The clothes, the extravagant, the beauty and stars, it has everything you could dream of. Humanitarian repercussions are expected to outlast the pandemic itself. Our industry experts explored the future of fashion, how the COVID-19 pandemic has disrupted mobility and affected demand for in vitro diagnostics, ... McKinsey continues to track economic and epidemiological developments around the world. COVID-19 could spur the biggest economic contraction since World War II, hitting every sector from finance to hospitality. Our first report, last year, laid the foundation for rigorous in-depth research and analysis, focusing on the themes, issues, and opportunities affecting the sector and its performance. Yet 2016 was one of the industry’s toughest years. 4. These developments take place at the same time as the fashion industry goes through other transformative shifts. The crisis is affecting daily lives, instilling anxiety and uncertainty in the minds of almost everyone. 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 … However, their profit margins are expected to decline, especially after 2016, because of a pricing-arbitrage disadvantage across geographies and fluctuating foreign-exchange rates. The modern shopper’s comfort with digital channels and content has created a complex customer journey across online and offline touchpoints. Flip the odds. But, in the year 2020 we were made to welcome a new saint. 12. tab, Engineering, Construction & Building Materials, Travel, Logistics & Transport Infrastructure, McKinsey Institute for Black Economic Mobility. In August 2019, Kering CEO François-Henri Pinault spearheaded an industry-wide pact to achieve net-zero emissions by 2050. Dire consequences for fashion, one of the biggest industries in the world, generating $2.5 trillion in global annual revenues before the pandemic, Sales growth seems set to slow to a mere 2 or, at most, 3 percent by the close of 2016, with stagnating profit margins. The bottom line? Athletic wear is the only category where record growth rates look to slow down slightly in 2018, as the “athleisure” trend has reached its peak in some mature markets. To keep up, leading fashion players are accelerating their speed from design to shelf. 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. According to our estimates, each racked up more than $2 billion in economic profit in 2017. Strategically, there will be an imperative in 2021 to manage commercial opportunities actively and to be acute in picking winning segments, markets, and channel combinations. 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. We use cookies essential for this site to function well. How will changes to the global economy and consumers’ behavior affect fashion in the postcoronavirus world? Overall, the industry continues to hover in a state of flux, and the fortunes of individual players can turn with frightening speed. 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. Our first two reports, last year and the year before, laid the foundation for rigorous in-depth research and analysis, focusing on the themes, issues, and opportunities affecting the sector and its performance. Overcoming pandemic fatigue: How to reenergize organizations for the long run, What’s next for remote work: An analysis of 2,000 tasks, 800 jobs, and nine countries. 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. Shoppers are also becoming more selective. The COVID-19 pandemic created a dramatic contraction in demand and production. Subscribed to {PRACTICE_NAME} email alerts. This should lead to a move beyond 2019’s focus on transparency toward real commitment. Over the last six months, COVID-19 has pummeled the $2.5 trillion global fashion industry. Even after witnessing waves of insolvencies, industry leaders will need to get comfortable with uncertainty and ramp up future-proofing efforts as the potential for further outbreaks and lockdowns loom. Press enter to select and open the results on a new page. The ones that will succeed will have come to terms with the fact that in the new paradigm taking shape around them, some of the old rules simply don’t work. The apparel industry, globally, could see revenue contract by 27 to 30% this year over last, according to a predictive joint report from Business of Fashion and McKinsey & Company. People create and sustain change. What will define the industry in the coming year? CONTRIBUTORS. Something went wrong. 4 McKinsey Global Institute. 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. 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. Subscribed to {PRACTICE_NAME} email alerts. 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. Customers’ attention is also tuned to new channels. At the opposite end of the price spectrum is Primark, whose commitment to its core value proposition has made it a formidable competitor. 1 All this comes against a backdrop of the fashion industry having turned a corner in 2018, with increased growth justifying the optimism expressed in last year’s global fashion survey. McKinsey analysis, based on data from Amazon and Stackline. Although they are written off by some as “too 20th century,” we take a more constructive view. 9 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. Banks in Africa could lose between $1.5 trillion to $4.7 trillion in revenue in four years to 2024 arising from Covid-19 economic turmoil, according to a survey by McKinsey.. Select topics and stay current with our latest insights, The State of Fashion 2021: In search of promise in perilous times. Around the globe, we expect more than 20 percent annual digital growth in 2021 (with 30 percent in Europe and the United States) compared with 2020. "Without doubt, 2020 is the worst year for the fashion industry on record," Achim Berg, leader of McKinsey & Co.'s Apparel, Fashion & Luxury Group, told Newsweek. A survey of fashion sourcing executives reveals their immediate response to the crisis, and details strategies to reshape sourcing for a demand-driven, sustainable future. Never miss an insight. Reinvent your business. “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. Download The State of Fashion 2019, the full report on which this article is based (PDF–3 MB). We strive to provide individuals with disabilities equal access to our website. Still, there are silver linings among the clouds. Imran Amed is the founder, editor-in-chief, and CEO of The Business of Fashion. All things considered, we expect fashion-industry growth will increase to 2.5 to 3.5 percent in 2017, although the days when the industry outpaced GDP growth by as much as two percentage points seem over. Retail is one of the sectors most affected by COVID-19, in both positive and negative ways. For some, the abyss beckons. Download The State of Fashion 2018, the full report on which this article is based (PDF–3 MB). 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. Brands, suppliers, contractors, and property owners should also find ways to share the burden. McKinsey analysis. 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. Athletic wear is set to become the absolute category champion, maintaining 6.5 to 7.5 percent sales growth, although it will be unable to reproduce the double-digit growth of the past. We'll email you when new articles are published on this topic. We see brands rethinking store formats and leveraging data and analytics to predict footfall, manage assortments, and built personalized offerings. 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. “UN chief says coronavirus worst global crisis since World War II,” France 24, April 1, 2020, france24.com. As with everything in this fast-moving sector, we’ll just have to wait and see. This is consistent with its 10 percent CAGR of the past decade, driven by consumers’ more active lifestyles, the rise of “athleisure,” emerging brands in the high-end segments, and product innovations. Please email us at: McKinsey Insights - Get our latest thinking on your iPhone, iPad, or Android device. “NIKE, Inc. reports fiscal 2020 fourth quarter and full year results,” Nike, June 25, 2020, news.nike.com. “Zara Owner to Invest $3 billion to Expand Amid Covid-19 Crisis,”, It’s time to rewire the fashion system: State of Fashion coronavirus update, The State of Fashion 2020: Navigating uncertainty, The State of Fashion 2019: A year of awakening, The State of Fashion 2018: Renewed optimism for the fashion industry. Use minimal essential The challenges of a fundamentally changing industry and a continued unpredictable macroeconomic environment has led fashion players to toughen up. Reinvent your business. Exactly when this will happen is impossible to know for sure, except that it will, in all likelihood, be linked to the discovery of a workable antiviral treatment and delivery of a proven vaccine, which some experts say is at least 12 to 18 months away. With information and the ease of comparison at their fingertips, consumers are becoming less brand loyal among millennials, two-thirds say they are willing to switch brands for a discount of 30 percent or more. Still, we do not believe the curtain is falling on physical channels. 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. 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. Although the fashion industry appears to be turning a corner, the rebound is not being felt evenly across the globe. Fashion is one of the past decade’s rare economic success stories. —a much steeper decline than that of the overall stock market. Against this background, fashion-industry fortunes are highly polarized. 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. Navigating this uncertainty will not be easy for fashion leaders. McKinsey Quarterly In the United States alone, some 20,000 to 25,000 stores were expected to close in 2020, more than double the number that did so in 2019. 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. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more. Consumers also have higher expectations of customer experience and scrutinize convenience, price, quality, and newness. 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 … One reason that executives are not breaking out the bunting is that the outlook for the global economy is less rosy than it was a year ago. 10 This “need for speed” is driven partly by social media accelerating the movement of fashion trends to the masses, and by industry leaders using analytics and customer insights to meet customer needs better and increase responsiveness. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more. 6 About a 5 minute read. Most transformations fail. Yet fashion, because of its discretionary nature, is particularly vulnerable. By August, such digital-first players were trading 35 percent higher, on average, than they did in December 2019. Please use UP and DOWN arrow keys to review autocomplete results. At the same time, they must cater to local tastes across multiple markets and cultures. 2 margin was 10.8 percent, a tick up on 2017 and the highest since 2014. With this special coronavirus update to The State of Fashion 2020, we have taken a stance on what our new normal will look like in the aftermath of this “black swan” event to provide insights (from analyzing surveys, data, and expert interviews) for fashion professionals as they embark on the 12- to 18-month period after the dust settles. Brands that can align with the dominant trends and continue to innovate are most likely to ride the challenges and emerge ahead of the pack. collaboration with select social media and trusted analytics partners Of course, for every success, there are also relative failures. The authors wish to thank Sarah Andre, Althea Peng, Sonja Penttilä, and Robb Young for their contributions to this article. By Imran Amed, Anita Balchandani, Achim Berg, Saskia Hedrich, Jakob Ekeløf Jensen, and Felix Rölkens. Economically, we see a number of trends that will shape the industry, including fashion’s response to intensifying volatility, continued challenges in China, and the rise of urban centers. But speed and flexibility bring added complexity. Laggards face increased fashion risk and excess inventory if they fail to match customer demand. But regardless of touchpoint, consumers expect a consistent brand experience across channels. Asia in particular is emerging as a fertile ground for small and midsize enterprises that leverage e-commerce to reach out from the factory floor. 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. 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. Zara said that it plans to cut 1,200 stores over two years and invest €2.7 billion in store-based digital. Affordable-luxury players benefited from consumers trading down from luxury, particularly among Chinese consumers. Equally, consumers and advocates are calling for the industry to become more inclusive. Only those brands that accurately reflect the Zeitgeist or have the courage to “self-disrupt” will emerge as winners. Please use UP and DOWN arrow keys to review autocomplete results. cookies, Back to Charting the path to the next normal, [email protected], The State of Fashion 2021: In search of promise in perilous times. Press enter to select and open the results on a new page. The authors wish to thank McKinsey’s Tiffany Chan and Marilena Schmich, as well as The Business of Fashion’s Robb Young, for their contributions to this article. The State of Fashion report is widely quoted in fashion media, research and education. At the same time, they are demanding ever-quicker and more seamless fulfillment, from mobile shopping to drone delivery. Meanwhile, some of the shifts we will witness in the fashion system, such as the digital step change, in-season retail, seasonless design, and the decline of wholesale, are mostly an acceleration of the inevitable—things that would have happened further down the road if the pandemic had not helped them gain speed and urgency now. Download The State of Fashion 2020: Coronavirus Update, the full report on which this article is based (PDF–3MB). And “woke” consumers are also pushing for greater transparency into supply chains—and rewarding their favorite brands for taking controversial political stands. Our survey of 290 global fashion executives and interviews with thought leaders and pioneers have helped us identify ten key themes that will set the agenda in the year ahead. Looking forward, we see more research into sustainable materials and technologies, as well as the circular economy. Our clients range from medium-size companies to industry leaders—spanning across producers and brands, vertical fashion retailers, apparel … 9. This joint report by the Business of Fashion and McKinsey is an effort to advance the discussion beyond crisis management and immediate contingency planning by outlining the areas in which the fashion industry must focus once the dust settles on the current crisis. At the vanguard, we are seeing a new breed of direct-to-customer companies. Earnings before interest, taxes, and amortization. This unforeseeable humanitarian and financial crisis has rendered previously planned strategies for 2020 redundant, leaving fashion businesses exposed or rudderless as their leaders confront a disorienting future and vulnerable workers face hardship and destitution. For many in the fashion industry, the glass is half empty. Select topics and stay current with our latest insights. Flip the odds. Performance will vary depending on the individual dynamics of specific market segments and categories. The MGFI forecasts that growth will slow to 3 to 4 percent in 2020, slightly below the predicted rate for 2019. McKinsey analysis, 2019. The virus made fashion look… Please try again later. 3 Use minimal essential hereLearn more about cookies, Opens in new 8 That means focusing on an omnichannel perspective, of course, but also emphasizing the importance of sustainability through the value chain. To address consumer behavior, players will have to learn to serve shrewder and more-demanding customers and adjust to a shifting demographic profile. Das sind Erkenntnisse aus dem Coronavirus-Update zum „State of Fashion 2020“-Report. Learn more about cookies, Opens in new 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. Fashion executives are focusing on crisis management now but eventually must shift to reimagining the industry. However, there will be opportunities. Unleash their potential. 7 No company will get through the pandemic alone, and fashion players need to share data, strategies, and insights on how to navigate the storm. 1. When it comes to sustainability, the industry’s track record remains a source of concern. 8. Companies that have performed the best over recent months tended to share at least one of two key characteristics (Exhibit 2). We predict a 5 to 10 percent sales growth in China in 2021 compared with 2019. Moreover, precrisis levels of activity are unlikely to return before the third quarter of 2022. No one would put money on volatility and uncertainty lessening. 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. Below, panelists share their views on how the fashion industry will likely evolve in light of … Please click "Accept" to help us improve its usefulness with additional cookies. The 16 percent year-on-year rise came largely from improved operating margins driven by cost cutting. Now, the resulting “quarantine of consumption” 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. COVID-19 has sent shockwaves through the fashion industry’s global sourcing and production operations. 7. By Imran Amed, Anita Balchandani, Marco Beltrami, Achim Berg, Saskia Hedrich, and Felix Rölkens. A return to the riches of the previous decade appears unlikely. collaboration with select social media and trusted analytics partners The crisis is a catalyst that will shock the industry into change—now is the time to get ready for a postcoronavirus world. While the crisis has visited a devastating impact on businesses and jobs, it may also have accelerated responses that can lead to positive outcomes. This caution is one of our ten trends to watch in 2019. Physical retail has been under historic levels of pressure. That translates into a significant increase in the number of companies that are “value destroyers,” which we expect will rise to 73 percent of those in the index in 2020, compared with 60 percent in 2019. Industry players are coming to accept unpredictability as the new norm, and fashion executives will in 2018 respond by focusing their energy on improving what is within their control. Emerging markets remain a crucial source of this growth; indeed, in 2018, for the first time, more than half of apparel and footwear sales will originate outside Europe and North America. In 2016, the 8.0 to 8.5 percent growth for athletic wear is more than double any other category. This will also be a time for collaboration within the industry—even among competing organizations. Our flagship business publication has been defining and informing the senior-management agenda since 1964. When it comes to categories, the improvement of fashion-industry sales is reflected in stronger sales growth forecasts across the board, including apparel and footwear. Once the dust settles on the immediate crisis, fashion will face a recessionary market and an industry landscape still undergoing dramatic transformation. One size will not fit all. Many of them have already undertaken significant cost cutting and restructuring, and they are now primed to capture the benefits. 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). We also highlight the ten trends that will define the fashion agenda in 2019 (interactive). 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. Just as China inched through recovery, outbreaks worsened in Europe and the United States. With tourism in the doldrums, domestic outlets will become more important than ever. ACHIM BERG Based in Frankfurt, Achim Berg leads McKinsey’s Global Apparel, Fashion & Luxury group and is active in all relevant sectors including clothing, textiles, footwear, athletic wear, beauty, accessories and retailers spanning from the value end to luxury. For workers in low-cost sourcing and fashion-manufacturing hubs, such as Bangladesh, Cambodia, Ethiopia, Honduras, and India, extended periods of unemployment will mean hunger and disease. More and more, they base their purchase decisions on whether a company’s practices and mission aligns with their values—while at the same time they are highly price sensitive. By segment, the most positive are executives from luxury brands, reflecting their strong growth trajectory in 2018. Value and affordable luxury will probably be the big winners, both outpacing the industry average at a projected 3.0 to 4.0 percent and 3.5 to 4.5 percent growth, respectively. However, amid increasing pressure on performance, shifting consumer behaviors, and accelerating … 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. Consumer sentiment on sustainability and fashion in the COVID crisis. Our third trend is Trade 2.0: a warning that companies should make contingency plans for a potential shake-up of global value chains. On the one hand, evolving channels, shifting markets, and groundbreaking research offer revenue opportunities and the chance for radical innovation. That’s great news for consumers and for companies that can make sustainability real. The average industry EBITA After a challenging stretch, has fashion turned the corner? Consumers in Southeast Asia spend about eight hours a day online on average. We also expect to see a rise in M&A activity as companies take advantage of low valuations and grab share in fast-growing markets. As noted in our previous articles on “getting woke,” radical transparency, and sustainability first, the consumer mindset was already showing signs of shifting in certain directions before the pandemic. Notably, the top 20 group of companies has remained stable over time. Today, the Global Fashion Agenda (GFA), an industry-leading non-profit advocating for public-private cooperation on sustainability in fashion, released a Covid … As our ten trends indicate, new markets, new technologies, and shifting consumer needs present opportunities—but also risks. McKinsey analysis, based on data from Amazon and Stackline. Terrorist attacks in France, the Brexit vote in the United Kingdom, and the volatility of the Chinese stock market have created shocks to the global economy. But equally, there is no call for rags just yet. At the forefront for many is the future role of brick-and-mortar stores. At the same time, government interventions will partially offset economic impacts, and global travel will pick up, alongside the possibility of larger social gatherings. 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). cookies, [email protected], UN chief says coronavirus worst global crisis since World War II, Coronavirus offers ‘a blank page for a new beginning’ says Li Edelkoort, The State of Fashion 2020: Coronavirus Update, the outlook for the global economy is less rosy, 2019 Apparel Chief Purchasing Officer Survey, a potential shake-up of global value chains, moving into a decisive phase of digital adoption, consumers expect a consistent brand experience, a shift in focus to a customer-centric model, consumers have become more demanding, more discerning, and less predictable in their purchasing behavior. Is slowing and competition is more intense than ever founder, editor-in-chief, and a in., discounting, industry consolidation, and Felix Rölkens and suddenly bleaker than $ 2 billion store-based. Amid this uncertainty will not be taken for granted percent year-on-year rise came largely from improved margins. Environment, we see more research into sustainable materials and technologies, price... To market macroeconomic environment has led fashion players are accelerating their speed from design to shelf, see infographic! Running in 2018, the industry into change—now is the founder, editor-in-chief, and innovation ( Exhibit )! Into supply chains—and rewarding their favorite brands for taking controversial political stands be uneven, says this year, expect! Profit rose year-on-year by 4 percent in 2020 will be prioritized once the dust settles on the immediate crisis which... The forefront for many as the fashion industry have worsened over the past 12 months can not easy... 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