Apparel Retailer Earnings: Fast Fashion Isn't For Everyone
(Bloomberg Gadfly) -- Several years ago, H&M and Zara stormed the mall with a disruptive business model, one in which innovative manufacturing operations enabled them to offer of-the-moment trends with unprecedented speed and at low prices.
By now, you know how that turned out: It sent much of the mid-priced apparel and accessories world into a tailspin.
Companies from Gap Inc. to J. Crew Group Inc. to Urban Outfitters Inc. have been scrambling to become more competitive by embracing similar supply-chain and design strategies. And their lackluster sales are often held up as evidence they are not moving quickly or efficiently enough to imitate these tactics.
But now that we're several years into fast-fashion mania, retailers ought to be careful. There are signs some brands have over-learned the lessons fast fashion so brutally imparted on the industry -- or at least they have been channeling those lessons in the wrong way.
Take, for example, Vera Bradley Inc., the brand known for its quilted cotton handbags printed with bright splashes of flowers and polka dots. On an earnings conference call this week with investors, CEO Robert Wallstrom said executives realized recently that many of the brand's patterns have a longer shelf life than they expected. The company has been sending patterns to the clearance bin -- and thus hurting gross margin -- when customers still might have paid full price for them.
Now Vera Bradley is adjusting the pace at which it introduces new styles. It turns out customers didn't need a hot new thing quite as often as the company expected.
Similarly, women's clothier Chico's FAS Inc. this week revealed strategy changes that buck the fast-fashion standard. For one, in its White House Black Market chain, Chico's is going back to a merchandise assortment that is more workday than weekend. Though Hennes & Mauritz AB and other fast-fashion chains have thrived selling casual attire such as maxi dresses and peasant blouses, that's not what women wanted from White House Black Market, a label they've long trusted to outfit them for sales negotiations and board meetings.
At the Chico's brand, meanwhile, executives are pumping the brakes on how quickly they turn over in-store floor sets, doing a major reset of the merchandise every six weeks instead of every four weeks. Turns out the chain's core customer doesn't come to the store often enough to notice the difference.
As CEO Shelley Broader put it on a Wednesday earnings call, Chico's was competing against itself, marking down one collection not because shoppers had tired of it, but because it just had to make room for the next one.
These retailers are not alone in misreading customer desires. Banana Republic, too, has tried to get trendier and cheaper to roll with the fast-fashion tides, only to have shoppers reject it in a major way.
There is no doubt the fashion business has been right to revamp for a new era of retailing. "Nimble" and "agile" supply chains are now buzzwords used ad nauseam in the industry, for good reason. Instagram, Snapchat and other digital platforms are accelerants that carry new looks across the globe in an instant. That dynamic is here to stay.
But retailers should not let this distract them from a blindingly obvious truth: Not every customer is a fast-fashion customer. Lots of women aren't as budget-conscious as they were in darker economic times. They don't care about micro-trends. If a garment is flattering and durable, they'll pony up.
Look at Lululemon Athletica Inc. Executives said Thursday that its best-selling sports bra is a new design called the Enlite, which costs $98. Yes, women are paying that much for something that will end up sweat-soaked at the bottom of their gym bag -- even when Lululemon offers many other sports bra styles at about half the price. But this one is made from a lighter-weight fabric and is designed differently so as to offer more shape than a typical sports bra. Women are willing to pay up because it seems innovative and functional.
Meanwhile, Lululemon is nodding to trend-conscious shoppers elsewhere in its lineup with tie-back tank tops and leggings with a higher waist.
That balanced approach is an example for its peers. Mid-priced retailers shouldn't broadly adopt the fast-fashion playbook. Each store should interpret it and apply it surgically -- only in ways that makes sense for its specific customer base.
That might mean a retailer uses its speedier supply chain not to go after some style the Instagram-influencer set is flogging, but to buy more of a classically styled sweater that's been flying off its shelves. Or perhaps it means using a test-and-learn approach to figure out which colors of a certain sheath dress get traction in which geographic markets before you place a massive order.
The bottom line is that many retailers would do well to remember: You're not H&M. And your customer doesn't want you to be.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Sarah Halzack is a Bloomberg Gadfly columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.