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Fast fashion players face tough choices as market matures

As structural changes are under way at Missguided and a further slowdown in online retail growth is predicted for 2018, Drapers asks if fast fashion retailers can weather the retail storm.

A wave of young fashion businesses with an online focus have experienced years of phenomenal growth, apparently immune to the wider doom and gloom on the UK high street.

However, as consumer confidence continues to soften and another poor autumn season was followed by the coldest spring in five years, industry challenges are spreading into the digital world. 

Last month it emerged that Missguided had launched a 30-day redundancies programme. Around 100 jobs are under review and around 50 job cuts are expected as the fast fashion retailer strives to become “leaner”.

Industry sources have told Drapers the womenswear retailer – like many of its peers – is challenged with excess stock and reduced credit insurance coverage amid tough trading conditions. In recent weeks Missguided also launched its first Outlet website and held its first sample Sale at its Manchester headquarters.

One Missguided supplier said he was unable to get credit insurance on the retailer but added that was not unusual in today’s climate: “There are few people you can get it on now. As a supplier, you have to be very cautious. No one is a safe bet at the minute. Everyone comes with risk.”

Turnover at Missguided rose by 75.6% to £205.8m in the 12 months to 26 March 2017, compared with the preceding year, but it made an operating loss of £1.45m, in contrast with a £381,000 profit in 2015/16.

The etailer said it had invested “heavily” in capital infrastructure during the year after moving to a new warehouse facility in Manchester, which incurred £4.8m in fit-out costs. Further investment was made in its systems, websites and back offices. 

Missguided CEO Nitin Passi said: “Missguided has made the strategic choice to scale up the business and turn it into a £1bn-plus brand. We’re fuelling that with serious investments in things such as stores, international expansion and cutting-edge tech.

“Those major investments will transform our business but also mean our short-term profits will be impacted. This has led to some alterations to our credit rating from some credit agencies. However, the business continues to trade with all its suppliers as normal.

“In terms of stock we are in great shape. Our combination of discounting and compelling full-price events has meant the last two weeks of trading have been our biggest ever outside of Cyber Weekend.”

Retail analyst Richard Hyman said the retailer is likely to be “taking stock”: “Gareth Jones [CEO online at Missguided] is a good strategic thinker. He is likely thinking that, after these big leaps forward, it is time to take stock and trim a bit. My perception is it is a good business.”

One source familiar with the situation said: “The ecommerce landscape has changed dramatically over the last two years. There is more competition now. Fast fashion players need to make cuts to remain agile.”

Missguided is not alone in its predicament. Footwear fast fashion etailer Public Desire is also restructuring its team, leading to three redundancies, as revealed by Drapers last week.

Indeed, online sales in general are dipping- online retail growth slowed to 12.1% year-on-year in 2017 compared to 15.9% in 2016, according to the 2017 IMRG Capgemini e-Retail Sales Index. Growth is predicted to dip further in 2018 to 9%.

Sofie Willmott, senior analyst, retail, at GlobalData said fast fashion players are not immune to the current tough climate despite being “better placed to capitalise on future growth” thanks to their online focus.

“Online pureplays are reviewing the structure of their teams to ensure businesses remain fit for the future,” she said. “To be successful in the long term, it is vital pureplays continue to carefully manage growth and regularly review business processes along with their organisational structure.”

Martin Newman, Practicology chairman and White Stuff non-executive director, said restructuring was a sign of the fast fashion market maturing.

“These are high growth business experiencing this for the first time. It always comes at some point; a business reaches maturity and must ask itself: are we fit for purpose?. The lesson to learn is having focus, governance, diligence and a really good view of what is happening in the market.” 

The Drapers Verdict

As predicted, 2018 has gotten off to an incredibly difficult start. All retailers, including fast fashion players, are feeling the pinch and many are restructuring and implementing strategies for the future. With no sign of tough market conditions easing more young fashion businesses are expected to follow this path as they start to mature and need to future-proof for sustainable growth.

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