The Covid-19 crisis has decimated the global fashion industry and its supply chains – and its impact is likely to weigh on the sector until at least 2022, according to a new report. With recovery set to take time and different paths in all regions, here are ten themes that will shape priorities for the year ahead.
First and foremost, the Covid-19 crisis is a humanitarian disaster affecting the lives and livelihoods of billions of people. But it has also been the catalyst for a global economic downturn, with the fashion industry suffering its worst year on record and almost three-quarters of listed companies losing money.
Declining sales, rapid shifting consumer behavior, and disrupted supply chains mean fashion companies will suffer a staggering 90% decline in economic profit, following a 4% rise in 2019, according to McKinsey Global Fashion Index.
The crisis has also intensified key consumer trends that were already reshaping the fashion industry, especially the acceleration in online sales, which have seen six years of growth in just eight months. There has also been growth in athleisure and casualization as well as heightened interest in sustainability concerns.
Now in its fifth year, 'The State of Fashion 2021' report by McKinsey & Company and The Business of Fashion (BoF) covers the future of the $2.5 trillion global fashion industry, based on exclusive interviews with top industry executives and a survey of more than 320 fashion professionals.
Among its findings:
Global fashion sales will decline 15-30% in 2020 compared with 2019, and it will take at least two years for industry revenues to recover to 2019 levels, at the earliest in Q3 2022.
Global fashion sales for 2020 are expected to decline 15-30% in comparison with 2019, but the impact on different territories will be uneven.
Europe is expected to be the worst-hit region, experiencing a 22-35% decline in sales, however, is projected to recover by early Q2 2022 as travel and tourism return.
The US will see a 17-32% decline and appears set for a slower recovery by Q1 2023.
China will likely be less impacted, seeing sales drop by 7-20%, with sales projected to return to pre-crisis levels by as early as Q4 2020 or, at the latest, Q1 2021.
From a segment perspective, luxury and affordable luxury have proven marginally more resilient, with sales shrinking an average of 30% during the quarters falling between February and June 2020, compared to the same period in 2019.
There are some pockets of positive news; during the pandemic, online fashion sales nearly doubled from 16-29% of total revenues and 71% of fashion executives now expect their online business to grow by 20% or more in 2020.
As the global health and economic crisis endure, 2021 will act as the bridge between the pre-pandemic reality and a potentially protracted recovery period for the global fashion industry.
The pace of recovery will vary across fashion categories, value segments, and geographical markets with some pockets of growth despite the continuing economic challenges. Fashion players focused on digital, Asia (China in particular), and luxury may have a competitive edge. The report outlines two scenarios for the fashion industry's recovery: The earlier recovery scenario assumes effective virus containment through vaccine and/or state intervention, leading to the lift of travel restrictions within a couple of months, enabling faster economic recovery, with global fashion sales returning to 2019 levels in the third quarter of 2022. The later recovery scenario foresees periodic virus resurgence in different regions of the world, resulting in further lockdowns, with global fashion sales only returning to 2019 levels by the last quarter of 2023. 10 TRENDS As such, the 10 themes for The State of Fashion 2021 each highlight a major disruption sparked by Covid-19 offering insights that will shape priorities for the year ahead.
#1: Living with the virus: The Covid-19 crisis has impacted the lives and livelihoods of millions of people while disrupting international trade, travel, the economy, and consumer behavior. To continue to manage unprecedented levels of uncertainty in the year ahead, companies should rewire their operating models to enable flexibility and faster decision-making, and balance speed against discipline in the pursuit of innovation.
45% of fashion executives surveyed said Covid-19 remains the top challenge in 2021.
#2: Diminished demand: The global economyis expected to partially recovernext year but economic growth will remain diminished relativeto pre-pandemic levels. Since demand for fashion is also unlikely to bounce back due to restrained spending power from the rise in unemployment and inequality, it is important for companies to seize new opportunities and double-down on outperforming categories, channels and territories.
Global fashion sales in 2021 could be below 2019 levels by as much as 15%.
#3: Digital sprint: Digital adoption has soared during Covid-19, with many brands finally going online and enthusiasts embracing digital innovations like live streaming, customer service video chat, and social shopping. As online penetration accelerates and shoppers demand ever-more sophisticated digital interactions, fashion players must improve the online experience and channel mix while finding persuasive ways to expand the personal customer experience.
71% of fashion executives expect their online business to grow by 20% or more in 2021.
#4: Seeking justice: With garment workers, sales assistants and other lower-paid workers impacted the worst during Covid-19, consumers have become more aware of the plight of vulnerable employees in the fashion value chain. As momentum for change builds alongside campaigns to end exploitation, consumers will expect companies to offer more dignity, security, and justice to workers throughout the global industry.
66% of consumers said they would stop or significantly reduce shopping at a brand if they found it was not treating its employees or supplier employees fairly.
#5: Travelinterrupted: The travel retail sector remains severely disrupted and destination shopping suffered throughout 2020. With international tourism expected to remain subdued next year and shoppers experiencing further interruptions to travel, companies will need to engage better with local consumers, make strategic investments in markets witnessing a stronger recovery and unlock new opportunities to keep customers shopping.
66% of fashion executives expect travel retail sales to recover to their former growth levels in two to three years.
#6: Less is more: After demonstrating that more products and collections do not necessarily yield better financial results, Covid-19 highlighted the need for a shift in the profitability mindset. Companies need to reduce complexity and find ways to increase full-price sell-through to reduce inventory levels by taking a demand-focused approach to their assortment strategy while boosting flexible in-season reactivity for both new products and replenishment.
Two-fifths of executives plan to make the move towards seasonless fashion, adding to a growing chorus of brands and designers calling for the fashion calendar to be rewired.
#7: Opportunistic investment: Performance polarisation in the fashion industry accelerated during the pandemic as the gap widened between the best-performing companies and the rest. With some players already bankrupt and others kept afloat by government subsidies, merger and acquisition activity is expected to increase as companies manoeuvre to take market share, unlock new opportunities, and expand capabilities.
45% of fashion executives expect market share redistribution to be a top theme in 2021.
#8: Deeper partnerships: By exposing the vulnerability of procurement partners, the weakness of contracts, and the risks of a concentrated supplier footprint, the crisis accelerated many of the changes that companies were already making to rebalance their supply chains. To mitigate future ruptures, fashion players should move away from transactional relationships in favor of deeper partnerships that bring greater agility and accountability.
35% of fashion executives expect resilience and partnerships in the supply chain to be a top theme in 2021.
#9: Retail ROI: Physical retail has been in a downward spiral for years and the number of permanent store closures will continue to rise in the post-Covid-19 period, compelling fashion players to rethink their retail footprints. Amplified by a potential power shift from landlords to retailers and the need to seamlessly embed digital, companies will need to make tough choices to improve ROI at store level.
Approximately half of European consumers have shopped less in physical stores since lockdowns started.
#10: Work revolution: Prompted by fundamental changes in the way companies worked during Covid- 19 and the need to drive performance in the years to come, an enduring new model for work is likely to emerge. Companies should therefore refine their blends of remote and on-premises work, invest in reskilling talentand instil a greater sense of shared purpose and belonging for employees.
88% of fashion executives expect a hybrid model of working to be part of the new normal.