Fast Fashion Economics
When talking of fashion, very often we find ourselves looking at a field that is full of paradoxes. It follows trends rather than the fundamentals of economics we study, is abstract and illogical in nature. Most importantly, what happens to our supposed ‘rational’ behavior when it comes to following fashion? How ‘rationally’ do we think, as a consumer, before buying that pair of jeans which is a trend these days, even when it might not be a necessity?
The fashion industry today isn’t what it started as. Fashion was limited only to the rich who hired private tailors to dress them. Fashion was expensive and authentic, something only the elites could afford to express themselves. People who couldn’t afford this would get the copied dresses from dressmakers. A major shift in the industry was bought post World War II, mainly due to new production techniques and globalization of the market. The Industrial Revolution brought new technologies that made production cheaper and faster. This is how mass production of clothes began. Product licensing was another strategy that became a huge source of profit for firms. Big firms could now take advantage of their brand name and license related products while small new firms gained profits by obtaining royalties for these products. Another innovation brought in by big firms was diversification; providing a variety of lines of products alongside clothing, primarily perfumes, which generated additional income and also served against the uncertainties of the fashion market. All of this has evolved the industry into what it is now. Today, we have a globalized market, with high entry costs, cheap and fast production, sometimes as fast as a span of a few weeks between finalizing a design and its production. These lower costs mean that fashion is no more exclusive to the rich. People across different income categories can now keep up with the new trends and indulge in fashion. But these lower costs also mean lower wages and inhumane conditions for laborers and lower quality of raw material. Fast fashion is often criticised and termed as disposable fashion because it affects the environment and exploits workers from developing countries. It is also argued that smaller firms are more innovative than big firms that rely on diversification and licensing and capitalize off these smaller firms.
Next to production, how do retailers ensure that the consumer hops on the trends and avoids delays in purchases? A strategic consumer would wait for a clearance sale to buy the product which would decrease profits for the firms. In such cases, firms use strategies like enhanced design systems and quick response systems. In a quick response system, firms procure lower inventory and reduce the chance of a clearance sale, thereby lowering consumer incentive to buy it at a sale price. As there is a little chance of a sale, it enables the firm to make profits by charging the full price of the product. In the enhanced design system, the firm manufactures an improved product that offers higher value to the consumers. The higher value added to the product would increase the utility of the consumer regardless of the time of purchase but utility from purchasing early is greater than utility from purchasing it later, enabling the consumers to buy it at full price and the firms enjoying higher profits. Although the firms can employ any of these two strategies, it has been found that both these strategies are complements rather than substitutes; a firm will make a higher profit by employing both these strategies together rather than in isolation.
Now coming back to our original question, how rational is fashion? Anyone getting involved in fashion knows that it is bound to change soon. There is no reason behind these trends that come and go. The existence of the bandwagon effect is what gives fashion its value. The value of a good increases with an increase in the number of buyers who are now “ hopping on the bandwagon”. The more people follow it, the more utility it generates. Large masses following these trends increases the marginal value that the good offers to a consumer. This is why people rush to buy anything that trends. Fashion is for sure irrational, but it is a field where this irrationality is exploited rather than refused (E Esposito 2017). Every new fad that comes into the scene might not be the most beautiful or aesthetic piece ever, but it is for sure something different. There lies the essence of fashion. We tend to be irrational when it comes to fashion because we want to be unique. We replicate the style of a person who does not replicate anyone else’s style. We imitate the refusal of imitation. Our behavior does not follow and cannot be explained by any economic model. To end with Kant’s words, following fashion meant to be mad, but in a world where everyone is mad, it is better to be mad than being sane alone.