The Global Fashion Industry

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The Global Fashion Industry

The Global Fashion Industry

The pervasiveness of retailing in the western world leaves the industry open for careful analysis. This document is intended to expertly address global effects onto a single sub-industry of retail - specialty apparel. To do so, I will acquire perspective by considering all recent global developments in the industry.

First, this document captures the current environment of the mall-based lifestyle apparel retail industry and unifies these findings to highlight globalization effects on the industry.

Second, the document projects the future landscape of the industry over 5 - 10 years horizon; and states actual choices firms should embrace to better align with the industry's global environment.


Apparel Industry Overview

As of 2004, the global apparel industry was valued at $768 billion dollars, and the United States made up $172.8 billion or nearly 22% of the total. The competition for these consumer dollars has accelerated with lifting of import quotas on textiles and apparel from most World Trade Organization (WTO) members in January 2005. Absence of these quotas enables apparel makers to procure high quality merchandise from most reliable suppliers regardless of their country of origin. Nevertheless, many apparel retailers and their suppliers will probably want to maintain diversity of sourcing to avoid being hurt by so called safe-guard, protectionist agreements (e.g. U.S. limits apparel imports from China growth to 7.5% annually). Therefore, in-depth knowledge of global import quotas and duties present another competitive advantage opportunity - creation of more efficient global sourcing capabilities.

At the most basic level, all of these retails supply people with practical attire that is affordable and unlikely to change in the years to come. As such, U.S. apparel industry is mature, saturated, and slow growing (~4% annually). Consolidation has been prevalent in the industry; there were 22 $100+ million mergers and acquisitions in past three years (e.g. Adidas acquired Reebok for $429 million, Phillips Van Heusen got Calvin Klein for $402 million). Firms strive to lower their costs, by gaining leverage in buying power and by achieving better economies of scale in production and marketing. Moreover, ruinous price competition, driven in part by the success of discounters (e.g. Wal-Mart, Value City), means eroded margins. One of the possible solutions to increase margins is becoming global retailer, where is more pricing flexibility and is easier to leverage existing supply-chain infrastructure.

In the realm of rising fashion consciousness, the industry strives to update their assortments swiftly to reflect changing tastes and to offer innovative styles and features that, usually, command a price premium. Therefore, I will slice the industry into two major segments: the standardized retail industry, characterized as a mature one, and the lifestyle retail industry. The latter one consists of firms or even their individual brands that cater to the needs of specific market segments (American Eagle Outfitters to 15-25 years old, Sunwear Pacific to Surfers and skiers, Banana Republic, brand of Gap to young professionals, etc.). The organization within this segment relies heavily on differentiation and not on ...
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