is ultra-light, thin and easily processed, Uniqlo quickly leapfrogged into a global stature from being a midsize, regional enterprise.

Fourth, their use of space-centered marketing raised their brand identity. Rather than resorting to TV, newspapers and magazines, they utilize their stores as a space where new product releases and market promotions take place. Abercrombie dimmed the lights at their stores and let store workers dance to loud music to give customers the feel of being in a club. When Uniqlo entered New York, it ran container-size pop-up stores to stress the fact that the brand came freshly from Japan.

The success stories of fast fashion companies provide insight into the overall fashion industry as well as varied other industries, including either fading or maturing industries. For a start, companies have to set up a "speed management system" to swiftly respond to fast-changing environments. The overall value change of a company should be examined and the lead time should be shortened by sharing information and resources. Second, domestic demand-oriented business methods should be adjusted from the perspective of globalization, and technology and processes should be innovated.

For instance, Japanese curry restaurant chain CoCo Ichibanya standardized and modulized the amount of rice, the kinds of curries, spiciness, and toppings to become the world's No.1 curry restaurant with 1,200 stores around the world.

Lastly, contrarian ideas that can improve existing business methods and turn competition structures upside down stem from flexible, creative organizational cultures. To that end, the entire organization should have the patience to consistently brainstorm ways to solve problems without being content with the status quo.

In the face of fast changes, companies can take your cue from global fast fashion companies' way of thinking outside the box.

Related Reports:
Success Factors of Global Fast Fashion Companies

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