image: Zara

image: Zara

The fast fashion concept is backed by two such fundamentally good ideas that it seems only natural that it would be the shape of things to come in retail. A product of its times, fast fashion taps into its millennial core audience’s two favorite things: frequent novelty and affordability, allowing it to wreak havoc on the traditional model of mass market retailing.

Fast fashion clothing is cheap all the way around; it is inexpensively made in far-flung locations and inexpensively purchased by consumers, who long for the latest runway trends at affordable prices. The quality is low but what is one to expect from a $30 dress or $5 shirt? The upside for the parties involved: The garments inevitably deteriorate just as quickly as the trend upon which they are based and the fast fashion consumer does not hesitate to shop again for something(s) newer and more in line with this week/month/season’s trends. That, my friends, is the cycle of fast fashion.

Millennial consumers, in particular, entered into the market and embraced fast fashion en masse, causing mass market retailers that could not keep up to close down or at least struggle rather significantly. Aeropostale, which is now in Chapter 11 bankruptcy proceedings, is a good example of a worst case scenario.

One of the best case scenarios is Zara, which has reported near constant revenue increases in recent years; the Spanish retail giant – under parent company Inditex, whose owner, Armancio Ortega, occupies the number two spot on Forbes’ richest people in the world list – brought in 11.59 billion EUR ($12.68 billion) in 2015 alone.

More recently, Inditex reported a 7.7% rise in net profit to €1.26 billion ($1.40 billion) in the six months to end-July 2016 from €1.17 billion in the same period last year on an 11% rise in sales to €10.47 billion. Based on Inditex’s first-quarter report, that means an 8.8% rise in second-quarter profit to €702 million on an 11% rise in sales to €5.59 billion. (It has not yet released an annual report for 2017). 

In recent quarters, however, even fast fashion retailers have struggled, and much has been made of the decline in sales growth among some of the market’s most popular low cost producers. Countless articles bear a title along the lines of, “Is Fast Fashion Fizzling?” The press responded to a June 2016 revenue report from H&M, for instance, by suggesting that maybe fast fashion is becoming passé in light of increased awareness of the retailers’ problematic supply chains and low quality offerings.

A brief look at H&M – the largest single retailer on the market – puts the Swedish fast fashion brand in a notably less powerful position than years past. The company reported that its second-quarter pretax profit fell to $846 million, marking its weakest quarterly sales growth in three years.

Fast Retailing, Uniqlo’s parent company, recently reported that full-year operating profit slid for the first time in five years due to currency related losses. It is worth noting, though, that the company still expects to post a record operating profit in the year to August 2017, as growth in its Asian business offsets sluggish retail demand at home.

Forever 21 is also causing some widespread uncertainty, as the Los Angeles-based retailer has been – according to many sources – having trouble paying its bills on time and is backing off the construction of two massive stores in California later this year. In case that’s not enough, some of its lenders are withholding credit. “We are unable to get timely financial disclosures from the company,” said Gary Wassner, chief executive of Hilldun, a New York lender in the retail industry that pulled its credit lines for Forever 21. “We are approving on an order-by-order basis,” Wassner said.

The common theme here seems to be that fast fashion, a category that dramatically stole market share from traditional retailers and caused many shoppers to expect constantly changing, in-season products, is not immune to industry afflictions. As for whether this is because shoppers are not looking to consume as many $15 t-shirts as they can, that seems unlikely, especially if we compare their woes with those of high fashion brands, which are struggling much more significantly.

Burberry reported a 2% decline in comparable sales in April, thereby missing analysts’ estimates. Results were hurt by a 5% decline in its fourth quarter ended March 31 amid a poor performance in Hong Kong, the U.S., Europe and the U.K. Italian design house, Prada, one of the sector’s weakest performers of the past several years, reported a 27 percent drop in its fourth quarter profit in April — the group’s lowest in five years.

More recently, Chanel and Hermes, which have largely weathered the crisis in the global luxury-goods industry are now within the line of fire – a warning sign according to industry analysts. This month, Hermès International abandoned a long-standing profit forecast and Richemont predicted a profit plunge. Richemont, the maker of Cartier jewelry, said first-half operating profit will probably decline about 45 percent and warned it may have to deepen cost cuts.

Birkin bag maker Hermès, traditionally among the industry’s most resilient companies, scrapped a target for 8 percent annual sales growth, replacing it with what it described as “an ambitious goal.”

And earlier this month, LVMH, the world’s biggest luxury group, posted record revenue and profits for 2016, which beat expectations thanks to strong sales in the United States and Europe and a pick-up in demand in Asia. But the parent to Louis Vuitton, Givenchy, Celine, and Marc Jacobs, among others, says it is going forward with “caution” due to uncertainties. 

With this in mind, fast fashion’s struggles are not likely a sign of waning interest in cheap fashion as much as a larger downward trend in spending that is plaguing the fashion industry at large, and while the press has been quick to label fast fashion a sinking ship, it seems a bit premature to call this sector a fad that has run its course.