Conquering Fast Fashion’s Challenges with Smarter Supply Chain Solutions – Fibre2Fashion

India’s fast fashion market has experienced a remarkable surge, with the sector achieving a 30 per cent to 40 per cent growth in 2024¹, far surpassing the performance of other retail segments. This rapid advancement positions the market, currently valued at $10 billion, to potentially reach $50 billion by FY31¹. However, most fashion companies are experiencing modest profit before tax (PBT) margins, remaining in the single digits, even though they have markups of up to 50 per cent².

The perils of rapidly changing fashion trends

The primary challenge in the fashion retail industry is the extended lead time with many stages needed to create and deliver a new collection.

While brands may wish to quickly capture current fashion trends and introduce them ASAP into stores, the long lead time required in these stages compels firms to design and manufacture their collections well in advance to ensure timely deployment across stores. This often means making decisions about what will be in style 7-9 months before the collection hits stores.

Given that fashion trends can shift rapidly, this long lead time frequently leads to mismatches between current trends and available products. Misjudging consumer demand can result in two critical issues: excess inventory and stockouts, both of which have significant financial consequences. Stockouts lead to lost sales and potentially dissatisfied customers. At the same time, excess inventory ties up valuable capital. Companies often resort to deep discounts at the end of each season to free up this capital and make room for new seasonal collections. While this strategy helps clear out stock, it also leads to reduced revenue and erodes the brand’s profitability.

The opportunity cost of excess inventory is even bigger than the erosion in margin. In the hypothetical example below, one can see that for a fashion brand with 1,000 stores, eliminating excess inventory could potentially free up enough resources to stock over 250 additional stores using the same working capital. Brands can add about 25 per cent additional stores with the same working capital and improve their top and bottom lines.

Thus, with more effective inventory management, brands can unlock substantial expansion opportunities.

Building flexible supply chains to meet demand

But how can a brand avoid this excess inventory pile-up?

The common approach to inventory management is to improve forecasting by adopting AI (artificial intelligence) and ML (machine learning) in the prediction process. However, in a connected world where trends and fashions are changing faster than ever, brands have still been caught wrong-footed despite incorporating these technologies. One notable example is the ‘wedge’ sneaker — sneakers with built-in high heels — trend, predicted to be a massive hit in the early 2010s, which flopped, leaving brands with unsold inventory⁴. A more recent example (2020) of a fashion prediction that did not materialise and resulted in excess inventory with many brands is the ‘micro handbag’ trend⁵.

A more effective solution is to develop smarter, more agile supply chain strategies that allow brands to launch closer to the season by cutting lead times. To address this, we need to challenge the assumptions driving long lead times from development to store deployment and explore ways to drastically reduce them. Achieving significant reductions will require taking calculated risks in stocking raw materials. This, in turn, demands that retailers segment their product portfolio by shelf life, enabling informed decisions on where to take bets based on the associated risks. Typically, in a fashion store, there are three categories of garments:

1. Perennial items

2. Short product lifecycle items

3. Very short product lifecycle or true fashion items.

For each category, companies must adopt a tailored approach to supply chain management to reduce lead times.

1. Longer product lifecycle items (Core & Perennials):

These are the products with a long lifecycle, like classic white shirts, which remain in demand across seasons. To optimise the supply chain for these, the focus should shift from pushing inventory to stores to a demand-driven replenishment system. Key strategies include reducing lead times to react faster to demand, eliminating reliance on forecasts, and centralising stock at aggregated locations. Frequent replenishment and stock buffer management ensure stores are supplied based on actual sales, preventing overstock and stockouts.

This will involve establishing collaborative long-term partnerships with garment and fabric vendors and reserving their production capacity. This approach improves product availability, boosts inventory turnover, and enhances sales, by keeping the right amount of stock readily available where needed, reducing the risk of size breakages and eliminating the need for end-of-season markdowns.

2. Short product lifecycle items:

For shorter product lifecycle items which tend to be made with popular fabrics such as satin, poplin, oxford etc, but need to be served in fresh styles, optimising the supply chain requires aggregated assortment group planning based on consumer preferences, allowing for efficient fabric and design platforming⁶. By using ready stocks of undyed greige or dyed fabric, brands can quickly produce new designs taken from the design bank and replace the sold-out style with the new style at the stores. The lead time to make a new style is now cut down only to conversion time and can be decided based on the existing style stock and sales rate at the stores.

3. Very short product lifecycle items:

The fashion development-to-deployment cycle operates in a multi-project environment, with numerous stakeholders collaborating on each project like participants in a relay race. The key to success in such a system lies in preventing capacity loss within teams. This often happens when tasks are initiated without complete information, such as starting sample development without finalised pricing. Another issue arises when teams shift between projects based on urgent matters, extending each style’s overall completion time. Additionally, teams may prioritise easier tasks over those that need to be completed more urgently, leading to a misalignment between local and global priorities.

Since 40 per cent to 50 per cent of items in a typical store’s portfolio are core and short product lifecycle items, the new approach of differentiating between core styles and very short supply chains will help reduce some of this burden. However, even with these distinctions, there are still enough styles in production that makes the team often shift between tasks. This leads to inefficient multitasking, longer completion times, and a misalignment of priorities.

To ensure everyone is aligned to a single priority, it is essential to implement a flow system that provides visibility into final due dates, ensuring that teams work on the tasks that need immediate attention. To prevent bad multitasking and maintain focus on priorities, the flow system must be designed with strict work-in-process controls across teams, and it must ensure that every task has complete information, material etc, as required before it is started.

Yet, even with these measures in place, forecasting errors can still occur. Therefore, in-season activities are necessary to course-correct. A proactive merchandise management system, driven by data collation and analysis, can trigger retail planning actions, inter-store transfers (IST), display assortment fulfilment, and decisions regarding pulling back or discounting styles to maintain the flow of styles into the stores and profitability.

The impact of this approach includes improved sell-through and higher gross margins due to fewer markdowns.

Conclusion: Staying ahead in a fast-changing market

India’s fast fashion retail industry is poised for continued growth. Staying ahead requires a mix of business process transformation to align with customer needs and the integration of BI systems for inventory and merchandise management rather than relying solely on trend-spotting tools. Brands like Zara⁷ and Zudio⁸ have successfully woven many of these intelligent approaches into their operations, yielding clear results: healthier profit margins, improved PBT, and a streamlined path to market dominance. This is where the industry must head—towards smarter, holistic supply chain solutions.