Not so fast! Bottlenecks are straining fashion chains

LONDON / LOS ANGELES October 13 (Reuters) – Bottlenecks, slower product deliveries and higher transportation and labor costs risk tipping the fast fashion industry on track slow, as UK online fashion retailer ASOS (ASOS.L) showed this week.

A business model that aims to introduce new styles to stores every three weeks or so and where shoppers expect to see fresh, reasonably priced merchandise with every visit is finding its limits.

“When it comes to fast fashion, it’s about being the first to market,” said Gus Bartholomew, CEO and co-founder of SupplyCompass, a London-based company specializing in product development and delivery software for fashion brands.

“What we’re seeing with most brands is that they are still struggling en masse with visibility and control over the certainty of delivery – knowing when things are going to be delivered and when things could go wrong and how. will actually affect them. “

ASOS shares fell 16% on Monday after warning that annual profit could fall more than 40% this year, in part because it expects delays in sourcing from partner brands to persist next year.

Less than two weeks before rival Boohoo (BOOH.L) announced that its annual profit would be compromised by higher transportation costs.

Attention will focus Thursday on Fast Retailing (9983.T), the Japanese parent company of Uniqlo, when it releases its quarterly financial results.

The company said in late September that its clothing releases would be delayed due to COVID-19 lockdowns at partner factories in Vietnam.

Companies from Abercrombie & Fitch (ANF.N) to Nike (NKE.N) have seen margins contract in recent months as they grapple with higher raw material costs and spend more on fees shipping.

Gap (GPS.N), American Eagle (AEO.N), Kohl’s (KSS.N), Macy’s (MN) are expected to post their weakest margin growth so far this year when they release their third quarter results on next month, according to Refinitiv Data.

SLOW TRANSIT

Inexpensive supplies from Asia have been at the heart of many fast fashion business models.

The downside of reliance on remote workforce has been highlighted by increased transit times – Nike CFO Matt Friend said last month that times of transit to the United States from Asia had doubled to 80 days.

Additionally, garment factories in Vietnam, a hub for fast fashion producers, are facing a shortage of workers, especially in facilities located in lockdown areas.

“Manufacturing in countries like Vietnam, Bangladesh and even China is a major problem,” said Neil Saunders, general manager and retail analyst at GlobalData Retail.

Fast fashion is “a very time sensitive segment, which is problematic” because it is difficult to sell stock out of season.

Under the current circumstances, this could mean that by the time the shipments arrive, no one wants them, while the risk is that stores have little to offer during the big selling season that begins with Black Friday in November.

On average, in the United States, about a third of Zara’s men’s black blazers were out of stock in the third quarter, as were more than a fifth of all H&M women’s white t-shirts, according to the data company. StyleSage.

StyleSage operates an online platform that monitors prices to provide competitive information to retailers.

H&M, second behind owner of Zara Inditex (ITX.MC) in the global apparel market, depends on Asia for about 70% of its production, analysts say.

Supply disruptions hampered H&M (HMb.ST) sales in September, and managing director Helena Helmersson told analysts and media on September 30 that H&M was bracing for more delays in deliveries.

NEAR-SHORING

One solution is to reduce overall exposure, which can also help deal with pressure from investors focused on environmental, social and governance (ESG) factors, including carbon footprint and worker rights.

The Spanish Inditex is much less exposed to Asia than its competitors, sourcing more near home.

Italy’s Benetton is also turning away from global supply chains and low-cost manufacturing centers in Asia, in a shift, known as nearshoring, that could prove a lasting legacy of the COVID-19 pandemic .

For others, the time and cost of engineering a change are too great and in any case, the profits have not been wiped out.

Despite the pressure, ASOS ‘adjusted earnings before interest and tax (EBIT) margin increased 70 basis points to 5.3% in the year ended August 31. Its medium-term objective (3-4 years) is “at least” 4.3%.

ASOS, which quickly became a force in UK retailing, sources a majority of its supplies from China and India.

It also faces higher inbound freight and outbound delivery costs, customs fees linked to Britain’s withdrawal from the European Union and wage inflation.

On Monday, he said pressure on the supply chain is expected to continue until the end of February, resulting in longer delivery times for imported products and limited supply from partner brands.

“I think (availability) will be patchy in terms of third-party brands, but we’re definitely developing this now and we’re still looking to have decent (sales) growth in that first (half) period,” President Adam Crozier told Reuters.

Additional reporting by Aishwarya Venugopal, Richa Naidu, Anna Ringstrom, Rocky Swift and Corina Pons; edited by Keith Weir and Barbara Lewis

Our standards: Thomson Reuters Trust Principles.

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