Gap Gains With Zara Responding to Fast-Fashion Fatigue

Call it fast-fashion fatigue.

Millennials, after years of settling for apparel retailers’ downgraded fabrics and workmanship, are pushing for higher- quality clothing again, and chains are getting the message.

Gap Inc. (GPS), the biggest U.S. specialty-apparel retailer, and Fast Retailing Co. (9983)’s Uniqlo are able to charge more for better basics. Even fast-fashion kings Inditex SA (ITX), Hennes & Mauritz AB (HMB) and Forever 21 Inc. are chasing more-discerning customers with upmarket brands.

“I can wear Forever 21 or H&M-type clothes a maximum of two or three times until the seams start falling apart or they shrink in the wash,” said Kendra Melnychuk, a 25-year-old diving coach at the University of Chicago. “Now that we’re not in school anymore, it’s not an option to wear those types of clothes. You have to look good at all times, and you can’t buy new clothes every month.”

The rise of fast fashion threw the U.S. apparel industry for a loop in the past decade with a model of rushing runway styles to stores in weeks at cutthroat prices, spurring shoppers to buy armloads of trendy, disposable wear. The recession increased their allure, and retailers looking to capture sales often cut quality to compete on price.

“There’s a whole vast sector of the public that really has been burned out by fast fashion and the novelty and is just very exhausted,” David Wolfe, creative director of the Doneger Group, a New York-based trend forecaster, said in a telephone interview. ‘There’s a great opportunity now for quality basics that are very, very well-priced.’’

Paying More

While Americans bought 19.4 billion garments last year, a 5.3 percent decrease from 2010, the value of sales rose almost 5 percent to $283.7 billion, showing consumers accepted higher prices, according to the American Apparel & Footwear Association, a trade group. On average, that would mean each person spent about $910 on 62 garments.

Gap’s namesake brand invested in upgrades of its merchandise starting this spring, and customers have noticed, Mark Breitbard, president of its North America division, said in a telephone interview. The company has used tags, store signage and employee training to highlight the merchandise’s specific fabrics, feel and design, he said.

Clothes this year “struck a chord for them being easy to understand and look like a style we could be famous for, but look new,” he said, citing the addition of certain colors and patterns, as well as effective marketing such as partnerships with fashion blogs.

Heattech Cloth

Highlighting fabric details on a tag is one way apparel retailers communicate the quality of materials and workmanship. Uniqlo touts the characteristics of its Heattech thermal wear in advertisements, while J. Crew uses its catalog to show off the cashmere it produces in partnership with an Italian mill.

Gap’s sales in its current fiscal year have rebounded 6.4 percent from last year, driven by gains North America. That has sent the San Francisco-based company’s stock up 90 percent to $35.26 in 2012, the second-best gain in the Standard & Poor’s 500 Retailing Index.

Gap trades at a 3.9 percent discount to the retailing index on a price-to-earnings basis after plunging to as low as a 51 percent discount in September 2011.

While the fast-fashion backlash has yet to seriously hurt some of the industry’s heavyweights, the chains have taken note of the burgeoning demand for higher-quality goods. Stockholm- based H&M, with $17 billion in annual revenue, said in September that comparable-unit sales rose 2 percent in the nine months through Aug. 31. That includes H&M’s sales from stores, Internet and catalogs in countries that have been in operation for at least one financial year. The company doesn’t yet have a U.S. e- commerce website.

‘Timeless Design’

Responding to the move beyond fast fashion, the chain has since opened more than 50 overseas COS stores that sell apparel and accessories featuring, it says, “timeless design that lives beyond the season.”

“At H&M, quality means making sure our products meet or exceed our customers’ expectations,” Håcan Andersson, a spokesman, said in an e-mail. “Attention to quality and safety begins at the design stage and continues throughout the entire manufacturing process,” he wrote.

“Our challenge is to adapt our high-quality standards to new fashions, products and market regulations and for our products to remain affordable,” he added.

Massimo Dutti

Inditex, the operator of Zara, said revenue grew 17 percent in the first half. The Arteixo, Spain-based company also opened its first U.S. Massimo Dutti store on New York’s Fifth Avenue last month. The brand sells items such as $430 men’s suits and $228 women’s camel velvet blazers on the U.S. website it also started in October.

Kristen Strickler, a spokeswoman for closely held Forever 21, declined to comment on the retailer’s quality.

The company in 2009 introduced its “Love 21 Contemporary” line, which features more sophisticated and work-appropriate attire than the company’s animal-print denim and lace tops.

Uniqlo is trying to accomplish the feat of providing high- quality basics while also keeping prices low. The company places high-volume orders with factories as far as a year in advance to win lower manufacturing prices and reduce the consumer’s final ticket, said Shin Odake, chief executive officer of its U.S. unit.

U.S. customers have been drawn to the brand’s $90 pure cashmere sweaters, $40 men’s parkas and Heattech, developed in conjunction with Toray Industries Inc., the Japanese synthetic fiber maker that provides carbon fiber for Boeing Co. 787 Dreamliners.

‘Perfect Basics’

“We create perfect basics -- that’s the core of our business,” Odake said in an interview at the company’s New York office. “We believe that a lot of it is dictated from the fabric, the quality, and that’s why we feel that it’s very important to strategically partner with a few fabric manufacturers that we believe are the world’s best.”

Uniqlo last month introduced a U.S. e-commerce site and opened its fifth store in the country, a West Coast flagship in San Francisco. The retailer has said it plans further expansion, without providing details.

“American culture has been ‘Give me more for less,’ and I do think that’s shifting,” Robin Lewis, a New York-based retail consultant, said in a telephone interview. “It’s being driven by young people today, Millennials. They are over time reversing, and quality is beginning to trump quantity.”

Setting Budgets

Cecilia Camardo, a 24-year-old public-relations associate in New York who also maintains a fashion blog, said that while she continues to buy some trendier pieces from H&M and Forever 21, she has shifted to more-expensive, higher-quality goods from J. Crew, Madewell and Rag & Bone, especially as she sets her own budget.

“I’ve been a lot more aware of what I’m buying and how long it’s going to last me and whether it’s really worth it,” she said in a telephone interview. She has also become more creative with accessorizing items she already owns, she said.

Gap spends a lot of time determining the styles it has equity in that need to be reinvented, whether it’s five-pocket jeans, 1969 denim, corduroy pants or women’s parkas, Breitbard said.

“When we design those well and merchandise them and market them well, they shouldn’t feel like old basics,” he said. “They should feel like new essentials of your wardrobe for today.”

To contact the reporter on this story: Sapna Maheshwari in New York at sapnam@bloomberg.net

To contact the editor responsible for this story: Kevin Orland at korland@bloomberg.net

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