INDUSTRY INSIGHTS: Can Fashion Decouple Profit from Volume? A Definitive Debate hosted by Simon Platts at Source Fashion, London
The Growth Trap: Why Bigger Doesn't Always Mean Better:
“The Fashion industry's obsession with volume has created a dangerous pattern. Companies chase growth through increased production, lower prices, and expanded market presence—often at the expense of profitability”.
Source Fashion, London - Simon Platts, founder of SP&KO Consultancy and former Director of Responsible Sourcing at ASOS
The fashion industry stands at a crossroads. While sustainable practices and circular economy principles gain momentum, the fundamental question remains:
Can fashion businesses truly make money without making more stuff? This debate, which captivated audiences at Source Fashion's recent event at Olympia London, reveals both the challenges and opportunities facing industry leaders today.
The Growth Trap: Why Bigger Doesn't Always Mean Better:
The industry's obsession with volume has created a dangerous pattern. Companies chase growth through increased production, lower prices, and expanded market presence—often at the expense of profitability. Simon Platts, founder of SP&KO Consultancy and former Director of Responsible Sourcing at ASOS, highlighted this paradox during the debate: "When I started with ASOS in 2013, the turnover was just under a billion and it was very profitable. Now it turns over two and a half billion and makes annual losses exceeding half a billion."
This scenario isn't unique to ASOS. Many fashion companies have fallen into what industry experts call the "growth trap"—pursuing volume at any cost while profitability suffers. The consequences are clear: overproduction, unsustainable pricing pressure, excessive marketing costs, and shortened product lifecycles.
Learning from Contrasting Models:
The debate revealed stark differences between growth-focused and purpose-driven business models. Consider the contrast between Shein and Patagonia:
Shein operates on ultra-fast fashion principles with global reach and low prices. While achieving massive scale, questions remain about long-term profitability and sustainability. The company faces increasing regulatory pressure, including a recent €40 million fine in France for misleading customer information.
Patagonia, conversely, has built a model where growth isn't the primary objective. Instead, the company focuses on quality, durability, and environmental responsibility. Their higher price points support stronger margins, while their circular approach—including repair services and take-back programmes—creates multiple revenue streams beyond initial sales.
The Power of Strategic Sourcing
Scott Macrae, a seasoned buying and sourcing director, shared practical insights on achieving profitability through smarter operations rather than volume increases. His experience moving production from Cambodia to India illustrates this principle: "We invested in product quality because customers are savvy now. They expect more if they're paying more. We achieved better exit margins through improved full-price sell-through and reduced markdowns."
This approach challenges traditional retail KPIs focused solely on intake margins. Instead, it emphasises net margin output—a metric that considers the entire product lifecycle from sourcing to final sale.
Technology as an Enabler
The debate highlighted technology's crucial role in enabling profitable growth without volume increases. Chloe from Ameba, a supply chain transparency platform, explained how better visibility prevents overproduction: "Companies build huge buffers because they can't track whether they're on time or facing delays. Something like 30% of products end up being discarded or burned before reaching consumers."
Similarly, Joe from CircKit presented their circular toolkit that aligns profitability with positive impact, making sustainable practices commercially viable rather than costly add-ons.
The H&M Experiment:
One of the most compelling examples discussed was H&M's recent store format changes on Regent Street. The retailer has dramatically reduced product density, creating more spacious environments while improving product quality through partnerships with suppliers from their premium Arket brand.
This experiment represents a significant shift for a company built on volume. Early results suggest customers respond positively to better-quality products in less cluttered environments, potentially proving that "less can be more" in retail.
The Financial Reality Check:
The debate revealed a fundamental issue: many CFOs and senior executives don't fully understand the relationship between volume and profitability. As one participant noted, "CFOs need to understand that profit and volume are two completely different things and they're not dependent on each other."
The LK Bennett case study proves this point dramatically. In 2023, the company sold 40% less but increased profitability by 60% through strategic focus on rental, resale, repair, and recycling channels.
Overcoming Investment Pressures:
A critical challenge emerged around external funding and investor expectations. Many growing brands face pressure from private equity and venture capital firms focused on rapid returns. However, successful companies are learning to tell different stories to investors—emphasising long-term value creation over short-term volume growth.
The key lies in reframing conversations around commercial sustainability, business resilience, and total value chain profitability rather than purely environmental benefits.
Human Nature and Market Forces
The debate acknowledged that decoupling profit from volume requires addressing fundamental human behaviours. Consumers' desire for deals, status, and novelty creates natural demand for more products. The challenge lies in redirecting these impulses toward more sustainable consumption patterns without eliminating the satisfaction customers seek.
The Path Forward: Five Strategic Imperatives
Based on the debate's insights, fashion companies can pursue profitable growth while reducing volume through:
Redefining Value Chains: Moving beyond supply chain terminology to recognise every stakeholder's contribution to long-term value creation.
Quality Over Quantity: Investing in products that command premium prices while delivering superior customer satisfaction and reduced returns.
Circular Revenue Models: Developing multiple income streams through rental, resale, repair, and recycling services that extend product lifecycles.
Technology Integration: Implementing systems that provide real-time visibility into demand, production, and inventory to eliminate waste-generating buffers.
Leadership Alignment: Linking executive compensation to sustainability metrics alongside traditional financial performance indicators.
