Online fast fashion brands strong in sales, margins

Globally, fast fashion thrives on affordability and larger volumes. While real estate costs are restricting the growth of offline fast fashion brands in India, with the advantage of lower overheads online players are still going strong. Better inventory management is also taking these fast fashion portals towards profitability in an otherwise loss-making e-commerce space.
Koovs, the online fast fashion brand, witnessed 87 per cent growth in sales in the financial year ended March 31, 2017. It clocked 100 per cent growth in the number units shipped and repeat customers and the number of registered users went up by 80 per cent. Koovs also hopes to turn gross margin positive this year. “The company continued to improve its gross margin position by improving intake margin and controlling the level of discounts given and expects to generate positive gross margins in FY18,” said Mary Turner, CEO at Koovs.
FabAlley, another online fast fashion brand which started four years ago, too would turn net positive this financial year.
The company has seen a consistent growth of 45 per cent last fiscal. As fast fashion brands, these companies have some inherent strengths that have made their business models viable despite being in a discount-driven e-commerce space.
“Margins are strong in fast fashion. When traditional brands would sell out more than 35 per cent of their inventory on discounts during the end-of-season sales, in fast fashion only 20 per cent is put up for discounts. More than 80 per cent of the inventory is sold at full price,” said Shivani Poddar, CEO and co-founder of FabAlley.
It makes the margins in fast fashion better than traditional brands. The customers do not mind paying full price, as new set of collections keep coming every month. Traditionally, fashion brands renew the collections twice a year -- spring-summer and autumn-winter. Moreover, fast fashion brands are at least 25 to 35 per cent cheaper than traditional brands, as they pass on part of the margins to the customer.
“Inventory management is the key to fast fashion. We come out with small lots of new collections. Those which do well in the first two weeks stay longer and the rest are removed. Thus we do not get stuck with large sized unsold inventory,” said Poddar. This is what makes online brands more efficient than the traditional brands as well as offline fast fashion brands. The offline fast fashion players have to carry enough inventory to display the new collections in every store.
High real estate prices have been curbing the growth of these brands in India. As per the annual report of Trent, the joint venture partner of Zara in India, the fast fashion brand’s revenue growth slowed down to 17 per cent at the end of March 2016 against 24 per cent growth in the previous year.
Slower growth was largely due to the lesser store openings. During the year the retailer added only two locations, bringing its total store count in India to 18.
“Plans are to open a few more Zara stores in India over the next three to four years in the major cities. The primary challenge to faster expansion is the availability of high-quality retail spaces, which can be expected to generate reasonable sales throughput,” Trent said in its annual report.
While online players are not worried about the geographical dynamics of retail in India, brands like Zara, H&M, Vero Moda and Forever21 will have to consider the purchasing power of the customer against high real estate costs, as they move beyond metros.
Competition based on pricing is also stiff among these offline fast fashion brands.

Columnist: 
Sangeetha G.
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