The Economics Of Fast Fashion
We have all grown very used to cheap and ‘fast’ fashion on our high streets. However, many of us are now more aware of the environmental impact of these purchases. In this article, Caroline Elliott and Jon Guest discuss the economics of the fashion industry.
The term ‘fast fashion’ refers to designs and trends that rapidly pass from catwalks and high-quality designers to retailers. The clothes sell for low prices and in high quantities. Traditionally there were two identifiable seasons in the fashion industry — spring/summer and autumn/winter. However, developments in the technology associated with clothing production such as synthetic materials and outsourcing now make it possible for new items to be created and distributed to retailers throughout the year. Some chains such as Zara have up to 24 collections per annum.Fast fashion is very popular in the UK. Annual consumption per capita is significantly higher than in other European countries — 26.7 kg vs 16.7 kg in Germany and 14.5 kg in Italy. On average, people in the UK have 115 items of clothing. Interestingly, 30% of these garments have not been worn for at least 12 months.
Understanding the industry
We can use the concepts of demand, supply and elasticity to start to understand the industry. First, we can consider the supply side. Manufacturers have become very skilled at producing fast-fashion clothes at very low cost, very quickly. They have also developed supply chains that ensure that the clothes reach high street stores such as Primark, H&M, Uniqlo and Forever 21, and online retailers such as Boohoo and Missguided, very rapidly. These supply chains are particularly impressive — while some of the garments are produced in the UK in cities such as Manchester and Leicester, many more are produced in Asian countries such as Bangladesh and China.We can represent the market supply side of the fast-fashion industry diagram-matically. Figure 1 shows that as prices rise, the quantity supplied of garments increases.As the straight-line (linear) market supply curve intersects the vertical axis (i.e. at point c), supply is price elastic. Point c is also a relatively long distance from the origin, so not only is supply price elastic, the level of elasticity is relatively large. In other words, market supply is very responsive to the price. If the retail price of garments rise, suppliers can respond quickly by increasing output without any significant increase in costs.
It is also important to consider the fast-fashion industry from the perspective of consumers. The market demand curve in Figure 1 slopes downwards, meaning that as price falls, the quantity demanded rises. The equilibrium price is in the upper, elastic, section of the demand curve, so consumers are sensitive to changes in price. A rise in price above its current market clearing level leads to a larger proportionate decrease in the quantity demanded of fast-fashion clothing.