Individual Project_黎幸明書_110006401

I. Introduction to the industry

The global fashion retailing industry is rapidly growing as the demand for clothing and
other accessories is rising worldwide. The market value is projected to grow to about
$2.25 trillion by 2025 (Shahbandeh). It is a highly competitive and dynamic sector, easily
influenced by frequent changes in fashion trends, short product life cycles, and intense
competition among retailers. Thus, players in the industry constantly need to evolve and
innovate in response to shifts in consumer preferences and to increasingly adopt new
technologies to drive brand growth.

Among the numerous apparel retailers worldwide, the four brands to be analyzed in this
report are H&M, Zara, SHEIN, and Uniqlo. Although having different target markets,
product offerings, and specific operations, technology is the key component for the
business’s success, each with specific focuses. H&M and Zara are two big competitive
rivalries in the sector, while SHEIN and Uniqlo entered the fray later, however, all of
them still managed to capture a large share in this competitive fast fashion retail market.

The report aims to give a comprehensive business analysis of the fast fashion retailing
industry, focusing on how innovative practices helped fashion brands gain a competitive
advantage, as well as providing a common business model for these four companies.

II. The position for strategic advantage

II.1. H&M - Novelty in product

H&M is a Swedish multinational fashion retailer known for its fast-fashion business
model, which involves rapidly meeting the market demand and bringing in new designs
quickly and efficiently. H&M has introduced several innovations to make its name an
innovator in the industry. The first one is its sustainability initiative in clothing made
from sustainable materials and its recycling program. H&M also has collaborations with
famous designers such as Balmain, Alexandar Wang, and Versace to create
limited-edition collections, generating excitement for customers and increasing sales.

H&M has created an aligned business and operating model that enables it to concentrate
on researching and predicting customer trends with flexibility. This is because it can
track customer trends using its IT system and also it leaves 20% of manufacturing to be
done with shorter lead times (mainly in Europe). The company also manages to access
markets with low prices due to its close relationships with suppliers, to guarantee quality
at a low cost.

II.2. Zara - Reconfiguring the parts of the process and Novelty in service
Zara, a Spanish clothing brand specializing in fast fashion has a mission statement to
“give the customers what they want, and get it to them faster than anyone else”. Zara
achieves this firstly by reconfiguring the different parts of its supply chain. It has its
global distribution center, a just-in-time production chain (JIT), a complicated system for
inventory management - Radio Frequency Identification (RFID), and vertical integration
in its operations to increase efficiency, avoid overproduction, and ensure product quality.
Having these technologies to assist with adapting to the latest trend, Zara can launch a
new design in the store every few weeks, gaining advantages over competitors that hand
out new designs every two to three months.

Its business model is built with flexibility and speed at its core, attracting a cycle for
consumers who desire to buy trendy clothes every week at a modest price. Zara has
succeeded in shrinking the gap between fashion creation and customers.

Figure 1. Zara Supply Chain network

To make its service a novelty, Zara implemented technology comprehensively in its stores.
The company uses RFID tags on clothing to ensure popular items are restocked on time.
This technology also provides customers and store staff to easily locate items when
shopping around. Many Zara stores offer self-checkout kiosks so customers can scan
items they want to purchase and pay for them without the assistance of a sales associate.
All of this contributed to Zara’s reputation as a pioneer in fast fashion, with low cost and
huge differentiation in products.

II.3. SHEIN - Rewriting the rules

SHEIN is a Chinese online fast fashion retailer, which is considered to have disrupted the
fast fashion market by offering a completely new product concept - convenient and cheap
online shopping. The evidence is that although Shein entered the market in 2012, a long
time after H&M and Zara, it was able to gain popularity by leveraging the power of

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social media to reach a younger demographic with affordable trendy designs. In June
2021, SHEIN has already gained the same sales as H&M and Zara combined in the U.S.

This booming success changed the way that customers shop, and also leads us to the
business model’s evolution from SHEIN. With the rise of social media platforms like
Tiktok in the 2020s, SHEIN masters to grasp the digital presence on different channels.

Figure 2. Digital Marketing Channels of SHEIN

SHEIN took its customer-tracking technology to a new level by using artificial

intelligence (AI). With AI, every action of the customers is tracked to determine and
predict new style trends. The designs will then be generated by SHEIN’s designers,
manufactured, and distributed to suppliers through their enterprise resource planning
system (ERP). The real-time system will then report the order volume for manufacturers
based on the item’s popularity, reducing the time of the whole process from three weeks
to three days. Along with big data, SHEIN directs itself toward a tech startup with
powerful internal management software and a mass digital presence with advertising.

II.4. Uniqlo - Novelty in the process

Uniqlo, a Japanese clothing brand, succeeded to become another contender in the global
fast fashion retail market at an astounding pace. Uniqlo’s key brand success factor lies
around its unwavering commitment to innovation and its company essence: putting
customers first, giving back to society, and being self-disruptive. Rather than the cyclical,
trend-driven rhythm of the fast fashion retail industry, UNIQLO takes the exact opposite
approach by focusing on simple clothes, yet universal, bringing in an efficient supply
chain and innovative products that no other competitors can match.

This design-driven clothing brand offers unique functional performance owing to its
integrated operation model of the Specialty store retailer of Private label Apparel (SPA) -
a business model of a professional retailer with an independent clothing brand to design
and manufacture its own products in-house, rather than relying on third-party suppliers.
In addition, the SPA model also allows Uniqlo to minimize the amount of excess stock it
holds by knowing the sales situation of stores in time along with the Point of Sales (POS)

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 terminal, maintaining a lean inventory. Having the whole process from product design
and production to the final sales under its control, Uniqlo can quickly adapt to changing
consumer demands and market trends.

Figure 3. A schematic diagram of the Uniqlo SPA model

Along with its highly robust supply chain, the company proves to be also a technology
company by embracing the technology industry in product development. The brand is
well known for its fabric innovations, with some signature innovates such as HeatTeach
(a fabric that turns moisture into heat and has air-pockets in the fabric to retain that heat);
AIRism (a soft fabric with quick-drying inner fabric), and UV Cut (material designed to
prevent 90% of ultraviolet rats from reaching the wearer) technologies. These new fabrics
are all copyrighted, which prevents competitors from attempting to take this
differentiation.

With its high dedication to innovation and sustainability, Uniqlo also created a
customer-centric business framework by encouraging the integration of physical stores
and e-commerce, and by merging the inventory and sales network. With a new
proprietary e-commerce platform, UNIQLO enables customers worldwide to purchase
their products anytime, anywhere.

III. Common Business Model

Although each company has its focus, they all have a customer-centric strategy as a core
competitive advantage. The R&D is mostly optimized with data analytics to

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III.1. Supplier

All four empires have a degree of vertical integration in their supply chain. They all work
with a mix of in-house and external suppliers to produce their clothing lines. All brands
outsource in developing countries such as China, Bangladesh, Vietnam, and India where
labor cost is low to produce goods on a cyclical basis.

III.2. Target market

As these brands' main products are clothes, their target audiences are fashion-conscious
customers and tech-savvy looking for trendy clothing at an affordable price. While each
company may have a slight difference in its specific target demographic, they all desire to
appeal to a broad audience of price-sensitive shoppers.

III.3. Key activities which create value

Zara, H&M, Uniqlo, and SHEIN center their business model around the ability to rapidly
respond to consumer preferences, and efficiently produce and deliver clothing at scale.
Some of the main activities are product design, production quality control, and
distribution.

III.4. Channels to reach the market

The common channels used by these four famous companies to reach their audiences are
a combination of online and offline channels. Brick-and-mortar stores (H&M, Zara,
Uniqlo) and pop-up shops (SHEIN) are the traditional ways to increase the brand’s
awareness and expand the customer segments. Following the online shopping trend, all
brands offer websites and mobile apps for their customers to shop from anywhere in the
world. Social media platforms along with influencer marketing are also key elements in
reaching potential customers.

III.5. Key resources

For all four retailers to stay on top of the sector, they structure their operational model
with supply chain management, design teams, distribution networks, brand reputation,
and investment in technology.

III.6. Key relationships

To ensure they can produce and distribute their products effectively, these fast fashion
giants hold close relationships with suppliers, manufacturers, and logistics partners. The

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 inevitable ones are customers, which are penetrated through loyalty programs,
personalized marketing, and social media engagement.

II.7. Value Proposition

The core values of all trendsetting retailers are based on offering affordable clothing, a
wide range of products, accessibility through different acquisition channels, and
sustainable practices.

II.8. Cost Structure

Four brands incur costs for raw materials and production costs, supply chain and logistics
costs, marketing, and advertising costs, employee expenses, and rent and real estate costs
(this cost may not be included for SHEIN as it is an only-online retailer).

II.9. Revenue Streams

The revenue stream comes primarily from product sales through physical stores and
e-commerce platforms. The money flow can also be generated from partnerships and
collaborations with other brands or influencers.

IV. Overview picture of the fast-fashion sector

The fast fashion retailing industry is heavily shaped by firms using technology to gain a
competitive advantage. Some of the most innovative parts are:

IV.1. Technology for increasing customer experience

By encouraging the integration of physical stores and e-commerce, brands promote the
use of online features to create unique customer experiences, including smart fitting
rooms, and online payment. For example, H&M increases customer engagement by
creating in-store interactive experiences with virtual reality (VR) fashion shows and
augmented reality (AR) product displays.

IV.2. 3D technology

H&M and Uniqlo take advantage of 3D technology for prototypes of new products, while
H&M specifically focuses on using 3D printing to monitor environmental footprint,
promoting its sustainability, Uniqlo uses 3D body scanning for fabric testing and
identifying customer needs.

IV.3. Inventory management

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 Zara, H&M, and Uniqlo - these three clothing retailers streamline their operations with
RFID technology that enables them to quickly restock popular items and reduce waste.
RFID tags are attached to each item, and they contain information about the product,
such as its size, color, and style. This technology provides exact data on what products
are selling and what products are not.

IV.4. Technology for data analysis

Data analytics is used extensively to gain insights into customer preferences, optimize
product offerings, and track marketing performance, ensuring that the brands can quickly
meet the market demand.

V. Review

In conclusion, the fast-fashion industry has witnessed significant transformation through

the business models of Zara, H&M, SHEIN, and Uniqlo with innovative ideas. Zara’s
agile supply chain, H&M’s sustainable initiatives, SHEIN’s digital marketing strategies,
and Uniqlo’s emphasis on functionality and quality have contributed to their growth in
the global market. These brands all succeeded in expanding their customer base to build
their brand reputation by continuously evolving their values to adapt to dynamic market
trends.

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References

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H&M: How Fast Fashion Translates into Low Prices and Success - Technology and
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How does SHEIN make money? The SHEIN Business Model Analysis. (2022, December
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UNIQLO, Driving Clothing Innovation. (n.d.).

https://www.fastretailing.com/eng/ir/library/pdf/ar2021_en_05_sp.pdf

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https://digitalcommons.unl.edu/cgi/viewcontent.cgi?article=1368&context=honorstheses

Zara’s case study: The strategy of the Fast Fashion Pioneer. (2017, September). ISCTE
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Zara’s Speedy Apparel Supply Chain Visualized - CB Insights Research. (2018, October
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