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. Regardless of size and segment, players now need to be nimble, think digital-first, and achieve ever-faster speed to market. 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. 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. Reinvent your business. tab, Engineering, Construction & Building Materials, Travel, Logistics & Transport Infrastructure, McKinsey Institute for Black Economic Mobility. The industry is now on red alert. According to our estimates, each racked up more than $2 billion in economic profit in 2017. 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. 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. With companies in China leading the way, brands will engage even more closely with social media to offer shoppers exclusive content and personalized experiences. Our flagship business publication has been defining and informing the senior-management agenda since 1964. Yet fashion, because of its discretionary nature, is particularly vulnerable. 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. The authors wish to thank Robb Young, the Business of Fashion’s global markets editor, for his contribution to this article. 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 duration and ultimate severity of the pandemic remains unknown, it is apparent that the fashion industry is just at the beginning of its struggle. Consumers are increasingly waking up to this reality and demanding change. Consumers in Southeast Asia spend about eight hours a day online on average. 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. Our third trend is Trade 2.0: a warning that companies should make contingency plans for a potential shake-up of global value chains. Looking forward, we see more research into sustainable materials and technologies, as well as the circular economy. Imran Amed, the founder, editor-in-chief, and CEO of the Business of Fashion, is an alumnus of McKinsey’s London office, where Anita Balchandani is a partner and Jakob Ekeløf Jensen 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. Instead, from the wreckage of 2020, a sleeker, more focused offering will emerge. Download The State of Fashion 2019, the full report on which this article is based (PDF–3 MB). COVID-19 could spur the biggest economic contraction since World War II, hitting every sector from finance to hospitality. The interconnectedness of the industry is making it harder for businesses to plan ahead. No company will get through the pandemic alone, and fashion players need to share data, strategies, and insights on how to navigate the storm. By Imran Amed, Anita Balchandani, Marco Beltrami, Achim Berg, Saskia Hedrich, and Felix Rölkens. Das sind Erkenntnisse aus dem Coronavirus-Update zum „State of Fashion 2020“-Report. 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. Our latest reading of the our global fashion index, meanwhile, reveals new insights into company performance by category, segment, and region. The industry is not looking forward to 2020—suggesting strategic clarity will be important. Notably, the top 20 group of companies has remained stable over time. 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. This is an edited excerpt from the first joint report from McKinsey and the Business of Fashion, The State of Fashion (PDF–8MB). 7. Asha’s education is listed on their profile. However, amid increasing pressure on performance, shifting consumer behaviors, and accelerating … Shoppers are also becoming more selective. In 2016, the 8.0 to 8.5 percent growth for athletic wear is more than double any other category. 4 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. Flip the odds. As the world recovers from the COVID-19 pandemic, what will be the defining themes in the business of fashion? 2. 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. 8 Combined with the McKinsey Global Fashion Index (MGFI) analysis, which found that 56 percent of global fashion companies were not earning their cost of capital in 2018, we expect a large number of global fashion companies to go bankrupt in the next 12 to 18 months. margin was 10.8 percent, a tick up on 2017 and the highest since 2014. 2 The outlook for the fashion industry varies across different value segments, too. Imran Amed is the founder, editor-in-chief, and CEO of The Business of Fashion. The caution in the economic outlook is also reflected in the BoF–McKinsey State of Fashion Survey, with 42 percent of respondents expecting conditions to become worse in 2019. The crisis is a catalyst that will shock the industry into change—now is the time to get ready for a postcoronavirus world. Companies that have performed the best over recent months tended to share at least one of two key characteristics (Exhibit 2). At the forefront for many is the future role of brick-and-mortar stores. McKinsey analysis. This year, we are seeing real signs of change. McKinsey analysis, based on data from S&P Capital IQ. If you would like information about this content we will be happy to work with you. There is general agreement that 2016 was one of the most challenging years the fashion industry has ever seen. 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. In North America, while overall consumer confidence is strong, the impact of policy changes is uncertain, and markdown pressures, market corrections, and store closures continue. The fashion industry prides itself on being the most glamorous form of escapism. 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. The crisis is affecting daily lives, instilling anxiety and uncertainty in the minds of almost everyone. The survey assesses consumer attitudes towards sustainability and apparel during COVID-19 crisis. The bottom line is that amid this uncertainty and change, our analysis suggests cautious optimism is warranted. Our flagship business publication has been defining and informing the senior-management agenda since 1964. 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. The report includes the third readout of our industry benchmark, the McKinsey Global Fashion Index. Consumers also have higher expectations of customer experience and scrutinize convenience, price, quality, and newness. Digital-first companies such as Alibaba, Amazon, Net-a-Porter, and Zappos continue to force fashion companies to provide an even more premium experience. By causing blow after blow to both supply and demand, the pandemic has brewed a perfect storm for the industry: a highly integrated global supply chain means that companies have been under immense strain as they have tried to manage crises on multiple fronts as lockdowns were imposed in rapid succession, halting manufacturing in China first, then Italy, followed by countries elsewhere around the world. Even before the coronavirus disrupted financial markets, upended supply chains, and crushed consumer demand across the global economy, fashion-industry leaders were not optimistic about 2020. 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. Please try again later. “UN chief says coronavirus worst global crisis since World War II,” France 24, April 1, 2020, france24.com. And digital innovation will go behind the scenes: digitization will be the key to supply-chain efficiency, lowering procurement costs, and the enhancement of sourcing opportunities. 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 … 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. 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). Subscribed to {PRACTICE_NAME} email alerts. For the personal luxury goods industry (luxury fashion, luxury accessories, luxury watches, luxury jewelry, and high-end beauty), we estimate a global revenue contraction of –35 to –39 percent in 2020 year-on-year, but positive growth of 1 to 4 percent in 2021 (compared with the 2019 baseline figure). One size will not fit all. 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. 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. Digital disruptors will face more cautious investors in the year ahead. Please click "Accept" to help us improve its usefulness with additional cookies. At the vanguard, we are seeing a new breed of direct-to-customer companies. While the crisis has visited a devastating impact on businesses and jobs, it may also have accelerated responses that can lead to positive outcomes. McKinsey & Company 2. tab. Based on our executive survey, the words on everyone’s lips are sustainability, digitization, and innovation (Exhibit 4). 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. But equally, there is no call for rags just yet. Never miss an insight. 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 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. This will also be a time for collaboration within the industry—even among competing organizations. 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. Our calculations suggest that it will fall by 93 percent this year, according to our latest State of Fashion report, written in partnership with the Business of Fashion. Affordable-luxury players benefited from consumers trading down from luxury, particularly among Chinese consumers. 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. 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. collaboration with select social media and trusted analytics partners Today, the Global Fashion Agenda (GFA), an industry-leading non-profit advocating for public-private cooperation on sustainability in fashion, released a Covid … May 2020. To thrive in this environment, companies must think strategically, sharpen their decision making, and keep their fingers on the pulse of customer demand. We expect that themes of digital acceleration, discounting, industry consolidation, and corporate innovation will be prioritized once the immediate crisis subsides. By August, such digital-first players were trading 35 percent higher, on average, than they did in December 2019. Still, there are silver linings among the clouds. McKinsey predicts global revenue will fall by up to 30% during 2020. 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. “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 Those are some of the findings from our latest report, The State of Fashion 2021, written in partnership with the Business of Fashion (BoF). They also need to invest in enhancing their productivity and resilience, as the outlook is uncertain. Here, we expect a modest growth of 1 to 2 percent. Learn about 10. Even before the coronavirus disrupted financial markets, upended supply chains, and crushed consumer demand across the global economy, fashion-industry leaders were not optimistic about 2020. Download The State of Fashion 2020, the full report on which this article is based (PDF–7 MB). Please email us at: McKinsey Insights - Get our latest thinking on your iPhone, iPad, or Android device. The affordable-luxury segment seems likely to continue benefiting from consumers trading down from luxury, while signs point to the continued growth of the value segment as large global players expand internationally. For an overview, read our latest briefing materials (July 6, 2020). By Imran Amed, Anita Balchandani, Achim Berg, Saskia Hedrich, Jakob Ekeløf Jensen, and Felix Rölkens. If you would like information about this content we will be happy to work with you. 3. They need to get digital right and to address consumers increasingly concerned by the climate-change agenda. 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