However, given the scale of investment required, it means nervous times for small and midsize players. For fashion players, 2019 will be a year of awakening. Frankfurt. Office – After a landmark 2018, the sector is looking forward to another strong year as new sources of demand emerge and quality supply By Imran Amed, Anita Balchandani, Marco Beltrami, Achim Berg, Saskia Hedrich, and Felix Rölkens. 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. 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. Indeed, some 22 percent of executives say it will be the key momentum driver in the coming year—a percentage point less than the proportion that cites “uncertainty” and slightly more than the 20 percent that pick “challenging.” 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. 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. McKinsey Global Institute. Once the dust settles on the immediate crisis, fashion will face a recessionary market and an industry landscape still undergoing dramatic transformation. McKinsey continues to track economic and epidemiological developments around the world. Subscribed to {PRACTICE_NAME} email alerts. 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), Jakob Ekeløf Jensen (a consultant in the London office), Achim Berg (a senior partner in the Frankfurt office), Saskia Hedrich (a senior expert in the Munich office), and Felix Rölkens (an associate partner in the Berlin office). This fourth in our annual series analyzes major themes around the fashion economy and breaks new ground to explain the dynamics driving the industry. Players need to be decisive and start putting recovery strategies into motion to emerge with renewed energy. In August 2019, Kering CEO François-Henri Pinault spearheaded an industry-wide pact to achieve net-zero emissions by 2050. Flip the odds. 12. It’s precisely for this reason that companies such as Walmart and IKEA constantly work on re-training and re-skilling their employees for new roles that the organization will have and areas that the organization needs support with. These short-term retail spaces serve as a natural setting for retail experimentation. The modern shopper’s comfort with digital channels and content has created a complex customer journey across online and offline touchpoints. 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. 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. Laggards face increased fashion risk and excess inventory if they fail to match customer demand. Imran Amed is the founder, editor-in-chief, and CEO of the Business of Fashion. To keep up, leading fashion players are accelerating their speed from design to shelf. We expect that themes of digital acceleration, discounting, industry consolidation, and corporate innovation will be prioritized once the immediate crisis subsides. Marcus Fairs, “Coronavirus offers ‘a blank page for a new beginning’ says Li Edelkoort,” Dezeen, March 9, 2020, dezeen.com. Our third trend is Trade 2.0: a warning that companies should make contingency plans for a potential shake-up of global value chains. In this report, we focus exclusively on FMCG categories in New Retail stores, such as Alibaba’s Hema supermarkets. “Reducing labor costs and deleveraging the fixed-cost base can drive a 2 to 4 percent increase in earnings before interest, taxes, and amortization”. Imran Amed is the founder, editor-in-chief, and CEO of The Business of Fashion. 5 McKinsey analysis. Consumers don’t think about retail the same way we do. This caution is one of our ten trends to watch 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. We use cookies essential for this site to function well. Download The State of Fashion 2018, the full report on which this article is based (PDF–3 MB). Still, there are silver linings among the clouds. 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). Please use UP and DOWN arrow keys to review autocomplete results. So what will change in 2017? McKinsey analysis, 2019. 4 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. Those are some of the findings from our latest report, The State of Fashion 2021, written in partnership with the Business of Fashion (BoF). IKEA McKinsey 7S model explains how individual elements of businesses can be aligned to increase the overall effectiveness. Against this background, fashion-industry fortunes are highly polarized. 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. The crisis is affecting daily lives, instilling anxiety and uncertainty in the minds of almost everyone. 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. We explore all these changes and their ramifications in our 2019 report on global retail banking. 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. 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. 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. For an exclusive group of “Super Winners,” the sun is shining (Exhibit 3); by economic profit, these 20 companies added more to the industry bottom line in 2018 than all others combined. 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. 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. Press enter to select and open the results on a new page. 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. 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). 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. Against this background, fashion-industry fortunes are highly polarized. This annual report from McKinsey & Company and LeanIn.Org is the largest study of the state of women in corporate America. Billions of them. Kom werken bij McKinsey & Company Amsterdam en maak het verschil. Download The State of Fashion 2020: Coronavirus Update, the full report on which this article is based (PDF–3MB). No company will get through the pandemic alone, and fashion players need to share data, strategies, and insights on how to navigate the storm. Not only are leading companies highly value-creating, they are also at the cutting edge of innovation. Back in January 2020, we talked about how Retail was changing at an unprecedented speed. 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. Regardless of size and segment, players now need to be nimble, think digital-first, and achieve ever-faster speed to market. 9 5. 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 outside-in analysis of the profit-and-loss impact of Amazon Go technologies hints at a high return on investment (ROI). Our latest reading of the our global fashion index, meanwhile, reveals new insights into company performance by category, segment, and region. 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. McDonald’s self-service ordering kiosks, for example, save time for employees — these employees have been trained to offer table service to customers (in Hong Kong and other cities) which significantly (and directly) boosts customer experience and satisfaction. No wonder Amazon intends to start 3,000 stores in the US by 2021. Yet this sluggish overall growth masks some big winners: affordable luxury, value, and athletic wear. 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 approach to social responsibility includes empowering our people to give back to their communities, operating our firm in ways that are socially responsible and environmentally sustainable, and working with our clients to intentionally address societal challenges. BoF’s insider knowledge with McKinsey’s global expertise and analytical rigour, and then survey more than 270 global fashion executives and interview many of the industry’s thought leaders and pioneers. Dire consequences for fashion, one of the biggest industries in the world, generating $2.5 trillion in global annual revenues before the pandemic, tab, Engineering, Construction & Building Materials, Travel, Logistics & Transport Infrastructure, McKinsey Institute for Black Economic Mobility. Our first The State of Fashion report (PDF–8MB) finds that it’s not only external shock waves that have roiled the industry. Although they are written off by some as “too 20th century,” we take a more constructive view. Reskilling existing employees also allows a retailer to retain institutional knowledge and saves the ramp-up time needed to onboard new hires. 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. But equally, there is no call for rags just yet. The report includes the third readout of our industry benchmark, the McKinsey Global Fashion Index. 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. “UN chief says coronavirus worst global crisis since World War II,” France 24, April 1, 2020, france24.com. McKinsey analysis, based on data from Amazon and Stackline. 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. 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. In all other regions and segments, executives are notably pessimistic, reflecting the potential challenges ahead (Exhibit 1). To thrive in this environment, companies must think strategically, sharpen their decision making, and keep their fingers on the pulse of customer demand. “On average, replacing an employee can cost 20 to 30 percent of an annual salary, reskilling less than 10 percent. McKinsey analysis, based on data from Amazon and Stackline. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more. Every CEO, senior executive, CMO and CIO is obsessed. With its clearly defined value proposition, the value segment has been taking share from discount this year. The State of Fashion 2019 also includes the third read-out of our industry benchmark, the McKinsey Global Fashion Index (MGFI). McKinsey’s report does point out that as the demand for physical and manual skills declines, the need for technological skills, as well as social and emotional ones, will rise quickly in every sector, including retail. There is general agreement that 2016 was one of the most challenging years the fashion industry has ever seen. With tourism in the doldrums, domestic outlets will become more important than ever. He helps small and medium enterprise owners understand what's most important to their company's growth and success. At the same time, consumers have become more demanding, more discerning, and less predictable in their purchasing behavior, which is being radically reshaped by new technologies. This will also be a time for collaboration within the industry—even among competing organizations. 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 industry is not looking forward to 2020—suggesting strategic clarity will be important. The think tank sees that the retail space is changing quickly. Typically, the inertia is a direct result of budget cycles followed by most organizations, and a tendency to mimic the previous year’s capital spending. 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. Blockchain's Appeal Is Limited for Retail Banks, McKinsey Says By ... according to the report. 2. 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. Digital disruptors will face more cautious investors in the year ahead. 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 our ten trends indicate, new markets, new technologies, and shifting consumer needs present opportunities—but also risks. We'll email you when new articles are published on this topic. 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. 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. 1 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. This fact is clearly borne out in the industry’s financial performance. 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. There is little doubt that 2021 will continue to be tough for many as the COVID-19 pandemic tracks an uncertain trajectory. Given the standout performance of digital channels in the current environment, we expect digital to remain king in 2021. By Imran Amed, Anita Balchandani, Achim Berg, Saskia Hedrich, Jakob Ekeløf Jensen, and Felix Rölkens. 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. 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. To estimate market size, we analyzed Internet Retailer’s 2019 US Top 500 list of the largest e-commerce companies by sales, identifying the 16 that are primarily subscription-based. 7. However, there will be opportunities. Something went wrong. The consultants point out that their analysis doesn’t factor in the potential benefits that commercializing customer data and insights can accrue to the firm, and yet, the gains look significant. Perhaps unsurprisingly, 67 percent of executives said conditions for the fashion industry have worsened over the past 12 months. The report was supplemented with consumer surveys, industry expertise and research by retail data company Edited. ... July 28, 2020 – The eighth edition contains our latest thinking on the topics that matter most to retail and Consumer Goods leaders. At the opposite end of the price spectrum is Primark, whose commitment to its core value proposition has made it a formidable competitor. At the same time, they are demanding ever-quicker and more seamless fulfillment, from mobile shopping to drone delivery. The industry as a whole is embracing new opportunities—even as dangers lurk. 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