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There is speculation brewing in the apparel industry that consumers are getting tired of fast fashion, especially in the US, preferring instead to pay a premium for garments made from better quality fabrics that last longer. “People are not buying just to buy anymore”, said Nate Herman, vice president of the American Apparel and Footwear Association in an interview with The Wall Street Journal.
Euromonitor International’s sales data for the US does not entirely support this argument, though. Indeed, last year, retail volume sales of apparel and footwear grew faster than retail value sales for the first time since 2007. This would suggest that US consumers are spending less, not more, on their garments.
In truth, what we are actually seeing in the US is something more complex than a consumption shift from fast fashion to ‘slow’ fashion, or indeed the other way around. The big trend over the past year – and the recent summer season especially – has been a ramping up of discount activity by mid-market designer labels, like Michael Kors.
Yes, this has narrowed the gap between designer fashion and fast fashion, enticing more people to trade up. But, stalwart designer label shoppers have also been trading down from more expensive brands. Crucially, consumers’ motivation to trade up from fast fashion has been less about owning better quality clothes, and much more about grabbing a good deal when they see one.
Source: Euromonitor International
The fastest growing apparel brand in the US last year was Michael Kors, the market’s frontrunner in affordable designer labels. Its retail sales soared by 45%, according to data from Euromonitor International. Meanwhile, H&M, the fastest growing fast fashion brand, saw its retail sales grow by 18% (Forever 21, Gap and Zara each generated growth rates of less than 10%). This disparity adds muster to the argument that fast fashion is losing ground to pricier segments.
The reality is that Michael Kors has been forced to discount heavily over the last year, due to a glut of unsold goods. This has triggered a big jump in its sales, but has also unsettled many of its investors. Some have been dumping shares of late, panicked that the company is running into profitability headwinds. At the retail frontline, the result is that consumers who might normally shop in fast fashion channels have been tempted to spend a bit more. Michael Kors is, after all, a prestige brand to own.
Furthermore, Michael Kors is not the only designer label to be offering competitive prices. The likes of Tory Burch, Ralph Lauren and the online retailer Of a Kind, among others, have also become more accessible. In upscale shopping malls up and down the country, retailers – many piled high with unsold inventory – have been slashing prices. Such discount activity has fed into the US’s growing deal junky consumption culture.
Fast fashion retailers have also been dropping their prices. Brands such as Gap and Forever 21 already operate on low margins, but they are battling to get cash-conscious US consumers through the door. The end of the summer ‘back to school’ period normally sees a big boost for apparel sales in the US, but it was sluggish in 2013 and has been sluggish this year too. This has fuelled the discounting frenzy even more.
It is right to say that fast fashion is under pressure, therefore. Market conditions in the US are such that consumers expect heavy discounts before they buy. Fast fashion itself has encouraged this expectation for more than a decade, but it is now feeling some of its downside. However, it is not right to say that there is any significant pendulum shift from fast fashion to more expensive, quality brands.
Quite simply, mid-market brands are responding to the difficult operating conditions by adopting a more aggressive pricing model. They – and, in some cases, their third party distributors – have taken a leaf out of fast fashion, albeit as a result of inventory pressures rather than desired growth strategy.
What seems clear from shopping trends in the US over the last five years is that as soon as mid-market designer labels stop pricing competitively, consumers who have traded up will revert back to cheaper brands. Similarly, consumers who have traded down, from higher cost designer labels like Hugo Boss, will be less beguiled.
In a sense, what we are seeing, therefore, is the establishment of a much more clearly defined mid-market segment in the US. But, in order to prosper, it will have to keep a lid on price increases, and probably keep discounting to boot. For brands like Michael Kors, with economy of scale, it is a viable model. For smaller players, it will be a much bigger ask. Tight margins are not sustainable forever, after all.
When it comes down to it, fast fashion has an unbeatable competitive edge. It is able to identify trends in the industry quickly, and has the production and distribution infrastructure to act on them almost overnight. Its leading brands will continue to run up against periods of stronger competition, but, as a force on the market, they are here to stay.
The mid-market designer segment has potential to be around for a long time too, but it is more vulnerable than fast fashion to consumers’ fickleness. Recent data from Google Trends shows that searches for ‘Michael Kors” have nose-dived in recent months, for example. The mid-market segment is also under much more pressure to dig out fatter margins. In the end, it is price – not necessarily quality – that will be the key to its future.