Fast fashion brands jack up competition in retail sector

Zara’s logistically complex “just-in-time” stock turnaround strategy has managed to give ensconced rival retailers in the Philippines a run for their money. (AFP)

by Josielyn Luna-Manuel, Special Features Editor

It’s not something every fashionista keeps track of.

But it nevertheless is a worldwide trend that fashion retailers keep tabs on.

It’s called fast fashion, referring broadly to upscale brands — “the latest fashion from the catwalk of Milan” — that can be brought, displayed, and hopefully sold by retailers as quickly as possible, said Frances Yu, chief retail strategist at local training and consultancy firm Mansmith & Fielders and former Vice President and Business Unit Head of Rustan’s Supermarket.

Fast fashion “presents a level of competition that the local retail industry has never faced in its history of retailing,” Ms. Yu said in an interview. “[Local retailers] are competing with these international chains that have economies of scale and very excellent supply chain and logistics that can really outperform the locals on all aspects – from assortment to quality to price to speed, so it would be very difficult for the locals to actually survive that onslaught,” Ms. Yu said.

As expected, fast fashion has intensified competition among retailers.

Fast fashion brands such as Zara, UNIQLO, and H&M not only offer competitive prices and target the same customers, but also bring in the latest fashions to their network of stores in just two weeks, Ms. Yu said.

Moreover, inventories of these brands can be replenished every seven days, she explained, adding that previously, luxury brands were brought home by Rustan’s and its retail unit, Stores Specialist Inc. (SSI), the Philippines’ largest specialty retailer.

“Newness drives frequency of visits. If your inventory doesn’t change in six months, why should I go there seeing the same display?” Ms. Yu said.

In one way or another, fast fashion may explain why SSI’s income dropped 54.5% in the first quarter of the year, according to Alexander Adrian O. Tiu, senior equity analyst at AB Capital Securities, Inc.

Based on a BusinessWorld article published last May 14, “the Tantoco-led company netted P121.6 million in the three months ending March, down 54.5% from the P267 million earned in the same period last year.”

The income decline was due to “an increase in competition in the local retail market, given the entry of UNIQLO and H&M,” Mr. Tiu said in an interview in late June.

The cut in SSI’s net profit was also attributable to either a drop in gross profit margin, its high inventory levels, and the change in lifestyle of its customers, Mr. Tiu added.

“For the retailer, high inventory levels require the need to drop prices of products or go on sale just so they can let the inventory out,” Mr. Tiu said.

Despite its financial results, AB Capital still has a “hold recommendation for SSI. We think that the stock is below its fair value,” Mr. Tiu said.

Since foreign brands cannot be stopped dominating and entering the local market, he said that the route should be to focus on other segments that could potentially bring in more revenue.

“What you have to do is try to get another pie which is another segment that’s currently untapped. I think that’s the key for SSI. They’ve been trying to bring in brands from other categories,” he added.

A model is photographed during an art fair in Florida wears Zara shoes in this file photo. Zara and other foreign retailers have invaded Philippine shores, enhancing competition in the industry. (AFP)

Robust economy boosts retail industry’s outlook

Overall, these challenges have failed to dampen the outlook in the retail industry.

After all, the Philippines continues to become one of the bright spots in the Asia Pacific Region which foreign brands “are looking to tap into…which can help them grow…” said said Euromonitor International, a London-based market research firm, in its Country Report titled, “Retailing in the Philippines,” published in January this year.

The report added that “[r]etailing in the Philippines is expected to significantly grow alongside the continued improvement in the economy. The increasing disposable income of Filipinos will encourage further purchases of products within grocery and non-grocery categories. The constant exposure to various media sources and overseas travel are also expected to further increase sophistication of Filipinos, which will hasten the growth of local and foreign retail brands already present.”

Similar sentiments have also been expressed by consulting firm Cushman & Wakefield.

“The strong economic fundamentals and demographics of the country should drive healthy appetite for retail goods moving forward,” it said in a March 2015 report entitled, “How Global Brands are Shaping the Metro Retailer Landscape.” “Retail competition may tighten as existing brands compete against new retailers for the increasingly sophisticated consumer market and limited available shopping space. However, a healthy shopping mall pipeline and presence of latent demand in other areas of the country should be able to accommodate new retailer entrants to the market.”

A model is photographed wearing outwear and a skirt by Zara, one of the many foreign retailers that have challenged Filipino counterparts. (AFP)

Competition to bring out Filipino ingenuity

The healthy increase in retail sales — which reached $134 billion — ranked the Philippines 16th out of the 30 countries listed in the 2016 Global Retail Development Index study titled “Global Retail Expansion at a Crossroads.”

Published by global management consulting firm ATKearney in May, it predicted that the country’s retail industry will soon account for one-fifth of the country’s GDP by 2025.

That wait may already be too long.

After all, Philippine Retailers Association (PRA) Chairman and Duty Free Philippines Corporation Chief Operating Officer Lorenzo C. Formoso said that the sector is estimated to increase its share to the country’s GDP by another five percent to 23-24% this year from 18% last year.

From 2008 to 2014, more than 190 new mid-range and luxury foreign brands entered the country, Cushman & Wakefield said. Of this figure, around 123 new brands covered in its report are western retailers. Asian retailers accounted for around 56 of the 190 new brands in the country.

More retailers and more brands is expected to work to the local sector’s advantage.

Besides promoting dynamic competition, it is also expected to bring out Filipino ingenuity and creativity as well as raise the bar and increase efficiency and performance, according to Mansmith & Fielders’ Ms. Yu.

“It’s only when your under extreme pressure that you’re able to produce innovation. As the saying goes, ‘Necessity is the mother of invention.’ I think for those who will survive, they will find that they have become much better business people or entrepreneurs,” she said.

———————

Josielyn Luna-Manuel is a journalism graduate from the Polytechnic University of the Philippines. She believes in the power of kind words and happy thoughts.