Dialogue Q2 2017

Page 50

FINANCE

50

The need for speed A powerful productivity measure can transform your business, write Joe Perfetti and Michael Cichello

Speed matters. In the fashion world, the fastfashion revolution has transformed clothing companies like H&M into billion-dollar brands. The days of waiting six months for the latest fashions to hit store shelves from the catwalk are gone, with firms like H&M cutting the time to three weeks. The hottest styles, sold direct to consumers, are priced a quarter to one-third that of high-end retailers. Fast-fashion companies like H&M are winning in the financial marketplace as well. In 2015, H&M generated an operating profit margin of 11%. Contrast that with 9% for a traditional fashion retailer like Ralph Lauren. But where H&M really shines is its cycle time. H&M takes 104 days to achieve an operating profit margin of 11%. In contrast, Ralph Lauren makes a 9%

margin every 169 days. With faster financial cycle time (FCT), H&M turns a profit more than three times a year, while Ralph Lauren does so only about two times per year. Or, every dollar invested in H&M generates about 39 cents of cash profit annually. The same dollar invested in Ralph Lauren nets only 19 cents a year. The impact of this productivity gap is dramatic. For Ralph Lauren, the additional 65 days of cycle time means approximately $1.3 billion of extra capital is tied up every year that its more nimble competitor doesn’t carry. Clearly, knowing your FCT has real shareholder impact. The productivity transformation going on in fashion retail isn’t unique. Plummeting margins

Dialogue Q2 2017

050-053_Dialogue_Q2_2017.indd 50

27/01/2017 10:39


Turn static files into dynamic content formats.

Create a flipbook
Issuu converts static files into: digital portfolios, online yearbooks, online catalogs, digital photo albums and more. Sign up and create your flipbook.