Annual revenue exceeds 16 billion yuan, this fast fashion brand does not follow the usual path

Fast fashion brand Boohoo's revenue increased by 14%, but its profit plummeted by 94%

According to foreign media reports, British online fast fashion retailer Boohoo released its financial report for fiscal year 2021. The report stated that as of February 28, 2022 , the company's total sales in the past 12 months were 1.98 billion pounds ( about 16.4 billion yuan ), a year-on-year increase of 14%.

It is understood that Boohoo was founded in 2006 and mainly deals in clothing, shoes, accessories and beauty products. It entered the US market in 2015 and is one of the fastest-growing fast fashion groups in recent years. As of now, it has a total of 13 sub-brands, including BoohooMAN, Karen Millen, Nasty Gal, Pretty Little Thing, Coast, Misspap, Oasis, Warehouse, Burton, Wallis, Dorothy Perkins and Debenhams.

Compared with the growth in revenue, Boohoo 's profit has fallen sharply, with its full-year gross profit margin of 52.5%, a slight decrease from 54.2 % in fiscal 2020. Its adjusted earnings before interest, taxes, depreciation and amortization ( EBITDA ) fell 28% to 125.1 million pounds, and its adjusted EBITDA margin fell from 10.0% to 6.3% year-on-year. The company's pre-tax profit was 7.8 million pounds, far lower than the 124.7 million pounds in the previous fiscal year , a year-on -year decrease of 94% .

In response, Boohoo said that the company's sharp decline in profits last year was largely attributed to the increase in distribution and delivery costs and the increase in return rates caused by the epidemic . In addition, inflation problems in European and American countries have also increased consumers' living costs. Some industry experts said that due to the rising cost of living, people may buy less clothes.

Despite the fall in profits, Boohoo CEO John   Lyttle said: “We have significantly increased our market share in our core territories of the UK and US over the past two years, with the number of active customers growing by 43% to 20 million.”

Its financial report also confirms this statement. Affected by the epidemic, Boohoo's international business revenue fell 3% year-on-year. However, the company's core market business is still growing rapidly. Among them, the revenue of the UK business increased by 27% year-on-year, and the revenue of the US market increased by 71% in the past two years.

The company said it expected issues related to the pandemic " to continue in the year ahead". As a result, for the coming year, Boohoo expects revenue growth to be no more than 10% and an adjusted EBITDA margin of between 4% and 7%.

To address these issues, Lyttle said: "In the coming year, we will focus on optimizing our operations through strategic initiatives such as increasing supply chain flexibility, expanding our delivery network, improving efficiency , and building out our distribution centers in the United States. This will ensure that the company is well positioned to achieve a strong rebound in business after the adverse effects related to the epidemic are alleviated . "

Although its performance in the last fiscal year was not good, Boohoo is indeed a fast fashion brand that has developed rapidly in recent years. Its operation mode is also different from that of traditional fast fashion brands.

How to operate non-traditional fast food brands

On the surface, Boohoo is a very typical fast fashion company: its products are cheap and updated quickly.

The editor browsed Boohoo's independent website in the UK and found that compared with common European and American fast fashion brands, its products have a very large price advantage. The average price of the products is about 100 yuan when converted into RMB. For example, the price of a dress is usually around 20 pounds, and there are even discounted models below 10 pounds; the prices of swimwear and jeans are basically between 10 and 20 pounds.

What is surprising is that with such low product prices, Boohoo does not deploy its supply chain in Asia, where costs are lower, like other brands, but instead deploys most of its supply chain in China. According to Bloomberg, 60% of Boohoo's purchases come from the UK, Italy, Turkey and North Africa, ensuring that products can be put on the shelves in a timely manner and reducing its dependence on China.

Its chief executive said getting products out of China, even by air, was slow and costly, often taking weeks.

At the same time, because it uses online sales channels, the transportation links of products are further reduced. Its products usually only take 1-2 weeks from design to shelf, while traditional fast fashion brands such as Zara take at least 3 weeks.

Its website also offers a variety of choices for product sizes. In addition to common sizes, some products are also available in plus sizes, mini sizes, tall sizes and maternity sizes.

In addition to the supply chain layout and shelf life, Boohoo's procurement and sales model is also different from traditional fast fashion brands. It is understood that in most cases, when its products are new, they will only be purchased and put on the shelves on a small scale. Then, through the number of website views and orders, popular styles are selected and large-scale follow-up orders are placed. Thanks to the fast production cycle, it is often able to replenish stocks in a timely manner.

During the epidemic, Boohoo's revenue increased significantly, but with the reopening of offline stores, coupled with the impact of inflation, rising transportation costs and other factors, the company's profits fell sharply. Coincidentally, the latest half-year report of ASOS, another British online fast fashion company, showed a 87% drop in profits.

Although the performance of these two fast fashion companies is not good, Chinese fast fashion e-commerce brands have achieved considerable results overseas in recent years.

There are still opportunities for Chinese fast fashion brands to go overseas

It is understood that in 2020, the global fast fashion market is worth about US$686 billion, and it is expected that by 2025, the fast fashion market will grow to US$163.4 billion, with a compound annual growth rate of 19%. At the same time, the recent financial reports of many leading companies in the industry have also made industry insiders generally optimistic about the fast fashion industry.

It is understood that Zara's parent company Inditex Group's sales in fiscal year 2021 increased by 35.8% year-on-year to 27.71 billion euros, and its net profit increased by 193% to 3.25 billion euros, setting a record high. Gap Group's net sales in fiscal year 2021 increased by 21% year-on-year to 16.7 billion US dollars, turning losses into profits, with a net profit of 256 million US dollars. H&M Group's net sales in Q1 of fiscal year 2022 increased by 18%.

The rapid development of the global fast fashion market has also created a large number of domestic fast fashion brands that are seeking gold overseas. In addition to the well-known SHEIN, brands such as Zaful and Cider have also risen rapidly in recent years.

These brands are mainly divided into two categories. One is represented by SHEIN, which has many and complete product lines. In addition to clothing, it also has a layout in the fields of beauty, home furnishings, etc.; the other is represented by Zaful and Cupshe, which focus on niche fields. The product categories are relatively vertical, and some brands have also become leading players in their own fields.

Although the models are different, after years of practice, fast fashion brands have formed a relatively complete and clear model for going overseas in China:

Product procurement basically comes from domestic sources, mainly to take advantage of the country's complete and low-cost supply chain. Although there are delays in delivery and timeliness, low prices can still attract a large number of consumers. By controlling costs and huge shipments, brands can also achieve profitability. In terms of marketing, these brands mainly rely on social platforms such as Facebook, Instagram and TikTok to divert traffic and enhance their own visibility and influence. Some brands have also established their own communities and have their own private domain traffic. Some brands that focus on niche areas also have clear crowd and scene positioning.

Although fast fashion has also faced public doubts overseas in recent years, the cases of these overseas brands have proved that although the road ahead for fast fashion going overseas is bumpy, there are still opportunities.

Fast Fashion

Boohoo

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