The current issue and full text archive of this journal is available at                                                www...
and/or the brand and those interested in price (Birtwistle and Freathy, 1998). The           Fast fashionclothing market c...
JFMM   Zara entered the UK and began directly competing with Topshop, Topshop have10,3   decreased their lead-times from a...
.       Automated cutting – cutting fabric by hand is an extremely time consuming                  Fast fashion       acti...
JFMM                       By looking at the prior research and the conclusions that have been drawn from it, it          ...
.       Liquid ratio (quick assets/current liabilities) – again, there is no set value that   Fast fashion       liquid ra...
JFMM10,3288Figure 1.          ´Bon Marche’s turnoverFigure 2.French Connection’sturnover                        Fast fashi...
Fast fashion                                                                                                      289     ...
JFMM                          Retailer                                                                  Retained profit10,3...
Fast fashion                                                                                                       291    ...
JFMM10,3292Figure 10.Changing current ratiosFigure 11.Changing liquid ratios                          Inventory turn      ...
Fast fashion                                                                                                              ...
JFMM                          Interest cover10,3                          Gaps in the data make it difficult to comment on ...
The retained profit that each retailer made is a better indicator of how well they are         Fast fashionperforming. The ...
JFMM   suggested that retailers who followed a fast fashion strategy would be likely to have10,3   reduced inventory costs...
neither of these means suggest that either group are in unhealthy positions and their          Fast fashionvalues are agai...
JFMM   Interest cover10,3   Looking at the graph of interest cover levels for the retailers showed significantly       vary...
Birtwistle, G., Clarke, I. and Freathy, P. (1998), “Customer decision making in fashion retailing”,   Fast fashion       I...
JFMM   Jackson, T. (2001), “The process of fashion trend development leading to a season”, in Hines, T.               and ...
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Fast fashion fanacial

  1. 1. The current issue and full text archive of this journal is available at ACADEMIC PAPER10,3 Fast fashion: a financial snapshot S.G. Hayes and Nicola Jones282 Manchester Metropolitan University, Manchester, UK Abstract Purpose – The purpose of this paper is to establish an objective measure for the success of fast fashion to deliver measurable financial improvement. Design/methodology/approach – A statistical analysis of published financial data has been used to determine if any statistically significant difference exists between the financial performance of retailers split into two groups; fast fashion and non-fast fashion Findings – The research shows that no statistically significant difference exists between the financial measures of the two groups. However, some objectivity is given to the claim that reduced inventory contributes to the financial health of a fast fashion retailer. Research limitations/implications – The study was limited to published financial data; for some retailers this was not available at all, for others, it was not available for each, and similar, years. Originality/value – To the authors knowledge, this is the first paper to look objectively at the financial benefits associated with retailing to a fast fashion model. Keywords Fashion industry, Financial performance, Retailers Paper type Research paper Introduction In recent years, retailers such as Zara, renowned for their ability to react almost instantly to current trends, have expanded throughout the world with unprecedented success. Their quick response formula has attracted much attention in the fashion world and highlighted the inability of other, more established retailers such as Marks & Spencer, to respond quickly to changing fashions (Harle et al., 2002). This relatively recent phenomenon has been extensively discussed in the fashion press. It has been suggested (Carruthers, 2003) that Zara’s entry to the UK acted as a catalyst for other retailers competing in the same market segment to attempt to improve their own response times. The aim of this research is to establish the effect that lead-time compression has on the success of fashion retailers. In order to achieve this aim, three objectives were identified as follows: (1) identify and describe techniques used to achieve lead-time compression and evaluate their benefits; (2) judge the contribution that following a fast fashion strategy makes to the success of fashion retailers; and (3) assess if and how lead-times will be reduced in future.Journal of Fashion Marketing andManagement This paper presents the findings from objectives (1) and (2).Vol. 10 No. 3, 2006pp. 282-300 In the clothing market, the competitive strategy of retailers is commonly based onq Emerald Group Publishing Limited price and product differentiation (Bridson and Evans, 2004; Birtwistle et al., 1998) as1361-2026DOI 10.1108/13612020610679277 there is a significant “polarity” between consumers more concerned about the product
  2. 2. and/or the brand and those interested in price (Birtwistle and Freathy, 1998). The Fast fashionclothing market can be segmented into fashion-conscious and non-fashion-consciousconsumers. The term “fashion” has been defined as; [. . .] a broad term that typically encompasses any product or market where there is an element of style that is likely to be short-lived (Christopher et al., 2004, p. 367). 283In the context of this research, fashion refers to garments or accessories that fit theabove definition. The definition of fashion above implies that the fashion-conscioussegment of the market is likely to be volatile, rapidly changing and difficult to predict.The concentrated nature of the UK fashion market has resulted in some high streetmultiples attempting to increase their market share by improving their speed to market(Birtwistle and Freathy, 1998). In previous years, fashion retailers have relied on forecasting future trends insteadof using real-time data to assess the needs and wants of the consumers, it has beensuggested that this process can start some 18 months before a product is to be sold(Jackson, 2001). Christopher et al. (2004) argued that these forecast-driven supply chains are nolonger capable of coping with the volatile demands of the typical fashion markets whileRichardson (1996) suggested that competition in the fashion industry was shiftingfrom price and quality towards a deeper focus on timing such that designs can bequickly imitated and production only continued for successful items. The consequenceof this is that responsiveness could be an effective substitute for an inability toaccurately predict future trends (Richardson, 1996). This view is supported byChristopher (1992) who also claims that the risks associated with forecasting increasewith lead-time length. A lead-time is defined as the total amount of time between acustomer order and its delivery (Christopher, 1992). If lead-times are too long, such that a retailer offers a fashion garment to the marketwhen its attractiveness is on the wane, this may result in discounted stock and henceless profit. An example of this was in 1998/1999 when Marks & Spencer predicted greyas the colour of the season one full year in advance and; upon product failure, were notin a position to replace the stock with alternatives (Harle et al., 2002; BBC, 2003). A recent article in “The Economist” claims that consumers today are far morefashion-savvy and demanding than in the past (The Economist, 2005). The articlesuggests that some high fashion retailers have compressed their lead-times to satisfymarket demand by having the right product in the right place at the right time – this isknown as fast fashion. Fast fashion is usually strongly influenced by, or in some casesreplications of, a catwalk or celebrity style (The Economist, 2005). Retailers who follow such a strategy refresh their stock so often that markdowns areindirectly reduced; if stock is refreshed each season, the previous season’s stock wouldusually have to be discounted (Anson, 2002). Retailers also benefit from reducedinventory costs and fewer markdowns of overproduced items (Richardson, 1996). The retailer most renowned for a fast fashion strategy is Zara, and case studiesshow that they can operate on a lead-time of 15 days or less (Reda, 2005; Saini and Ryle,2005; D’Andrea and Arnold, 2002). Case studies on other retailers show that theretailers Mango and H&M have reduced their minimum lead-times down toapproximately three weeks (White, 2004; Carruthers, 2003; Larenaudie, 2004). Since
  3. 3. JFMM Zara entered the UK and began directly competing with Topshop, Topshop have10,3 decreased their lead-times from approximately nine weeks to six. According to TNS FashionTrak, in the six months from September 2004 until March 2005, sales of fast fashion clothing increased by 11 per cent compared to the 2 per cent for overall clothing retail (Marketing, 2005). Sales from fast fashion stores have risen 31 per cent since 2001, compared with the womenswear industry average of just 1284 per cent (Murphy, 2005) and more conventional retailers such as Marks & Spencer have lost valuable market share (Saini and Ryle, 2005; Murphy, 2005). It should be considered that not all retailers who choose not to follow a fast fashion strategy are currently unsuccessful. The majority of clothing currently being sold is not fast fashion. Retailers such as Gap, who have an average lead-time of between three and nine months (Larenaudie, 2004), and Next are not defined as fast fashion retailers, but Next has the highest turnover of all clothing retailers in the UK (FAME web site, 2005) and Gap is one of America’s most successful retailers (Larenaudie, 2004). Abernathy et al. (1999) split garments into three categories: fashion, fashion-basic and basic. They defined fashion items as those garments with a lifecycle of one season, fashion-basic garments are those that are a fashionable variation of a basic and basic, are those garments which remain in a collection for several years, e.g. a white T-shirt or classic black trousers. It should be noted that in a fast fashion retailer’s product portfolio, there are likely to be a proportion of basic items as well as fashion items. Abernathy et al. (1999) claim that it is not essential to “rush” production for basic items because they are unlikely to go out of fashion quickly. They suggest that lead-time reduction is only relevant for fashion, and to some extent fashion-basic, products. The term “quick response” was coined as an umbrella term for the strategies used to achieve fast fashion. It has been defined as: [. . .] a mode of operation in which a manufacturing or service industry strives to provide products or services to its customers in the precise quantities, varieties and within the time frames that those customers require (Gunston and Harding (1987) in Kincade (1995, p. 245)). Various techniques used to achieve time compression and hence fast fashion can be defined as quick response strategies. The location of manufacturing, technologies employed and supply chain relationships the latter two are considered in this paper. Hunter (1990) and Christopher et al. (2004) claim that advancements in technology have become increasingly important in decreasing the total time taken to get a garment to market. Technology has been defined as: [. . .] the study or use of the mechanical arts and applied sciences (Swannell, 1990, p. 577). The main technologies identified as quick response elements used in manufacturing and retailing are: . CAD/CAM – computer-aided design and manufacturing. CAD is a design tool used in creating garments and CAM is a manufacturing tool that controls automated processes such as cutting (Gray, 1998). Disher (1991) claims that the lengthy design process is reduced to hours through CAD. This view is shared by most respected authors on the subject who also claim that CAD is an indispensable time-saving tool (Lowson et al., 1999; Gray, 1998; Hunter, 1990; Hunter et al., 2002; Abernathy et al., 1999).
  4. 4. . Automated cutting – cutting fabric by hand is an extremely time consuming Fast fashion activity (Byrne, 1995); however cutting is the only aspect of garment manufacturing which has been successfully and commercially fully automated (Byrne, 1995). . Modular manufacturing and unit production systems – modular manufacturing is a technological concept used in the Japanese and American automotive industries, which have slowly been introduced into apparel manufacture (Hunter, 285 1990) and it involves reducing the division of labour. Hunter (1990) refers to the results of a study of an American manufacturer, which concluded that one of the benefits gained from implementing modular manufacturing is an increase in productivity of up to 15 per cent. Modular manufacturing may utilise a unit production system (UPS) (Hunter, 1990). A UPS is an automated overhead conveyor system used for transferring garments and parts of garments around the factory (Hunter, 1990). Disher (1987) suggests that this can improve productivity by 30-35 per cent translating to massively reduced lead-times. Zara’s highly automated factories have 200 km of these rails to assist in their production (Crawford, 2000; Hammond, 2005). . Electronic data interchange – EDI is the transfer of data electronically between different sections of the apparel pipeline (Hunter et al., 2002) and is compiled using electronic point of sale equipment (EPoS). EDI is widely considered to be an essential component in the achievement of true quick response (Buchanan, 1995; Little, 1995; Hunter, 1990; Lowson et al., 1999; Irastorza, 1984; Byrne, 1995; Abernathy et al., 1999; Hunter et al., 2002) as it allows the supply chain to respond to real-time data. Data transfer has now progressed with the evolution of the internet, which has allowed product data management (PDM) systems to share data across the world (Beazley and Bond, 2003); an invaluable tool considering today’s global supply chain (Abernathy et al., 1999). A PDM system is one that manages a database of all the information relating to a product and allows live product development by participants in different places. Previous research referred to by Beazley and Bond (2003) suggests that as much as 80 per cent of “design and development time” can be wasted accessing information that is not up-to-date.The global nature of supply chains in the apparel industry means that effectivecommunication is very important. Utilising technology to assist in communicationwith manufacturers can contribute to quick response by allowing decisions regardingcolour, fabric and shape to be delayed (Anson, 2002). The later these decisions aremade, the more likely they are to accurately reflect current consumer preference(Christopher, 1992). The speed of this communication between retailers andmanufacturers is not the only important factor in quick response. Flanagan and Leffman (2001) suggest that the risks associated with offshoresourcing can be mostly overcome if a high trust relationship is developed between thebuyers and their suppliers or if the buyer establishes a presence in the country ofmanufacture to ensure standards are kept up. This relationship can be made officialthrough vertical integration. Vertical integration may be advantageous in the fashion industry as it is recognizedthat it facilitates rapid response (Richardson, 1996), however, reduced performanceincentive can be an issue with vertical integration (Richardson, 1996).
  5. 5. JFMM By looking at the prior research and the conclusions that have been drawn from it, it was apparent that there is little research into the financial benefits of following a fast10,3 fashion strategy for retailers and that research has instead focussed on the effects of specific techniques as opposed to the strategy as a whole. Research methodology286 The principal methodology employed for this research is a statistical analysis on financial data of clothing retailers comparing fast fashion retailers with non-fast fashion retailers. The definition of the term success introduced difficulties with the choice of research method. However, analysing a retailer’s financial position provides sufficient insight into its health and status within the industry and hence whether its current choice of strategy is successful. Statistical analysis was performed on the financial data of two sample groups of retailers, one group who actively pursue a fast fashion strategy and one group who do not. By their very definition, retailers who pursue a fast fashion strategy utilise quick response methods. The overall population from which these samples were taken is those predominantly ladies fashion multiple retailers with a UK presence whose primary Standard Industry Classification (SIC) Code is 5242 (retail sale of clothing). As those retailers who are known to pursue a fast fashion strategy, as defined by TNS FashionTrak, are small in number, it was decided to use all of them for which data was available as follows: H&M, Zara, New Look and Primark. These were compared against four retailers who do not pursue a fast fashion strategy which were randomly sampled from those retailers defined as large or very large by the financial analysis web site FAME classifies companies with a minimum turnover in the previous year of £100,000,000 (see Table I). For all of these retailers the following variables were compared: . Sales – the total amount of funds generated by the business in one year (Costales and Szurovy, 1994). . Operating performance indicators – gross margin (gross income/sales) £ 100 per cent, operating margin (operating income/sales) £ 100 per cent and net margin (net income/sales) £ 100 per cent. They express the gross income, operating income and net income respectively as a percentage of total sales. They are useful for identifying reasons for changes in turnover as areas where margin is being gained or lost can be seen. . Current ratio (current assets/current liabilities) – a liquidity ratio used as a general measure of the health of a company. Although acceptable values for such a ratio varies dependent on the industry, as a general guide, a ratio under 1 indicates the company may soon be in trouble and a ratio of approximately 1.5 indicates a healthy position (Costales and Szurovy, 1994). Fast fashion retailers Non-fast fashion retailers Zara (large) French Connection (large)Table I. New Look (very large) Principles (very large)Summary of retailers H&M (very large) Next (very large)subjected to analysis Primark (very large) ´ Bon Marche (very large)
  6. 6. . Liquid ratio (quick assets/current liabilities) – again, there is no set value that Fast fashion liquid ratios should be, but anything close to 1 indicates that the business could meet its current liabilities on quick assets alone which would be a stable position to be in (Costales and Szurovy, 1994). It should always be considered in context with the current ratio. . Inventory turn (cost of goods sold/stock) – as a general guide, particularly in fashion, retailers would want this figure to be as high as possible. 287 . Days inventory (days in period/inventory turn) – this figure is particularly interesting in this research as theoretically fast fashion items would sell out quickly. . Interest cover (operating profit/interest payable) – again, this figure is a useful indicator of the stability of a company.Comparisons between the two groups could be made, based upon the abovecalculations, using a two-sample t-test, to establish whether the differences between thetwo groups are statistically significant (Diamantopoulos and Schlegelmilch, 1997). The t-tests performed tested the following null and alternative hypotheses at the 5per cent significance level with 6 degrees of freedom: . Current ratio. H 0 : mN ¼ mF vs: H 1 : mN , mF : Do fast fashion retailers have a higher current ratio? . Liquid ratio. H 0 : mN ¼ mF vs: H 1 : mN , mF : Do fast fashion retailers have a higher liquid ratio? . Inventory turn. H 0 : mN ¼ mF vs: H 1 : mN , mF : Do fast fashion retailers have a higher inventory turn? . Days inventory. H 0 : mF ¼ mN vs: H 1 : mF , mN : Do fast fashion retailers sell their stock more quickly? . Interest cover. H 0 : mN ¼ mF vs: H 1 : mN , mF : Are fast fashion retailers in a less risky financial position than the non-fast fashion retailers? . Gross margin. H 0 : mN ¼ mF vs: H 1 : mN , mF : This test was attempting to establish whether it can be concluded that fast fashion retailers have a higher profit margin. . Retained profit. H 0 : mN ¼ mF vs: H 1 : mN , mF : Do fast fashion retailers have a higher retained profit?The null hypotheses are rejected if the t-statistic calculated is less than the criticalvalue. These critical values are tabulated and for a one-tailed test with significancelevel of 5 per cent and 6 degrees of freedom, this value is –1.943 (MEI, 1997).ResultsNon-fast fashion retailers ´Figure 1 and Figure 2 provide details of turnover for Bon Marche and FrenchConnection. Next and Principles did not provide sufficient data for a meaningfulgraphical representation of their turnover.
  7. 7. JFMM10,3288Figure 1. ´Bon Marche’s turnoverFigure 2.French Connection’sturnover Fast fashion retailers The graphs in Figures 3-6 clearly show that all the retailers have had steadily increasing turnover and there is no obvious difference in pattern between fast fashion retailers and non-fast fashion retailers. It is difficult to directly compare turnover values due to the varying number of outlets of all the retailers. However, it should beFigure 3.H&M’s turnover
  8. 8. Fast fashion 289 Figure 4. New Look’s turnover Figure 5. Primark’s turnover Figure 6. Zara’s turnovernoted that Next’s 2004 turnover of £2,345,768,000 far exceeds that of any of the otherretailers. The “snapshot” (Table II) of retained profits for the retailers shows that Next madea substantial loss, but compared to their overall turnover, it was not a massiveproportion. French Connection UK (FCUK) and Zara also made a loss whereas the otherretailers made a profit.
  9. 9. JFMM Retailer Retained profit10,3 Zara 2 1,254 New Look 45,000 H&M 27,712 Primark 15,762290 French Connection 2 3,366 Principles 9,227Table II. Next 2 42,747Retained profit for 2004 Bon Marche ´ 11,508 Gross margins The gross margins of the retailers vary greatly. Once again, however, there is no obvious separation between the fast fashion and non-fast fashion retailers when looking at levels of gross margin (Figure 7). Operating margins Again, these margins vary greatly from retailer-to-retailer (Figure 8). Most retailers appear to remain fairly constant with the clear exception of Zara. H&M experienced a substantial drop in 2000 and FCUK’s margin does seem to have steadily increased over the time period. Net margins A similar pattern again emerges of relatively constant margins for most of the retailers with the exception of Zara (Figure 9). Current ratios H&M’s current ratio has varied greatly but has consistently maintained a value over 1. French Connection’s ratio has improved in recent years, as has New Look’s and ´ Principles’ to achieve healthy values of over 1. Bon Marche has remained in a fairly stable position and although their ratio has dipped below 1, it is not in an unhealthy position, as it has remained fairly constant. Next and Zara have very low ratios, as has Primark whose ratio has declined significantly (Figure 10).Figure 7.Changing gross margins
  10. 10. Fast fashion 291 Figure 8. Changing operating margins Figure 9. Changing net marginsLiquid ratiosAgain Next, Primark and Zara have the lowest ratios, and H&M, New Look and FrenchConnection have the highest (see Figure 11). There is no particular value that liquidratios should preferably not fall below, but values of less than 0.5 may indicate causefor concern.
  11. 11. JFMM10,3292Figure 10.Changing current ratiosFigure 11.Changing liquid ratios Inventory turn Two of the fast fashion retailers, Zara and New Look exhibit the highest inventory turns, i.e. the fastest rates of stock movement through their business (Figure 12). Zara had a massive peak in 2000, apart from this the retailers all seem to maintain a fairly consistent inventory turn rate. H&M does show some fairly large changes however,
  12. 12. Fast fashion 293 Figure 12. Changing inventory turnwith a decreasing rate in recent years. Two of the non-fast fashion retailers, FrenchConnection and Principles, exhibit the lowest inventory turns. Next, Primark, H&M ´and Bon Marche have fairly similar rates. These four retailers represent two non-fastfashion retailers and two fast fashion retailers respectively.Days inventoryAlthough this measure is closely related to inventory turn it shows more clearly thatZara and New Look have the shortest stock turnover, French Connection andPrinciples have the longest, and again the other four retailers are in between (Figure 13). Figure 13. Changing days inventory
  13. 13. JFMM Interest cover10,3 Gaps in the data make it difficult to comment on the levels of interest cover for retailers (see Figure 14). New Look and Primark have relatively high levels, as does French ´ Connection. Bon Marche had very high levels in 2003 but it should be considered that this is a possible mistake in the raw data due to its outlying nature. Zara and Next had very low, even negative levels. Principles did not provide any data.294 Table III summarises the results of the statistical analysis in which no statistically significant difference was found between the fast fashion and non fast fashion retailers using the t-test. A direct comparison of turnover values is not appropriate as like is not being compared with like. However, it is fair to compare the trends of the turnover of the different retailers. Without data for Next or Principles this made the comparison difficult. However, the remaining six retailers all exhibited a similar upwards curve implying that their business has been steadily increasing – with the exception of Bon ´ Marche whose graph showed a slight decrease in turnover in 2004. It is not possible to conclude that a fast fashion strategy directly contributes to turnover.Figure 14.Changing levels of interestcover Current ratio H0 : mN ¼ mF vs: H 1 : mN , mF : t ¼ 0.0106 Accept null hypothesis p ¼ 0.495951 Liquid ratio H0 : mN ¼ mF vs: H 1 : mN , mF : t ¼ –0.1046 Accept null hypothesis p ¼ 0.539545 Inventory turn H0 : mN ¼ mF vs: H 1 : mN , mF : t ¼ –1.831 Accept null hypothesis p ¼ 0.930393 Days inventory H0 : mF ¼ mN vs: H 1 : mF , mN : t ¼ –1.6539 Accept null hypothesis p ¼ 0.923450 Interest cover H0 : mN ¼ mF vs: H 1 : mN , mF : t ¼ 0.1868 Accept null hypothesis p ¼ 0.424077 Gross margin H0 : mN ¼ mF vs: H 1 : mN , mF : t ¼ 0.1779 Accept null hypothesis p ¼ 0.432333Table III. Retained profit H0 : mN ¼ mF vs: H 1 : mN , mF : t ¼ –1.7696 Accept null hypothesis p ¼ 0.935093
  14. 14. The retained profit that each retailer made is a better indicator of how well they are Fast fashionperforming. The graph showed that FCUK, Next and Zara all made a loss in 2004whereas the other retailers made a profit. Looking at the graph in two halves i.e. thenon-fast fashion retailers and the fast fashion retailers, the fast fashion half appear tobe more successful. This is backed up by the arithmetic mean calculation for thenon-fast fashion retailers, which was £ -6,344,500 although this was influenced by themassive loss of Next, and the mean of the fast fashion retailers which was £21,805,000. 295 The t-test performed allows for outliers, such as Next’s massive loss, by consideringthe variance of the groups in its calculation. Despite the lack of a statisticallysignificant difference it is fair to suggest that from this evidence there may be somelink between following a fast fashion strategy and achieving higher profits. Thissupports Anson’s (2002) suggestion that following a fast fashion strategy will lead toreduced markdowns and hence increased profits. It also supports TNS FashionTrak’sresearch (Marketing, 2005) that indicated that sales in the fast fashion sector wereincreasing at a much higher rate than in womenswear as a whole. The studyundertaken by Arthur Andersen and Kurt Salmon in Hunter (1990) and Hunter et al’s(2002) investigation, both concluded that quick response implementation didcontribute to reduced markdown and inventory costs, and hence increased profits.They also found that these relationships were quite weak and that the gains were notparticularly statistically significant.Operating performance indicatorsThe three operating performance indicators gross margin, operating margin and netmargin can help to illustrate where a company is making or losing money. The reduced ´gross margins exhibited by Primark and Bon Marche could be explained by risingcompetition that they have not successfully responded to, or rising inventory costswhich they have failed to control. H&M and FCUK seem to have experienced theopposite and have been able to increase their gross margins. Zara, Principles, FCUKand H&M all show high gross margins, which is fairly inconclusive as these four are amix of non-fast fashion and fast fashion retailers. The operating margins showed quite a different pattern however with H&Mexperiencing a dip in 2000 and Zara exhibiting a wildly varying margin. Although Bon ´Marche and Primark suffered decreasing gross margins, this is not reflected in theoperating margins, perhaps indicating that any losses suffered through the cost ofgoods sold was offset by savings made in operating expenses. Changes in theoperating margin are the result of indirect expenses occurred by retailers, such assalaries. It is difficult to draw any conclusions from this without further insidercompany information. Regardless of cause, there is no apparent difference whenconsidering the retailers in their groups. The net margin appears to reflect theoperating margin patterns and hence no conclusions are drawn from it. In the context of this research the gross margin is the most relevant performanceindicator as it indicates any changes due to competition or inventory and as such wassubjected to statistical analysis. The mean gross margin of the non-fast fashionretailers was 41.67 and the corresponding mean of the fast fashion retailers was 39.00.The t-test provided no evidence to reject the null hypothesis. It is therefore not possibleto conclude that retailers who follow a fast fashion strategy are more successful interms of gross margin. On the face of it this contradicts Richardson (1996) who
  15. 15. JFMM suggested that retailers who followed a fast fashion strategy would be likely to have10,3 reduced inventory costs resulting in higher gross margins. Other forces must be at work and the differences in gross margin could be attributed to factors such as increased competition in a crowded market where consumers exhibit less brand loyalty and are willing to take product from any of the fast fashion retailers if it is current enough thus “dispersing” the benefits among all of those companies. It is arguable that296 none of the companies considered can be categorised as purely purveyors of fast-fashion and any assessment of performance is based on their overall product mix, which results in the dilution of any profit maximisation through fast-fashion. Current ratio Looking at the current ratio graph for all the retailers, only H&M and FCUK have recently had a current ratio of over 1.5, which indicates that both of these retailers are in a healthy financial position. However, FCUK made a loss in that year (see earlier) which shows that the current ratio alone should not be relied on as a performance indicator. New Look and Principles also maintained a healthy current ratio whereas Next, Zara and Primark’s low ratios meant that it could not be concluded from the graph alone that fast fashion retailers were in a healthier financial position. It could be suggested, but not proved, that New Look’s increasing ratio could be due to their recent decision to follow a fast fashion strategy. However, FCUK’s and Principles’ increasing current ratios could not be explained by this. The current ratio mean for the non-fast fashion retailers was 1.0225 and the corresponding mean for the fast fashion retailers was 1.0175. As both these means are above 1 and extremely close in value, no firm conclusions could be drawn from this. The t-test result showed that the difference between them was statistically insignificant and indeed a significance level of 50.4 per cent or higher would have needed to be used in order to accept the null hypothesis. As a significance level of 10 per cent would be considered quite high anyway, it can be concluded that the means of these two groups really are considered statistically similar. It cannot be concluded from these tests that fast fashion retailers are in a healthier financial position than non-fast fashion retailers. Liquidity ratio The graph of liquidity ratios again did not distinguish between fast fashion and ´ non-fast fashion retailers. Primark, Next, Zara and Bon Marche have the lowest quick ratios, which is an even split between fast fashion and non-fast fashion retailers. However, the nature of the calculation meant that stock was not included as an asset to cover liabilities. It could be suggested for fast fashion retailers, the stock could be converted into cash within 90 days rendering this value irrelevant. However, if this were the case, the current ratio should have shown a clear advantage to the fast fashion retailers which it did not. H&M and Zara both showed decreasing liquid ratios. There are many reasons why this could be, for instance both of these retailers have expanded through the UK in recent years opening many new stores. The investment in these stores could be classed as a current liability and inevitably would be high. Therefore, a low liquidity ratio may not indicate an unhealthy position for these retailers, as it may be a temporary situation. The arithmetic mean of the liquidity ratio for the non-fast fashion retailers was 0.5250 and the corresponding mean for the fast fashion retailers was 0.5575. Again,
  16. 16. neither of these means suggest that either group are in unhealthy positions and their Fast fashionvalues are again close. The t-test result confirmed that statistically these means werenot even nearly significantly different and it therefore cannot be concluded thatfollowing a fast fashion strategy has a positive effect on the liquidity ratio andsubsequent health of retailers. 297Inventory turn ´Although Next, Primark, H&M and Bon Marche have fairly similar rates of inventoryturn, it is interesting that two fast fashion retailers, Zara and New Look, have thehighest inventory turns and two non-fast fashion retailers, Principles and FCUK, havethe lowest inventory turns. This would appear to indicate that retailers who follow afast fashion strategy are able to sell their stock more quickly which is what all retailersaspire to. The more quickly the stock sells, the lower inventory costs will be and also, itis likely that the number and value of markdowns will be reduced also. Looking at themeans and t-test result allowed further insight into this suggestion. The mean of the inventory turn for non fast-fashion retailers was 5.0500 and thecorresponding mean for fast fashion retailers was 8.6075, which appears to show quitea difference. The t-test however did not show that these values were statisticallysignificant. However, the significance level at which these values would have becomesignificantly different was 6.96 per cent. It is common for statistical tests to be carriedout at the 10 per cent level of significance and if this had been the case, the nullhypothesis would have been rejected in favour of the alternative that in fact thesemeans were significantly different. This means that it would be fair to suggest thatfollowing a fast fashion strategy does seem to have a positive effect on stock turnover.This would seem to support Christopher’s (1992) suggestion that risk decreases withlead-time length in that the shorter the lead-time is, the more accurately retailers cansupply what the consumer wants.Days inventoryThis measure is obviously closely related to inventory turn and as such similarconclusions can be drawn. The graph clearly shows that Zara and New Look have thelowest average number of days taken for inventory to turn over and that FCUK and ´Bon Marche have the longest time. Interestingly, Primark has shown a large reductionin its average time in recent years. Although it is possible that this is due to manyfactors such as becoming more competitive on price, it could be due to a decision tofollow a fast fashion strategy. Without insider information on the company, it is notpossible to definitely say what this was due to, but it should be considered that a quickresponse strategy contributed to this improvement. The mean of the non-fast fashion retailers days inventory was 78.780 compared tothe corresponding mean of fast fashion retailers of 48.975, which again, on face value,appears quite different. The t-test statistic however was still too large to reject the nullhypothesis, but again if a significance level of 10 per cent had been used, there wouldhave been sufficient evidence to reject the null hypothesis and accept the alternativethat fast fashion retailers have, on average, a lower number of days in which theirstock remains in the store.
  17. 17. JFMM Interest cover10,3 Looking at the graph of interest cover levels for the retailers showed significantly varying levels, but not necessarily split into fast fashion and non-fast fashion retailers. Gaps in the data made it hard to draw firm conclusions. Zara, Next and H&M all seem to be bearing a high level of risk though. The mean of the non-fast fashion retailers’ interest cover was 35.385 and the mean298 of the fast fashion retailers’ interest cover was 28.870. Even before statistical analysis, it was clear that the non-fast fashion retailers were bearing less risk on average anyway. The statistical test confirmed that there was insufficient evidence to reject the null hypothesis. Conclusion The financial comparison produced fairly mixed conclusions. There was some suggestion, although fairly weak, that those retailers who followed a fast fashion strategy were more profitable. However, the analysis did not show that fast fashion retailers had higher gross margins, which was surprising, as the review of previous research had strongly suggested that fast fashion retailers would have reduced inventory costs. Even though this reduced inventory does not carry through into higher gross margins, the benefits of having a faster turnover of inventory clearly contribute to the success of fast fashion retailers. The indicators of health of companies, current ratio, liquid ratio and interest cover showed no preference to fast fashion retailers. The statistical tests showed that there was some evidence to suggest that pursuing a fast fashion strategy has a positive effect on stock turnover and hence the average number of days that stock remains in store, resulting in reduced markdowns and lower inventory costs, supporting the findings of the literature review. Further research With limited transparency into the operation of these companies the publicly available data has yielded only so much information. It is possible that rapid expansion by particular fast fashion retailers has absorbed many of the financial benefits anticipated and further work is underway, based upon interviews with personnel within these organisations, in order to illicit a deeper understanding of the operational benefits of a fast fashion strategy. References Abernathy, F.H., Dunlop, J.T., Hammond, J.H. and Weil, D. (1999), A Stitch in Time: Lean Retailing and the Transformation of Manufacturing – Lessons from the Apparel and Textile Industries, Oxford University Press, Oxford. Anson, R. (2002), “Editorial – Sourcing for western markets: quick response or lowest cost?”, Textile Outlook International, May-June, pp. 3-5. BBC Programme (2003), “Store wars: fast fashion”, transmitted 19 February, 19.30. Beazley, A. and Bond, T. (2003), Computer-Aided Pattern Design and Product Development, Blackwell Publishing, Oxford. Birtwistle, G. and Freathy, P. (1998), “More than just a name above the shop: a comparison of the branding strategies of two UK fashion retailers”, International Journal of Retail & Distribution Management, Vol. 26 No. 8, pp. 318-23.
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