ACADEMIC PAPER

Fast fashion: a financial snapshotS.G. Hayes and Nicola Jones

Manchester Metropolitan University, Manchester, UK

Abstract

Purpose – The purpose of this paper is to establish an objective measure for the success of fastfashion to deliver measurable financial improvement.

Design/methodology/approach – A statistical analysis of published financial data has been usedto determine if any statistically significant difference exists between the financial performance ofretailers split into two groups; fast fashion and non-fast fashion

Findings – The research shows that no statistically significant difference exists between thefinancial measures of the two groups. However, some objectivity is given to the claim that reducedinventory contributes to the financial health of a fast fashion retailer.

Research limitations/implications – The study was limited to published financial data; for someretailers this was not available at all, for others, it was not available for each, and similar, years.

Originality/value – To the authors knowledge, this is the first paper to look objectively at thefinancial benefits associated with retailing to a fast fashion model.

Keywords Fashion industry, Financial performance, Retailers

Paper type Research paper

IntroductionIn recent years, retailers such as Zara, renowned for their ability to react almostinstantly to current trends, have expanded throughout the world with unprecedentedsuccess. Their quick response formula has attracted much attention in the fashionworld and highlighted the inability of other, more established retailers such as Marks& Spencer, to respond quickly to changing fashions (Harle et al., 2002). This relativelyrecent phenomenon has been extensively discussed in the fashion press. It has beensuggested (Carruthers, 2003) that Zara’s entry to the UK acted as a catalyst for otherretailers competing in the same market segment to attempt to improve their ownresponse times.

The aim of this research is to establish the effect that lead-time compression has onthe success of fashion retailers. In order to achieve this aim, three objectives wereidentified as follows:

(1) identify and describe techniques used to achieve lead-time compression andevaluate their benefits;

(2) judge the contribution that following a fast fashion strategy makes to thesuccess of fashion retailers; and

(3) assess if and how lead-times will be reduced in future.

This paper presents the findings from objectives (1) and (2).In the clothing market, the competitive strategy of retailers is commonly based on

price and product differentiation (Bridson and Evans, 2004; Birtwistle et al., 1998) asthere is a significant “polarity” between consumers more concerned about the product

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Journal of Fashion Marketing andManagementVol. 10 No. 3, 2006pp. 282-300q Emerald Group Publishing Limited1361-2026DOI 10.1108/13612020610679277

and/or the brand and those interested in price (Birtwistle and Freathy, 1998). Theclothing market can be segmented into fashion-conscious and non-fashion-consciousconsumers.

The term “fashion” has been defined as;

[. . .] a broad term that typically encompasses any product or market where there is anelement of style that is likely to be short-lived (Christopher et al., 2004, p. 367).

In the context of this research, fashion refers to garments or accessories that fit theabove definition. The definition of fashion above implies that the fashion-conscioussegment of the market is likely to be volatile, rapidly changing and difficult to predict.The concentrated nature of the UK fashion market has resulted in some high streetmultiples attempting to increase their market share by improving their speed to market(Birtwistle and Freathy, 1998).

In previous years, fashion retailers have relied on forecasting future trends insteadof using real-time data to assess the needs and wants of the consumers, it has beensuggested that this process can start some 18 months before a product is to be sold(Jackson, 2001).

Christopher et al. (2004) argued that these forecast-driven supply chains are nolonger capable of coping with the volatile demands of the typical fashion markets whileRichardson (1996) suggested that competition in the fashion industry was shiftingfrom price and quality towards a deeper focus on timing such that designs can bequickly imitated and production only continued for successful items. The consequenceof this is that responsiveness could be an effective substitute for an inability toaccurately predict future trends (Richardson, 1996). This view is supported byChristopher (1992) who also claims that the risks associated with forecasting increasewith lead-time length. A lead-time is defined as the total amount of time between acustomer order and its delivery (Christopher, 1992).

If lead-times are too long, such that a retailer offers a fashion garment to the marketwhen its attractiveness is on the wane, this may result in discounted stock and henceless profit. An example of this was in 1998/1999 when Marks & Spencer predicted greyas the colour of the season one full year in advance and; upon product failure, were notin a position to replace the stock with alternatives (Harle et al., 2002; BBC, 2003).

A recent article in “The Economist” claims that consumers today are far morefashion-savvy and demanding than in the past (The Economist, 2005). The articlesuggests that some high fashion retailers have compressed their lead-times to satisfymarket demand by having the right product in the right place at the right time – this isknown as fast fashion. Fast fashion is usually strongly influenced by, or in some casesreplications of, a catwalk or celebrity style (The Economist, 2005).

Retailers who follow such a strategy refresh their stock so often that markdowns areindirectly reduced; if stock is refreshed each season, the previous season’s stock wouldusually have to be discounted (Anson, 2002). Retailers also benefit from reducedinventory costs and fewer markdowns of overproduced items (Richardson, 1996).

The retailer most renowned for a fast fashion strategy is Zara, and case studiesshow that they can operate on a lead-time of 15 days or less (Reda, 2005; Saini and Ryle,2005; D’Andrea and Arnold, 2002). Case studies on other retailers show that theretailers Mango and H&M have reduced their minimum lead-times down toapproximately three weeks (White, 2004; Carruthers, 2003; Larenaudie, 2004). Since

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Zara entered the UK and began directly competing with Topshop, Topshop havedecreased their lead-times from approximately nine weeks to six.

According to TNS FashionTrak, in the six months from September 2004 untilMarch 2005, sales of fast fashion clothing increased by 11 per cent compared to the 2per cent for overall clothing retail (Marketing, 2005). Sales from fast fashion stores haverisen 31 per cent since 2001, compared with the womenswear industry average of just 1per cent (Murphy, 2005) and more conventional retailers such as Marks & Spencerhave lost valuable market share (Saini and Ryle, 2005; Murphy, 2005).

It should be considered that not all retailers who choose not to follow a fast fashionstrategy are currently unsuccessful. The majority of clothing currently being sold isnot fast fashion. Retailers such as Gap, who have an average lead-time of between threeand nine months (Larenaudie, 2004), and Next are not defined as fast fashion retailers,but Next has the highest turnover of all clothing retailers in the UK (FAME web site,2005) and Gap is one of America’s most successful retailers (Larenaudie, 2004).

Abernathy et al. (1999) split garments into three categories: fashion, fashion-basicand basic. They defined fashion items as those garments with a lifecycle of one season,fashion-basic garments are those that are a fashionable variation of a basic and basic,are those garments which remain in a collection for several years, e.g. a white T-shirt orclassic black trousers. It should be noted that in a fast fashion retailer’s productportfolio, there are likely to be a proportion of basic items as well as fashion items.

Abernathy et al. (1999) claim that it is not essential to “rush” production for basicitems because they are unlikely to go out of fashion quickly. They suggest thatlead-time reduction is only relevant for fashion, and to some extent fashion-basic,products.

The term “quick response” was coined as an umbrella term for the strategies used toachieve fast fashion. It has been defined as:

[. . .] a mode of operation in which a manufacturing or service industry strives to provideproducts or services to its customers in the precise quantities, varieties and within the timeframes that those customers require (Gunston and Harding (1987) in Kincade (1995, p. 245)).

Various techniques used to achieve time compression and hence fast fashion can bedefined as quick response strategies. The location of manufacturing, technologiesemployed and supply chain relationships the latter two are considered in this paper.

Hunter (1990) and Christopher et al. (2004) claim that advancements in technologyhave become increasingly important in decreasing the total time taken to get a garmentto market. Technology has been defined as:

[. . .] the study or use of the mechanical arts and applied sciences (Swannell, 1990, p. 577).

The main technologies identified as quick response elements used in manufacturingand retailing are:

. CAD/CAM – computer-aided design and manufacturing. CAD is a design toolused in creating garments and CAM is a manufacturing tool that controlsautomated processes such as cutting (Gray, 1998). Disher (1991) claims that thelengthy design process is reduced to hours through CAD. This view is shared bymost respected authors on the subject who also claim that CAD is anindispensable time-saving tool (Lowson et al., 1999; Gray, 1998; Hunter, 1990;Hunter et al., 2002; Abernathy et al., 1999).

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. Automated cutting – cutting fabric by hand is an extremely time consumingactivity (Byrne, 1995); however cutting is the only aspect of garmentmanufacturing which has been successfully and commercially fully automated(Byrne, 1995).

. Modular manufacturing and unit production systems – modular manufacturingis a technological concept used in the Japanese and American automotiveindustries, which have slowly been introduced into apparel manufacture (Hunter,1990) and it involves reducing the division of labour. Hunter (1990) refers to theresults of a study of an American manufacturer, which concluded that one of thebenefits gained from implementing modular manufacturing is an increase inproductivity of up to 15 per cent. Modular manufacturing may utilise a unitproduction system (UPS) (Hunter, 1990). A UPS is an automated overheadconveyor system used for transferring garments and parts of garments aroundthe factory (Hunter, 1990). Disher (1987) suggests that this can improveproductivity by 30-35 per cent translating to massively reduced lead-times.Zara’s highly automated factories have 200 km of these rails to assist in theirproduction (Crawford, 2000; Hammond, 2005).

. Electronic data interchange – EDI is the transfer of data electronically betweendifferent sections of the apparel pipeline (Hunter et al., 2002) and is compiled usingelectronic point of sale equipment (EPoS). EDI is widely considered to be anessential component in the achievement of true quick response (Buchanan, 1995;Little, 1995; Hunter, 1990; Lowson et al., 1999; Irastorza, 1984; Byrne, 1995;Abernathy et al., 1999; Hunter et al., 2002) as it allows the supply chain to respond toreal-time data. Data transfer has now progressed with the evolution of the internet,which has allowed product data management (PDM) systems to share data acrossthe world (Beazley and Bond, 2003); an invaluable tool considering today’s globalsupply chain (Abernathy et al., 1999). A PDM system is one that manages adatabase of all the information relating to a product and allows live productdevelopment by participants in different places. Previous research referred to byBeazley and Bond (2003) suggests that as much as 80 per cent of “design anddevelopment time” can be wasted accessing information that is not up-to-date.

The global nature of supply chains in the apparel industry means that effectivecommunication is very important. Utilising technology to assist in communicationwith manufacturers can contribute to quick response by allowing decisions regardingcolour, fabric and shape to be delayed (Anson, 2002). The later these decisions aremade, the more likely they are to accurately reflect current consumer preference(Christopher, 1992). The speed of this communication between retailers andmanufacturers is not the only important factor in quick response.

Flanagan and Leffman (2001) suggest that the risks associated with offshoresourcing can be mostly overcome if a high trust relationship is developed between thebuyers and their suppliers or if the buyer establishes a presence in the country ofmanufacture to ensure standards are kept up. This relationship can be made officialthrough vertical integration.

Vertical integration may be advantageous in the fashion industry as it is recognizedthat it facilitates rapid response (Richardson, 1996), however, reduced performanceincentive can be an issue with vertical integration (Richardson, 1996).

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By looking at the prior research and the conclusions that have been drawn from it, itwas apparent that there is little research into the financial benefits of following a fastfashion strategy for retailers and that research has instead focussed on the effects ofspecific techniques as opposed to the strategy as a whole.

Research methodologyThe principal methodology employed for this research is a statistical analysis onfinancial data of clothing retailers comparing fast fashion retailers with non-fastfashion retailers. The definition of the term success introduced difficulties with thechoice of research method. However, analysing a retailer’s financial position providessufficient insight into its health and status within the industry and hence whether itscurrent choice of strategy is successful.

Statistical analysis was performed on the financial data of two sample groups ofretailers, one group who actively pursue a fast fashion strategy and one group who donot. By their very definition, retailers who pursue a fast fashion strategy utilise quickresponse methods. The overall population from which these samples were taken isthose predominantly ladies fashion multiple retailers with a UK presence whoseprimary Standard Industry Classification (SIC) Code is 5242 (retail sale of clothing).

As those retailers who are known to pursue a fast fashion strategy, as defined byTNS FashionTrak, are small in number, it was decided to use all of them for whichdata was available as follows: H&M, Zara, New Look and Primark. These werecompared against four retailers who do not pursue a fast fashion strategy which wererandomly sampled from those retailers defined as large or very large by the financialanalysis web site FAME classifies companies with a minimum turnover in theprevious year of £100,000,000 (see Table I). For all of these retailers the followingvariables were compared:

. Sales – the total amount of funds generated by the business in one year (Costalesand Szurovy, 1994).

. Operating performance indicators – gross margin (gross income/sales) £ 100 percent, operating margin (operating income/sales) £ 100 per cent and net margin(net income/sales) £ 100 per cent. They express the gross income, operatingincome and net income respectively as a percentage of total sales. They areuseful for identifying reasons for changes in turnover as areas where margin isbeing gained or lost can be seen.

. Current ratio (current assets/current liabilities) – a liquidity ratio used as ageneral measure of the health of a company. Although acceptable values for sucha ratio varies dependent on the industry, as a general guide, a ratio under 1indicates the company may soon be in trouble and a ratio of approximately 1.5indicates a healthy position (Costales and Szurovy, 1994).

Fast fashion retailers Non-fast fashion retailers

Zara (large) French Connection (large)New Look (very large) Principles (very large)H&M (very large) Next (very large)Primark (very large) Bon Marche (very large)

Table I.Summary of retailerssubjected to analysis

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. Liquid ratio (quick assets/current liabilities) – again, there is no set value thatliquid ratios should be, but anything close to 1 indicates that the business couldmeet its current liabilities on quick assets alone which would be a stable positionto be in (Costales and Szurovy, 1994). It should always be considered in contextwith the current ratio.

. Inventory turn (cost of goods sold/stock) – as a general guide, particularly infashion, retailers would want this figure to be as high as possible.

. Days inventory (days in period/inventory turn) – this figure is particularlyinteresting in this research as theoretically fast fashion items would sell outquickly.

. Interest cover (operating profit/interest payable) – again, this figure is a usefulindicator of the stability of a company.

Comparisons between the two groups could be made, based upon the abovecalculations, using a two-sample t-test, to establish whether the differences between thetwo groups are statistically significant (Diamantopoulos and Schlegelmilch, 1997).

The t-tests performed tested the following null and alternative hypotheses at the 5per cent significance level with 6 degrees of freedom:

. Current ratio. H 0 : mN ¼ mF vs:H 1 : mN , mF : Do fast fashion retailers have ahigher current ratio?

. Liquid ratio. H 0 : mN ¼ mF vs:H 1 : mN , mF : Do fast fashion retailers have ahigher liquid ratio?

. Inventory turn. H 0 : mN ¼ mF vs:H 1 : mN , mF : Do fast fashion retailers have ahigher inventory turn?

. Days inventory. H 0 : mF ¼ mN vs:H 1 : mF , mN : Do fast fashion retailers selltheir stock more quickly?

. Interest cover. H 0 : mN ¼ mF vs:H 1 : mN , mF : Are fast fashion retailers in aless risky financial position than the non-fast fashion retailers?

. Gross margin. H 0 : mN ¼ mF vs:H 1 : mN , mF : This test was attempting toestablish whether it can be concluded that fast fashion retailers have a higherprofit margin.

. Retained profit. H 0 : mN ¼ mF vs:H 1 : mN , mF : Do fast fashion retailers have ahigher retained profit?

The null hypotheses are rejected if the t-statistic calculated is less than the criticalvalue. These critical values are tabulated and for a one-tailed test with significancelevel of 5 per cent and 6 degrees of freedom, this value is –1.943 (MEI, 1997).

ResultsNon-fast fashion retailersFigure 1 and Figure 2 provide details of turnover for Bon Marche and FrenchConnection. Next and Principles did not provide sufficient data for a meaningfulgraphical representation of their turnover.

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Fast fashion retailersThe graphs in Figures 3-6 clearly show that all the retailers have had steadilyincreasing turnover and there is no obvious difference in pattern between fast fashionretailers and non-fast fashion retailers. It is difficult to directly compare turnovervalues due to the varying number of outlets of all the retailers. However, it should be

Figure 2.French Connection’sturnover

Figure 1.Bon Marche’s turnover

Figure 3.H&M’s turnover

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noted that Next’s 2004 turnover of £2,345,768,000 far exceeds that of any of the otherretailers.

The “snapshot” (Table II) of retained profits for the retailers shows that Next madea substantial loss, but compared to their overall turnover, it was not a massiveproportion. French Connection UK (FCUK) and Zara also made a loss whereas the otherretailers made a profit.

Figure 5.Primark’s turnover

Figure 4.New Look’s turnover

Figure 6.Zara’s turnover

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Gross marginsThe gross margins of the retailers vary greatly. Once again, however, there is noobvious separation between the fast fashion and non-fast fashion retailers whenlooking at levels of gross margin (Figure 7).

Operating marginsAgain, these margins vary greatly from retailer-to-retailer (Figure 8). Most retailersappear to remain fairly constant with the clear exception of Zara. H&M experienced asubstantial drop in 2000 and FCUK’s margin does seem to have steadily increased overthe time period.

Net marginsA similar pattern again emerges of relatively constant margins for most of the retailerswith the exception of Zara (Figure 9).

Current ratiosH&M’s current ratio has varied greatly but has consistently maintained a value over 1.French Connection’s ratio has improved in recent years, as has New Look’s andPrinciples’ to achieve healthy values of over 1. Bon Marche has remained in a fairlystable position and although their ratio has dipped below 1, it is not in an unhealthyposition, as it has remained fairly constant. Next and Zara have very low ratios, as hasPrimark whose ratio has declined significantly (Figure 10).

Retailer Retained profit

Zara 21,254New Look 45,000H&M 27,712Primark 15,762French Connection 23,366Principles 9,227Next 242,747Bon Marche 11,508

Table II.Retained profit for 2004

Figure 7.Changing gross margins

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Liquid ratiosAgain Next, Primark and Zara have the lowest ratios, and H&M, New Look and FrenchConnection have the highest (see Figure 11). There is no particular value that liquidratios should preferably not fall below, but values of less than 0.5 may indicate causefor concern.

Figure 8.Changing operating

margins

Figure 9.Changing net margins

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Inventory turn

Two of the fast fashion retailers, Zara and New Look exhibit the highest inventory

turns, i.e. the fastest rates of stock movement through their business (Figure 12). Zara

had a massive peak in 2000, apart from this the retailers all seem to maintain a fairly

consistent inventory turn rate. H&M does show some fairly large changes however,

Figure 10.Changing current ratios

Figure 11.Changing liquid ratios

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with a decreasing rate in recent years. Two of the non-fast fashion retailers, FrenchConnection and Principles, exhibit the lowest inventory turns. Next, Primark, H&Mand Bon Marche have fairly similar rates. These four retailers represent two non-fastfashion retailers and two fast fashion retailers respectively.

Days inventoryAlthough this measure is closely related to inventory turn it shows more clearly thatZara and New Look have the shortest stock turnover, French Connection andPrinciples have the longest, and again the other four retailers are in between (Figure 13).

Figure 12.Changing inventory turn

Figure 13.Changing days inventory

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Interest coverGaps in the data make it difficult to comment on the levels of interest cover for retailers(see Figure 14). New Look and Primark have relatively high levels, as does FrenchConnection. Bon Marche had very high levels in 2003 but it should be considered thatthis is a possible mistake in the raw data due to its outlying nature. Zara and Next hadvery low, even negative levels. Principles did not provide any data.

Table III summarises the results of the statistical analysis in which no statisticallysignificant difference was found between the fast fashion and non fast fashion retailersusing the t-test.

A direct comparison of turnover values is not appropriate as like is not beingcompared with like. However, it is fair to compare the trends of the turnover of thedifferent retailers. Without data for Next or Principles this made the comparisondifficult. However, the remaining six retailers all exhibited a similar upwards curveimplying that their business has been steadily increasing – with the exception of BonMarche whose graph showed a slight decrease in turnover in 2004. It is not possible toconclude that a fast fashion strategy directly contributes to turnover.

Figure 14.Changing levels of interestcover

Current ratio H 0 : mN ¼ mF vs:H 1 : mN , mF : t ¼ 0.0106 Accept null hypothesis p ¼ 0.495951Liquid ratio H 0 : mN ¼ mF vs:H 1 : mN , mF : t ¼ –0.1046 Accept null hypothesis p ¼ 0.539545Inventory turn H 0 : mN ¼ mF vs:H 1 : mN , mF : t ¼ –1.831 Accept null hypothesis p ¼ 0.930393Days inventory H 0 : mF ¼ mN vs:H 1 : mF , mN : t ¼ –1.6539 Accept null hypothesis p ¼ 0.923450Interest cover H 0 : mN ¼ mF vs:H 1 : mN , mF : t ¼ 0.1868 Accept null hypothesis p ¼ 0.424077Gross margin H 0 : mN ¼ mF vs:H 1 : mN , mF : t ¼ 0.1779 Accept null hypothesis p ¼ 0.432333Retained profit H 0 : mN ¼ mF vs:H 1 : mN , mF : t ¼ –1.7696 Accept null hypothesis p ¼ 0.935093Table III.

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The retained profit that each retailer made is a better indicator of how well they areperforming. The graph showed that FCUK, Next and Zara all made a loss in 2004whereas the other retailers made a profit. Looking at the graph in two halves i.e. thenon-fast fashion retailers and the fast fashion retailers, the fast fashion half appear tobe more successful. This is backed up by the arithmetic mean calculation for thenon-fast fashion retailers, which was £ -6,344,500 although this was influenced by themassive loss of Next, and the mean of the fast fashion retailers which was £21,805,000.

The t-test performed allows for outliers, such as Next’s massive loss, by consideringthe variance of the groups in its calculation. Despite the lack of a statisticallysignificant difference it is fair to suggest that from this evidence there may be somelink between following a fast fashion strategy and achieving higher profits. Thissupports Anson’s (2002) suggestion that following a fast fashion strategy will lead toreduced markdowns and hence increased profits. It also supports TNS FashionTrak’sresearch (Marketing, 2005) that indicated that sales in the fast fashion sector wereincreasing at a much higher rate than in womenswear as a whole. The studyundertaken by Arthur Andersen and Kurt Salmon in Hunter (1990) and Hunter et al’s(2002) investigation, both concluded that quick response implementation didcontribute to reduced markdown and inventory costs, and hence increased profits.They also found that these relationships were quite weak and that the gains were notparticularly statistically significant.

Operating performance indicatorsThe three operating performance indicators gross margin, operating margin and netmargin can help to illustrate where a company is making or losing money. The reducedgross margins exhibited by Primark and Bon Marche could be explained by risingcompetition that they have not successfully responded to, or rising inventory costswhich they have failed to control. H&M and FCUK seem to have experienced theopposite and have been able to increase their gross margins. Zara, Principles, FCUKand H&M all show high gross margins, which is fairly inconclusive as these four are amix of non-fast fashion and fast fashion retailers.

The operating margins showed quite a different pattern however with H&Mexperiencing a dip in 2000 and Zara exhibiting a wildly varying margin. Although BonMarche and Primark suffered decreasing gross margins, this is not reflected in theoperating margins, perhaps indicating that any losses suffered through the cost ofgoods sold was offset by savings made in operating expenses. Changes in theoperating margin are the result of indirect expenses occurred by retailers, such assalaries. It is difficult to draw any conclusions from this without further insidercompany information. Regardless of cause, there is no apparent difference whenconsidering the retailers in their groups. The net margin appears to reflect theoperating margin patterns and hence no conclusions are drawn from it.

In the context of this research the gross margin is the most relevant performanceindicator as it indicates any changes due to competition or inventory and as such wassubjected to statistical analysis. The mean gross margin of the non-fast fashionretailers was 41.67 and the corresponding mean of the fast fashion retailers was 39.00.The t-test provided no evidence to reject the null hypothesis. It is therefore not possibleto conclude that retailers who follow a fast fashion strategy are more successful interms of gross margin. On the face of it this contradicts Richardson (1996) who

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suggested that retailers who followed a fast fashion strategy would be likely to havereduced inventory costs resulting in higher gross margins. Other forces must be atwork and the differences in gross margin could be attributed to factors such asincreased competition in a crowded market where consumers exhibit less brand loyaltyand are willing to take product from any of the fast fashion retailers if it is currentenough thus “dispersing” the benefits among all of those companies. It is arguable thatnone of the companies considered can be categorised as purely purveyors offast-fashion and any assessment of performance is based on their overall product mix,which results in the dilution of any profit maximisation through fast-fashion.

Current ratioLooking at the current ratio graph for all the retailers, only H&M and FCUK haverecently had a current ratio of over 1.5, which indicates that both of these retailers arein a healthy financial position. However, FCUK made a loss in that year (see earlier)which shows that the current ratio alone should not be relied on as a performanceindicator. New Look and Principles also maintained a healthy current ratio whereasNext, Zara and Primark’s low ratios meant that it could not be concluded from thegraph alone that fast fashion retailers were in a healthier financial position. It could besuggested, but not proved, that New Look’s increasing ratio could be due to their recentdecision to follow a fast fashion strategy. However, FCUK’s and Principles’ increasingcurrent ratios could not be explained by this.

The current ratio mean for the non-fast fashion retailers was 1.0225 and thecorresponding mean for the fast fashion retailers was 1.0175. As both these means areabove 1 and extremely close in value, no firm conclusions could be drawn from this. Thet-test result showed that the difference between them was statistically insignificant andindeed a significance level of 50.4 per cent or higher would have needed to be used inorder to accept the null hypothesis. As a significance level of 10 per cent would beconsidered quite high anyway, it can be concluded that the means of these two groupsreally are considered statistically similar. It cannot be concluded from these tests thatfast fashion retailers are in a healthier financial position than non-fast fashion retailers.

Liquidity ratioThe graph of liquidity ratios again did not distinguish between fast fashion andnon-fast fashion retailers. Primark, Next, Zara and Bon Marche have the lowest quickratios, which is an even split between fast fashion and non-fast fashion retailers.However, the nature of the calculation meant that stock was not included as an asset tocover liabilities. It could be suggested for fast fashion retailers, the stock could beconverted into cash within 90 days rendering this value irrelevant. However, if thiswere the case, the current ratio should have shown a clear advantage to the fast fashionretailers which it did not. H&M and Zara both showed decreasing liquid ratios. Thereare many reasons why this could be, for instance both of these retailers have expandedthrough the UK in recent years opening many new stores. The investment in thesestores could be classed as a current liability and inevitably would be high. Therefore, alow liquidity ratio may not indicate an unhealthy position for these retailers, as it maybe a temporary situation.

The arithmetic mean of the liquidity ratio for the non-fast fashion retailers was0.5250 and the corresponding mean for the fast fashion retailers was 0.5575. Again,

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neither of these means suggest that either group are in unhealthy positions and theirvalues are again close. The t-test result confirmed that statistically these means werenot even nearly significantly different and it therefore cannot be concluded thatfollowing a fast fashion strategy has a positive effect on the liquidity ratio andsubsequent health of retailers.

Inventory turnAlthough Next, Primark, H&M and Bon Marche have fairly similar rates of inventoryturn, it is interesting that two fast fashion retailers, Zara and New Look, have thehighest inventory turns and two non-fast fashion retailers, Principles and FCUK, havethe lowest inventory turns. This would appear to indicate that retailers who follow afast fashion strategy are able to sell their stock more quickly which is what all retailersaspire to. The more quickly the stock sells, the lower inventory costs will be and also, itis likely that the number and value of markdowns will be reduced also. Looking at themeans and t-test result allowed further insight into this suggestion.

The mean of the inventory turn for non fast-fashion retailers was 5.0500 and thecorresponding mean for fast fashion retailers was 8.6075, which appears to show quitea difference. The t-test however did not show that these values were statisticallysignificant. However, the significance level at which these values would have becomesignificantly different was 6.96 per cent. It is common for statistical tests to be carriedout at the 10 per cent level of significance and if this had been the case, the nullhypothesis would have been rejected in favour of the alternative that in fact thesemeans were significantly different. This means that it would be fair to suggest thatfollowing a fast fashion strategy does seem to have a positive effect on stock turnover.This would seem to support Christopher’s (1992) suggestion that risk decreases withlead-time length in that the shorter the lead-time is, the more accurately retailers cansupply what the consumer wants.

Days inventoryThis measure is obviously closely related to inventory turn and as such similarconclusions can be drawn. The graph clearly shows that Zara and New Look have thelowest average number of days taken for inventory to turn over and that FCUK andBon Marche have the longest time. Interestingly, Primark has shown a large reductionin its average time in recent years. Although it is possible that this is due to manyfactors such as becoming more competitive on price, it could be due to a decision tofollow a fast fashion strategy. Without insider information on the company, it is notpossible to definitely say what this was due to, but it should be considered that a quickresponse strategy contributed to this improvement.

The mean of the non-fast fashion retailers days inventory was 78.780 compared tothe corresponding mean of fast fashion retailers of 48.975, which again, on face value,appears quite different. The t-test statistic however was still too large to reject the nullhypothesis, but again if a significance level of 10 per cent had been used, there wouldhave been sufficient evidence to reject the null hypothesis and accept the alternativethat fast fashion retailers have, on average, a lower number of days in which theirstock remains in the store.

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Interest coverLooking at the graph of interest cover levels for the retailers showed significantlyvarying levels, but not necessarily split into fast fashion and non-fast fashion retailers.Gaps in the data made it hard to draw firm conclusions. Zara, Next and H&M all seemto be bearing a high level of risk though.

The mean of the non-fast fashion retailers’ interest cover was 35.385 and the meanof the fast fashion retailers’ interest cover was 28.870. Even before statistical analysis,it was clear that the non-fast fashion retailers were bearing less risk on averageanyway. The statistical test confirmed that there was insufficient evidence to reject thenull hypothesis.

ConclusionThe financial comparison produced fairly mixed conclusions. There was somesuggestion, although fairly weak, that those retailers who followed a fast fashionstrategy were more profitable. However, the analysis did not show that fast fashionretailers had higher gross margins, which was surprising, as the review of previousresearch had strongly suggested that fast fashion retailers would have reducedinventory costs. Even though this reduced inventory does not carry through intohigher gross margins, the benefits of having a faster turnover of inventory clearlycontribute to the success of fast fashion retailers. The indicators of health ofcompanies, current ratio, liquid ratio and interest cover showed no preference to fastfashion retailers.

The statistical tests showed that there was some evidence to suggest that pursuinga fast fashion strategy has a positive effect on stock turnover and hence the averagenumber of days that stock remains in store, resulting in reduced markdowns and lowerinventory costs, supporting the findings of the literature review.

Further researchWith limited transparency into the operation of these companies the publicly availabledata has yielded only so much information. It is possible that rapid expansion byparticular fast fashion retailers has absorbed many of the financial benefits anticipatedand further work is underway, based upon interviews with personnel within theseorganisations, in order to illicit a deeper understanding of the operational benefits of afast fashion strategy.

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