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Delayed supplies threatening fast fashion brands’ profit margins

 

Delayed supplies threatening fast fashion brands profit marginsWith brands struggling with slower deliveries and rising transportation costs, the fast fashion industry is under grave threat. The industry is being threatened by declining profits as highlighted by the 40 per cent drop in Asos’ annual profit this year and the huge dent in full year profits of Boohoo, Aberchrombie & Fitch and Nike due to rising freight costs.

Labor shortage increasing transit times

Most brands are suffering owing to slower deliveries from their Asian suppliers, says Matt Friend, Chief Financial Officer, Nike.Delayed supplies threatening fast fashion brands profit Last month, transit times from Asia to the US doubled to 80 days, he adds. Deliveries from Vietnam are delayed due to labor shortages in garment factories, adds Neil Saunders, Managing Director and Retail Analyst, GlobalData Retail.

This further delays brands’ consignments to European stores, says a Reuters report. By the time, goods reach the European markets they are no longer in fashion. For instance, in the third quarter of current fiscal, about a third of Zara’s black men’s blazers failed to hit the market at the required time as did over a fifth of H&M women’s white T-shirts, reveals StyleSage that operates an online platform to monitors product pricing.

Less dependence on global suppliers

To resolve this, brands need to reduce their exposure to global suppliers. This will also enable them to address environmental social and governance (ESG) issues, including carbon footprints and workers' rights.

Zara-owner Inditex has already taken a step in this direction by reducing its dependence on Asian suppliers and sourcing more products closer home. Similarly, Italian brand Benetton is shifting to near-shoring to protect businesses from COVID-19 effects. Few brands managed to resist the pandemic impact on operations. Asos was able to increase its adjusted earnings before interest and tax (EBIT) margin by 70 bps to 5.3 per cent during the year to August 31. It plans to maintain this growth over the next three-four years.

Having expanded operations in the United Kingdom, Asos sources the majority of its goods from China and India. The retailer is facing supply chain pressures resulting in longer lead times for imported goods and constrained supply from partner brands. However, it is building up third party brands and hopes for decent sales growth in the first half of this year, says Adam Crozier, Chairman.

 
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