Not so fast! Supply bottlenecks strain fashion chains

LONDON/LOS ANGELES, Oct 13 (Reuters). Supply bottlenecks, slower product delivery and higher freight and labour cost could lead to shifting the fast. fashionBritish online shows how industry is moving into the slow lane. fashionASOS (ASOS.L) retailer

A business model that seeks to bring new styles to stores every three to four weeks, and where shoppers expect to find fresh, reasonably priced merchandise each visit, is finding its limits.

“When it comes to fast fashion, it’s all about being first to market,”Gus Bartholomew is the CEO and co-founder at SupplyCompass, a London-based company that specializes in product development and software delivery. fashionBrands

“What we’re seeing with most brands is that they’re all still massively struggling with visibility and control around delivery certainty – knowing when things are going to be delivered and when things might be likely to go wrong and how that will actually impact them.”

ASOS shares dropped 16% Monday, after it warned its annual profit could fall more than 40% this fiscal year. This was partly because it expects that delays in receiving stock from partner brands will persist into next fiscal year.

Two weeks earlier, Boohoo (BOOH.L), warned that its full-year profit would be reduced by higher freight costs.

Thursday’s Fast Retailing (9983.T), Uniqlo Japan’s parent company, will be the focal point of attention when it reports quarterly financial results.

The company announced in September that it will delay its clothing releases because of COVID-19 lockdowns at partner factory in Vietnam.

Companies ranging in size from Abercrombie & Fitch, (ANF.N), to Nike, (NKE.N), have seen margins shrink in recent months as they deal with higher raw materials costs and spend more money shipping.

According to Refinitiv data, Gap (GPS.N), American Eagle(AEO.N), Kohl’s.N), Macy’s.N are expected to report their third quarter results next month with their slowest margin growth to date.

SLOW TRANSIT

Many fast-food chains have relied on cheap supplies from Asia for their food. fashionBusiness models

Increased transit time has exposed the downsides of reliance on remote workforces – Matt Friend (Nike’s Chief Financial Officer) said last month that transit times from Asia to the United States have doubled to 80 days.

Vietnam’s garment factories are a hub of fast fashion. fashionProducing companies, especially those located in lockdown zones, are facing a shortage of workers.

“A big pain point is manufacturing in countries like Vietnam, Bangladesh and even in China,”Neil Saunders is GlobalData Retail’s managing Director and retail analyst.

Fast-fashionIs “a very time-sensitive segment, which leads to problems”Because it is hard for out-of-season stock to be sold.

The current circumstances could indicate that consignments won’t be needed by anyone by the time they get through. There is also the possibility that stores may not have much to offer during major selling seasons like Black Friday in October.

StyleSage data found that in the United States, approximately a third of Zara’s black men blazers and over a fifth all H&M white T-shirts were out of stock in the third quarter.

StyleSage is an online platform that monitors pricing and provides competitive intelligence to retailers.

Analysts estimate that H&M, which is second behind Zara-owner Inditex.MC, in the global apparel market, rely on Asia for around 70% of its production.

Supply disruptions hampered H&M (HMb.ST)  sales in September and Chief Executive Helena Helmersson told analysts and media on Sept. 30 that H&M was bracing for more delays in deliveries.

NEAR-SHORING

One solution is to reduce global coverage. This can help to address investor pressure on environmental social and governance factors (ESG), including worker’s rights and carbon footprints.

Inditex in Spain is less exposed to Asia than other Spanish companies, and sourcing more of its products closer to home.

Italy’s Benetton is also avoiding global supply chains and low-cost manufacturing hubs throughout Asia. This shift, known near-shoring or globalization, could be a lasting legacy from the COVID-19 pandemic.

Others find the cost and time involved in engineering a change too costly. In any case, profits are not lost.

ASOS’s adjusted earnings after interest and taxes (EBIT), margin rose 70 bps from 5.3% to August 31, despite the pressure. Its medium term (3-4 year) target has been set. “at least”4.3%

ASOS, which has grown rapidly to become a major UK retailer, sources most of its goods from China or India.

It also faces higher inbound and outbound freight costs, duty costs due to Britain’s withdrawal of the European Union, as well as wage inflation.

It stated Monday that supply chain pressures would continue until February 31, resulting in longer lead time for imported goods and constrained supply by partner brands.

“I think it (availability) will be patchy in terms of third party brands but we’re certainly building that up now and we’re still looking to have some decent (sales) growth over this first (half) period,”Reuters was informed by Chairman Adam Crozier.

Additional reporting by Aishwarya Venugopal (Reporting), Richa Naidu Anna Ringstrom, Rocky Swift, Rocky Swift, and Corina Pons; editing done by Keith Weir & Barbara Lewis

Our Standards: The Thomson Reuters Trust principles.

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