The fast fashion business model has revolutionised the apparel industry. By streamlining design, production and distribution, the latest clothing trends can be transferred from the catwalk to the sales rack in a matter of weeks. One of the keys to the success of the model is the near-shoring of suppliers. Inditex, owner of numerous brands including Zara, Pull & Bear, and Massimo Dutti, maintains a network of designers and key suppliers in La Coruña, Spain and has manufacturing facilities in Morocco and Turkey, as well as Asia. New garments can be rapidly produced in small batches and the most successful items can be mass-produced to meet demand. Quality is, to an extent, sacrificed for speed, allowing for a constant store turnover of affordably priced products.
This model has now been firmly established in the country. In 2012 Zara opened its flagship store in the Jockey Plaza Mall in Lima. Forever 21, one of the few US brands to adopt the fast fashion model, followed in 2014, and Swedish giant H&M entered the Peruvian market in 2015. The stores have proved wildly popular with Peruvian consumers.
Taking On The Challenge
The arrival of the fast fashion giants, therefore, poses challenges for Peru’s retailers and textiles manufacturers. Fallabella Retail, one of the country’s leading department stores, has tackled the problem by rotating its fashion products regularly and increasing its number of local suppliers. Peruvian department store Oechsle has also moved to bring in more foreign brands. The company’s general manager, Gabriel Ortiz, told the Economist Intelligence Unit in early 2015 that a migration towards a fast fashion model was central to its future strategy.
The entrance of fast fashion brands also puts pressure on Peruvian textiles firms. “Previously, Peruvian firms faced international competition for its key exports market such as the US,” Marina Mejía, general manager of the Committee for Garments of the National Society of Industries (Sociedad Nacional de Industrias, SNI), told OBG. “Now these brands are entering the country with products that are stylish, timely and, most importantly, affordable. We need to be competitive both internationally and locally.”
The trend also undermines Peru’s comparative advantage in producing high-quality materials. “Fast fashion does not prioritise fine fibres. It is more about getting low-cost products to the market quickly,” Mejía said.
Peruvian textiles firms have experience producing products for some of the world’s top brands, including Calvin Klein and Hugo Boss. Mejía pointed to highly skilled textiles workers as a key advantage, saying that local firms could likely become key providers for fast fashion companies.
“Companies need to increase investment in research and development in order to maintain and enhance their competitiveness,” Ana Maria Chavez, the general manager of Textimax, told OBG. “Growing competition has increased pressure on the Peruvian textiles industry to improve its innovation and flexibility.”
Cut & Thrust
While Peruvian firms look to find their niche in the new fashion order, the competition among the big players for market share will be a key feature of the retail sector in the coming years. While Zara entered the market through a local representative, Iberotex, H&M opened branches directly. According to H&M, this allows it to sell products at the same price as their European stores, while Zara’s products are subject to a mark-up. The Swedish firm certainly appears to have adopted the more aggressive strategy. It opened its second store, in the Plaza Norte mall, in November 2015 and representatives have set a goal of opening 10 branches in its first three years.
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