The McKinsey State of Fashion 2024 Report sheds light on the evolving landscape of fast fashion, where speed, price, and customer experience are the driving forces behind success. In my ongoing analysis of the report, we arrive at McKinsey’s assessment of fast fashion in 2024.

Fast Fashion’s Power Plays: Navigating 2024

Before the rise of Shein and Temu, the fast-fashion industry was dominated by first-generation brands like H&M and Zara, which introduced the concept of affordable, runway-inspired fashion. This was followed by a second generation of digital-first players like Asos and Boohoo. These predecessors set the stage for the current third-generation companies by pioneering trends in fast fashion and digital engagement.

However, the third generation, led by Shein and Temu, has accelerated the pace of fashion production and transformed customer experiences through techniques like gamification and social media communities. They have also pushed the boundaries of fast fashion by implementing agile supply chains and data-driven design, making fashion faster and cheaper than ever before.

These disruptors have upended the competitive landscape by redefining the meaning of “fast” and “affordable” in fashion. With their ultra-low prices and rapid product turnover, they’ve captured the fickle attention of Western consumers, with 40 percent of US consumers and 26 percent of UK consumers shopping the two brands over the past year.

Shein’s Fast Fashion Trajectory

Shein has significantly influenced the industry with its agile and data-driven business model. In 2023, the brand continued to excel by offering fashion faster and more affordably than its predecessors. Shein’s success is underpinned by its manufacturer-to-consumer supply chains and data-driven product design, enabling it to add thousands of items to its app daily. The brand’s strategy of producing in small batches allows it to maintain tight inventory control, thereby reducing waste and increasing efficiency.

Shein has built a deeply engaged and loyal customer base through its multi-layered affiliate marketing and influencer programs, combined with organic social community building. These efforts have led to low customer acquisition costs and high user growth. Shein’s average SKU price significantly undercuts that of first-generation competitors like H&M and Zara, contributing to its appeal among price-conscious consumers. However, Shein’s rapid growth and disruptive model have attracted regulatory scrutiny, particularly concerning sustainability and trade practices.

Temu’s Emerging Market Presence

Temu, a new entrant from PDD Holdings, has quickly made its mark in the fast fashion landscape, challenging established players like Shein. Operating purely as a marketplace, Temu connects manufacturers with excess capacity to consumers, offering unbranded goods at ultra-low prices, often lower than Shein’s.

Despite challenges in quality control and reliability, Temu has managed to gain significant traction, surpassing Amazon as the most-downloaded shopping app in the US and other markets soon after its launch. Temu has invested heavily in marketing, outpacing Shein and even Amazon in the number of Facebook ads in the US.

Its strategy includes extensive customer engagement through gamification and micro-incentives, which has led to high conversion and retention rates. Like Shein, Temu is navigating an evolving regulatory landscape and consumer standards, which may pose challenges to its current business model.

Speed, Price, and Customer Experience

While speed is their hallmark, this third generation of fast-fashion players understands customer loyalty is built on more than just price or delivery speed. They’ve transformed the customer experience through gamification, micro-incentives, and social media communities. Their chosen playbook goes beyond just selling clothes and into creating engaged communities of fashion enthusiasts.

Fast Fashion Operating Model Innovations

Underpinning the success of these disruptors are several innovations in their operating model. Data-driven product design and testing are at the core of their operations, ensuring they quickly respond to trends and consumer demands. They’ve established agile, scalable manufacturer-to-consumer supply chains, enabling rapid scalability with low inventory risk. And they’ve built large and deeply engaged customer bases, thanks to influencer marketing and an app that focus on engagement.

The Challenges and Scrutiny of Fast Fashion

The problem with fast fashion is their environmental impact as the low prices make it easy for consumers to one-and-done each outfit, sending last season’s haul to landfills. Fast fashion companies are increasingly facing scrutiny from consumers and regulators with good reason. Policies addressing overconsumption are on the horizon, while, the way they’ve handle trade laws and customs regulations is also being questioned.

The Imperative to Adapt

To thrive in this changing landscape, these fast fashion disruptors must, well, disrupt their own business model. Shein, for example, is diversifying its strategy by exploring offline retail and expanding its supply chain beyond China. The marketplace model may hold the key to their success, allowing them to expand across categories, price points, and consumer segments.

KEY TAKEAWAYS FOR FAST FASHION

1. Third-Generation Fast Fashion Emerges: A new wave of fast-fashion companies, led by Shein and Temu, is changing the competitive landscape. These disruptors are redefining fast fashion with quicker and more affordable offerings.
2. Consumer Attention: Shein and Temu have captured consumer attention in Western markets, with 40 percent of US consumers and 26 percent of UK consumers shopping at these retailers in the past year.
3. Ultra-Low Prices: Success in the third generation of fast fashion hinges on ultra-low prices. Shein, in particular, stands out with an average SKU price of $14, significantly lower than competitors like H&M and Zara.
4. Speed and Efficiency: Rapid trend turnaround times are a hallmark of these third-generation players. Shein aims for a 10-day turnaround, less than half the industry average.
5. Customer Experience Transformation: Beyond price and speed, these companies are transforming the customer experience through gamification, micro-incentives, and social media communities.
6. Operating Model Innovations: Agile manufacturer-to-consumer supply chains, data-driven product design, and the cultivation of large and loyal customer bases are key operating model innovations.
7. Challenges and Scrutiny: The environmental impact of fast fashion is gaining attention, and regulators in key markets are considering new laws. Trade practices are also being scrutinized.
8. Adaptation Imperative: To thrive in a changing landscape, third-generation fast-fashion companies must adapt. Diversification, offline retail, and exploring new supply chain options are strategies they are pursuing.
9. Marketplace Model: The marketplace model, allowing expansion across categories and price points, may hold the key to success for these disruptors.
10. 2024 Outlook: The industry is set for further disruption in 2024. Third-generation fast-fashion companies are expected to double down on marketplaces, customer engagement, and diversification.