Fast Fashion and Barriers to New Entrants

Fast fashion

“Fast fashion” is a quick response of the apparel retailer to a new fashion trend and quickly provide the related product in the store to meet the demand of the customers (Regner & Yildiz, 2014). “Fast fashion” was established by Erling Perrson who is the founder of the company, H&M in Sweden in 1947 (Regner & Yildiz, 2014). The representative companies of the “Fast fashion” are H&M, Zara, UNIQLO and Gap.

Factors of barriers of new entrants

As a new entrant of the fast-fashion industry, there are several factors that the owner need to concern and determine whether it is suitable to enter this industry.

Capital requirement

Fashion industry is a kind of retail industry which is selling clothes. In the case, it mentioned that it attract a lot of small players when the growth rate of apparel industry slowdown, this evidence can show it needs not a large capital to entry this industry. Therefore, the barriers of the capital requirement is low.

Economic of scale

H&M can keep the cost low as there is a large amount of production produce by 700 suppliers (Regner & Yildiz, 2014), if a new fashion item cost 1 hour to produce, new entrants need 700 hours (almost 30 days) to produce 700 items if they can only find one supplier, however, H&M just uses 1 hour to produce by 700 suppliers logically, so it can save much more time and wage cost and keep the price low.

Therefore, economic of scale is important in the fast-fashion industry, as fast fashion is a quick response to new fashion trend and this kind of fashion trend will only maintain 2-3 months, high cost will affect the price and decrease the attractiveness of the product. According to the above, the larger the scale of manufacturing, the easier to have Economic of scale. However, the barrier of this part is medium as it is difficult to contain a large number of supplier suddenly, but it is not difficult to find suppliers.

Expected retaliation

The retaliation of incumbents are great in fast-fashion industry, so barriers of this part is high. First, the annual growth rate was 3.7% from 2007 to 2011 (Regner & Yildiz, 2014) and this slow growth attracted a lot of small players and caused the keen competition.

And it need to compete with the large company and price war is a common retaliation. To existing firms like H&M, Zara, Gap and UNIQLO, cutting price will not affect the daily operation as the profit margin of the companies are around 13 to 20 percent (Regner & Yildiz, 2014). Therefore, it can show these companies have enough capital to start a price war by earning less profit if there are new entrants threaten their market