Harding Loevner Retailing Analyst Maria Lernerman, CFA and Information Technology Analyst Chris Mack, CFA explore why fashion is getting faster and how this shift could affect the market share of established footwear and apparel brands. The transcript, edited for clarity, follows.
Maria Lernerman: Apparel and footwear brands are attempting to reduce the time between design and sale. The major reason for this is increased competition, since it’s now easier for young brands to get up and running. Barriers to entry are coming down because small-batch manufacturing enables production, social media enables marketing and selling, and there are now different options for selling products offline through shorter-term leases, and online through websites, apps, and third-party e-commerce platforms that connect shoppers and sellers across the globe. So established brands now have to run faster to stay relevant and exciting and to keep up with the competition. To do that they are implementing a variety of strategies to speed up design, production, and selling.
One strategy to speed up design is to bring teams of employees, such as sourcing teams, design teams, and marketing teams, physically together in one space to increase collaboration. Inditex—the parent company of Zara—has always structured their offices this way, but now companies such as Fast Retailing—the parent company of Uniqlo—are making similar changes in an attempt to become more nimble. Another strategy is to make greater use of new technology like 3D printing to speed up the design process. For example, LVMH is now using 3D-printed components to assist with handbag design.
To speed up production, companies such as Lojas Renner are involving suppliers earlier to coordinate design and production. Some companies, such as H&M, are working more with local suppliers. Others are even bringing some of their manufacturing needs in-house.
To speed up selling, brands are attempting to sell more on their own websites and apps, and some are also investing in their own brick-and-mortar stores, especially concept stores. Some brands, particularly luxury brands, are launching more limited-release collections to create a sense of excitement and newness. So these are some of the strategies brands are implementing to respond to their new competitive environment.
“Being an early adopter alone isn’t a sustainable competitive advantage.”
Chris Mack: One of the opportunities for fashion and apparel companies is to incorporate more technology to speed up product design, as well as to utilize new manufacturing technologies to develop differentiated goods.
For example, some companies are using 3D simulation software—3D modeling in particular—to design more-effective products and digitally simulate their performance. This allows them to develop more-competitive products and reduces time to market.
ML: So who benefits? Competition is good for consumers, so they are one of the main beneficiaries. Smaller brands, startups, and online-only brands have been adapting to this new environment faster, so they’ve benefited as well, but being an early adopter alone isn’t a sustainable competitive advantage.
For large incumbent brands, it’s difficult to get moving and many of the changes are complex. Yet once they do begin to adapt they have many advantages over smaller companies. Their size gives them leverage over suppliers so they can negotiate flexible production schedules and smaller product runs, and they have resources to spend on technology, infrastructure, and people. Even the laggard brands are starting to catch up.
I think we might see a re-ordering of brands, where early adopters start to give ground and share back to brands that have woken up to the new reality.
Contributors
Harding Loevner Analysts Maria Lernerman, CFA and Chris Mack, CFA contributed research and viewpoints to this article.
Disclosures
The “Fundamental Thinking” series presents the perspectives of Harding Loevner’s analysts on a range of investment topics, highlighting our fundamental research and providing insight into how we approach quality growth investing. For more detailed information regarding particular investment strategies, please visit our website, www-dev.hardingloevner.com. Any statements made by employees of Harding Loevner are solely their own and do not necessarily express or relate to the views or opinions of Harding Loevner.
Any discussion of specific securities is not a recommendation to purchase or sell a particular security. Non-performance based criteria have been used to select the securities identified. It should not be assumed that investment in the securities identified has been or will be profitable. To request a complete list of holdings for the past year, please contact Harding Loevner.
There is no guarantee that any investment strategy will meet its objective. Past performance does not guarantee future results.
© 2024 Harding Loevner
Disclosures
The “Fundamental Thinking” series presents the perspectives of Harding Loevner’s analysts on a range of investment topics, highlighting our fundamental research and providing insight into how we approach quality growth investing. For more detailed information regarding particular investment strategies, please visit our website, www-dev.hardingloevner.com. Any statements made by employees of Harding Loevner are solely their own and do not necessarily express or relate to the views or opinions of Harding Loevner.
Any discussion of specific securities is not a recommendation to purchase or sell a particular security. Non-performance based criteria have been used to select the securities identified. It should not be assumed that investment in the securities identified has been or will be profitable. To request a complete list of holdings for the past year, please contact Harding Loevner.
There is no guarantee that any investment strategy will meet its objective. Past performance does not guarantee future results.
© 2024 Harding Loevner