A growing number of publicly traded and private companies have become “value destroyers.” The midmarket in particular is in the doldrums, generating negative returns for shareholders. We predict that 2019 will be a year shaped by consumer shifts linked to technology, social causes, and trust issues, alongside the potential disruption from geopolitical and macroeconomic events. External shocks to the system continue to lurk, and growth cannot be taken for granted. We see brands rethinking store formats and leveraging data and analytics to predict footfall, manage assortments, and built personalized offerings. Perhaps unsurprisingly, 67 percent of executives said conditions for the fashion industry have worsened over the past 12 months. Physical retail has been under historic levels of pressure. No company will get through the pandemic alone, and fashion players need to share data, strategies, and insights on how to navigate the storm. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more. 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. The exhibit unpacks five areas that could see significant changes; the full report explores these areas in greater depth. “NIKE, Inc. reports fiscal 2020 fourth quarter and full year results,” Nike, June 25, 2020, news.nike.com. In that scenario, we would see markets such as China recovering strongly. In fact, not only does it touch everyone, but it would be the world’s seventh-largest economy if ranked alongside individual countries’ GDP. 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. (For more, see our infographic on the ten trends that will define the fashion agenda in 2018.) Our flagship business publication has been defining and informing the senior-management agenda since 1964. 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 … Indeed, recent data show that we have vaulted five years forward in consumer and business adoption of digital in a matter of months. 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. These are some of the findings from our latest report, The State of Fashion 2020, written in partnership with The Business of Fashion (BoF). 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. This fact is clearly borne out in the industry’s financial performance. However, there may also be new opportunities from growing south–south trade and the renegotiation of trade agreements. At the same time, they must cater to local tastes across multiple markets and cultures. 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. Brands, suppliers, contractors, and property owners should also find ways to share the burden. 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. COVID-19 could spur the biggest economic contraction since World War II, hitting every sector from finance to hospitality. Asha’s education is listed on their profile. 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. Consumer sentiment on sustainability and fashion in the COVID crisis. Achim Berg is a senior partner in McKinsey’s Frankfurt office, Leonie Brantberg is an associate partner in the London office, and Saskia Hedrich is a senior expert in the Munich office. Although the fashion industry appears to be turning a corner, the rebound is not being felt evenly across the globe. our use of cookies, and What will define the industry in the coming year? 11 The textile sector still represents 6 percent of global greenhouse-gas emissions and 10 to 20 percent of pesticide use. 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. 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). Washing, solvents, and dyes used in manufacturing are responsible for one-fifth of industrial water pollution, and fashion accounts for 20 to 35 percent of microplastic flows into the ocean. 3. COVID Response Center. 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. External shocks to the system continue to lurk around the corner, and growth cannot be taken for granted: the McKinsey Global Fashion Index forecasts growth of 3.5 to 4.5 percent, slightly below 2018 figures. For fashion players, 2019 will be a year of awakening. tab. Against this background, fashion-industry fortunes are highly polarized. By August, such digital-first players were trading 35 percent higher, on average, than they did in December 2019. At the same time, we are likely to see more nuanced assessments of store ROI based on a combination of digital and physical lenses. By Imran Amed, Anita Balchandani, Marco Beltrami, Achim Berg, Saskia Hedrich, and Felix Rölkens. But it is in the developing world, where healthcare systems are often inadequate and poverty is rife, that people will be hit the hardest. As with everything in this fast-moving sector, we’ll just have to wait and see. 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. But speed and flexibility bring added complexity. However, given the scale of investment required, it means nervous times for small and midsize players. Press enter to select and open the results on a new page. The survey assesses consumer attitudes towards sustainability and apparel during COVID-19 crisis. That said, almost all other market segments should see a slight improvement in sales growth of half to one-and-a-half percentage points. Humanitarian repercussions are expected to outlast the pandemic itself. The main sources of growth are emerging-market countries across Asia–Pacific, Latin America, and other regions; they are forecasted to grow at rates ranging between 5 and 7.5 percent in 2018 (exhibit). Dire consequences for fashion, one of the biggest industries in the world, generating $2.5 trillion in global annual revenues before the pandemic, This is an edited excerpt from the first joint report from McKinsey and the Business of Fashion, The State of Fashion (PDF–8MB). But consumers are still buying beauty products and the industry is adapting to the COVID-19 era. 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. By Imran Amed, Anita Balchandani, Achim Berg, Saskia Hedrich, Jakob Ekeløf Jensen, and Felix Rölkens. Its petroleum practice helps improve performance in retail marketing, commercial sales and refining areas. 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 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. Please use UP and DOWN arrow keys to review autocomplete results. 1. As the world recovers from the COVID-19 pandemic, what will be the defining themes in the business of fashion? 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. That means focusing on an omnichannel perspective, of course, but also emphasizing the importance of sustainability through the value chain. Consumers also have higher expectations of customer experience and scrutinize convenience, price, quality, and newness. We strive to provide individuals with disabilities equal access to our website. Europe, on the other hand, will probably continue to feel the effects of subdued tourist arrivals, leading in 2021 to a 2 to 7 percent sales decline from 2019. Moreover, precrisis levels of activity are unlikely to return before the third quarter of 2022. Only those brands that accurately reflect the Zeitgeist or have the courage to “self-disrupt” will emerge as winners. Equally, consumers and advocates are calling for the industry to become more inclusive. 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. The bottom line? “Zara Owner to Invest $3 billion to Expand Amid Covid-19 Crisis,” Bloomberg, June 10, 2020, https://www.bloomberg.com/news/articles/2020-06-10/inditex-has-first-quarterly-loss-since-zara-owner-went-public 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. 5 Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. entails joblessness or financial hardship for people across the value chain. Economic profit grew for the second year running in 2018, following consecutive annual declines from 2012 to 2016 (Exhibit 2). The global Covid-19 pandemic is exacting a terrible human toll and menacing the world economy. Earnings before interest, taxes, and amortization. How will changes to the global economy and consumers’ behavior affect fashion in the postcoronavirus world? 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. GLOBAL ECONOMY CONSUMER SHIFTS FASHION SYSTEM. McKinsey Global Institute. our use of cookies, and Subscribed to {PRACTICE_NAME} email alerts. 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. Laggards face increased fashion risk and excess inventory if they fail to match customer demand. 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). But, in the year 2020 we were made to welcome a new saint. The crisis is affecting daily lives, instilling anxiety and uncertainty in the minds of almost everyone. With respect to sales growth, the affordable-luxury and value sectors have outperformed all other segments by one to one-and-a-half percentage points. By Imran Amed, Anita Balchandani, Achim Berg, Saskia Hedrich, Shrina Poojara, and Felix Rölkens. That offering will combine the best of human and automated services—the beginning of a truly “bionic” customer experience. But fast-forward a few months, and fashion’s outlook has gotten dramatically and suddenly bleaker. 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. 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. However, amid increasing pressure on performance, shifting consumer behaviors, and accelerating … Flagship stores will be branded as discovery zones and tasked with creating emotional connections with customers. 7 We expect a similar trajectory in the United States, with sales down 7 to 12 percent next year compared with 2019, and only a modest recovery before the first quarter of 2023. In all other regions and segments, executives are notably pessimistic, reflecting the potential challenges ahead (Exhibit 1). 12 Digital upends old models. In 2016, the 8.0 to 8.5 percent growth for athletic wear is more than double any other category. If you would like information about this content we will be happy to work with you. 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. 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. However, there will be opportunities. As we move toward recovery, companies in the beauty segment have a chance to align with shifting category and regional opportunities. But regardless of touchpoint, consumers expect a consistent brand experience across channels. A freeze on spending is aggravating the supply-side crisis. Download The State of Fashion 2020: Coronavirus Update, the full report on which this article is based (PDF–3MB). Only the discount segment is likely not to be part of the recovery trend. 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. 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. 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. Explore our Insights page to filter by industry.  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. 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. McKinsey COVID-19 Consumer Pulse Survey: for Europe, held March 20–26, 2020, with 5,614 respondents (France, Germany, Italy, Portugal, Spain, and the United Kingdom); for United States, held March 23–29, 2020, with 1,119 respondents. Never miss an insight. 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. McKinsey State of Fashion 2021 Survey; McKinsey analysis. The COVID-19 pandemic created a dramatic contraction in demand and production. 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. 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. 3 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. So what will change in 2017? 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. 2 Twelve of the top 20 have been a member of the group for the last decade. Das sind Erkenntnisse aus dem Coronavirus-Update zum „State of Fashion 2020“-Report. “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. Customers’ attention is also tuned to new channels. McKinsey analysis, 2019. 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 … The bottom line is that amid this uncertainty and change, our analysis suggests cautious optimism is warranted. The task for decision makers, therefore, is to find silver linings, knowing that times of change are inherently rich with opportunity. McKinsey analysis. 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. Use minimal essential 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. 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). 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. Some are household names, while others are less visible but still pack a punch. Digital disruptors will face more cautious investors in the year ahead. We also highlight the ten trends that will define the fashion agenda in 2019 (interactive). Our flagship business publication has been defining and informing the senior-management agenda since 1964. Overall, the industry continues to hover in a state of flux, and the fortunes of individual players can turn with frightening speed. Unleash their potential. 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. This caution is one of our ten trends to watch in 2019. 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. At the same time, government interventions will partially offset economic impacts, and global travel will pick up, alongside the possibility of larger social gatherings. The modern shopper’s comfort with digital channels and content has created a complex customer journey across online and offline touchpoints. McKinsey analysis, based on data from S&P Capital IQ. Based on our executive survey, the words on everyone’s lips are sustainability, digitization, and innovation (Exhibit 4). Many consumers today expect perfect functionality and immediate support at all times, coupled with rapid delivery times as players constantly compete to expedite products. 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. They need to get digital right and to address consumers increasingly concerned by the climate-change agenda. 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. Something went wrong. 8 This is particularly true for the major players within each of the market segments and product categories. Unleash their potential. collaboration with select social media and trusted analytics partners To read the report, see “The State of Fashion 2021: In search of promise in perilous times,” December 1, 2020. Consumers are increasingly waking up to this reality and demanding change. The 2020 Women In the Workplace study released by McKinsey & Company and LeanIn.Org focuses on the profound impact of COVID-19 on women at work. Imran Amed is the founder, editor-in-chief, and CEO of the Business of Fashion. McKinsey Quarterly That’s great news for consumers and for companies that can make sustainability real. At the opposite end of the price spectrum is Primark, whose commitment to its core value proposition has made it a formidable competitor. Yet 2016 was one of the industry’s toughest years. 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. McKinsey analysis, based on data from Amazon and Stackline. 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. These are some of the findings from our latest report on The State of Fashion, written in partnership with the Business of Fashion (BoF), which explores the industry’s fragmented, complex ecosystem. Things are looking up, but the rebound may be uneven, says this year’s The State of Fashion report. Nonetheless, this is still expected to be the fastest-growing category, with continued strong demand in many markets. The 16 percent year-on-year rise came largely from improved operating margins driven by cost cutting. Reinvent your business. 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. On the one hand, evolving channels, shifting markets, and groundbreaking research offer revenue opportunities and the chance for radical innovation. 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 … 9 Anita Balchandani is a partner in McKinsey’s London office, where Marco Beltrami 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 a consultant in the Berlin office. These developments take place at the same time as the fashion industry goes through other transformative shifts. Due to the coronavirus pandemic. Founded in 1926, the firm serves various businesses and institutions in the automotive, petroleum, media, telecommunications, travel, electric power and finance sectors. The industry is now on red alert. Imran Amed is the founder, editor-in-chief, and CEO of The Business of Fashion. Flip the odds. 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. 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. Please email us at: McKinsey Insights - Get our latest thinking on your iPhone, iPad, or Android device. 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. This year, we are seeing real signs of change. tab. There is general agreement that 2016 was one of the most challenging years the fashion industry has ever seen. We expect that themes of digital acceleration, discounting, industry consolidation, and corporate innovation will be prioritized once the immediate crisis subsides. A return to the riches of the previous decade appears unlikely. According to Achim Berg, global leader of the Apparel, Fashion & Luxury group at McKinsey, the digitization of events and experiences means that bi-annual fashion … Indeed, consumer pessimism about the economy is widespread, with 75 percent of shoppers in Europe and the United States believing that their financial situation will be affected negatively for more than two months. 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. Instead, from the wreckage of 2020, a sleeker, more focused offering will emerge. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. Performance will vary depending on the individual dynamics of specific market segments and categories. 6. It’s a sentiment shared by industry executives: 40 percent expect conditions for the industry to improve in the year ahead. The fashion industry prides itself on being the most glamorous form of escapism. Imran Amed is the founder, editor-in-chief, and CEO of the Business of Fashion. When it comes to sustainability, the industry’s track record remains a source of concern. Alongside public companies, we also identified a group of “hidden champions.” These privately owned gems often dominate their category areas and generate significant revenues. —a much steeper decline than that of the overall stock market. 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. But equally, there is no call for rags just yet. According to McKinsey’s 2019 Apparel Chief Purchasing Officer Survey, while the absolute number of sustainable fashion products remains low, there has been a fivefold increase over the past two years. 4 Th tat ashio 2020 oronaviru pdate. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more. Those are some of the findings from our latest report, The State of Fashion 2021, written in partnership with the Business of Fashion (BoF). Learn more about cookies, Opens in new 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. 11. To address consumer behavior, players will have to learn to serve shrewder and more-demanding customers and adjust to a shifting demographic profile. 8. Other positive trajectories will include the growing influence of platform propositions as customers warm to marketplace experiences and renewed appetite among both brands and consumers for local engagement—the personal touch that reflects the priorities of many. The other, global economic growth is slowing and competition is more than double any other category have... Most positive are executives in North America the predicted rate for 2019 across multiple markets and.! Crisis is affecting daily lives, instilling anxiety and uncertainty over the past 12 months be part the. Of activity are unlikely to return before the third quarter of 2022 of! Size and segment, the beauty and stars, it has everything you dream. Have vaulted five years forward in consumer and business adoption of digital acceleration, discounting, industry consolidation and. And fashion in the industry into change—now is the founder, editor-in-chief, and innovation Exhibit! 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