Market Analysis: Fast Fashion Industry Is Turning To High End Collectively

In recent years, fast fashion giants have accelerated their retreat in China.

According to media reports, many fast fashion brands, such as Forever 21, ESPRIT, new look, Topshop, gap's Old Navy, and Bershka, pull & bear, stradivrus, and other "three sisters" of Zara's parent company indix group, have begun to withdraw from China, and Zara, H & M and UNIQLO are also closing stores frequently.

INDITEX group, however, bucked the trend and turned over a report card of "looking pretty".

INDITEX group's financial report shows that in the first half of 2022, that is, the six months ending July 31, the sales volume of INDITEX increased by 24.5% to 14.8 billion euro, among which the sales of core brands Zara and Zara home rose 29% to 10.927 billion euro, and the overall net profit rose 41% to 1.8 billion euro.

Clearly, there are three trump cards lost to China, which drag down the revenue of Asia and other regions including China. Why can Zara's parent company still make a lot of money?

There are many answers to this question, such as the recovery of physical retail and INDITEX's official emphasis on product power and consumption experience In any case, there is one main factor that cannot be bypassed: price rise.

　　 Can you really "keep up the price and enjoy it all the time"?  

Before analyzing Zara's use of price hikes to boost revenue, we need to understand the concept of "fast fashion".

The so-called "fast fashion" can be regarded as "fast + fashion". The former highlights the rapid response ability in the clothing retail market. For example, Zara launches more than 10000 styles every year, which can maintain the frequency of being updated twice a week, and the time cycle from design to shelf sales of products is no more than 3 weeks.

As for the latter, Zara pays more attention to consumers and trend trends, and integrates consumer demand and trend into product design, while controlling the number of products. According to Zhao Yang, partner of Hejun consulting, this not only ensures the scarcity of products, but also leads the latest fashion.

Superimposing the potential energy of "fast" and "fashion" is the fundamental reason why Zara can open up the market all over the world. At the consumer terminal, Zara also has its own strategy for price.

In May this year, Xu Xin, a well-known investor, said in an interview: "Zara is priced like this. A new product comes out with five tag prices and sells in five different stores. Which store sells well is the price. It is also measured."

Whether Zara has been implementing this fixed price strategy is unknown. What can be determined is that Zara has been pushing up the price continuously in the past two years, and the price increase has become an increasingly prominent "label" on Zara.

In the first quarter of this year, INDITEX sales rose 36% year-on-year to 6.7 billion euros, exceeding analysts' expectations of 6.2 billion euros, and net profit rose 80% to 760 million euros.

We should know that this is the "result" achieved when the number of stores decreased by 654 on a year-on-year basis and the sales volume of e-commerce decreased by 6%. The strong driving force behind this is the price rise.

According to UBS Research Report, since January this year, the initial price of Zara products has increased by 10% or more than a year ago, and the initial price increase in April is 18.5%, close to 20%, far more than the 4.2% increase of competitor H & M.

Full taste of the "sweet", the price rise has become Zara's "habitual action.". According to the UBS Research Report, the average price of Zara's clothing products increased by 12.2% year-on-year in July, higher than the inflation level in many markets around the world, and directly doubled compared with the 5.6% increase of H & M.

Some time ago, in the first half of 2022, INDITEX executives said frankly that they would continue to raise prices this autumn. Ignacio Fernandez, the group's chief financial officer, said the average price would rise further by about 5%.

According to media observation, Zara has become the brand with the fastest rising price and large range in the fast fashion industry. The reason why Zara is so willful is that, first of all, Zara still occupies a certain market position in the market and has pricing power.

Even so, it doesn't mean Zara can "keep up the price and keep it cool.". INDITEX benefits from favorable trends, climate and pricing strategies, but that doesn't guarantee that consumers won't be hesitant about further price increases, Reuters quoted analysts as saying.

let me put it another way, Zara is "testing crazily" on the edge that consumers don't pay. If they are not careful, they may be eaten back.

　　 Both Seeking high-end and "collecting" Waste "

As for the withdrawal of Bershka, pull & Bear and stradivrus, the "three sisters" of INDITEX group, one view is that INDITEX takes the initiative to "break the arm" and cut off three "affordable" brands, focusing on the high-end market.

　　 From the industry point of view, fast fashion giants do collectively turn to high-end. In the past two years, Zara has increased the use of high-end fabrics such as leather and wool to increase the proportion of high-end products.

Specifically, in 2021, Zara launched Zara origin series with high-end fabrics and related technologies. Combined with the original studio collection and other high-end production lines, the overall proportion of high-end products in Zara increased from 4.1% in the previous year to 4.8%.

After the launch, the proportion of high-end products only increased by 0.7%, which shows that cotton, polyester fiber and recycled fabrics of these two components are still the main fabrics used by Zara.

However, don't underestimate Zara's high-end strategy. Just as Anne Critchlow, an analyst at Societe Generale, analyzed, INDITEX group's targeted increase in investment in high-end products effectively supported the price rise of its products, "which is the key to its profitability rising with sales.".

The reality is the same. In 2021, the share of cashmere in Zara's products will increase from 0.25% to 0.36%, while that of leather will increase to nearly 4%. As for pricing, the average price of Zara's high-end products will rise by 19% to 60 euro, which is 83% more than that of conventional series products.

Of course, in addition to the increase of high-end fabrics, Zara has also launched a series of measures to strive for high-end.

　　 First, there are four joint names. In December last year, Zara announced to create a joint brand series "AZ collection" with South Korea's tide brand ader error. This year, Zara has joined hands with Susan Fang, a Chinese designer, and good American, a brand founded by reality TV star khlo é Kardashian, to launch joint brand products.

　　 Second, extensive cooperation. Since the beginning of this year, Zara has joined hands with brands and celebrities such as kassl editions, Charlotte Gainsbourg and Kate Moss, as well as with rhuigi villase? Or, the new creative director of luxury brand Bally, and American designer Narciso Rodriguez.

　　 Moreover, strengthen marketing and design. Prior to media reports, INDITEX invested 238 million euros to expand Zara's new headquarters to accommodate the marketing and design teams. As for the move, the industry speculated that it was INDITEX's "attempt to tear off the fast fashion label.".

The above-mentioned high-end measures are still in the process of deepening development. The new retail business reviews believe that in the short term, these measures can echo and support the price increase strategy, but in the long run, it remains to be seen whether the long-term profitability can be improved. After all, INDITEX's sales grew by 24.5% in the first half of this year, but the operating expenses of its brands also increased by 20%.

What's more, Zara pursues high-end products while not forgetting to "collect waste products".

Since about 2013, Zara and other fast fashion giants have launched used clothes recycling projects in various countries around the world. INDITEX group also promised that Zara will not send any waste to landfills by 2025.

Only from the perspective of reducing cost and increasing efficiency, the recycling of old clothes and the sustainable utilization of fabrics have great potential. Because of this, INDITEX group has signed an agreement worth more than 100 million euros to acquire 30% recycled fabrics produced by a fiber company, and cooperate to launch a series of new environmental protection capsule products. At that time, the high-quality recycled fiber completely made from clothing waste will become the "main player".

It's not hard to see, Zara is more pragmatic with its "two legs" of high-end and sustainable development, which is more pragmatic than just trying to raise prices. However, it is still not enough to do so.

　　 There is no "new story", only fighting

Under the situation that fast fashion is not as good as it used to be, Zara seeks high-end and sustainable development, which is also a positive response. However, the management may not have expected that the underlying logic of the industry is gradually undergoing fundamental changes, which can be seen from Zara's "fast + fashion" strategy.

Let's start with fashion. In the early stage, Zara was indeed the "pioneer" in the fashion clothing market, especially for the Chinese market. However, in recent years, Zara has been criticized by consumers, and doubts about "plagiarism" have been pouring in. "It also admits and pays a huge fine.". In the long run, the consumer mentality has been gradually shaken, "Zara does not lead the trend, only works as a fashion Porter", "poor quality, serious brand homogenization" and other wind reviews have been deeply rooted in the hearts of the people.

Say "fast". The supply chain from product design to shelf sales of less than three weeks has once made Zara proud of the industry. Up to now, the cycle still takes about 2 weeks. However, at present, many Chinese online fashion brands have shortened the production cycle to 12 days, and the shorter one only takes about 7 days.

In terms of supply chain, the cross-border e-commerce sheen, which has risen from China, is the most watched. With the help of digital technology, its production speed can reach the core category in only 5-7 days, and the expedited explosive payment can be delivered within 3-5 days.

According to 36 krypton, according to sources, the Gmv of sheen in the first half of this year rose by more than 50% to $16 billion. With the arrival of the peak season, this year's annual sales target of $30 billion is expected to be achieved ahead of schedule. If the data is true, it shows that Sheen has successfully caught up with Zara, and the media said that she was Zara's "biggest challenger.".

The media further pointed out: "in the past, domestic clothing brands learned from Zara, but they could not understand the whole picture of" fast ". There seems to be too much information asymmetry in this, but digitization has completely flattened these moats."

As for the sudden rise of sheen, analyst Zhou Huining said: "at present, INDITEX group, which is aware of this point, has not been in disorder. After all, with Zara's high-end transformation, the fast fashion that speed and price are king is no longer its target market."

"Speed and price are the king's fast fashion" is no longer the target market of INDITEX group. However, the new retail business review believes that, as mentioned above, Zara's high-end transformation is inseparable from the boost of surging operating costs, which needs long-term hardening, and the "reverse pressure" of new forces, including sheen, should not be taken lightly.

In other words, Zara's high-end "new story" is far from being shaped. Therefore, for a long time, Zara needs to continue to struggle in the field of fast fashion, but also needs to play a more important role in the layout of high-end products.

Looking back, Zara's continued price hikes are aimed at "extending life" for the present and accumulating strength for the future. This is going to be a "protracted war" in which there will be fierce winds and fierce struggles. However, the balance of competition for initiative has accelerated.