Consumer backlash could dent fast fashion companies' profits

As sustainability rises to the top of consumer concerns, ethical fashion choices could see businesses like Zara, H&M and Primark facing steep revenue declines.

A forecast by Swiss bank UBS says the high volume and cheap approach may fall out of sync with customers who are increasingly more environmentally aware and see the negative impact of the industry. In a report released on Monday UBS said fast fashion retailers could see profits fall 10 to 30 percent over the next five to ten years.

“The compounding effect of consumers buying fewer items but also shifting the purchases they do continue to make to items that they perceive to be more sustainable could be severe,” UBS Analyst Victoria Kalb and team said.

“Whether the garment is conventionally produced with a significant environmental footprint, the cotton used in a t-shirt is organic, the polyester in a fleece is recycled, or the garment or shoe is vegan (which, incidentally, often means plastic) becomes largely insignificant when set against the sheer quantity of items produced and discarded,” said UBS.

Companies must adapt to sustainability

Moody’s, a global investment and rating service, last week said apparel companies will have to adapt to sustainability, invest in decarbonisation and increase sourcing transparency or risk scrutiny. Fast fashion and discount brands will face the greatest challenges.

“Changing behaviour among environmentally conscious and socially aware consumers will put more competitive pressure on global fashion brands to adapt to sustainability measures. Longer term, environmental and social factors will put the apparel industry’s profitability at risk,” says Guillaume Leglise, Assistant Vice President – Analyst, at Moody’s Investors Service.

Small brands already suffering from the pandemic will struggle to adapt, while large international brands and luxury companies such as H&M, NIKE, adidas and Ralph Lauren will fare better. Fast fashion and discount brands are the most at risk of competitive pressure as sustainability becomes more important to consumers.

Scrunity will also fuel call-out and cancel culture, with “public pressure campaigns” as effective in stoking “strong feelings” which in turn results in “a fundamental change of habits.”

“While we do think companies have options in responding to these shifts … we see changes in consumer behaviour as being more powerful than companies’ ability to respond,” UBS warned.

UBS said that’s fashion’s environmental footprint is now front-page news, with an outdated business model built on cheap garments, speed to market and constant newness. Statistics have long revealed the fashion industry generates more carbon emissions than shipping and aviation combined.

While many shoppers still make purchase decisions primarily based on price, there could be a backlash. “In the case of fast fashion, we think it possible that changes in consumer behaviour—along the lines of ‘flight shaming’ or shunning plastic—will eventually crystallise as the negative environmental and social impacts become more widely recognised.”