Abstract
This article examines changes in global commodity chains in the apparel industry, most notably how supply-driven innovations are linked with changing consumer (demand-driven) behaviour. It begins with a discussion of apparel manufacturing as a quintessentially labour intensive, low capital sector that has a long history in advanced economies. In recent decades, however, two forces have resulted in changes in this industry. First, increased liberalized trade regimes (MFA phase-out) have reduced quotas on apparel exports and imports, encouraging emerging economies to embrace this industry as part of their export-led growth strategies. As a consequence, much of apparel manufacturing has shifted to these emerging economies. Second, Western retailers have increasingly pushed supply chain rationalization and improved channel integration to force manufacturers to be more responsive to cost, quality and speed of delivery requirements. Shortened turn-around time for manufacturers now complements low price as the essential features for sub-contracting and it provides retailers with opportunities to sell inexpensive, fashion-orientated goods. Innovations associated with fast fashion are discussed, particularly how some retailers have combined supply chain rationalization with fashionable product offerings that meet volatile consumer preferences. The interaction between consumer identity formation and retailer strategies is discussed in detail, providing an analysis of the interdependency of both demand for and supply of products. Finally, the article uses examples of two major retailers, Zara and H&M, to illustrate how strategic differences within the fast fashion model reflect variations in global commodity chain restructuring.
Keywords fast fashion, retailing, trade agreements, supply chain logistics, new technology, economic development strategies, global commodity chains
Introduction
The apparel industry has always been a quintessentially labour-intensive sector, within which competitive success for firms is typically driven by cost-minimization strategies predicated on locating supplies of low-wage labour and work intensification to achieve productivity goals (Christerson & Appelbaum, 1995; ILO, 1996; Rosen, 2002; Taplin & Winterton, 1995). Actual assembly jobs are predominantly piece rate whereby semi-skilled operators perform routinized, standardized and often low value-added tasks. Managements' supervisory role determined work pace indirectly through wage rate manipulations plus more subtle ways of coercing what was often a large pool of pliant young female workers.
Since the 1990s, the organization of production in global commodity chains (GCCs) has changed, driven by powerful retailer groups that used their buying and bargaining power in production networks to demand flexibility in addition to low costs from suppliers (Gereffi, 1996). Instead of clothing manufacturers pushing fairly standardized products through the chain, a greater variety of products are now pulled through the chain by retailers. Smaller quantities of more varied goods and more sophisticated product replenishment schedules enabled retailers to respond more accurately to consumer purchasing behaviour. By pushing cost savings further back in the value chain, and shortening product life cycles, they imposed logistical changes for manufacturers through more varied demand imperatives. Whenever possible, manufacturers responded by mechanizing domestic procedures and using innovative production systems and organizational change to maximize the effectiveness of the remaining domestic workforce (Sels & Huys, 1999). Eventually, the cost pressures were so great that lower value-added manufacturing tasks were moved offshore to firms in emerging economies and domestic production in high-wage economies significantly declined (Rosen, 2002). With extensive supplies of plentiful, low-waged labour and increased liberalization of trade regimes (Curran, 2008; Taplin, 2006a; Taplin & Winterton, 1998), many newly industrialized countries (NICs) embraced apparel manufacturing as a way to build an incipient industrial base.
Such disaggregated production systems across national boundaries have been well-documented (Dicken, 2007) and subsequent technological innovations have allowed enhanced rationalization of production systems and improved channel integration in ways that have further transformed GCCs. Large firms such as Wal-Mart in the US required suppliers to acquire information technologies that enable them to share sales data, standardize product labelling and develop materials handling procedures that expedite product throughput (Abernathy et al., 1999). This provided a better way of coordinating their supply chain to enable a closer matching of supply with uncertain demand (Cachon & Swinney, 2011) but pressured suppliers (manufacturers) to develop better performance measures, in particular the ability to coordinate production and distribution schedules.
This new system, known as ‘lean retailing’ (LR), became the industry norm by the late 1990s and led many manufacturers to adopt quick response (QR) manufacturing systems — a combination of restructured workplaces using team production concepts, smaller batch production and logistical innovations in materials handling (Jones, 2002) — not dissimilar to just-in-time production systems in other industries. Pulling products through the commodity chain and shipping goods more frequently and closer to selling schedules, enabled retailers to be the major beneficiaries as it lowered their inventory costs and reduced ‘close-outs’ (discounted goods).
Recognizing the benefits of such systems for expedited production, several retailers pioneered further changes that would enable them to sell inexpensive, fashionable clothes mainly to young consumers in a global marketplace. Firms such as Inditex (Zara), Topshop, H&M, Uniqlo and Forever 21 built their brands by targeting young people who were fashion conscious but income scarce. The fast fashion business model associated with such retailers involved stocking inexpensive fashion forward items in limited quantities that would encourage frequent store visits and purchases. However, it is their enhanced understanding of the demand side of the clothing chain that sets these firms apart. They are fashion-orientated, spotting trends and copying new designs from fashion shows, and then quickly producing for their own retail outlets (Reinach, 2005). They gain both cost savings from rationalizing the manufacturing and distribution system and requisite levels of flexibility that meet their product variability needs. As such, they have further restructured commodity chains by simultaneously integrating and disaggregating production channels in ways that maximize cost-minimization, requisite quality and flexibility. But equally importantly, their success has been predicated upon a more thorough understanding of consumer markets and an ability to offer inexpensive, value-added items to a market segment that prioritizes style, quality and relatively low cost.
In this article I summarize changes in apparel GCCs, paying particular attention to ways in which the system has been transformed in accordance with technological innovations, marketing and sales changes, reconfigured networks, and finally changing trade regimes and the role played by emerging economies as suppliers of low-cost labour. While the rationalization of supply chains and distribution logistics have been well-documented (Dicken, 2007), such discussions often ignored demand-driven aspects associated with altered patterns of consumer behaviour and how these are inextricably tied to changes in GCCs. Demographic and socio-economic changes have led to greater ‘fashion’ differentiation and altered consumer behaviour (Aspers, 2012; Kawamura, 2005). A desire for greater individual expression and the financial ability to create a fashioned identity have been features of the post-1960s consumer revolution; a trend that certain ‘fast fashion’ retailers capitalized upon to further stimulate this demand. Increased discretionary spending and a more pervasive fashioned identity have brought more volatility and style changes to an industry already known for its unpredictability. Fast fashion retailers have succeeded through the provision of enhanced consumer value by identifying trends, responding quickly to them and shaping sartorial behaviour. This article brings together both supply and demand sides of consumption changes, identifying linkages to gain a more nuanced way of understanding the institutionalization of fashion as a system (Kawamura, 2005), and provides a fuller explanation of changes in material culture that are fashioned by reconfigured commodity chains.
Apparel industry: Background
Clothing manufacture is a low-capital and high labour-intensive industry, notable for the preponderance of small manufacturing enterprises (SMEs) with relatively unsophisticated technology (Dicken, 2007). With low entry barriers, it has been a haven for immigrant entrepreneurs who are able to exploit low labour costs associated with low-skilled, predominantly female (and often immigrant) workers in high-wage economies (Bonacich, 1990; Waldinger, 1986). It was also an industry characterized by standardized production for a mass market, supplying a large number of retailers with goods designed for two to four retail seasons (Taplin & Winterton, 1995). Manufacturers typically produced standardized goods in long production runs and retailers were more likely to be concerned with production costs than discerning variable consumer needs. A small fashion-orientated segment of the market, where style is more important, had a faster rate of product turnaround but geographic proximity and speed of delivery were key drivers in this higher value-added segment rather than low cost (Doeringer & Crean, 2006).
Hierarchically-structured retailers provided merchandise for designated market segments according to price and fashion, with the bulk aiming at the mass market where sales volume and standardization were key drivers. Whilst female consumers were more likely to engage in ‘status competition’ in their buying habits, a function of class mobility and identity creation (Crane, 2000), most restricted the purchase of high price goods to special occasions. For men, uniform dress codes engendered a style conformity that encouraged mass production of basic items, without much regard for seasonality or individual expression (Entwistle, 2000).
Retail revolution
Whilst subsequent iterations of the GCC concept examined ways in which firms responded to changed trade environments with new production and marketing strategies (Gereffi & Kaplinsky, 2001; Spener et al., 2002), the growth of inter-firm networks has increased the complexity and interdependence within supply chains. Large firms were able to exert greater buying power in these networks, which are now globally embedded because of tariff and quota rule changes. But in addition to seeking cost savings for low value-added products, such firms imposed an operating logic based on flexibility that goes beyond the early assumptions of disaggregated production systems and achieves success in smaller runs of higher value-added and more fashionable products. Modified GCCs remain subject to intense buyer-driven pressure but reductions in throughput times have resulted in greater product variation and an increase in fashion-sensitive items.
Following the diffusion of logistical best practices, the retail sector underwent concentration and organizational improvements during the 1990s. In fact, the retail sector accounted for much of the productivity growth in the US in the 1990s, with firms such as Wal-Mart driving out competitors and ramping up their own distribution efficiency (Foster et al., 2002). However, since much of this concentration, especially in the US and the UK (Taplin & Winterton, 1995), was a result of mergers and leveraged buy-outs, it left many stores with high debt-to-equity ratios at a time of rising interest rates. Consequently, many retailers looked for ways to significantly lower their operating costs and were able to do so by further squeezing suppliers. By increasing the number of fashion seasons and reducing the quantity of goods supplied for each season, they were able to compress the time between ordering and sale of items and thus lower their inventories. This required manufacturers to supply fewer and more varied items throughout the year, necessitating a departure from the standardized mass-production system that had been beneficial to them in the past (Sels & Huys, 1999).
Innovations in information technology have also been a crucial factor behind retailing changes. Electronically linking cash registers to scanners together with credit card processing machines has enabled stores to increase sales and service without adding to staff (Sieling et al., 2001). Scanners also enabled firms to modify prices quickly and cheaply, thus tracking individual product-pricing strategies, as well as track inventory levels. Improved monitoring of sales through electronic data interchange (EDI) systems enabled stores to reduce inventories, placing orders to match product demand (Taplin, 1997), thus increasing their responsiveness to consumers.
This throughput rationalization and channel integration increasingly became the industry norm because of the competitive pressures created by large retailers such as Wal-Mart that compete across many categories (McKinsey, 2001). For such retailers, whose strategy has been to provide low-cost products to consumers, this was a way to compel manufacturers to rethink their distribution, forecasting and production systems and take more responsibility for managing supplier relations. It became part of a system known as lean retailing, which would lead to significant performance improvements for those firms that could best implement it, as well as transforming channel relations in the broader textile-apparel-retailer chain (Abernathy et al., 1999).
The consequence of these changes has been twofold. On the one hand, some domestic manufacturers sought ways of rationalizing their own production systems to meet retailer imperatives, especially in more fashion-sensitive segments. In other instances, increased pressure on product pricing and shortened life cycles resulted in more and more production shifting overseas to newly-industrialized countries (NICs), where abundant supplies of low-cost, unskilled labour are the perfect match for apparel assembly operations. By exploiting changes in trade systems and encouraged by NICs that were enthusiastically embracing apparel and textile production as the cornerstone of their export-led growth strategies, much of the apparel industry in high-wage economies shifted to NICs during the 1990s and 2000s (Doeringer & Crean, 2006; Jones & Hayes, 2004).
From lean retailing to quick response
Production system changes amongst domestic manufacturers included restructured workplaces as well as a focus on higher value-added products (higher fashion content). The former included teamworking and modular manufacturing, which were classified generically as high performance work practices (HPWP) but often merely entailed ways of cajoling workers to work harder (efficiency gains) as opposed to smarter (effectiveness gains) (Taplin, 2006b). Such organizational changes did enable manufacturers to meet the increased flexibility mandates of retailers, especially the improved flow and speed of production and shortened cycle times. The cornerstone of these efforts became known as quick response (QR), in which operational re-structuring allowed manufacturers to minimize lead times and expenditure for labour and materials handling (Jones, 2002). Designed to rationalize supply chain management, it was nonetheless a logistical innovation that ultimately benefited the retailer (buyer), whose size enabled it to dictate cost and quality terms plus delivery schedules. Riddle et al. (1999: 134) emphasize the underlying logic of these innovations by claiming that they became a competitive necessity for manufacturers rather than a source of competitive advantage since the majority of benefits (sales increases, stock reduction and forecasting error) accrued to retailers.
Outsourcing and export-led growth
In recent decades, much of apparel manufacturing has shifted to Asia, particularly China, which has become the leading exporter of clothing followed, more recently, by Bangladesh. Apparel has been a crucial component of NICs' industrialization strategies, becoming the first step on the industrial ladder for emerging economies as they utilize their large pools of low-wage, unskilled labour and exploit changes in trade regimes. With economic growth strategies based upon export-led manufacturing, firms in these countries have been able to offer low-cost production as well as meet strict delivery schedules. Containerized shipping and lower cost air freight make sourcing to such sites cost-effective for Western retailers.
Progressive trade liberalization, starting with NAFTA in 1993 and followed by the ending of the General Agreement on Trade and Tariffs (GATT) in 1994, transformed the post-Second World War policies that had heavily regulated trade in textiles and apparel (Commission of the European Communities, 2003). Quotas associated with the Multi-Fibre Agreement (MFA) ceased to exist on i January 2005, resulting in fears by developed countries that their apparel industry would suffer further from low-wage competition (they did) in Asia and especially China. Retailers meanwhile relished the opportunity of buying garments more cheaply overseas (Curran, 2008). GATT was replaced by the World Trade Organization (WTO) and, whilst special arrangements still exist between countries (preferential trade agreements), the general trend has been towards freer trade in apparel.
Textiles and apparel trade through the MFA had been designed to somewhat protect high-wage economies from losing all of their jobs in these sectors whilst stimulating, in a managed way, offshore production that could be beneficial to NICs (Abernathy et al., 2006). Through the use of quotas and tariffs, imports from low-wage countries were restricted but not so much as to stifle manufacturing initiatives in such regions. With the phasing out of the MFA on i January 2005, and despite the US and EU negotiating new import quotas, China became the principal beneficiary. It went from being responsible for 4 per cent of world clothing exports in 1980 to 25 per cent today. Mexico saw an initial spurt in clothing exports following the introduction of NAFTA but by 2001 production had shifted from Mexico to Asia, particularly China and Bangladesh but also Cambodia and Vietnam — all of whom have increased their market share. Bangladesh's $20 billion garment industry employs an estimated 4 million workers in 4500 factories and is second only to China for apparel exports; Vietnam exports about $13 billion of clothes and employs 1.5 million workers; and Cambodia employs about 615,000 workers, with approximately $5 billion of exports (Banjo & Al-Mahmood, 2013). Other NICs have sought opportunities to exploit the new trade regimes but channel integration has been superior in the aforementioned countries, allowing them to leverage their previous experience in this sector.
The concentrated purchasing power of large retailers in most advanced economies was initially suitable for standardized, long production runs. However, with greater market differentiation and segmentation, frequent fashion changes mean smaller production runs and pressure to reduce time to market for manufacturers. Cost and quality remain important but expediting orders in a timely fashion is also crucial. Western retailers who had outsourced production to NICs now demanded a transformation in what goods were to be delivered, how fast this could be achieved, and which location maximized the benefits of bilateral trade agreements (Tokatli & Kiztlgün, 2010). Two factors were important in this rationalization process.
First, as retailers sourced production overseas in the late 1990s, the complexity of sorting through the various potential sites increased. Increasingly, they used Chinese trading and logistics companies to coordinate design and locate material suppliers and manufacturing sites. Such companies have been innovative in supply chain management by focusing upon design and quality management issues and then identifying outsourcing sites for lower value-added manufacturing (Magretta, 1998). Acting as intermediaries they help clients (Western retailers) with product development by locating best-cost capabilities as well as timing and market response capabilities, significantly increasing the innovation potential for such retailers (Tran et al., 2011). They add value to the latter's products by tapping into their network of external specialists to enhance the agility and mass-customization strategies.
One of the biggest trading and logistics companies is Hong Kong-based Li & Fung, which has built a reputation on being able to meet the new strict terms for quality, price and speed of delivery (see Financial Times, 2013; McFarlan et al., 2007). This firm has also benefitted from technological innovations and supply chain coordination, which enable it to take orders from small firms, combine them and realize production and distribution scale economies (Schary & Skjøtt-Larsen, 2001). Key to its success has been its ability to reconfigure supply chains to emphasize flexibility, innovation and speed. Intermediaries such as Li & Fung provide the requisite component of an emerging manufacturing model that emphasizes not just cost but also quality, speed and greater product variability.
Second, improved channel integration has meant that supply chains are logistically equipped to deliver goods both cheaply and quickly (Barnes & Lea-Greenwood, 2006). Retail marketing innovations that emphasize inexpensive, fashion-basic goods have capitalized upon trade liberalization (particularly the elimination of the MFA) that has effectively removed a de facto tax on clothing. Reduced tariffs and fewer limitations on where manufacturing can be sourced have kept production costs for most garments low. With real-time sales information, retailers can order and re-order smaller quantities of goods much more frequently than in the past, thus lowering their own inventory costs and enabling them to keep retail prices low.
Despite these changes, many retailers still find themselves captive within a large scale mass-fashion model whereby standardized goods that are sourced mainly in Asia are brought more quickly to consumer markets (Doeringer & Crean, 2006). The inherent limitations of this model continue to be exposed by changes in consumer behaviour. Short production runs and reduced lead times enable firms to more closely match supply and demand but the continued uncertainty of the latter means that many still face close-outs and unsold items. It also means that they continue to compete more on price than on quality or design attributes.
Fast fashion
Realizing that technological innovations and improved channel integration provided the logistical means to rationalize the supply chain through shortened turnaround times, a number of firms used these improved ways of matching supply and demand to capitalize upon changing consumer behaviour. This was particularly the case with those that integrated production with retailing, thus enabling them to respond more quickly to changing consumer preferences (Sull & Turconi, 2008). Most importantly, however, these were firms that were capitalizing upon, and shaping, changing consumption habits. They had identified demand-driven changes and now had the logistical capability to satisfy such changes and, in doing so, further transform GCCs.
Since the 1960s there has been an increasing shift from fixed status groups to more mobile identities (Paterson, 2006), which resulted in more dynamic patterns of consumption. A greater range of identities and affinities, plus the growing disposable income that made access to these fluid ‘lifestyles’ possible, has altered consumer behaviour (Featherstone, 1991). Greater social mobility, a growing middle class, the rise of urbanization and the growth of shopping malls, together helped create a less exclusive ‘fashion system’ (Entwistle, 2000). The enhanced agency that has accompanied socio-economic changes provides individuals with greater opportunities to develop a material sense of who they are and what they want to become — what Aspers (2012) refers to as ‘reflexive identities’. The growth of female labour force participation and style changes amongst males that emphasize more casual attire have further segmented the market, replacing the standardized fashion look of earlier-mass production eras. Advertizing, merchandizing and marketing sustained a culture of consumption; brand awareness is now pervasive and consumerism has become a rite of passage for most teenagers as they learn who they are by what they wear (Zukin, 2005).
Changes in lifestyle and constantly varying consumer demands drive the fashion-sensitive retail sector to constantly reinvent itself. This consumer-driven approach to understanding the rationale for retailing changes gives agency to individuals at the point of purchase. Consumers are more knowledgeable and able to adapt to the latest fashion trends providing the goods are affordable and continually changing (Cachon & Swinney, 2011). They are prepared to shop more often and discard ‘dated’ styles more frequently, although research on this type of behaviour remains skeletal (see Barnes & Lea-Greenwood, 2006; Bhardwaj & Fairhurst, 2010; Cachon & Swinney, 2011). Recent studies by Gabrielli et al. (2013) and Watson and Yan (2013) pursue empirical investigations into such consumer behaviour but also recognize the limitations of their small samples or their qualitative nature in making definitive claims about the causality of such change. Nonetheless, it is apparent that fashion is increasingly a manufactured cultural system, intricately related to changes in material culture, which has become institutionalized in the consumer marketplace and drives retailing (Kawamura, 2005).
A result of these trends is a more pronounced segmentation of the market into basic garments, fashion-basic garments and fashion garments (Abernathy et al., 1999). As incomes rose in advanced economies, both the level and composition of demand changed, with notable growth occurring in the fashion-basic segment. More fashion-orientated but affordable styles were appealing to middle-class consumers whose increased disposable incomes permitted greater opportunities for individual expression (Paterson, 2006). In aggregate terms, such consumption habits were crucial to economic growth, especially in the US where, since the 1980s, consumer spending has accounted for two-thirds of national economic growth (Zukin, 2005).
Such changes in demand were an inextricable part of the retailing revolution, but often ignored by studies of retail changes that focused upon the supply of goods. Reconfigured supply chains are now able to produce fashion-basic and fashion garments, enhanced design plus offer greater consumer value. For retailers to fully capture this volatile market, however, they need to more comprehensively understand that consumer behaviour is fluid. There are patterns behind what an individual desires; the key is to be able to anticipate what these patterns are and how they evolve. Sull and Turconi (2008) call this ‘situation awareness’. This means spotting emerging trends but also changing customer preferences by providing merchandise that you believe is consistent with these style trends. Fashion change, as Campbell (2012) noted, is rapid and continuous.
Marketing fashion; fashioning markets
The Italian company, Benetton, was one of the first to reach an international market with products tailored to different cultural tastes and rapidly changing consumer demand. Its strategy was to produce fashion-forward goods in neutral shades that could be dyed immediately before distribution to retail outlets, with colours determined by local demand. Utilizing point of entry sales data, they could closely track consumer demand and gear production accordingly by shifting production within a network of contractors and sub-contractors. Their products were priced just below those of the competitors but their speed to market gave them a crucial edge in the constantly changing fashion-sensitive segment.
Much has been written about how Benetton coordinated design, production and distribution within an ‘industrial district’ model — one of the first successful examples of what became known as flexible specialization (for a summary, see Marangoni & Solari, 2006). The firm was able to combine technological innovation, production dis-aggregation and a cluster of ancillary supporting services to expedite manufacture of fashion-forward goods that were priced to meet the needs of a mass market. Specialized skills, rapid information exchange and sub-contracting assembly to small workshops that enhance locational advantages kept transaction costs low (Belussi, 1992).
Benetton came to be seen as representative of small firms that were part of a vertically-disaggregated institutional setting that encouraged network growth and enabled many to capitalize upon the commodification of Italian ‘style’ (Taplin, 2006a). By avoiding price-sensitive products, firms could be innovative and focus upon niche markets rather than economies of scale for efficiency (Guercini, 2004). In other words, Benetton demonstrated that you did not need mass production or Fordist production methods requiring long production runs to gain the requisite cost, quality and distribution efficiency gains.
Notwithstanding its early innovative logistical skills, Benetton recently lost touch with market trends for younger consumers and significantly over-expanded (The Economist, 2012). Unable to accurately monitor consumer trends in the fast-changing fashion-basic segment, their clothes lacked the ‘trendy’ appeal and, despite their sensational advertisements (designed for shock recognition), it has lost market share to a new category of retailers that has been better able to combine cost, quality, fashion content and distribution speed. Benetton's success was as a higher value-added but also relatively expensive fashionable producer; the new competition combined fashionability with low cost — something Benetton's organizational model (and manufacturing) location could not match (Guercini, 2004). Companies such as Inditex (Zara), H&M, Top Shop and Forever 21 expanded the Benetton logistics and distribution model, refined the structure of throughput and product turnaround, and developed a better grasp of what consumers wanted (cheap stylish clothes) and when they wanted it (immediate gratification). In other words, they have been able to more systematically integrate supply and demand, providing a large variety of inexpensive fashion-basic garments. One company, Zara, has done this initially through a vertically-integrated production model, with local sourcing of production in Spain, Portugal and North Africa. Here, speed to market and lower inventory costs counterbalance higher manufacturing labour costs. H&M, on the other hand, relies upon a similar differentiation of fashion-basic garments, but with low costs derived from largely sourcing production via sub-contractor networks in Asia, most recently in Bangladesh.
In the next section, I examine Zara and H&M: two companies that have been in the forefront of retailing innovations. Each was chosen because it is representative of a particular strategy in this transformation; has continued to see above-average returns on investment; and is seen as the embodiment of fast fashion by many consumers. Both have an abundant source of secondary information on them, especially their logistical operations, costing structure and basic strategic goals.
Zara
Zara was established in 1975 by Amancio Ortega, founder of parent holding company Inditez, in Galicia in North West Spain. After rapid expansion, it is currently the world's second-largest clothing retailer, with 5500 stores in 80 countries. The essential feature of its business is to provide inexpensive fashion-basic garments to a mass market in which fashions are constantly changing. The owner likens the fashion business to selling fish. When it's fresh, it sells quickly and at a high price; the older it becomes, the harder it is to sell and often requires discounting (The Economist, 2012). The company's operational success is predicated on its speed of response to customer demands and its flexibility in manufacturing, retaining the capital intensive and higher value-added stages of production in-house and outsourcing more labour-intensive activities (Crofton & Dopico, 2007).
Zara's model is twofold: develop ways of monitoring consumer behaviour to provide the most up-to-date fashions and find ways of expediting the design, manufacture and distribution of garments in 2–5 weeks to meet demand for what is actually selling. The latter was accomplished by sourcing production with internal and external suppliers that were geographically proximate to the retail market. Understanding and responding quickly to what is often fickle consumer behaviour entailed devolving decision making to retail store managers and staff in various regions who could monitor trends and transmit that information back to designers, who could then quickly provide new styles for speedy manufacture. For their part, Zara's designers trawl through fashion magazines and runway shows discerning trends that are then simplified and tailored for specific markets (Reinach, 2005). The company then develops a pricing strategy based upon what customers might pay for competitor products, minus 15 per cent (Crofton & Dopico, 2007). By reducing the design-to-retail cycle, Zara can save costs and provide customers with products that have scarcity value, which in turn encourages frequent shopping.
Zara manufacturers about 11,000 distinct items a year, as opposed to 2000–4000 for its principal competitors. The most time-sensitive items are placed with vertically-integrated parts of the company and typically involve small batch, labour-intensive production either in one of its 20 factories around company headquarters or in small workshops, mainly in Galicia and northern Portugal (and, more recently, Morocco). With long-term contracts and often financial support, these small firms have been provided with the necessary technology, logistics and financial support to enable their production to be seamlessly integrated within Zara's overall distribution system (Ghemawat & Nueno, 2006). The company now has three offices in Hong Kong, which help with fabric purchasing and sourcing manufacturing in Asia, mainly China and Bangladesh, for items that are price-sensitive. These offices assume the role of ‘trading firms’, as described earlier, but in this instance they are part of Zara as opposed to being independent third parties. A similar office in Barcelona coordinates purchasing and sourcing in Italy and Turkey. As of 2011, 49 per cent of Zara's clothes came from the ‘proximity’ area, 35 per cent from Asia and 14 per cent from Turkey and Italy (Johnson & Felsted, 2011).
Despite the higher input costs (15–20 per cent more expensive in Europe than in Asia), the shorter supply chain enables Zara to design, manufacture and ship finished goods to stores in 4–5 weeks (two weeks for restocking). This contrasts with cycle times of up to six months for more traditional retailers. The highly responsive supply chain enables the company to integrate a decentralized, store-based information infrastructure with upstream design, procurement, production and distribution operations (Tokatli, 2008). By delivering a large number of varied garments, and reacting quickly to new trends, it can better match supply with demand than its competitors and sometimes charge more per item (to cover the higher production costs). Items that are the current trend (style, colour and so on) can be sold at a higher price, which is the essence of what UBS analyst Andrew Hughes was arguing when he stated, ‘fashion trends can be much more important than commodity costs’ (quoted in Johnson & Felsted, 2011).
Quick response and short turnaround have been critical to Zara's superior performance. But it is not merely a logistical innovation associated with proximity sourcing; it is complemented by an ability to react quickly to new trends and translate them into affordable items that nonetheless retain an edgy newness that appeals to young consumers (Dunn, 2007). Managers are responsible for mining sales data and then deciding what to offer in their store; compensation is based on sales and the accuracy of their forecasting (Sull & Turconi, 2008). By using point of sale data, store managers track local trends and report customer demand and sales on a daily basis to design groups at the company's headquarters. The store thus becomes a crucial source of information, allowing the company to instantly adapt to customer demands (Lopez & Fan, 2009). Stores typically hire young fashion-conscious staff, pay scrupulous attention to sources of high frequency media information as a way of identifying local trends, and constantly adapt their offerings to match this evolutionary fashion process.
By essentially empowering managers (and indirectly sales associates) to gather and transmit ‘trend’ information, Zara is able to continuously stay in tune with the latest fashions. As a result, its product failure rates of approximately 1 per cent are much lower than the industry norm of 10 per cent. Fewer unsold items, lower inventory costs through short turnaround, and a reduced need for discounting all more than compensate for its higher production costs. Additionally, Zara spends a mere 0.3 per cent of its revenue on advertising whilst its competitors average 3–4 per cent; rather, it relies upon dramatic presentation and impressive visual staging in its stores. In 2011 it registered an annual increase of 32 per cent in net profits, much higher than its major competitors. Because its products are fashionable and capture latest consumer trends, it has successfully married logistical and cultural components that other quick response firms have not managed (Cachon & Swinney, 2011).
H&M
Sweden's H&M embraces many of the fast fashion concepts of Zara but competes more on the basis of price than timely fashion. Founded by Erling Persson as a women's clothing store in 1947 called Hennes, it acquired Mauritz Widforss (a hunting and fishing store) in 1968 and became a men's, women's and children's store called Hennes and Mauritz. Listed on the Stockholm Stock Exchange in 1974 as H&M, it then opened its first store outside of Scandinavia, in London in 1976. It currently has 3000 stores in 53 markets and employs around 104,000 people.
Its business concept is to offer ‘fashion and quality at the best price and always have the best customer offering in each and every market’ (http://www/hm.com). According to the company, it wants to offer inspiring fashion with unbeatable value for money. To achieve this goal, H&M does not own any factories and instead buys products from independent suppliers, 75 per cent of whom are located in Asia. Some have long-term relationships with the company, but many are utilized for specific products and are selected on the sole basis of their ability to meet strict cost, quality and delivery guidelines. Unlike some other fast fashion companies, H&M does not use middlemen. It relies upon large production volume and an efficient logistical system to keep costs low. It relies upon extensive advertising, complemented in recent years by celebrity endorsements, yet has fewer designers (60 per cent fewer than Zara), and refurbishes its stores much less frequently than competitors (Ghemawat & Nueno, 2006). The former adds costs, whilst the latter diminishes its fashion credibility by not being at the cutting-edge of creativity.
Since its longer supply chain means that it cannot always keep pace with new trends in fashion, its competitive focus is much more on price. Its products retail on average about 60 per cent cheaper than Zara's. Despite this cost-consciousness, however, it is not the lowest-priced competitor in this market segment, as Forever 21 and Ireland's Primark offer less-expensive products. The latter retailers have relentless driven their costs down by finding lower-cost suppliers, most recently in Bangladesh where labour costs are significantly lower than in China, and using middlemen to constantly search for ways to find cost-savings in materials procurement as well as manufacturing.
Despite H&M's obvious past success, it has recently floundered, as demonstrated by a 3 per cent sales decline at stores in 2011. Because of its longer supply chain, H&M finds it difficult to react quickly to changing trends as Zara does. Its focus upon basics such as T-shirts and trousers, which customers typically shop around for to get the best price (Hansegard, 2013), means it has not developed a sustainable niche. Other lower-cost competitors have developed more efficient distribution systems and embarked upon market growth strategies that could further erode H&M's position. The lack of fully-integrated operations, especially in new markets in the Southern hemisphere, further hampers the company. Because it lacks the cutting-edge in fashion-basic provisions, it cannot charge more for its products. Yet it is forced even further into cost-based competition at precisely a time when its rivals are more efficient at driving down their costs.
Generally speaking, H&M has failed to develop the enhanced design capabilities of Zara and, despite its attempts to match competitors' quick response times, it has been unable to fully capture the higher margins of fashion-forward products. It is also less successful at integrating strategic customer purchasing behaviour with production schedules and consequently experiences supply-demand mismatches and inventory management problems (see Cachon & Swinney, 2011; Caro & Martinez de Albéniz, 2010).
Discussion and conclusion
The adoption of the fast fashion business model that emphasizes speed to market and design responsiveness has been widespread and is becoming the norm in the fashion-basic sector (Barnes & Lea-Greenwood, 2013). An increasing number of retailers are adopting strategies that enable them to reduce lead times and become more responsive to consumer demand whilst nonetheless offering cheap items. GCCs are being transformed and restructured, enhancing channel integration and increasing global sourcing. Costs continue to be pushed down and throughput rationalized in order to meet greater demand variability. Many retailers that failed to adopt market segmentation or fast fashion have experienced a decline in sales and reduced market share (Crofton & Dopico, 2007).
Most studies of fast fashion analyse the transformation of supply chain logistics and the means whereby product throughput time has been dramatically reduced with attendant cost-savings. The key supply-side components of this new model are fourfold. Technological innovations such as point of entry sales data provide firms with greater accuracy in responding to market trends; operational innovations and improved supply chain logistics have reduced lead times for new products; trading companies perform a valuable role by customizing value chains and providing flexibility and quality; and, finally, trade regimes have enabled Western retailers to capitalize upon emerging economies' economic development models predicated upon export-led manufacturing growth strategies.
Short lead times are an essential feature of fast fashion as they enable retailers to offer constant newness in their offerings and thus encourage frequent store visits by consumers. This results in faster turnover and lower inventory costs. But retailers also have to be able to provide consumer value, whether it is in basic-fashion items that are extremely inexpensive, or in more trendy items for which they can charge more. The former allows them to compete in a mass-market segment on the basis of cost; the latter utilizes a more differentiated strategy that combines cost and time. This is an important distinction since it separates firms who pursue a focus on driving down costs to provide products deemed desirable because they are inexpensive and those that manufacture desire by offering affordable fashion-sensitive items. While there is an extensive research literature discussing the former, less analysis has been proffered on the latter.
Cost-based strategies are not too dissimilar from the buyer-driven commodity chains analysed by Gereffi (1996) in his seminal work published in Competition & Change; the major modification being technological innovations that provide better monitoring of channel integration and thus faster turnaround. However, the cost and time strategy involves vertical integration and results in products being pushed as well as pulled through the commodity chain. This shifts discussion of chains to the interdependence of both supply- and demand-driven issues — a combination of quick response and enhanced design complementarities (Cachon & Swinney, 2011). The new frontier of fast fashion is one where firms have the flexibility and design skills to offer products that customers perceive to be new and distinctive, yet at the same time affordable to a mass market.
More varying consumer demands and lifestyle changes, plus the faster dissemination of information on styles, are transforming how people shop (Gabrielli et al., 2013). Recent research has begun to focus upon hedonic customer responses to fast fashion (Miller, 2013) and how it might differ from other forms of purchasing behaviour. Along with business cycle changes, there are a multitude of factors such as attitude, personality, values and so on, which influence consumer motivation (Blackwell et al., 2006). Additional research has questioned the extent to which price-led marketing strategies can be sustainable if they are not always stimulating consumer demand by emphasizing quantity rather than quality (Watson & Yan, 2013). Yet other studies have pointed to the growth of digital retailing for a younger demographic, especially if such sites are part of omni-channel retailing that integrates hitherto disparate channels (online, direct mail, social media and so on) (Rigby, 2011).
Since the essence of fast fashion is the disposable nature of the goods as well as innovative style, it presumes consumers will have the financial means and lifestyle to continue wardrobe replenishment. Nonetheless, the increased importance of consumption, the growing commodification of style, the emergence of mass markets, urbanization and increased population density continue to sate the appetite of retailer sales. Fast fashion is one component of this broader fashion industry — the system that connects upstream suppliers to downstream customers (Aspers & Godart, 2013). Because of the inherent uncertainty in the fashion industry, the success of fast fashion firms derives from their ability to translate highly differentiated items into commodities that, for a brief period of time, preserve an aura of distinctiveness and thus desirability. If, as Zukin (2005) argues, more fluid social mobility creates anxieties that result in consumers' embrace of retail institutions that provide them with a sense of value and identity, then fast fashion firms are uniquely positioned to exploit these tensions. In doing so, they have brought to attention the benefits of integrating customer strategic behaviour with enhanced operational logistics.
Understanding and even shaping consumer habits, and creating a production and distribution system to satisfy these trends, underlies the success of fast fashion retailers such as Zara. The ability to offer speed, affordability and trendiness thus becomes a valuable source of competitive advantage, one that goes beyond mere supply chain rationalization. Zara (and also Japan's Uniqlo) has become the de facto benchmark for this system by, as Cachon and Swinney (20r11: 778) state, ‘combining localized production, information systems that allow inventory monitoring and replenishment, and expedited distribution methods’. However, flexible supply chains are a necessary but not always sufficient requirement to meet ever-changing consumer needs. This is why Zara's managerial agility and awareness of changes, what Sull and Turconi (2008) refer to as ‘shared situational awareness’, is a tremendous resource capability. Its ability to use operational flexibility to provide more accurate short-term forecasting about what does and does not sell reduces forecasting errors (Tokatli, 2008), lowers inventory costs and mark-downs and yet continues to ‘saturate’ stores with new products (Dunn, 2007).
Fast fashion retailers, such as H&M, with a cost-based but less fashion-forward focus have been able to take advantage of liberalized trade regimes to source production mainly in Asia. Their products are fashion-basic garments — sold as cheaply as possible, as opposed to Zara's more fashion-sensitive and slightly more expensive goods. This is another version of the fast fashion model, one that is more of a continuation of earlier buyer-driven chains where powerful retailers are able to demand not just low costs, but also quality and a more expedited production system to meet the demands of more price-sensitive and fashion-conscious consumers. However, it is one that is less capable of capturing the benefits of enhanced design; instead, focusing upon gaining flexibility and quick response plus relentless attention to cost lowering through outsourcing. Their market positioning is predicated upon large volume sales, with economies of scale and scope derived from vertically-disintegrated sourcing. However, such a strategy always remains vulnerable to other low-cost manufacturers, which likewise are exploiting the logistical possibilities of low-cost labour — the proverbial race to the bottom. And it is more exposed to fickle consumer behaviour as a result of not always providing items of the requisite ‘trendiness’.
Such firms in this iteration of the fast fashion model are the beneficiaries of new trade regimes and the proliferation of suppliers in countries with ever-lower labour costs where there is an institutional commitment to apparel and textile production as the basis for economic growth. Unfortunately, such settings have revived questions over workplace practices and health and safety issues that continue to periodically surface in an industry renowned for sweatshops and a broad array of illegal work practices. The recent disasters in Bangladesh and Cambodia have merely reinforced Western views that manufacturing in such settings is fraught with occupational danger, which has added to the ongoing debate about Western consumers' duplicity in the whole process (Cairns & Roberts, 2007).
One can see from the above discussion just how fast fashion has become institutionalized but as a differentiated system that meets varied fashion demands and enables key firms to leverage their various capabilities in controlling a restructured GCC. This study has explored the extent to which the greatest success from these changes accrues to firms that integrate design, manufacturing and retailing to provide inexpensive but fashion-forward clothes. Clearly, the use of two examples to illustrate these trends prevents broader generalization. But it is hoped that shifting the focus of analysis from the well-documented supply-side logistical innovations to a more coherent understanding of the role of consumers in the demand for fashionable products can provide a more comprehensive assessment of the overall trends. In turn, this requires further study of consumer behaviour, particularly how demographic segments respond to product placement and socio-economic changes shape the propensity to consume. The interplay between media influences and general social trends (the ubiquity of ‘herding’ behaviour amongst younger consumers in relation to what they wear) fosters tensions and a certain predictability in buying patterns.
It is also important to note how the continued low cost of fashionable items — a product of precisely the above changes — has simultaneously fuelled consumer behaviour and been a response to an increase in ‘fashioned’ identities by many young people. Consumers have come to expect fashions to be delivered quickly and the more fashionable the item, the greater the consumer value attached to it. While this can be of benefit to firms that combine supply chain efficiencies with enhanced design skills, those whose focus is more on cost reduction might see sales flatten. For some firms, the emphasis is more on ‘fast’ than ‘fashion’, seduced by the continued operational possibilities of cost-lowering but without sacrificing speed of product delivery. Others are reinventing the commodity chain by introducing a greater awareness of how consumers can drive changes and seeking ways to mediate this demand variability. More research is needed on why firms choose certain strategies and how we can better understand the vagaries of consumption habits.
