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Fast Fashion: Quantifying the Benefits

Part of the International Handbooks on Information Systems book series (INFOSYS)

Abstract

For short-life-cycle or fashion industries, the concept of supply flexibility, also known as postponement or “fast fashion,” has high potential for significant increases in both profits and market capitalization for brands and retailers. First, we present a model to analyze the benefits of supply flexibility (in particular, reduced stockouts and markdowns) on operational financial metrics: revenue, cost, and profit. Assuming conservative improvements of 5% of revenue in both reduced markdowns and reduced stockouts from implementing supply flexibility, the resulting estimates of profit percent increases range from 22 to 28%. Next, the price/earnings ratio for 53 firms in fast-fashion or short-product-life-cycle businesses is used to estimate the corresponding increase in market capitalization. The results are percentage increases in market cap ranging from 30 to 37%; these increase even further to 35–43% if one anticipates a 15% reduction in inventory levels due to improved supply flexibility.

Keywords

  • Financial performance
  • Markdowns
  • Market capitalization
  • Price-earnings ratio
  • Stockouts

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Acknowledgements

Portions of this paper were presented at the INFORMS National Meeting in Denver, CO, in October 2004. We are indebted to the Infosys Offshore Research Center for their valuable aid in data analysis. We also thank Steve Smith and Narendra Agrawal of Santa Clara University, Thomas Weber of Stanford University, and several anonymous reviewers for valuable suggestions on an earlier draft.

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Correspondence to Warren H. Hausman .

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Hausman, W.H., Thorbeck, J.S. (2010). Fast Fashion: Quantifying the Benefits. In: Cheng, T., Choi, TM. (eds) Innovative Quick Response Programs in Logistics and Supply Chain Management. International Handbooks on Information Systems. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-04313-0_16

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