Managing Fashion and Luxury Companies by Erica Corbellini & Stefania Saviolo

Author:Erica Corbellini & Stefania Saviolo [Corbellini, Erica]
Language: eng
Format: epub
ISBN: 9788858674369
Publisher: Etas
Published: 2014-10-14T23:00:00+00:00

7.5 Fast vertical retailers

In the last two decades, the fashion scene in the mass market has changed dramatically due to the entry of a new actor who has imposed new value propositions and business logics. This is the fast vertical retail model. These retailers are specialty chains with wide geographical reach (e.g. Promod, Mango, Terranova, Zara, Top Shop, and H&M). Before them, the mass market was characterized by low price and low fashionability. Their innovation in terms of value proposition was to offer a flow delivery of new fashionable merchandise in large and welcoming stores at very convenient prices. These companies are called vertical because they do not restrict their activity to retail distribution: in order to be fast and fashionable they go as far as conceiving the design of the collection. In doing so, they bring about a process of integration of the research and development functions for collection production. In addition, they take over some of the functions that are typical of the clothing industry. In fact, the very term “retailer” risks becoming inadequate, as these firms sell something different from the source articles they purchase, combining the competences of a number of different suppliers. This change involves a more direct relationship with manufacturers of semi-finished textile products, so vertical retailers see greater integration.

The core features of vertical systems can be characterized as follows:

• complete control over the whole value chain (design, manufacturing, logistics and distribution);

• standardized store concepts and coherence between the retailer and the product brand; collections and models are designed by own design teams and sold under the company’s brand (and sub-labels);

• quick responses to market and fashion trends are ensured by the fact that quantitative and qualitative information from the point-of-sales is quickly passed back to the design and procurement teams;

• sales risks associated with fashionable items are minimized by the acceleration of all processes within the value chain;

• higher profitability is achieved by collecting margins normally shared between producer and retailer.

In several European countries, specialty chains adopting a vertical system are increasingly eroding the market shares of traditional players, such as department stores and family-owned independent stores. In addition to verticalization, these retailers are also taking a fast fashion approach. “Fast fashion” is not a retail format, but a strategy adopted by leading specialty chains based on shorter and shorter product lifecycles and a tight and efficient supply chain allowing for fast turnover on the shelves. European specialty chains such as Zara and H&M which have adopted a fast fashion model are growing at about three to four times the rate of the sluggish apparel industry as a whole. These results are possible because leaders in fast fashion experience better inventory turns (5-7), net margins (15-20%), and full price sell-through (>80%). At the heart of any fast fashion retailer is speed, and in order to implement the speed strategy, retailers need a flexible supply chain, possibly forsaking low-cost production in Asia in favor of fast but higher-cost local production.

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