Fast fashion e-commerce at cusp of breaking out

E-commerce has gone through an interesting journey over the last decade, colonizing categories one by one. While some categories such as electronics lent themselves to disruption early on, resulting in the bankruptcy of incumbent brick and mortar stores such as Radioshack, others such as fast fashion have been famous holdouts. However, because of the confluence of multiple factors, fast fashion is now set to get disrupted by e-commerce and many are scrambling to take a piece of that pie.

In this blog post, I will argue why the time is right for fast fashion e-commerce to break out and in my later posts I will talk about what the winners could look like.

What is fast fashion?

It is important to understand that fashion is not one thing. Fast fashion, which is the 4th tier in the pyramid below, is very different from the bottom 3 tiers. The difference lies not only in the buyer needs but also in the industry setup from marketing to supply chain. As per Wikipedia, “Fast fashion clothing collections are based on the most recent fashion trends presented at Fashion Week in both the spring and the autumn of every year.” In other words, clothing that is readily available on Amazon today and fast fashion are two very different things.

Why has fast fashion been a holdout and why is now the time for the holdout to weaken significantly?

Online shopping wasn’t as much fun a decade ago because a lot of customer needs that were met in the physical world were not met in the online world. That changed. However, the needs for fast fashion shopping are more nuanced and it is only now that those needs can be met online. Below are the conditions that will allow those needs to be met:

1. Social taking the lead: Fast fashion buying is an inherently social experience. You try out different styles in the fitting room and seek opinion of your dear ones on what to buy. At the time Amazon was building its presence online, majority of its traffic was coming from search and customer reviews were not as elaborate. So, the experience was very cut and dry. However, thanks to the rise of social media, now more than 30% of the referral traffic on the internet (Forbes article) comes from social channels. Social is inherently trust based with rich reviews from people you know, and that is something that fast fashion shopping really needs to improve its low conversion rates.
2. Less onerous returns: Online fashion is notorious for returns. Returns sit in the 40–45% range compared to e-commerce average of 4–5% and 8% average for brick and mortar fashion retailers. To reduce the cost impact of such high rate of return, scale and efficient logistics are a prerequisite, both of which e-commerce didn’t have earlier. In addition, returns themselves are set to go down with the advent of virtual trial room technologies using AR (Augmented Reality) and better fit probability estimation by using ML (Machine Learning) on previous purchases.
3. Frictionless payment: All of us know how painful it can be to enter your credit card information separately in each online destination you visit. eBay solved that problem many years back with Paypal and Amazon has done the same. Unfortunately, that hasn’t necessarily helped online fast fashion retail because Amazon and eBay are not the places to buy that stuff. However, this is set to change with Apple’s announcement at WWDC 2016 that will make Apple Pay the backbone of online transactions on many retailer sites, thereby taking payment friction out of the conversion process. Given the higher price point of fast fashion, iphone users would cover a big chunk of the target audience.
4. Personalization step-up: Electronics (say smartphone — a big success for online retail) and fashion differ significantly in the level of fragmentation in both the supplier (brand) base and buyer preferences. Fashion is very fragmented and this is plainly because our body types and tastes have infinite permutations and no one brand can cover them all. This is one of the reasons why the conversion rates in fashion linger around the 1.8% mark compared to the average conversion rates of 3% in e-commerce. However, with advances in ML (Machine Learning), for the first time this problem could likely be solved in a scalable manner. It is yet to be seen if the interface for personalization will be chat bots based or something else but there definitely be much more personalization to suit your tastes.
5. Emergence of mobile: Fashion shopping inherently has a long consideration phase. You need to look through many styles before deciding to make a purchase just to be sure you are getting the best thing thing for yourself. Mobile, on the other hand, is an amazing platform that is set up to capture our attention in moments of downtime as evidenced by the amount of time people spend on Facebook and recently Snapchat. A good part of this downtime on mobile could be captured by fashion catalog browsing so that the consideration phase can kick in. With more frequent touch points via mobile during this consideration phase, the eventual conversion rate will improve and will also become more predictable. This will allow fast fashion retailers to have more confidence of selling season specific fashions in a set time frame, thereby saving themselves from junk inventory, the biggest problem in fast fashion. This wouldn’t have been possible in a desktop only world.
6. More buyers: Buyers are now much more comfortable shopping online than they were a few years ago and this is critical because fast fashion is a highly personal and emotional category and in such categories mental barriers to not doing something can be very strong. A mindset shift to at least give online fast fashion shopping a try can lead to significant expansion of the potential user base. In addition, there are those people who don’t have access to fast fashion options in their neighborhood but have the resources and aspirations to dress better. These people can now access the fast fashion inventory as more of it comes online.

Evolution of fast fashion will be an interesting one to watch. Stay tuned for my next post on what the potential winners could look like.

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