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Here’s why “fast fashion” is slowing down as an investment theme

Nathan Field

Written by Nathan Field

Portfolio Manager Global Thematic at Kiwi Invest

Monday 27 May, 2019

Kiwi Wealth’s Nathan Field on why mass-produced fashion may already be past its peak.

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Fast fashion reaching NZ shores – but is it too late?

Popular global retailers often take a while to reach New Zealand shores. David Jones launched in Wellington in 2016, almost two centuries after the first store opened its doors in Sydney. That’s about the same time lag as Tiffany’s, which debuted in Auckland in 2016 after being founded in New York in 1837. Kiwi shoppers could be waiting forever for our first Costco, and Aldi.

So, by New Zealand standards, the 2016 arrival of apparel giants H&M (founded 1942) and Zara (1975) was lightning fast. Both chains are leaders in “fast fashion”, a contemporary term for inexpensive clothes that are quickly mass-produced to reflect the latest catwalk trends. But while Kiwis are excited that these hip global brands have finally graced our shores, there are signs that the fast fashion trend is already past its peak.


Frugal Gen Z are weighing up more 'ethical' options

Blame Generation Z, or people aged between 7 to 22, who are about to take over from millennials as the largest group of consumers in the world. Already they’re proving to be a tricky group for retailers and marketers to pin down. Gen Z have never known a world without the internet, and they’re far more likely to take brand cues from social media influencers than expensive prime-time TV ads. That makes it harder for big brands to dominate the conversation.

Another feature of Gen Z is that they grew up in the aftermath of the 2008 global financial crisis, an event that shaped their early views on spending and consumerism. Surveys have shown that the kids of Gen Z are generally more tight-fisted than their millennial predecessors. Even though the economy has since recovered in most parts of the world, their frugal spending habits have endured.

The shadow of the financial crisis has also made Gen Z more critical of companies with deep pockets and a fuzzy moral compass. This is particularly true when it comes to the environment and matters of sustainability.


Fast fashion could be the latest casualty

No wonder many traditional companies are worried, from gas-guzzling car companies to restaurants that serve battery eggs and non-Fair-trade coffee.

The fast fashion industry is similarly vulnerable to the ethical consumer trend. The concept of wearing something for a season and then throwing it away doesn't sit comfortably with those who wish to live more sustainably.

News headlines accusing H&M of burning unsold inventory haven't helped fast fashion's image. Although the company said it "rarely" burns clothes, and H&M isn’t the only apparel maker to burn or shred unwanted stock, the perceptions of waste and environmental damage are already embedded in consumers’ minds. A survey by fashion reseller thredUP found that a quarter of American millennials and Gen Z planned to ditch fast fashion in 2019 to be more eco-friendly.


So where are they buying their clothes?

As thematic investors, we know that every cloud has a silver lining. So, if the world’s youngest consumers are turning their backs on fast fashion, where are they buying their clothes?

It’s not just online. In fact, most Gen Z prefer to buy apparel from physical stores, and they’re more likely to visit shopping malls than millennials.


Vintage and off-price is back

Surprisingly, second-hand clothing is one of the new growth trends in apparel, fuelled by Gen Z’s appreciation for value, quality and sustainability. According to thredUP, 1 in 3 Gen Z in the US will buy used clothing in 2019, a much higher ratio than for older generations. Recycling a unique piece of second-hand clothing is not just affordable and ethically-minded, it’s cool.

Also doing well in the US are discount and off-price chains like T.J. Maxx and Ross Dress For Less. Off-price retailers sell racks of excess stock and product returns from other apparel companies, and with a little digging, shoppers can find quality brands like Ralph Lauren and Michael Kors at knockdown prices. The “treasure hunt” experience appeals to younger consumers who want a little more than traditional stores have to offer.


Fashion is still big business

Gen Z are still shopping. They’re just not shopping like their parents.

The proof is in the share prices of retail companies. Over the past three years, shares of TJX (owner of T.J. Maxx) and Ross Stores have risen more than 40% and 80% respectively, while shares of Inditex (owner of Zara) and H&M have fallen roughly 10% and 40%.


Where to next?

Of course, fashion and consumer tastes are constantly changing, and while our investments in off-price stores look smart now, the tailwinds won’t last forever. After all, it was only five years ago that people were talking about fast fashion taking over the world. So, when are the retail winds likely to shift again?

Perhaps when T.J. Maxx announces the opening of its first New Zealand store. It seemed to mark the peak for Zara and H&M, so it’s as good a lead indicator as any, and not entirely without logic (companies must be desperate for growth to stretch their store footprint this far).

Although given it’s only been forty-three years since the first T.J. Maxx opened in the US, we could be waiting a while yet.


This article reflects the personal views of the author at the date shown above. The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed, or relied on, as a recommendation to invest in a particular financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any investment decisions.

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