As New York Fashion Week kicks off a new season of fashion weeks around the globe, these are the five themes to watch.
Everything looks different this year, and the fashion industry—which posted record-low profits in 2020—is no exception. Given the extreme jeopardy the industry has faced, there is no simple, standardized playbook for the coming year. Instead, fashion companies must tailor their strategies to fit their individual priorities, market exposure, and capabilities. What is clear is that the COVID-19 pandemic accelerated numerous industry trends, including a dip in demand, a substantial shift to digital shopping, a renewed consumer focus on social justice and fair treatment of garment workers, a diminished ability to rely on a buoyant travel and tourism sector to boost demand for fashion, and a need to adjust to consumers’ new “less is more” mindset. As fashion leaders work to move through and beyond the pandemic, the most successful will be those who can get a grasp on these trends, presented in this curated collection of data visualizations from our 2021 State of Fashion report, produced in collaboration with The Business of Fashion.
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. 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.
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. 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. 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. As we move toward recovery, companies in the beauty segment have a chance to align with shifting categories and regional opportunities.
Those are some of the findings from our latest report, The State of Fashion 2021, written in partnership with the Business of Fashion (BoF). 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. Reflecting our conversations with industry leaders over recent months, it examines the ten key trends likely to shape the business over the coming year. The latest reading of our global fashion index, meanwhile, reveals new insights into company performance by category, segment, and region.
Silver linings
The sober mood among fashion executives surveyed in last year’s report has evolved over recent months into a strong determination to manage the industry through the COVID-19 pandemic. 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. 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.
Still, there are silver linings among the clouds. While the crisis has visited a devastating impact on businesses and jobs, it may also have accelerated responses that can lead to positive outcomes. Indeed, many fashion companies have taken time during the crisis to reshape their business models, streamline their operations, and sharpen their customer propositions.
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. In that scenario, we would see markets such as China recovering strongly. We predict a 5 to 10 percent sales growth in China in 2021 compared with 2019. 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, pre-crisis levels of activity are unlikely to return before the third quarter of 2022. 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.
About the authors: The authors of this article are Imran Amed (founder, editor in chief, and CEO of the Business of Fashion, and an alumnus of McKinsey’s London office), Anita Balchandani (a partner in the London office), Achim Berg (a senior partner in the Frankfurt office), Saskia Hedrich (a senior expert in the Munich office), Jakob Ekelof Jensen (a consultant in the London office), and Felix Rolkens (an associate partner in the Berlin office).
Read the full report at https://www.mckinsey.com/industries/retail/our-insights/state-of-fashion
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