Yahoo Finance The high price of New Look’s low-cost strategy
The refrain coming from the “fast fashion” retailer New Look reminds me of that Chumbawamba song from the 1990s. They get knocked down but they get up again (repeat ad infinitum). The brand has gone into a form of insolvency called a company voluntary arrangement (CVA), shuttering 60 stores and losing 980 staff. Its leadership also pinpointed where things all went so horribly wrong. Bewitched by an “edgier, fashion-forward consumer”, it lost sight of its “heartland” (presumably non-edgy, non-fashionable consumer). In the world of fast fashion, providing the wrong product to the wrong consumer and forgetting your roots is a cardinal sin.
But there’s no need to worry because yesterday New Look announced that 80% of its inventory will be flogged off at under £20 in an attempt to reclaim that heartland and a return to its value proposition. (This leaves me intrigued by the remaining 20% of stock.)
Of course New Look is not alone. House of Fraser is also pursuing a CVA, Next has had a shocker and H&M had to confess to $4.3bn of unsold clothes. This is presumably too much inventory to be dealt with even by the energy-from-waste plant in H&M’s home town of Västerås in Sweden that is partly powered by burning fashion waste.
Now some rational people might point out that when your system involves needing to burn clothing, your system is sick and you might want to change it. But not fast fashion. As woes emerge, fast-fashion brands are inclined to explain just how tough their mission is. To provide super-cheap, on-trend clothing they must outsource to factories in textile hotspots (such as Bangladesh) that can provide low-cost labour. But these are far away, exposing brands to longer delivery times. Have you all got your tiny violins ready? If they miss the window to sell then they have to be discounted, reducing margin. Meanwhile, we consumers demand the new product in store at least once a week. Otherwise we will flounce out and take our fashion pounds online, snapping up clothing from the likes of Boohoo and Prettylittlethings, heavily endorsed by celebrities. In short, the beleaguered brands seem to be saying that this fast-fashion model is killing them.
Um, too bad – they invented it in the first place. The fast-fashion barons have grown rich on this model, despite the margins. They moan about risk, but from the outset it’s been clear who really shoulders it. As I wrote about in my 2011 book, To Die For, the pressure of this model is felt most keenly by the garment workers at the pinch point of production: the cut, make and trim facilities – typically outsourced to hubs such as Dhaka in Bangladesh. At this point the scramble for margin and the lack of investment in standardised facilities combine with the relentless pressure of getting giant orders out for volume retailers in the west. The impact of this is devastating, as we saw with the collapse of the Rana Plaza complex in Dhaka in 2013, when 1,335 garment workers were killed.
Retailers that have gone bust 2017-18
Toys R Us: 180 stores employing 3,000 staff, collapsed 28 February. Owes £15m in VAT, due by 1 March.
Maplin: 200 electronics and gadget stores, founded 1972, also failed on 28 February.
Warren Evans: bedmaker went into administration earlier in February.
East: fashion brand with nearly 50 outlets folded in January.
Juice Corp: business behind brands including Elizabeth Emanuel and Joe Bloggs went under in January.
Multiyork: furniture chain with 50 stores went into administration in November.
Feather & Black: bedroom furniture and bedding specialist with 25 outlets fell into administration in November.
Retailers under pressure
New Look has debts of more than £1bn and has lost some of its credit insurance cover, which protects suppliers if a retailer goes bust. In the 10 months to Christmas, sales fell 11% and losses hit £123m. The company intends to close 60 stores and change its fashion ranges, but faces a struggle to win back young shoppers.
House of Fraser's Chinese owner, Sanpower, had to stump up £25m to see the store through Christmas and its debt is rated as junk. The retailer is attempting to reduce the size of its stores by 30% and has asked landlords to cut rents.
Debenhams, a 178-store chain that is more than 200 years old, is axing one in four of its managers and considering closures to cut costs. It has warned that profits have been hit by lower than expected sales, with profit margins also down as a result of having to cut prices to match rivals.
The fact that Rana Plaza did not prompt a moratorium on fast fashion tells you everything you need to know about where the balance of power sits. Brands can still dictate their terms. Even adding safety measures such as fire escapes in host factories must be paid for by increased volume of production.
From New Look’s perspective, it has done everything it can to keep the engine going, even bringing some of its production back to the UK in order to turn designs around more quickly. Unfortunately it got its fingers burned when TS Knitwear (the Leicester factory with which New Look placed an order) was discovered by a Channel 4 documentary team working for Dispatches to be subcontracting to a supplier that paid garment workers in the UK £3 an hour. New Look said it had no knowledge of this.
But we know that ethical scandals don’t really hit sales, so why did it go so wrong? The financial press points to an accounting scandal at South African retail giant Steinhoff, owned by Christo Wiese, who bought the brand in 2015 (he stepped down as a New Look director last month). It seems that the complex financial underpinning of the deal has unravelled.
There is also the possibility (never entertained by the industry) that consumers have consumption fatigue
But there is also the possibility (never entertained by the industry) that consumers have consumption fatigue. More than 100bn new garments a year are now thrust on to the global market. Many are designed and made so that they are quasi-disposable, treated very much as a perishable product. Increasingly they are interchangeable.
New Look’s new narrative doesn’t entertain this sort of chat. Instead it contains the traditional bounce-back ingredients: parachuting in a former executive who used to run the brand in the heady days when it was the UK’s number 2 retailer; and trumpeting clothes under £20. All, the brand says, in the service of long-term profitability.
Herein lies the problem. Fast fashion is built to maximise profit for a select few, and churn out a huge volume of cheap clothing. Its vision, characteristics and need to expand and conquer means there is no long term.
• Lucy Siegle is a journalist who writes about ethical living
