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ing them to do so – the pace of growth achieved after the revolutionary busi- ness model was first launched cannot continue indefinitely without further geographical expansion.
“West European markets becoming quite saturated, with the largest fast fashion retailers ... showing slow growth or even decline. Naturally these companies are looking to expand to emerging econo- mies in Eastern Europe, Asia or Latin America where their presence is smaller and they can expand and show faster growth rates,” Euromonitor Internation- al’s research manager for beauty
and personal care, Mantas Kaluina, told bne IntelliNews.
Consultancy McKinsey calls 2017 the end of an era, after which “the West will no longer be the global stronghold for fash- ion sales”. From now on, it anticipates, more than half of apparel and footwear sales will take place outside Europe and North America, as the spending power of the growing middle classes in emerging markets increases. And there is a lot of room for growth: “The average develop- ing-country resident purchases a fraction of the clothing that his or her developed- world counterpart buys each year. Over- all clothing sales could rise significantly if developing-country consumers choose to buy more clothing as their purchasing power increases,” McKinsey said in
a recent report.
Fast fashion to the frontiers
Over the past 15 years, Western fast fashion retailers have moved eastwards, from the EU members of Central Europe southeastwards into the Balkans, and eastwards into Russia and beyond.
Looking at the number of Inditex and H&M group (including other brands
such as Cos and H&M Home as well as the flagship H&M) stores shows a dra- matic shift over the past decade. The two groups’ 2007 annual reports showed their stores highly concentrated in Western Europe and developed markets like the US, while they had ventured into a hand- ful of East European markets. Aside from that, their presence in emerging econo- mies was minimal. Ten years later, figures from their 2017 annual reports show
almost half of Inditex’s stores (49%) are now in emerging markets – there are doz- ens in Latin America, East Asia and the Middle East – while 30% of H&M’s stores are now in developing economies.
The number of stores opened in vari-
ous East European countries by both Indi- tex group and H&M broadly corresponds to the GDP figures of those countries, indicating both income and population size are important when making invest- ment decisions. This has resulted in large numbers of stores in the most populous countries in the region, namely Poland, Romania and Russia. Inditex has only a small presence in the tiny Balkan markets and has eschewed Central Asia except for oil-rich Kazakhstan. H&M is even more concentrated in the northwestern part
of emerging Europe.
Central Europe has been enjoying a consumption-led boom for the past few years that is only just beginning to tail off. While incomes in Central, Eastern and Southeast Europe still lag those in most West European countries, they are steadily converging. Fast fashion is not
Inditex doesn’t release sales figures, but H&M’s 2017 annual report shows that while overall sales (in SEK terms) fell by 4% y/y in Q4 2017, with some exceptions (notably China) sales in emerging markets increased. Strong sales growth was report- ed in Russia (20%), Poland (14%) the Czech Republic and Serbia (11% each). The increase in the number of stores in the region was only partly responsible,
as other markets such as China, the UK and the US saw a larger number of store openings but a decline in sales.
Italy’s Teddy Group, whose largest chain is Terranova, has been the boldest of the Western players in venturing into the heart of Eurasia, with stores as far afield as Bishkek, Ulanbataar and Vladivostok, as well as in Southeast European frontier markets like Kosovo and Moldova. Com- menting on its expansion in 2017, the group stressed the importance of Eastern Europe and Central Asia. “Among the routes the new openings have been fol- lowing in 2017, there are Northern Africa, the Middle East and Central Asia with countries such as Egypt, Saudi Arabia, Qatar, Kazakhstan, Kyrgyzstan ... Eastern
“The West will no longer be the global stronghold for fashion sales”
new to the region, but rising incomes have encouraged retailers to open ever more stores. Expansion depends on a “country’s stability, population size, its purchasing power and competition among other factors,” says Kaluina.
Europe has also been one of the top areas involved in the expansion of Teddy brands’ network: stores were opened in countries such as Russia, Belarus, Croa- tia, Serbia, Romania, Poland, the Czech Republic and Slovakia.”
Queues at the opening of H&M's first store in Ukraine in August 2018. (Source: H&M)
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