December 11, 2020The fashion industry’s economic profit rose year-on-year by 4 percent in 2019. The crisis is affecting daily lives, instilling anxiety and uncertainty in the minds of almost everyone. It’s against this backdrop that McKinsey has teamed with the Business of Fashion to shine a light on the fragmented, complex ecosystem that underpins this giant global industry. But regardless of touchpoint, consumers expect a consistent brand experience across channels. Equally, consumers and advocates are calling for the industry to become more inclusive. Customers’ attention is also tuned to new channels. For fashion players, 2019 will be a year of awakening. Indeed, many fashion companies have taken time during the crisis to reshape their business models, streamline their operations, and sharpen their customer propositions. Over that period, the industry has grown at 5.5 percent annually, according to the McKinsey Global Fashion Index, to now be worth an estimated $2.4 trillion. Some 40 percent of executives we interviewed expect conditions for the fashion industry to improve in 2017, compared with the 19 percent who reported improving conditions in 2016 (exhibit). Although the duration and ultimate severity of the pandemic remains unknown, it is apparent that the fashion industry is just at the beginning of its struggle. However, amid increasing pressure on performance, shifting consumer behaviors, and accelerating demand for digital, there is an imperative to act decisively to prepare for the next normal. The industry is now on red alert. McKinsey analysis, based on data from Amazon and Stackline. In response, leading fashion players are offering innovative business models, using granular customer insights as a source of differentiation, and pushing the limits of go-to-market times. Download The State of Fashion 2018, the full report on which this article is based (PDF–3 MB). We predict a 5 to 10 percent sales growth in China in 2021 compared with 2019. CONTRIBUTORS. 12 What will define the industry in the coming year? 11. A recent online study of 1,000 U.S. PayPal e-commerce retailers, commissioned by PayPal and conducted by Netfluential, examined how COVID-19 has caused fashion … “This is the lost season — we likely won’t have the typical big ‘back to school’ retail season — so adjustments will need to be made,” Thompson says. By Imran Amed, Anita Balchandani, Achim Berg, Saskia Hedrich, Jakob Ekeløf Jensen, and Felix Rölkens. After a year in which the fashion industry posted record-low economic profits, business leaders are on the front foot, seeking to innovate while continuing to engage their core constituencies. Sales growth seems set to slow to a mere 2 or, at most, 3 percent by the close of 2016, with stagnating profit margins. COVID-19 could spur the biggest economic contraction since World War II, hitting every sector from finance to hospitality. Select topics and stay current with our latest insights, The State of Fashion 2021: In search of promise in perilous times. Anita Balchandani is a partner in McKinsey’s London office, where Shrina Poojara is a consultant; Achim Berg is a senior partner in the Frankfurt office; Saskia Hedrich is a senior expert in the Munich office; and Felix Rölkens is an associate partner in the Berlin office. Long-term leaders include, among others, Inditex, LVMH, and Nike, which have more than doubled their economic profit over the past ten years (Exhibit 2). Consumers are increasingly waking up to this reality and demanding change. The MGFI forecasts that growth will slow to 3 to 4 percent in 2020, slightly below the predicted rate for 2019. The coronavirus also presents the fashion industry with a chance to reset and reshape the industry’s value chain completely—and an opportunity to reassess the values by which it measures actions. Please click "Accept" to help us improve its usefulness with additional cookies. Nonetheless, this is still expected to be the fastest-growing category, with continued strong demand in many markets. Sales of the traditional fast-fashion sector have grown by more than 20 percent over the last three years, and new online fast-fashion players are gaining ground. Still, there are silver linings among the clouds. We estimate that revenues for the global fashion industry (apparel and footwear sectors) will contract by –27 to –30 percent in 2020 year-on-year, although the industry could regain positive growth of 2 to 4 percent in 2021 (compared with the 2019 baseline figure). entails joblessness or financial hardship for people across the value chain. In 2021, McKinsey estimates that online will account for 37 percent of fashion and luxury retail sales, both in the U.K. and in China. In that scenario, we would see markets such as China recovering strongly. Frontrunners are building agile supply chains supported by higher-quality consumer insights—with the frontier being close to a real-time supply chain fed by “test and learn” and data analytics. The industry was already on high alert, and executives expressed pessimism across all geographies and price points in our annual report, The State of Fashion 2020, released late last year. Our global team of experts includes former product, merchandising, sales, and supply-chain managers from renowned apparel, fashion, and luxury companies. I am curious to know how representative it is of the industry as … Some are household names, while others are less visible but still pack a punch. This will also be a time for collaboration within the industry—even among competing organizations. But we are now detecting glimmers of hope: executives report optimism (even amid uncertainty), and the McKinsey Global Fashion Index forecasts industry sales growth to nearly triple between 2016 and 2018, from 1.5 percent to between 3.5 and 4.5 percent. The industry continues to polarize: consumers are trading away from the midmarket price points even while the luxury, value, and discount segments are picking up speed. Navigating this uncertainty will not be easy for fashion leaders. Unleash their potential. Widespread store closures for an industry reliant on offline channels, coupled with consumer instinct to prioritize necessary over discretionary goods, hit brands’ bottom lines and depleted cash reserves. 3 The textile sector still represents 6 percent of global greenhouse-gas emissions and 10 to 20 percent of pesticide use. Even online sales have declined 15 to 25 percent in China, 5 to 20 percent across Europe, and 30 to 40 percent in the United States. But fast-forward a few months, and fashion’s outlook has gotten dramatically and suddenly bleaker. collaboration with select social media and trusted analytics partners McKinsey Quarterly This year, we are seeing real signs of change. This is consistent with their compound annual growth rate (CAGR) over the past three years, which has been 9 percent for affordable luxury and 6 percent for value, the highest of any segment since 2013. Something went wrong. 6 We expect a period of recovery to be characterized by a continued lull in spending and a decrease in demand across channels. could accelerate some of these consumer shifts, such as a growing antipathy toward waste-producing business models and heightened expectations for purpose-driven, sustainable action. COVID-19 lockdowns also have led to an uptick in first-time e-commerce shoppers—14% of consumers in the US and 17% in China bought fashion online for the first time because of the pandemic. For those leaning forward and willing to help design the new features of the modern fashion system, the opportunities at hand to truly connect with fashion consumers across the globe have never been greater. By geography, the most optimistic about the coming year are executives in North America. Please click "Accept" to help us … Looking forward, our base case is cautiously optimistic, with the virus more effectively controlled over the coming year, thanks to a strong public-health response. At the same time, government interventions will partially offset economic impacts, and global travel will pick up, alongside the possibility of larger social gatherings. But consumers are still buying beauty products and the industry is adapting to the COVID-19 era. The report, the fifth in our annual series, drills down into the major themes affecting the fashion economy and assesses a range of possible responses. Most transformations fail. 4 Th tat ashio 2020 oronaviru pdate. Against this background, fashion-industry fortunes are highly polarized. The beauty segment, covered for the first time this year in our The State of Fashion 2021 report, has remained relatively insulated from the pandemic, offering consumers a comforting pick-me-up in challenging times. To keep up, leading fashion players are accelerating their speed from design to shelf. 7. We'll email you when new articles are published on this topic. May 2020. Players need to be decisive and start putting recovery strategies into motion to emerge with renewed energy. Another is that India is on the rise—its growing middle class, powerful manufacturing sector, and increasingly savvy tech have made it an essential destination for fashion companies. Digital upends old models. People create and sustain change. In a Post-COVID 2021, Fashion Will Trend Toward Sustainability U.S. Cotton Trust Protocol Published 2 weeks ago. 8. We have already seen Burberry and Nike, as well as digitally native ARIAS New York, invest in hybrid spaces and deploy technologies such as apps and body scans to create more compelling experiences. Not surprisingly, this regional divide is reflected in fashion executives’ sentiments, as respondents to the BoF–McKinsey Global Fashion Survey from emerging countries are more optimistic about the industry’s outlook in 2018 than their European or North American counterparts. To address consumer behavior, players will have to learn to serve shrewder and more-demanding customers and adjust to a shifting demographic profile. McKinsey analysis, 2019. Asha’s education is listed on their profile. With the pandemic adding to the segment’s woes, many brands have embarked on strategic reviews or have compressed multiyear transformations into just a few months. There is little doubt that 2021 will continue to be tough for many as the COVID-19 pandemic tracks an uncertain trajectory. our use of cookies, and By the time the Northern Hemisphere went on its August vacation, the super winners had recovered on aggregate to just 5 percent below precrisis levels. Mainstream customers are moving into a decisive phase of digital adoption, and online sales of apparel and footwear are projected to grow rapidly. tab, Engineering, Construction & Building Materials, Travel, Logistics & Transport Infrastructure, McKinsey Institute for Black Economic Mobility. Many of them have already undertaken significant cost cutting and restructuring, and they are now primed to capture the benefits. The year ahead will be an awakening after the reckoning of 2018—a time for fashion companies to look at opportunities and not just at surmounting challenges. In fact, 2017 signals the end of an era, as the West will no longer be the global stronghold for fashion sales—more than half of apparel and footwear sales will originate outside of Europe and North America. Now, the resulting “quarantine of consumption” Select topics and stay current with our latest insights. The prevailing mood of fashion leaders is one of anxiety and concern. The challenges of a fundamentally changing industry and a continued unpredictable macroeconomic environment has led fashion players to toughen up. The authors wish to thank McKinsey’s Tiffany Wendler, as well as the Business of Fashion’s Robb Young, for their contributions to this article. The fashion industry has been among those sectors more severely hit by the crisis, which is expected to gradually unfold in three waves. This fact is clearly borne out in the industry’s financial performance. The Super Winners include three new entrants—Anta Sports, Heilan Home (HLA Corporation), and Lululemon—reflecting the strength of sportswear and the growing influence of Chinese players. Consumers in Southeast Asia spend about eight hours a day online on average. This has a profound impact as purchase decisions are influenced by social media, peer reviews, influencer marketing, and traditional marketing, and even many purchases themselves are made consumer-to-consumer. Please use UP and DOWN arrow keys to review autocomplete results. Once the dust settles on the immediate crisis, fashion will face a recessionary market and an industry landscape still undergoing dramatic transformation. But, in the year 2020 we were made to welcome a new saint. External shocks to the system continue to lurk, and growth cannot be taken for granted. These are some of the findings from our latest The State of Fashion report, written in partnership with the Business of Fashion (BoF) to explore the industry’s fragmented, complex ecosystem. This should lead to a move beyond 2019’s focus on transparency toward real commitment. Perhaps unsurprisingly, 67 percent of executives said conditions for the fashion industry have worsened over the past 12 months. McKinsey & Company and Business of Fashion wrote in a coronavirus update to the State of Fashion 2020 report said, Fashion executives and business leaders are currently focusing on crisis management and contingency planning, but eventually we must shift towards re … Not only are leading companies highly value-creating, they are also at the cutting edge of innovation. However, amid increasing pressure on performance, shifting consumer behaviors, and accelerating … If you would like information about this content we will be happy to work with you. The bottom line? Reinvent your business. McKinsey analysis, based on data from S&P Capital IQ. To thrive in this environment, companies must think strategically, sharpen their decision making, and keep their fingers on the pulse of customer demand. Its petroleum practice helps improve performance in retail marketing, commercial sales and refining areas. If you would like information about this content we will be happy to work with you. This is an edited excerpt from the first joint report from McKinsey and the Business of Fashion, The State of Fashion (PDF–8MB). Instead, we referenced our 2018 list to gauge the fortunes of the elite group. That means focusing on an omnichannel perspective, of course, but also emphasizing the importance of sustainability through the value chain. In the light of all this change, the performance gap between frontrunners and laggards continues to widen: from 2005 to 2015, the top 20 percent of fashion companies contributed 100 percent of the industry’s entire economic profit; in 2016, the top 20 percent’s contribution had increased to 144 percent. On the consumer side, we foresee the end of ownership, as concerns about sustainability grow and consumers and companies alike worry about how to alleviate their impact on the environment. Things are looking up, but the rebound may be uneven, says this year’s The State of Fashion report. Reinvent your business. Only those brands that accurately reflect the Zeitgeist or have the courage to “self-disrupt” will emerge as winners. By segment, the most positive are executives from luxury brands, reflecting their strong growth trajectory in 2018. Consumers (and increasingly, investors) will reward companies that treat their workers and the environment with respect, and the deeper relationships that emerge will bring benefits in agility and accountability. Learn more about cookies, Opens in new With the COVID-19 pandemic dominating thoughts and minds, fashion executives are planning for a range of scenarios and hoping for a speedy global recovery. The survey assesses consumer attitudes towards sustainability and apparel during COVID-19 crisis. Product categories are expected to grow in line with the overall industry average, but the biggest winners will be those companies with coherent channel strategies and clear value definitions. McKinsey Global Institute Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. To read the report, see “The State of Fashion 2021: In search of promise in perilous times,” December 1, 2020. McKinsey analysis. Stock-market valuations of tech players have reached dizzying levels, reminiscent of the dot-com boom of the early 2000s, while a number of private companies have reached unicorn status. As a global pandemic, COVID-19 poses mind-boggling health and humanitarian challenges, and the economic impact on lives and livelihoods of the efforts to contain the virus is the strongest in a century. However, there may also be new opportunities from growing south–south trade and the renegotiation of trade agreements. Laggards face increased fashion risk and excess inventory if they fail to match customer demand. In luxury, Kering made an impressive rise through the ranks, driven by Gucci’s double-digit sales growth and strong performance in Asia–Pacific markets such as Japan. Please click "Accept" to help us improve its usefulness with additional cookies. Many consumers today expect perfect functionality and immediate support at all times, coupled with rapid delivery times as players constantly compete to expedite products. Polarization continues to be a stark reality in fashion: fully 97 percent of economic profits for the whole industry are earned by just 20 companies, most of them in the luxury segment. Humanitarian repercussions are expected to outlast the pandemic itself. Created in partnership with McKinsey & Company, the report anticipates that, due to the pandemic, companies will post a 90 percent drop in profit by the end of 2020 (in 2019, profits rose … Among the well-known brands, Chanel is a significant player, with revenues of more than $10 billion, while Rolex is one of the few large independent and private luxury watch brands remaining. As with everything in this fast-moving sector, we’ll just have to wait and see. 5 We also highlight the ten trends that will define the fashion agenda in 2019 (interactive). Successful companies will invest more to nurture local clientele: 2017 will be the year of organic growth by deepening relationships with existing clients, rather than through geographic, channel, and store-network expansion. The State of Fashion report is widely quoted in fashion media, research and education. For some, the abyss beckons. Our calculations, based on the changes in market capitalizations over time in our index on global fashion, suggest that the industry’s economic profit will fall by 93 percent in 2020 after rising 4 percent in 2019 (Exhibit 1). GLOBAL ECONOMY CONSUMER SHIFTS FASHION SYSTEM. Download The State of Fashion 2019, the full report on which this article is based (PDF–3 MB). 1 Digital disruptors will face more cautious investors in the year ahead. As athletic wear continues to grow, it will become a category with the ability to compete on equal terms with clothing and footwear, particularly in the midmarket and premium segments. The survey was conducted by McKinsey between 14-22 April 2020, across 1016 German consumers, aged over 18, who have bought apparel / footwear in the last 6 … The coming year will be tough, as the digital shakeout gathers pace, customers demand more on sustainability, and slower growth puts pressure on margins. In short, the industry next year has an opportunity to stabilize and reset, and success stories will probably be written by those already planning for the year ahead. Below, panelists share their views on how the fashion industry will likely evolve in light of … We see 2020 as being a watershed for “Inclusive Culture,” with diverse races, genders, and sexual orientations increasingly present across organizations and in leadership roles. At the forefront for many is the future role of brick-and-mortar stores. 9. (For more, see our infographic on the ten trends that will define the fashion agenda in 2018.) Learn about This is particularly true for the major players within each of the market segments and product categories. margin was 10.8 percent, a tick up on 2017 and the highest since 2014. Subscribed to {PRACTICE_NAME} email alerts. Many have had a strong Asia–Pacific focus, reflecting the economic strength of the region and the relatively lower impact of the pandemic there, and many have offered a compelling digital proposition. 3. By Imran Amed, Anita Balchandani, Achim Berg, Saskia Hedrich, Shrina Poojara, and Felix Rölkens. With nowhere to go and unemployment on the rise, consumers have lost interest in buying clothes and shoes. As we move toward recovery, companies in the beauty segment have a chance to align with shifting category and regional opportunities. This is in stark contrast to the fashion industry’s performance over the previous decade, which saw the industry expand at 5.5 percent annually. Business of Fashion has released its annual report on the state of the fashion industry, revealing a sharp decline in profit over 2020 as well as predicting the future of the sector. The authors wish to thank Sarah Andre, Althea Peng, Sonja Penttilä, and Robb Young for their contributions to this article. Physical retail has been under historic levels of pressure. Finally, 2017 will also be a critical year for the fashion business system, with developments expected around the fashion cycle, technological advancements, and a shake-up in the ownership of fashion companies, as players restructure and industry outsiders step up their activities in the fashion sector. The latest reading of the McKinsey Global Fashion Index (MGFI), meanwhile, reveals new insights into fashion-company performance by category, segment, and region. This fourth in our annual series analyzes major themes around the fashion economy and breaks new ground to explain the dynamics driving the industry. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. Our discussions with industry executives suggest that the key drivers will include shifting consumer behaviors (in relation to digital channels, social-justice concerns, and a reluctance to travel), opportunistic investment, and the need to build more efficient, simple, and demand-focused operating models (Exhibit 3). Where there is positive momentum, the primary driver will continue to be digital channels, reflecting the trend established before the COVID-19 crisis and the reluctance of people in many countries to gather in crowded environments. However, given the scale of investment required, it means nervous times for small and midsize players. Across industries, companies should act now to protect their employees and customers—and prepare now for the world beyond coronavirus. In 2020, Nike announced the acceleration of its digital strategy and investment in its highest potential areas, which it said would lead to job cuts in stores. Press enter to select and open the results on a new page. Sustainability, which breaks into our respondents’ list of the most important challenges for the first time, is evolving from a tick-box exercise into a transformational feature. They should bear in mind the three trends that we believe will shape the 2017 fashion industry: the global economy, consumer behavior, and the fashion business model. Companies have also been looking inward, implementing changes to the core operations that are reshaping the entire fashion system, from shortening the length of the fashion cycle to integrating sustainable innovation into the core product-design and manufacturing processes. Given the disruptions of recent months, many companies are reconnecting with their supply chains, making tough decisions—for example, about ROI at store level—and ramping up omnichannel services. Never miss an insight. These developments take place at the same time as the fashion industry goes through other transformative shifts. Das sind Erkenntnisse aus dem Coronavirus-Update zum „State of Fashion 2020“-Report. McKinsey Quarterly Yet 2016 was one of the industry’s toughest years. At the vanguard, we are seeing a new breed of direct-to-customer companies. Pact to achieve net-zero emissions by 2050 in a State of fashion economic success stories making... Also be new opportunities from growing south–south trade and the industry into is! Everything in this fast-moving sector, we expect a period of recovery to be for! Breed of direct-to-customer companies levels of activity are unlikely to return before the third readout of our ten trends watch... 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