Is Fast Fashion Really Gone?

According to the world clothing shoes and hats net, there are many voices recently.

No way.

and

Recent earnings performance is not as beautiful as in the past two years.

Mainly reflected in revenue slowdown, profit pressure.

In an interview, Han, a professional fashion industry equity investor, shared his views.

Investment banks' concerns about ZARA are mainly concentrated on the rise in production costs caused by the strong euro, squeezing profitability after the euro is priced, and the fierce competition in the mass market will continue to exert pressure on future revenue growth and gross margins.

As a result, ZARA's share price fell 53% from its peak in June last year.

And Ortega, who was the founder of the first richest man, fell in a straight line and fell to 12.

But the industry and the market and brokerages seem to underestimate the power of INDITEX.

If the mass garment industry is declining, from a historical perspective, the process of industry decline is also a process of passive concentration of industry concentration.

During this period, Zara has outperformed its competitors in all major markets.

It is worth mentioning that Inditex has nearly 12% market share in Spain, which no other brand or retailer has achieved in the field of clothing before.

Generally speaking, in the clothing industry, the threshold is low, the brand is much, the competition is intense.

It is difficult to have a brand share of 1% of the country's market share. For a unified channel, it is difficult to occupy 10% of the market share.

Industry maturity also represents industry concentration.

In the mature market of the US industry, WAL-MART, which is strong, accounts for only 10% of the total clothing market in the United States, and Amazon accounts for 8% of the market.

What is more worth mentioning is that even if it accounts for 12% of the market share, INDITEX's revenue growth in Spain in 2017 has reached 6%.

Generally speaking, the growth of revenue is basically maintained at the level of CPI, and Inditex can still advance at such a speed.

If H&M and UNIQLO are retailers, Nike and Louis Vuitton are brands, we prefer to compare Inditex to a carefully designed and forged fashion machine.

Thus, the market position of Inditex in Spain has created an unprecedented record. The vertical integration of producers, brands and retailers has made this machine more efficient than other competitors.

And why?

The logic of retailers is to optimize the efficiency of the flat as the ultimate goal, through the terminal management and service, through the best combination of goods to achieve higher business efficiency.

The operating logic of a brand is that I design a season's clothes, whether they sell well or not, and see whether the design is popular or not. In inventory, we discount and clear the stock and make profits for cash flow; and the efficiency of the Zara machine is fast and out of fashion cycle, and its strong efficiency brings the turnover of animal flow and capital flow.

Speed is the surface, efficiency is the root.

Previously, we interpreted it as "fast" and thought that the speed reached everything.

But that's one reason why so many domestic brands are learning Zara, but no one has reached the height of Zara, because speed is the surface and efficiency is the foundation.

Only the sophisticated systems that have been carefully designed can be driven by efficiency.

First of all, the fast turnover speed makes the design risk of fashion cycle not exist, so the company's performance has been very stable.

Inventory turnover for 80-85 days, even in the 2017, which has been bad mouthing, has not changed.

Inventory turnover lasted 85.1 days in 2016 and 85 days in 2017.

So we see only a slowdown in sales, but there is no slowdown in turnover efficiency.

This is one of the core competencies of this machine.

The fast supply chain capability is already a commonplace problem. There is no need to repeat why.

Behind the logistics is the support of cash flow. Inditex has also done unprecedented.

There are two main points here.

One is different from the brand: Inditex has a steady cash flow.

Just now we talked about 85 days of inventory turnover. The days of accounts receivable were 11.8 days and 11.6 days in 2016 and 2017 respectively. They were surprisingly stable. They were not affected by the so-called mass market decline or fast fashion decline.

This kind of stable data will never be seen in the brand. The turnover days of many brands differ from ten days per year to a few days, because the brand can not get rid of the fashion cycle and economic cycle, nor can it get rid of the change of channel providers, such as business super, department stores, shopping centers and electricity suppliers.

In this kind of conversion, too many brands are led by the channel, making various compromises and concessions. This is especially evident in Chinese brands (for example, the rising rents, the proportion of many brand rents increased from 10% to 30%, causing it to fall into long-term losses).

Another unprecedented example is the days of accounts payable turnover, which has reached an astonishing 169 days. This figure is 178 days in 2016.

Such accounts are far greater than their competitors. The average industry average is about 40-50 days.

Many investment bank analysts like to interpret this data as the bargaining power of suppliers, that is, how many days they can get. In this respect, Inditex is far more than all peers.

At first glance, the Inditex account is shortened.

But generally speaking, the shortening of accounts period is due to problems in the operation of the group, or the entry of competitors, so that bargaining power can be tilted to suppliers.

But in the whole market is not good, Zara growth outperformed the market, as well as the inventory turnover days driven by the operating efficiency has not slowed down, so why is there a shortened account?

This is not a change in the efficiency of the INDITEX itself or a decline in bargaining power, but because the macro environment is not friendly to suppliers: the strong euro has already put pressure on many suppliers, coupled with the entry of interest rates by central banks, and the rise of the cost of capital will more pressure the suppliers' cash flow for the garment factories which rely on the meager profits.

In this case, INDITEX is making use of some part of the account to indirectly financing small garment factories, which is also maintaining the stability of the ecosystem surrounding this fashion machine.

Therefore, the short term financial data can not explain the decline of large groups. On the contrary, the core competitiveness of the group can be revealed in the process of industrial recession.

The stability of a complex system is often beyond our imagination.

Whether the internal vitality of a group still exists is much more important than that of sales growth of 10% or 15%.

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