Ryui Jungyo Changed His Position In Zara. How Big Is The Impact Of Fast Fashion Company?

Pablo Isla, chairman and chief executive officer of Spain Inditex group, which owns Zara and Massimo Dutti, announced that she would resign as CEO.

Now the chief operating officer, Carlos Vrespo, will take over the vacant position.

The resolution will take effect after approval by the board of directors and shareholders in July this year.

It is noteworthy that UNIQLO will also change its CEO this year. Ryui Masa, the brand's founder, said earlier that he would retire to the second line at the age of 70, but no successor has been announced yet.

It is reported that the new chief executive of UNIQLO will not recruit from outside, but from the executive directors and other internal staff.

So, what prompted Zara to choose to adjust the chief executive candidates? What kind of impact will soon fashion companies have on the industry?

Blind expansion leads to Zara replacement

It is understood that Pablo Isla has been the CEO of Inditex group since 2005, and in 2011 replaced the 83 year old Group founder Amancio Ortega as chairman of the board.

Under the leadership of Pablo Isla, the Inditex group, led by the core brand Zara, has opened up a high-speed expansion process in the world, especially in the Asia Pacific region.

However, in recent years, the profitability of the group is being hit by the fluctuation of exchange rate and the rising rents of physical retail stores.

From the 2016 fiscal year, the profitability of the parent company Inditex group has been shrinking, and gross margin has fallen for 4 consecutive years.

Over the past two years, Zara's clothing prices in the Chinese market have fallen by 10% to 15% on average. This dragged down the net profit of Inditex group in 2018 by only 2%, to 3 billion 444 million euros.

During the period, the business channel became the main driving force for group performance, with sales growth of 27%, accounting for 12% of total revenue, or 3 billion 200 million euros, but far less than the strong growth of 41% in fiscal 2017.

Some analysts believe that excessive cost spending is a major drag on the Zara industry.

According to the idea of enterprise expansion developed by Pablo Isla, Inditex group has 7490 stores all over the world. In the past year alone, it has added 370 stores, renovated or expanded 226 stores, and launched official website and e-commerce services in 106 countries and regions. The group's expenditure on rents increased by 1.4% to 2 billion 392 million euros compared with 2 billion 358 million in the 2017 fiscal year.

In particular, the rapid expansion of the Asia Pacific region is most obvious. At present, there are more than 600 stores under the group's brand in China, and will further increase along with the sinking strategy of the three or four tier cities.

In terms of the number of outlets, fast fashion brands contracted in 2019.

According to incomplete statistics, among many fast fashion brands including H&M, UNIQLO, Muji, C&A, Forever 21 and GAP, only 5 brands have expanded in the first quarter, adding 11 new stores (excluding upgrading and reopening stores), which has slowed down considerably compared with the previous years.

Zara suddenly changed this year, whether we can have a turning point, let's wait and see.

The upgrades of consumption force the adjustment strategy of uniqo

Because of the fierce competition between the fast fashion industry, all brands are in a state of "riding a tiger". In order to keep the existing market share and not be excluded from other competitors, the expansion strategy of Zara Pablo, the former manager of Isla, has become the most direct measure for fast fashion enterprises to choose.

At the same time, more and more electronic business platforms are actively developing offline businesses, attracting consumers through the advantages of offline integration, becoming a strong competitor of traditional clothing stores. Fast fashion is also a way to deal with the impact of e-commerce by using stores to seize market share.

However, as the rent and manpower cost become more and more expensive, the operating cost of the store is higher and higher, and the profit is narrowed.

Fast fashion companies also know that relying on store expansion is a simple and crude way.

It is reported that consistently maintained a good momentum of development of UNIQLO parent company, for the first time in 3 years, cut the annual profit forecast, and in the 2019 fiscal year, it is estimated that the operating profit will be reduced by 10 billion yen.

At the moment of the new era of consumption upgrading, market demand is changing, consumers are increasingly diversified demands, and pay more attention to product quality and service experience.

Cheap, homogeneity and lack of individuality have become the reason why more and more consumers are abandoning fast fashion brands.

To this end, in recent years, one of the pformation measures proposed by Liu Chi, a chief executive of UNIQLO, is to launch clothing customization services, trying to change stereotypes in the minds of consumers, so that consumers can buy clothes that are most suitable for their bodies.

For example, for complaints that the sleeves are too long or too small, customers can choose their sleeves, clothing length and neckline from 169 sizes combinations, and can deliver them within a few days after placing the order online.

Ryui Masa hopes that in the future, UNIQLO can break the boundaries between producers and wearers, making production more in line with the individual needs of every customer in the world.

This year, Liu Jing is already 70 years old. He once said that after he left the CEO at the age of 70, he would choose a person who could understand the consumer psychology deeply and be good at meeting the needs of the market as the future manager of UNIQLO.

Ryui Masa believes that in the rapidly changing fashion retail market, the successor candidates need not only the ability but also the rich digital experience to make new business judgement quickly according to the market changes.

Digital technology enables H&M to find business opportunities

In fact, more than Zara is facing a decline in its performance. Its old rival H&M is also slowing down its sales growth in recent years.

H&M once maintained the speed of opening a new store in 4 days, but from 2012 to 2016, H&M's operating margin decreased from 18% to 12.8%.

To ensure profitability, H&M has abandoned the goal of adding new 10%~15% stores every year, but the situation has not improved.

In the 2018 fiscal year, H&M Group sales increased by 5% compared to the same period last year. After the growth rate stagnation, the bigger trouble was massive inventory: data showed that the stock size increased by 13% over the first half of last year, reaching 36 billion 333 million kronor (about 25 billion 600 million RMB).

Karl Johan Persson is the third generation of the H&M family. It is also the group's current global CEO. Although he has no intention of leaving office, he has publicly stated that he is not willing to label H&M as fast fashion. Whenever he needs to use this word, he is unwilling to put fast fashion and H&M in a sentence.

In any case, fast, is the most important feature of fast fashion brand represented by H&M, and H&M, which has experienced rapid growth, has also come to a gateway.

Whether the third generation of leaders of the family is willing to admit it, the good time for fast fashion brands such as H&M may have passed, and whether or not to go back to be a deep concern for CEO people.

As a result, Karl Johan Persson has rebuilt H&M since taking office, hoping its business situation has changed.

H&M recently invested in different areas of digital technology, such as a technology to test whether clothes fit well.

In addition, H&M has invested a lot of money in 3D technology and AI.

In the future, we can predict the general trend based on these data and better distribute products.

Karl JohanPersson believes that H&M is at a low price segment in many similar companies. H&M wants to provide more consumers with better quality and lower prices. Future Ltd will continue to increase investment in sustainable development and increase shopping experience, so as to continue to maintain its competitive edge in the market.