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 Bentley’s 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 as 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.”
H&M is best known for its seasonal exclusives, made by big name designers such as Karl Lagerfeld, Stella McCartney and Jimmy Choo. The brand has also been ‘inspired’ and promoted by celebrities such as Madonna and Beyoncé Knowles.
Ritson says big fashion houses let their designers work for H&M because, frankly, they can’t really stop them. “These designers have tremendous power, and most luxury brands only have limited control.”
The designers are paid “enormous amounts” to design for H&M. But that’s not the only perk.
“At the end of the day, creative designers want to see their styles worn on the street,” Ritson says.
“When you’re retailing at Chanel and your piece costs $5000, it’s unlikely that a pretty 18-year-old girl will wear it. H&M offers access to younger girls. That satisfies the ego of the creative director, and in the longer term, makes sure the next generation knows about them.”
For the fashionista on a budget, H&M’s close association with some of the biggest names in fashion makes it an affordable way to wear their pieces.
Zara’s model is cut-price. It doesn’t pay a fortune to have big designers lend it their name. Instead, it gets its far lower-paid designers to just copy them. Quickly.
Zara spends almost nothing on marketing – just 0.5% of revenues, while many fashion retailers can spend up to 30% on advertising.
This may have begun due to the preferences of Inditex founder Oretga, who famously called advertising a “pointless distraction”.
Where Zara does try to pull people in is through their shop windows. Store managers are in charge of ordering the stock they like from Zara’s catalogue, but the windows are centrally controlled from Spain.
“Most Australian brands go wrong in spending money on print advertising that is largely a waste of time,” Ritson says. “They often ignore the windows because what you put in them is almost free. But that doesn’t mean it’s not important and influential.”
Zara is entering its third season in Australia, and it’s been phenomenally successful. But it’s too early to gauge whether this success is sustainable, says Gordon.
Many international retailers who’ve hit our shores have succeeded initially before finding they just can’t make the model work in Australia. For example, Spanish retailer Mango (operating in Australia as MNG) has struggled to gain market-share for its stand-alone stores, only one of which survives.
“Our financial model for retailing is very different to the rest of the world,” Gordon says. “Our occupancy costs, and our staff costs as a percentage of sales, are much higher than most other places. This requires locally grown retailers to support his higher cost base with a higher margin. The overseas guys need to understand that, and not all of them have.”
Australia’s inverted seasons and unique fashion tastes can also be difficult for international retailers to manage. For example, Australian customers typically buy fewer floral designs than those in most of the world, and are more adverse to back pockets.
“Point being, the success of Zara and H&M certainly isn’t guaranteed,” Gordon says.
Ritson, however, is far more bullish on the prospects of both the foreign behemoths.
“I think they’ll be incredibly successful, for two key reasons. Firstly, they are simply more fashionable than domestic Australian supplies. And secondly, perception on the street matters. Young Australians think that Australian brands are old-fashioned, whereas H&M is cool, fashion-forward, and exotic.”
“If the world was H&M vs Zara, I think Zara will do slightly better.”
“But it’s not H&M vs Zara, its H&M and Zara eating into the cake of Australian fashion, which will crumble.”
“It won’t happen straight away. But the challenge is on Australian retailers trying to hold onto their share.”
Myriam Robin is a media reporter at Crikey. She’s an economics graduate who previously reported on business for LeadingCompany and SmartCompany.
