Lisa Baertlein and James Davey

LONDON/LOS ANGELES – Slower product delivery, supply bottlenecks and increased freight and labor costs could lead to the slowing down of fast fashion, according to ASOS, a British online retailer.

It is a business model where new designs are introduced to stores each three to four weeks. Shoppers expect fresh merchandise at reasonable prices every visit.

Gus Bartholomew (CEO and cofounder SupplyCompass), a London-based company that specializes in fashion brand product development and software delivery, said, “It’s all about being the first to market when it comes to fashion fast fashion.”

“What we are seeing is that many brands struggle to see and control delivery certainty. This means knowing when everything will arrive, what the chances of things going wrong and how it will impact their business.

ASOS’ shares dropped 16% after warning that annual profits could drop by over 40%. It did this partly because of delays it anticipates with stock delivery from its partner brands.

Two weeks earlier, Boohoo had warned that its entire year profits would be affected by rising freight costs.

When Uniqlo’s Japanese parent company Fast Retailing reports its quarterly financial results, Thursday will be the focus of attention.

Late September saw the company announcing that clothing would be delayed because of COVID-19 lockdowns at Vietnam partner factories.

Companies from Abercrombie & Fitch to Nike (NYSE:) Their margins have been shrinking in recent months due to higher raw material prices and increased shipping costs.

Refinitiv data shows that Gap and American Eagle (NYSE;), Kohl’s(NYSE:), Macy’s [NYSE:] are set to show their lowest margin growth in the third quarter of next month when they release results for the third quarter.

TRANSIT LOW

Many fast fashion models have relied on cheap supplies from Asia.

Transit times are increasing, which is a sign of reliance on distant workforces. Matt Friend (Nike’s Chief Financial Officer) stated that last month, transit times to the United States have increased to 80 days from Asia.

Vietnam is a major hub for fashion production and has a severe shortage of skilled workers.

Neil Saunders is GlobalData Retail’s managing director and retail analyst. “Manufacturing in Vietnam, Bangladesh, or even China, is a big problem,” he said.

Fast-fashion “is a highly time-sensitive sector, which can lead to problems,” because it is difficult to sell out-of season stock.

Given the present circumstances, this could indicate that consignments will be gone by the time they reach their destination. However, there is a risk that retailers won’t have much to sell during major sales season, which starts on Black Friday in November.

On average, in the United States, about a third of Zara’s black men’s blazers were out of stock in the third quarter, as were over a fifth of all H&M women’s white T-shirts, data firm StyleSage found.

StyleSage is an online marketplace that tracks pricing and provides competitive intelligence for retailers.

H&M, second behind Zara-owner Inditex Analysts estimate that about 70% of the world’s apparel market (MC:) is dependent on Asia.

Supply disruptions hampered H&M  sales in September and Chief Executive Helena Helmersson told analysts and media on Sept. 30 that H&M was bracing for more delays in deliveries.

NEAR-SHORING

Reduce global exposure is one solution. It can be used to counter investor pressures on the environment and social governance (ESG), including worker’s rights and carbon footprints.

Inditex in Spain is less dependent on Asia than other Spanish companies, and sourcing its goods closer to home.

Italy’s Benetton is also moving away from supply chains that span the globe and to low-cost manufacturing centers in Asia. It is a move known as near-shoring. This could make a lasting impact on the COVID-19 pandemic.

Others find the cost and time involved in engineering changes too costly. In any event, profit margins have not been eliminated.

ASOS’s adjusted earnings without interest and taxes (EBIT), margin grew 70 bps from 4.3% to 5.3% during the year ended August 31. Medium term (3-5 years) targets are “at minimum” 4.3%.

ASOS is a UK retailer that has grown rapidly. It sources most of its products from China and India.

Additionally, it faces increased inbound freight costs and delivery costs as well duty costs resulting from Britain’s departure from the European Union.

The company stated that supply chain tensions are expected to persist until the end February. This will result in longer lead times and reduced supply from partners brands.

“I think it (availability) will be patchy in terms of third party brands but we’re certainly building that up now and we’re still looking to have some decent (sales) growth over this first (half) period,” Chairman Adam Crozier told Reuters.