A New Fashion Frontier

There are no fashion seasons at H&M's store on New York's Fifth Avenue. Trucks hauling brand-new items pull in almost every day. Ever since the Swedish purveyor of cheap chic first brought its mix of trendy fashions and superlow prices to Manhattan in 2000, Upper East Side matrons and gum-popping teens alike have been known to line up before doors open, hoping to be the first to nab a $99 limited-edition cocktail dress by Stella McCartney or a $49 pair of drainpipe jeans. Unlike the average retailer, H&M never overstocks, even on best sellers, to avoid clearance sales. The result: many customers come in weekly or even daily to check out the latest

items, rather than monthly. The company already has 91 stores across America, and with plans to open 150 new stores worldwide this year, says the United States will be its fastest-growing market.

There's a name for what H&M sells--it's called "fast fashion." And in Europe, where the concept began, it's already big business, representing anywhere from 5 to 18 percent of the total apparel market in countries like Germany, France, the United Kingdom and Spain. So far in the United States, however, fast fashion remains a niche--it represented a little more than 1 percent of America's $172 billion apparel business, according to a 2004 study by Bain & Co. consulting. But with both H&M and its Spanish rival, Zara, moving rapidly into the U.S. market, big American players from the Gap to WalMart are on the defensive: too big to copy the fast-fashion model from the ground up, they are imitating elements of it, moving from a seasonal cycle to something much faster. That could have a dramatic effect on the global supply chain, in particular by shifting production for the U.S. retail market from China to less distant sites, like Mexico, in order to cut delivery times. "Fast fashion is going to have major implications for the U.S. retail market," says Kris Miller, a retail consultant for Bain & Co. "We're not sure yet if it's going to reach the level that it has in Europe, but we think it's going to grow to be much bigger than it is now."

Already a crop of homegrown, West Coast-based fast-fashion companies including Bebe, Forever 21 and Charlotte Russe are taking the model to trend-conscious consumers. While the term isn't exactly scientific, these pure fast-fashion companies tend to share several traits. First, they turn their inventory much faster than the average four to five times a year. "We have a few new items sent to our stores every day," says Forever 21 senior VP Larry Meyer. "We want the customer to feel there's always going to be something new and exciting here." That feeling translates into fewer markdowns--about 15 percent of fast-fashion items are sold on sale, versus an industry average of about 49 percent. That means higher profit margins. Bain estimates that the margins for the average fast-fashion retailer run about 16 percent, versus 7 percent for the typical specialty-apparel retailer.

The trend is being fueled by younger consumers who are plugged into global trends. While Americans have historically not been as interested in mass-market fashion as Europeans, preferring basic jeans and T shirts to more trendy clothes, that's changing. "There's a frustration with sameness," says David Bassuk, a retail consultant with Kurt Salmon Associates in New York. "Consumers are tired of basic items that look the same from store to store."

Fast-fashion stores need to be able to move products from the designing table to store shelves much faster than the norm. Zara solved this problem by bucking the historic shift of textile manufacturing to China. By bringing production back to eastern and southern Europe, it cut average delivery times from more than a month to about two weeks. The benefits of speed outweigh the cost in higher wages. While U.S. purveyors of fast fashion are cagey about their sourcing, which they view as a trade secret, Forever 21's Meyer admits, "We have a large vendor base in California, and that really helps us get the freshest merchandise into the store."

This does not, however, signal a significant revival of America's textile industry, decimated by Asian competition in recent decades. The labor costs in the United States are simply too high, even compared to eastern Europe, to justify producing entire collections there. So any gains in textile jobs are likely to come across the border. Already H&M, Old Navy and Wal-Mart are looking at Mexico as a source for their American stores. Mexico is "higher cost than Asia, but it saves three weeks' time, so it could make sense on certain trendier items," says Morgan Stanley analyst Gregory Melich.

Even Wal-Mart now has a fast-fashion initiative that moves certain items into stores in weeks, rather than months. Metro 7, its fashion-oriented women's line, will expand from 500 to 1,000 stores this year. And Target is expanding its profitable, limited edition lines: in February it launched a collection by British designer Luella Bartley, the first in a series of lines that will remain in the stores only 90 days.

Other mainstream stores are borrowing elements of fast fashion--including the allure of scarcity--to pull consumers into the store. Last Christmas, J. Crew offered a number of high-end limited-edition items like crocodile sling backs. Fast fashion is also pushing retailers like the Gap to rethink supply chains, working with a smaller number of better (but not necessarily cheaper) suppliers in order to speed up design and production. JPMorgan analyst Brian Tunick expects that many big U.S. retailers will make substantial investments in their supply chains in 2006. "It's all about turning inventory faster," he says. "The U.S. customer has been trained to wait for sales, and the only way you can change that is by getting new products in the stores more frequently."

So what will it all mean for shoppers? Fewer sales, but hipper and equally cheap clothes. Brands like Abercrombie & Fitch are introducing two or three new items to stores each week. Stores like Banana Republic, once known for quality basics, are increasingly stocking trendier items. Even chains like Chico's, which caters to a more mature consumer, now guarantee, "You'll find something new every day." Americans may never buy supertrendy clothing en masse like Europeans, but they should soon be looking a bit more stylish. ^