Will Zara Be Able To Keep Clothes Cheap as Labor Costs Rise?

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Zara Flagship in New York, via Business of Fashion and myretailmedia.com

Business of Fashion published an op-ed this morning asking the following question about the economic sustainability of the fast-fashion model: Can $5 t-shirts and $10 jeans really support a business these days? The answer is sort of.

For decades, the basic tenants of the fast-fashion industry have been cheap materials, cheap labor, and dizzyingly fast production schedules. Those principes yielded affordable, trendy products that consumers can't seem to get enough of (the top four fashion companies in the world are all fast-fashion chains: Zara, H&M, Gap, and Uniqlo). But now that labor costs in China are on the rise, BoF is saying that only the strongest buiness models will survive.

BoF thinks Zara is in the best position to survive increased labor costs, due mostly to their domestic production model. "The company makes about half their goods in Spain, in factories the company owns itself. And it keeps those factories about 50 percent unbooked, so they can respond to quick trends," they write.

Additionally, Zara has two seperate sourcing teams: one for core items, and one for fast fashion. "When margins get squeezed, as happened in 2010 when cotton costs spiked, vertically integrated retailers like Zara can rely on sales of higher margin fast fashion items to give them the breathing room they need to cut their losses on core items and avoid passing rising costs onto customers."

Department stores like J.C. Penney and Sears, on the other hand, are in a much worse position. BoF explains:

"These companies don't have factories close to their target markets and they don't have large design teams. They take another retailer's designs, modify them slightly and send them to the same low-cost Asian factories that a firm like Zara uses to make its basic apparel.

In essence, they make the same fast fashion goods, poorly, on a time line that misses the demand peak. It has worked so far because they can offer the apparel at lower cost. But consumers are quickly losing interest."

The logic goes that if these stores are forced to increase prices in response to increased labor wages in China, the combination of more expensive clothes and less exciting design will effectively crush their business model.

Despite its current domination of the market, the fast fashion industry in general has experienced some recent backlash. Pressure over the environmental impact of the industry and alleged consumer irritation over low-quality clothing has resulted in some trend-casters calling for "fast fashion fatigue" in the coming years.

We're curious: What do you think? Would you pay more at Zara or JCPenney? Or would you stop shopping at fast-fashion retailers if prices go up? Speak your mind in the comments.

· Trend Forecasters Calling for 'Fast Fashion Fatigue' [Racked]
· Are Zara's Sizes Too Small for Americans? [Racked]
· Fast-Fashion Face off: Here's How Uniqlo Compares to Zara, Gap, and H&M [Racked]