Soon, Australian consumers will have their pick of the world’s leading fast-fashion retailers.
Swedish giant H&M announced in March it will expand to Australia next year. In angling for our shopping dollar, it joins perennial rival Zara, which has been here since 2011.
H&M and Zara are cutting-edge retailers competing in the same space, but have developed radically different business models.
How are they different, and which will win in Australia? We asked the experts.
H&M was founded in 1947, and in 2012 posted $745 million in profits. It’s worn and promoted by some of the biggest names in popular culture. Its current season is being promoted by R&B singer Beyoncé. It operates 2,853 stores in dozens of countries, including plenty in fast-growth Asia (three stores in Thailand, three in Malaysia, 15 in Japan and more than 100 in China).
Until recently, H&M was Europe’s leading fashion retailer. And then, in 2006, it was overtaken by Zara.
Zara is the best-known brand of Inditex, a Spanish giant founded in 1963 by the reclusive billionaire Amancio Ortega, now one of the richest men in the world.
Inditex listed in 2001, and has grown its profits more than fourfold since then to $3 billion. It’s Spain’s largest company, and prides itself on its fast-fashion business model. Like H&M, it’s rapidly expanding.
Both Zara and H&M are considered fast-fashion icons. But they have different strategies to thank for their success.
Zara’s greatest strength lies in its supply chain, which allows it to turn over new styles in a fraction of the time (three weeks) it takes conventional retailers.
Unlike most retailers, Zara rarely outsources to Asia. It cuts fabrics in-house at its La Coruña headquarters in northern Spain, and then sends them to local cooperatives for sewing. The cooperatives sew and package the items (adding price-tags and hangers), and send them back to be driven and flown to Zara stores all over the world.
When it does outsource, it uses cheap, neighbouring European countries from which the output can be quickly driven back to headquarters.
Zara’s designers are all based in its La Coruña headquarters, and quickly churn out designs inspired by the latest runway trends. Supply is limited – no more than one run of any design is made. This keeps designs scarce. Zara stores receive new merchandise at least twice a week.
This tightly controlled production chain means Zara stores always have new products, but in a limited supply.
H&M operates rather differently. It employs a seasonal model more similar to traditional fashion retailing. Its stores are also amply stocked with staples made in cheap Asian factories that are available all year round.
It achieves similarly fast turnaround to Zara, but makes far greater use of Asian outsourcing.
This can help inoculate it against one of the biggest risks of a pure fast-fashion play, retail expert and Bentleys’ partner David Gordon tells LeadingCompany.
“The risk with fast-fashion is that you will incorrectly read the fashion trends.
“Basics are not fast-fashion. This means if you’re selling them consistently, they’re a low-risk boost to your sales.”
But H&M’s outsourced supply chain and staples range means it can’t be considered in the same league as Zara when it comes to fast-fashion, says University of Melbourne marketing professor Mark Ritson.
“H&M’s stock terms are still excessively quick. But if you have Zara as the model of fast-fashion, H&M just doesn’t qualify. It still follows seasons, for example. You’ve got to compare H&M to a Country Road, or a Just Jeans,” says Ritson, who consults for many of the world’s largest luxury brands.
“H&M is widely successful, but it’s no Zara. Its growth and business model is less radical. If there was no Zara, H&M would be the king of fast-fashion.”
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Myriam Robin is a reporter for SmartCompany and its sister site LeadingCompany. She has degrees in economics, international studies and journalism. She likes writing about businesses taking risks and doing new things.
