Fast fashion firms are expanding aggressively. With glitzy flagship store openings now commonplace, when will the party end?

Fast fashion firms are expanding aggressively. With glitzy flagship store openings now commonplace, when will the party end?

Appetite for fast fashion seems insatiable at the moment. With incomes and aspirations recovering, young affordable brands have rushed in to plug a Gap for consumers seeking to balance continued price sensitivity against a desire to stay chic.

The speed of turnaround on fast fashion collections also ensures high volume demand as storefronts move quickly from one trend to the next, tapping into the immediacy that greater connectivity through innovations such as social media have brought.

As with all things in retail, China’s gravitational pull is impossible to ignore. This year Inditex, the global leader in apparel and owner of the Zara brand, opens its 500th store in China.

Gap, which fell behind Inditex in 2008 has approximately 80 Chinese stores but opened 34 last year with a view to opening 30 more this year and tripling Chinese revenue to US$1bn by 2016.

Meanwhile Fast Retailing, the emerging pretender to Inditex’s throne through its Uniqlo footprint, plans to open 100 Chinese stores this year. H&M, currently the second-largest retailer plans 80 to 90 new stores in China this year.

Fast fashion expansion in China is notable because it has quickly moved beyond the coastal hubs and into faster growing smaller cities on the interior.

These tier-two, three and four cities offer much stronger potential for fast and affordable brands because they offer a consumer base that is aspirational with consumer expenditure growing quickly, but one that still lags income levels in bigger city hubs where the prevalence and influence of luxury brands may be stronger.

But one thing that has set fast fashion apart from other retail expansion strategies is that it is not just China, or even emerging markets, that have been targeted.

Inditex’s 500 Chinese stores are a small proportion of a global portfolio of around 6,500 in 87 countries, with the apparel giant planning another 500 stores globally in 2014.

Forever 21 has a portfolio of over 500 stores, but only seven in India and three in China. Gap may be weaning itself off the USA market but it still accounts for over 80% of sales.

Fast Retailing has been growing on all fronts at a pace which has occasionally alarmed investors.

Outside China the firm is opening 30 stores in the USA as well as stores in Paris and Berlin among many others. It is reportedly interested in acquiring Cath Kidston, a British brand based predominantly in the UK and Japan.

Pure-play Asos has also caused some jitters among shareholders thanks to an ambitious expansion strategy across a range of mature and emerging. markets.

If aggressive expansion has caused bearishness among some investors, the opportunity is still significant. Inditex’s revenues in 2013 amounted to €16.7bn and even in mature markets consumer anticipation of fast fashion openings is strong. H&M attracted 15,000 visitors when it opened a flagship store in Melbourne.

There remains room for growth as well. A report by the Cowen Group put combined revenues from Inditex, Fast Retailing, H&M and Forever 21 at US$48bn last year, which it estimates as accounting for just 3.4% of a US$1.4trn global clothing market. Opportunity is there for fast fashion to carve out a more significant share of global sales.

However, this is a fast changing industry. Five years ago Gap was seen as the world’s biggest apparel firm, now it is vying with Fast Retailing for third place.

New store openings represent a significant capital outlay that is increasing the vulnerability of fast fashion to market shocks or consumer backlashes.

Events in Bangladesh last year, for example, have pushed issues of ethics and sustainability back up the consumer agenda.

This will not only erode margins for firms who are committing significant funds to expansion, but further high-profile disasters raise the risk of reputational damage.

Over-extension is another risk. Luxury firms that were opening new stores en masse in China just a few years ago have been exposed to a slowdown in growth and an anti-corruption drive there.

Fashion, by its very nature is both transient and fickle.

  • Jon Copestake, retail analyst, The Economist Intelligence Unit