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class="FullHero_mck-c-full-hero__first-fold-content__F5jdd"><div class="mdc-o-container__wrapper mdc-u-spaced-mobile mdc-u-grid mdc-u-grid-gutter-xxl FullHero_mck-c-full-hero__title-container__YfybZ"><div class="mdc-u-grid mdc-u-grid-col-md-12"><div class="mdc-u-grid-col-md-start-2 mdc-u-grid-col-md-end-12 mdc-u-grid-col-lg-start-3 mdc-u-grid-col-lg-end-11 mdc-u-spaced-mobile mdc-u-align-center mdc-u-grid"><div><h1 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-u-ts-2 FullHero_mck-c-full-hero__heading__RgATx"><div>State of Fashion report archive (2017-2024)</div></h1></div><div><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f mdc-u-ts-8 FullHero_mck-c-full-hero__date__jb4gN"><div><time datetime="2024-11-14T00:00:00Z">November 14, 2024</time> | Report</div></div></div><div><button data-component="mdc-c-button" aria-label="" type="button" id="button_id" class="mdc-c-button___U4iY2_2734c4f mdc-c-button--ghost mdc-c-button--size-medium FullHero_mck-c-full-hero__arrow__jtXdj" data-click-track="true" data-layer-event-prefix="UI Item" data-layer-action="click" data-layer-category="article" data-layer-text="skip article header section" data-layer-region="full hero"><span data-component="mdc-c-icon" class="mdc-c-icon___oi7ef_2734c4f mdc-c-icon--size-xl___3BEee_2734c4f mck-arrow-down-icon"></span></button></div></div></div></div></div></div></div></div><div class="mck-o-container"><div class="mck-o-container--wrapped mck-o-container--mobile-spacing mdc-u-grid mdc-u-grid-gutter-xxl"><section data-layer-region="article-body-header" class="mdc-u-grid mdc-u-grid-col-md-12 mck-u-animation-blur-in-400 byline-share-container"><div class="mdc-u-grid-col-md-start-2 mdc-u-grid-col-md-end-7 mdc-u-grid-col-lg-start-3 mdc-u-grid-col-lg-end-8 mdc-u-ts-10"></div></section><section class="mdc-u-grid mdc-u-grid-col-md-12 mck-u-animation-blur-in-400"><div class="mdc-u-grid-col-md-start-2 mdc-u-grid-col-md-end-12 mdc-u-grid-col-lg-start-3 mdc-u-grid-col-lg-end-11"><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f mdc-u-ts-5"><div class="mck-u-links-inline">McKinsey’s State of Fashion report offers the best of our research and insights into the fashion industry. View our archives for past reports from 2017-2024.</div></div></div></section><main data-layer-region="article-body" class="mdc-u-grid mdc-u-grid-gutter-xxl"><div class="mdc-u-grid mdc-u-grid-col-1 mdc-u-grid-col-md-12"><div class="mdc-u-grid-col-md-start-2 mdc-u-grid-col-md-end-12 mdc-u-grid-col-lg-start-3 mdc-u-grid-col-lg-end-11"><div class="mdc-o-content-body mck-u-dropcap"><h4>You’ve reached an archival page. Please see our 2025 State of Fashion report <span style="color:#2155ff"><a href="/industries/retail/our-insights/state-of-fashion">here</a></span>.</h4> <div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="lightest-grey" data-module-category="" class="mck-o-edge-to-edge TableOfContents_mck-c-table-of-contents__zeYey"><div class="mck-o-container"><div class="mck-o-container--wrapped mck-o-container--mobile-spacing"><div class="mdc-u-grid mdc-u-grid-col-md-12"><div class="mdc-u-grid-col-md-start-2 mdc-u-grid-col-md-end-12 mdc-u-grid-col-lg-start-3 mdc-u-grid-col-lg-end-11"><h6 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-u-ts-10 TableOfContents_mck-c-table-of-contents__heading__nQD1F">Previous State of Fashion editions</h6><ol class="mdc-u-ts-7 TableOfContents_mck-c-table-of-contents__list__ivUca"><li class="TableOfContents_mck-c-table-of-contents__list-item__Q8xfB"><a data-component="mdc-c-link" href="#section-header-2024" class="mdc-c-link-heading___Zggl8_2734c4f"><span class="mdc-c-link__label___Pfqtd_2734c4f">The State of Fashion 2024: Finding pockets of growth as uncertainty reigns</span></a></li><li class="TableOfContents_mck-c-table-of-contents__list-item__Q8xfB"><a data-component="mdc-c-link" href="#section-header-2023" class="mdc-c-link-heading___Zggl8_2734c4f"><span class="mdc-c-link__label___Pfqtd_2734c4f">The State of Fashion 2023: Holding onto growth as global clouds gather</span></a></li><li class="TableOfContents_mck-c-table-of-contents__list-item__Q8xfB"><a data-component="mdc-c-link" href="#section-header-2022" class="mdc-c-link-heading___Zggl8_2734c4f"><span class="mdc-c-link__label___Pfqtd_2734c4f">State of Fashion 2022: An uneven recovery and new frontiers</span></a></li><li class="TableOfContents_mck-c-table-of-contents__list-item__Q8xfB"><a data-component="mdc-c-link" href="#section-header-2021" class="mdc-c-link-heading___Zggl8_2734c4f"><span class="mdc-c-link__label___Pfqtd_2734c4f">The State of Fashion 2021: In search of promise in perilous times</span></a></li><li class="TableOfContents_mck-c-table-of-contents__list-item__Q8xfB"><a data-component="mdc-c-link" href="#section-header-2020covid" class="mdc-c-link-heading___Zggl8_2734c4f"><span class="mdc-c-link__label___Pfqtd_2734c4f">It’s time to rewire the fashion system: State of Fashion coronavirus update</span></a></li><li class="TableOfContents_mck-c-table-of-contents__list-item__Q8xfB"><a data-component="mdc-c-link" href="#section-header-2020" class="mdc-c-link-heading___Zggl8_2734c4f"><span class="mdc-c-link__label___Pfqtd_2734c4f">The State of Fashion 2020: Navigating uncertainty</span></a></li><li class="TableOfContents_mck-c-table-of-contents__list-item__Q8xfB"><a data-component="mdc-c-link" href="#section-header-2019" class="mdc-c-link-heading___Zggl8_2734c4f"><span class="mdc-c-link__label___Pfqtd_2734c4f">The State of Fashion 2019: A year of awakening</span></a></li><li class="TableOfContents_mck-c-table-of-contents__list-item__Q8xfB"><a data-component="mdc-c-link" href="#section-header-2018" class="mdc-c-link-heading___Zggl8_2734c4f"><span class="mdc-c-link__label___Pfqtd_2734c4f">The State of Fashion 2018: Renewed optimism for the fashion industry</span></a></li><li class="TableOfContents_mck-c-table-of-contents__list-item__Q8xfB"><a data-component="mdc-c-link" href="#section-header-2017" class="mdc-c-link-heading___Zggl8_2734c4f"><span class="mdc-c-link__label___Pfqtd_2734c4f">The State of Fashion 2017</span></a></li></ol></div></div></div></div></div> <div data-component="mdc-c-module-wrapper" data-module-theme="dark" data-module-background="deep-blue" data-module-category="" data-module-gradient-position="top-right" class="mck-o-edge-to-edge SectionHeader_mck-c-section-header___N7qG mck-c-module-wrapper"><style></style><div data-component="mdc-c-background-image" class="mdc-c-bg-image___GJdv1_2734c4f background-image-section-header-F38245F6D3194555A33183E2917E1ADB-bg SectionHeader_mck-c-section-header__parallax-container__sgMMy" role="img" aria-label="Female model walking on catwalk in front of crowd at fashion show."></div><div class="mdc-c-bg-image___GJdv1_2734c4f mdc-c-bg-image--opaque-bg___CauU1_2734c4f" style="opacity:0.3"></div><div class="mck-o-container"><div class="mck-o-container--wrapped mck-o-container--mobile-spacing"><div id="section-header-2024" class="mdc-u-grid mdc-u-grid-col-lg-12 SectionHeader_mck-c-section-header__wrapper__CZEyB"><div class="mdc-u-grid-col-lg-start-2 mdc-u-grid-col-lg-end-12 SectionHeader_mck-c-section-header__wrapper-positioned__fIWpF"><div class="mdc-u-grid mdc-u-grid-gutter-sm SectionHeader_mck-c-section-header__wrapper-text__hSx1f"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f SectionHeader_mck-c-section-header__heading__2ePOu"><span>The State of Fashion 2024: Finding pockets of growth as uncertainty reigns</span></h2></div><div class="SectionHeader_mck-c-section-header__section-holder__BaLti"></div></div></div></div></div></div>  <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="DownloadsSidebar_mck-c-downloads-sidebar__iFmyt mck-o-xs-right-span"><div data-layer-region="downloads-right-rail"><h3 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-c-heading--title___5qyOB_2734c4f mdc-c-heading--border___K8dj3_2734c4f"></h3><div><div data-component="mdc-c-link-container" class="mdc-c-link-container___xefGu_2734c4f"><div class="mdc-u-align-center DownloadsSidebar_mck-c-downloads-sidebar__fullreport__pTrE3"><img class="DownloadsSidebar_mck-c-downloads-sidebar__fullreport__pTrE3 DownloadsSidebar_mck-c-downloads-sidebar__fullreport--image__RcOxJ" alt="" src="/~/media/mckinsey/industries/retail/our insights/state of fashion/2024/the-state-of-fashion-2024-f_thumbnail.jpeg"/></div><div><h5 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-u-ts-6 DownloadsSidebar_mck-c-downloads-sidebar__fullreport__pTrE3 DownloadsSidebar_mck-c-downloads-sidebar__fullreport--title__dsfYc">The State of Fashion 2024</h5></div><a data-component="mdc-c-link" href="#/download/%2F~%2Fmedia%2Fmckinsey%2Findustries%2Fretail%2Four%20insights%2Fstate%20of%20fashion%2F2024%2Fthe-state-of-fashion-2024-f.pdf%3FshouldIndex%3Dfalse" class="DownloadsSidebar_mck-c-downloads-sidebar__download-link__fPqFQ mdc-c-link___lBbY1_2734c4f" target="_self" data-layer-event-prefix="Download Link" data-layer-action="click" data-layer-report-type="" data-layer-file-name="the-state-of-fashion-2024-f" data-layer-report-name="the-state-of-fashion-2024-f>"><span data-component="mdc-c-icon" class="mdc-c-icon___oi7ef_2734c4f mdc-c-icon--size-md___yi5fA_2734c4f mck-download-icon"></span><span class="mdc-c-link__label___Pfqtd_2734c4f"> (128 pages)</span></a></div></div></div></div> <p><strong>Fashion companies will face economic headwinds, technology shifts, and an evolving competitive landscape in 2024. However, shifting consumer priorities will continue to offer opportunities.</strong></p> <p><strong>Storm clouds are gathering,</strong> but the experience of recent years shows how the fashion industry may ride out the challenges ahead. In 2022, the industry again showed its resilience, almost equaling the record economic profit of 2021, the McKinsey Global Fashion Index shows. Echoing the pattern of the previous year, the luxury sector outperformed, with a 36 percent rise in economic profit that offset weakness in other segments. Yet even the non-luxury sector was ahead of its long-term average. Strong margin performance meant the industry in 2022 achieved more than double the economic profit than in all years between 2011 and 2020, except for one.</p> <p>In 2023, the industry faced challenges that were both persistent and deepening. On a regional basis, Europe and the United States saw slow growth throughout the year, while China’s initially strong performance faded in the second half. Though the luxury segment initially fared well, it too began to feel the effects of weaker demand in the latter part of the year, leading to slowing sales and uneven performance.</p> <div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="lightest-grey" data-module-category="" data-module-gradient-position="bottom-right" class="mck-c-inline-module-container SideBar_mck-c-sidebar__bgimg-wrapper__Qj4Dt mck-o-sm-left-span SideBar_mck-c-sidebar__sidebar-wrapper__Dpjw2 SideBar_mck-c-sidebar__sidebar-wrapper--istablet__IQ6ii mck-u-screen-only mck-c-module-wrapper" data-layer-region="sidebar"><div class="SideBar_mck-c-sidebar__epoAm mck-o-md-center"><div class="SideBar_mck-c-sidebar__share-icons-wrapper__9gB_c"><div data-component="mdc-c-link-container" class="mdc-c-link-container___xefGu_2734c4f mdc-c-link-container--display-column___X0HDD_2734c4f SideBar_mck-c-sidebar__share-icons___eQy6"><button data-component="mdc-c-button" aria-label="Expandable Sidebar" type="button" id="button_id" class="mdc-c-button___U4iY2_2734c4f mdc-c-button--ghost mdc-c-button--size-medium SideBar_mck-c-sidebar__toggle-btn__EL8iE" aria-expanded="false" data-layer-event-prefix="UI Item" data-layer-action="click" data-layer-category="sidebar" data-layer-subcategory="open" data-layer-text="open sidebar"><span data-component="mdc-c-icon" class="mdc-c-icon___oi7ef_2734c4f mdc-c-icon--radial___y3csX_2734c4f mdc-c-icon--size-xxl___cL3ZT_2734c4f mck-plus-no-circle-icon"></span></button></div></div><div class="SideBar_mck-c-sidebar__content-outer__UdWCq"><div class="SideBar_mck-c-sidebar__eyebrow__5GSEq"></div><div class="SideBar_mck-c-sidebar__content__raEwe"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-u-ts-3 SideBar_mck-c-sidebar__content-heading__NJekY"><div>About the authors</div></h2><div class="SideBar_mck-c-sidebar__content-description__4p9iI mdc-u-ts-7"><div class="mdc-o-content-body"><p>This article is a collaborative effort by Imran Amed, representing views of Business of Fashion, and <a href="/our-people/anita-balchandani">Anita Balchandani</a>, David Barrelet, Achim Berg, <a href="/our-people/gemma-d-auria">Gemma D’Auria</a>, <a href="/our-people/felix-rolkens">Felix Rölkens</a>, and Ewa Starzynska, representing views from McKinsey’s Retail Practice.</p></div></div></div></div></div></div> <p>Looking toward 2024, the most prominent sentiment among fashion industry leaders is uncertainty, reflecting the prospect of subdued economic growth, persistent inflation, and weak consumer confidence. Against this backdrop, businesses will be challenged to identify pockets of value and unlock new drivers of performance.</p> <p>According to McKinsey’s analysis of fashion forecasts, the global industry will post top-line growth of 2 to 4 percent in 2024 (exhibit), with regional and country-level variations. Once again, the luxury segment is expected to generate the biggest share of economic profit. However, even there, companies will be challenged by the tough economic environment. The segment is forecast to grow globally by 3 to 5 percent, compared with 5 to 7 percent in 2023, as consumers rein in spending after a postpandemic surge. European and Chinese growth is set to slow, while US growth is expected to pick up after a relatively weak 2023, reflecting the slightly more optimistic outlook there.</p> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="mck-c-inline-module-container mck-o-md-center"><div class="mdc-u-grid mdc-u-grid-gutter-lg mdc-u-grid-col-sm-1 mdc-u-grid--align-start mdc-u-mb-3 GenericItem_mck-c-generic-item__sGwKL"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-xs GenericItem_mck-c-generic-item__content__gq1m0"><div class="mck-c-eyebrow mdc-u-ts-10"><span> </span></div></div></div><div class="mck-u-inline-module-border-top mck-u-inline-module-border-bottom"><picture data-component="mdc-c-picture" class="Exhibit_mck-c-exhibit__image__pyIDm"><source media="(min-width: 768px)" srcSet="/~/media/mckinsey/industries/retail/our%20insights/state%20of%20fashion/2024/svgz-stateoffashion-ex.svgz?cq=50&cpy=Center"/><img alt="Slower but normalized growth is anticipated across regions in 2024." src="/~/media/mckinsey/industries/retail/our%20insights/state%20of%20fashion/2024/svgz-stateoffashion-ex.svgz?cq=50&cpy=Center" loading="lazy"/></picture></div><div class="mck-u-sr-only"></div></div>  <p>Beyond luxury, growth of 2 to 4 percent is predicted for the year ahead, in line with the probable outcome in 2023. The European market will likely expand by just 1 to 3 percent, compared with 5 percent in the first half of 2023 and 1 to 3 percent in the second half. Slumping consumer confidence and declining household savings are expected to be the most probable causes of restrained spending. In the United States, nonluxury sector growth of 0 to 2 percent is forecast. And China is expected to be similarly challenged amid 4 to 6 percent growth, which is a slight uptick from the end of 2023 but slow when considered on a historical basis.</p> <p>These are just some of the findings from <em>The State of Fashion 2024</em>, published by the Business of Fashion (BoF) and McKinsey. The eighth report in the annual series discusses the major themes shaping the fashion economy and assesses the industry’s potential responses. Reflecting in-depth research and many conversations with industry leaders, it reveals the key trends that could shape the fashion landscape in the year ahead.</p> <h2>Uncertainty in the face of headwinds</h2> <p>With conflicts in Europe and the Middle East and strained international relations elsewhere, geopolitics is the number-one concern for fashion industry executives going into 2024, followed by economic volatility and inflation. Some 62 percent of executives in this year’s survey, conducted in September, cite geopolitical instability as the top risk to growth. Economic volatility is cited by 55 percent and inflation is mentioned by 51 percent (compared with 78 percent last year). The global average headline rate of inflation is predicted to moderate to 5.8 percent—still high on a historical basis—from 6.9 percent in 2023.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="6a9e235d-c72d-4cd8-96ee-126961cbbcbb"><sup class="FootNote_footnotesup__e73z_">1</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="6a9e235d-c72d-4cd8-96ee-126961cbbcbb" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline"><em>World economic outlook update: Near-term resilience, persistent challenges</em>, International Monetary Fund, July 2023.</span></span></span></a></span></p> <p>Against a challenging economic backdrop, executive views of the industry’s prospects are more divided than in any year since the launch of the BoF–McKinsey Executive Survey in 2017. While 26 percent of survey respondents say they expect conditions to improve year on year, 37 percent see them remaining the same and 38 percent think they will worsen.</p> <p>Uncertainty within the industry reflects the broader economic situation, albeit with regional divergence. Going into 2024, pressure on household incomes is expected to dampen demand for apparel and prompt trading down across categories. Still, there are geographic outliers that may offer comfort. One is India, where consumer confidence hit a four-year high in September 2023.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="6b284645-d458-464a-93aa-7a30f0eb88d8"><sup class="FootNote_footnotesup__e73z_">2</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="6b284645-d458-464a-93aa-7a30f0eb88d8" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">“Consumer confidence survey,” Reserve Bank of India, October 6, 2023.</span></span></span></a></span> India-based executives are more optimistic than those in Western countries, with 85 percent of respondents to McKinsey’s <a href="/capabilities/strategy-and-corporate-finance/our-insights/global-economics-intelligence-executive-summary-september-2023">Global Economics Intelligence survey</a> saying that conditions have improved in the past six months.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="876bfa80-331e-4c19-bde3-64703cd6d8ac"><sup class="FootNote_footnotesup__e73z_">3</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="876bfa80-331e-4c19-bde3-64703cd6d8ac" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">Ryosuke Hanada, “India’s consumer sentiment rebounds past pre-COVID levels,” Nikkei Asia, July 18, 2023.</span></span></span></a></span> China’s economy is facing challenges, but the country’s consumers show a higher intent to shop for fashion in 2024 than consumers in both the United States and Europe.</p> <h2>Ten themes for 2024</h2> <p>To prepare for challenges and be alert to opportunities, leading fashion companies will likely prioritize contingency planning for the coming year. A key theme will be companies keeping a firm grip on costs and inventories while driving growth by precisely managing prices. Brands and suppliers can expect an increasingly competitive environment. But they will also have opportunities, with consumers discovering new styles, tastes, and priorities—all presenting routes to value creation. As previously done, this year’s report highlights ten emerging themes that will be high on leadership agendas.</p> <ul> <li> <p>Global economy:</p> <ul> <li><em>Fragmented future.</em> In 2024, the global economic outlook will continue to be unsettled, as financial, geopolitical, and other challenges weigh on consumer confidence. Fashion markets in China, Europe, and the United States will likely face headwinds, some of which reflect individual regional dynamics. Suppliers, brands, and retailers may need to bolster contingency planning and manage for uncertainty.</li> <li><em>Climate urgency.</em> The frequency and intensity of extreme weather-related events in 2023 mean the climate crisis is an even more urgent priority than in previous years. With physical and transition risks rising across continents, the industry must not delay in tackling emissions and building resilience into supply chains.</li> </ul> </li> <li> <p>Consumer shifts:</p> <ul> <li><em>Vacation mode.</em> Consumers are gearing up for the biggest year of travel since before the pandemic. But a shift in values means expectations are evolving, even as shopping remains a priority. Brands and retailers should refresh distribution and category strategies to reflect the new reality.</li> <li><em>The new face of influence.</em> It’s time for brand marketers to update their influencer playbooks, as a new guard of creative personalities wins fans. Working with opinion leaders in 2024 will require a different type of partnership, an emphasis on video, and a willingness to loosen the reins on creative control.</li> <li><em>Outdoors reinvented.</em> Technical outdoor clothing and “gorpcore” are in demand as consumers embrace healthier lifestyles. In 2024, more outdoor brands are expected to launch lifestyle collections. At the same time, lifestyle brands will likely embed technical elements into collections, blurring the lines between functionality and style.</li> </ul> </li> <li> <p>Fashion system:</p> <ul> <li><em>Generative AI’s creative crossroads.</em> After generative AI’s (gen AI) breakout year in 2023, more use cases are emerging across the industry. Capturing value will require fashion players to look beyond automation and explore gen AI’s potential to enhance the work of human creatives.</li> <li><em>Fast fashion’s power play.</em> Fast-fashion competition is set to be fiercer than ever. Challengers, led by Shein and Temu, are bringing new tactics on price, customer experience, and speed. Success for disruptors and incumbents could hinge on adapting to new consumer preferences while navigating the regulatory agenda.</li> <li><em>All eyes on brand.</em> Brand marketing is expected to be back in the spotlight as the fashion industry manages a switch away from performance marketing. Brands may benefit from forging emotional connections with consumers as marketers rewrite playbooks to emphasise long-term brand building.</li> <li><em>Sustainability rules.</em> The era of fashion industry self-regulation is drawing to a close. Across jurisdictions, new rules will have significant effects on both consumers and fashion players. Brands and manufacturers may consider revamping business models to align with the changes ahead.</li> <li><em>Bullwhip snaps back.</em> Shifts in consumer demand have created a “bullwhip effect,” by which order volatility reverberates unpredictably through supply chains. Suppliers will likely face pressure as brands and retailers focus on transparency and strategic partnerships.</li> </ul> </li> </ul> <h2>Looking ahead</h2> <p>As the industry continues to be challenged by geopolitical and economic headwinds, fashion leaders in 2024 will look to strike a careful balance between managing uncertainty and seizing opportunities. With cost-saving tactics mostly exhausted, companies may focus on growing sales, underpinned by new pricing and promotion strategies. Across the industry, net intent to raise prices is more than 50 percent, according to the BoF–McKinsey Executive Survey. At the same time, reduced cost pressures could provide a potential boost to performance.</p> <p>As climate change brings increasingly extreme weather events and global temperatures rise, the coming year is likely to mark a heightened industry focus on environmental, social, and governance issues. Our survey shows that the topic is seen as both the number-one priority and number-one challenge for industry executives. The most successful companies will find a balance between sustainability initiatives, risk management, and commercial imperatives.</p> <p>In an uncertain world, consumer discretionary spend will be weighted toward trusted categories and brands. Hard luxury goods—jewelry, watches, and leather—will likely be in demand, reflecting their potential investment value in tough economic times. Consumers are expected to travel more and continue spending more time outdoors. And they prefer emotional connections and authenticity over celebrity endorsements.</p> <p>All told, executives are bracing for a strategically complex year ahead. To counter uncertainty, leading companies will prepare for a range of outcomes. The most successful will become more resilient, better equipped to manage the challenges, and ready to accelerate when the storm clouds begin to clear.</p> <p><strong>ABOUT THE AUTHOR(S)</strong></p> <p><strong><a href="/our-people/anita-balchandani">Anita Balchandani</a></strong> is a senior partner in McKinsey’s London office, where <strong>Ewa Starzynska</strong> is a consultant; <strong>David Barrelet</strong> is an associate partner in the Munich office; <strong>Achim Berg</strong> is a senior partner in the Frankfurt office; <strong><a href="/our-people/gemma-d-auria">Gemma D’Auria</a></strong> is a senior partner in the Milan office; and <strong><a href="/our-people/felix-rolkens">Felix Rölkens</a></strong> is a partner in the Berlin office. <strong>Imran Amed</strong> is the founder, editor-in-chief, and CEO of the Business of Fashion and is an alumnus of McKinsey’s London office.</p> <p>The authors wish to thank Asina De Branche and Joëlle Grunberg for their contributions to this article.</p> <p><em>Download </em><a href="/industries/retail/our-insights/state-of-fashion-2024">The State of Fashion 2024</a><em>, the full report on which this article is based (PDF–15.48MB).</em></p> <div data-component="mdc-c-module-wrapper" data-module-theme="dark" data-module-background="deep-blue" data-module-category="" data-module-gradient-position="top-right" class="mck-o-edge-to-edge SectionHeader_mck-c-section-header___N7qG mck-c-module-wrapper"><style></style><div data-component="mdc-c-background-image" class="mdc-c-bg-image___GJdv1_2734c4f background-image-section-header-71338634ABDC410D85606F6023196505-bg SectionHeader_mck-c-section-header__parallax-container__sgMMy" role="img" aria-label="Side view of young woman photographing clothes in shop"></div><div class="mdc-c-bg-image___GJdv1_2734c4f mdc-c-bg-image--opaque-bg___CauU1_2734c4f" style="opacity:0.3"></div><div class="mck-o-container"><div class="mck-o-container--wrapped mck-o-container--mobile-spacing"><div id="section-header-2023" class="mdc-u-grid mdc-u-grid-col-lg-12 SectionHeader_mck-c-section-header__wrapper__CZEyB"><div class="mdc-u-grid-col-lg-start-2 mdc-u-grid-col-lg-end-12 SectionHeader_mck-c-section-header__wrapper-positioned__fIWpF"><div class="mdc-u-grid mdc-u-grid-gutter-sm SectionHeader_mck-c-section-header__wrapper-text__hSx1f"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f SectionHeader_mck-c-section-header__heading__2ePOu"><span>The State of Fashion 2023: Holding onto growth as global clouds gather</span></h2></div><div class="SectionHeader_mck-c-section-header__section-holder__BaLti"></div></div></div></div></div></div> <p><strong>In 2023, the global fashion industry will need to weather inflation while finding opportunities in shifting consumer patterns, channel and digital marketing strategies, and manufacturing approaches.</strong></p> <p><strong>After experiencing 18 months of robust growth</strong> (early 2021 through mid-2022), the fashion industry is again facing a challenging climate. Hyperinflation and depressed customer sentiments have already resulted in declining growth rates in the second half of 2022. We expect that the slowdown is likely to continue through 2023.</p> <p>Many industry players are in a stronger position than they were a year ago, however. The fashion industry delivered a 21 percent increase in revenues in 2020–21, and EBITA margins doubled by 6 percentage points to 12.3 percent.</p> <div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="lightest-grey" data-module-category="" data-module-gradient-position="bottom-right" class="mck-c-inline-module-container SideBar_mck-c-sidebar__bgimg-wrapper__Qj4Dt mck-o-sm-left-span SideBar_mck-c-sidebar__sidebar-wrapper__Dpjw2 SideBar_mck-c-sidebar__sidebar-wrapper--istablet__IQ6ii mck-u-screen-only mck-c-module-wrapper" data-layer-region="sidebar"><div class="SideBar_mck-c-sidebar__epoAm mck-o-md-center"><div class="SideBar_mck-c-sidebar__share-icons-wrapper__9gB_c"><div data-component="mdc-c-link-container" class="mdc-c-link-container___xefGu_2734c4f mdc-c-link-container--display-column___X0HDD_2734c4f SideBar_mck-c-sidebar__share-icons___eQy6"><button data-component="mdc-c-button" aria-label="Expandable Sidebar" type="button" id="button_id" class="mdc-c-button___U4iY2_2734c4f mdc-c-button--ghost mdc-c-button--size-medium SideBar_mck-c-sidebar__toggle-btn__EL8iE" aria-expanded="false" data-layer-event-prefix="UI Item" data-layer-action="click" data-layer-category="sidebar" data-layer-subcategory="open" data-layer-text="open sidebar"><span data-component="mdc-c-icon" class="mdc-c-icon___oi7ef_2734c4f mdc-c-icon--radial___y3csX_2734c4f mdc-c-icon--size-xxl___cL3ZT_2734c4f mck-plus-no-circle-icon"></span></button></div></div><div class="SideBar_mck-c-sidebar__content-outer__UdWCq"><div class="SideBar_mck-c-sidebar__eyebrow__5GSEq"></div><div class="SideBar_mck-c-sidebar__content__raEwe"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-u-ts-3 SideBar_mck-c-sidebar__content-heading__NJekY"><div>About the authors</div></h2><div class="SideBar_mck-c-sidebar__content-description__4p9iI mdc-u-ts-7"><div class="mdc-o-content-body"><p>This article is a collaborative effort by Imran Amed, representing views from the Business of Fashion, and Sarah André, <a href="/our-people/anita-balchandani">Anita Balchandani</a>, Achim Berg, and <a href="/our-people/felix-rolkens">Felix Rölkens</a>, representing views from McKinsey’s Retail Practice.</p></div></div></div></div></div></div> <p>Looking forward, we anticipate that the luxury sector will outperform the rest of the industry, as wealthy shoppers continue to travel and spend, and thus remain more insulated from the effects of hyperinflation. Based on McKinsey’s analysis of fashion forecasts, the luxury sector is expected to grow between 5 and 10 percent in 2023, driven by strong momentum in China (projected to grow between 9 and 14 percent) and in the United States (projected to grow between 5 and 10 percent). Europe, on the other hand, is under high pressure from currency rates and a growing energy crisis, which are likely to result in modest sales growth for the luxury sector (projected to grow between 3 and 8 percent).</p> <p>The fashion market, excluding the luxury sector, will struggle to deliver significant growth in 2023. McKinsey analysis of fashion forecasts projects relatively slow sales growth of between –2 and +3 percent, weighed down by a contraction in the European market (expected to shrink between 1 and 4 percent) (exhibit). China and the United States are expected to fare better, growing between 2 and 7 percent and between 1 and 6 percent, respectively. These forecasts are reflective of inflation and are calculated in local currencies, meaning that the real impact for the sector could be more negative than these figures suggest.</p> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="mck-c-inline-module-container mck-o-md-center"><div class="mdc-u-grid mdc-u-grid-gutter-lg mdc-u-grid-col-sm-1 mdc-u-grid--align-start mdc-u-mb-3 GenericItem_mck-c-generic-item__sGwKL"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-xs GenericItem_mck-c-generic-item__content__gq1m0"><div class="mck-c-eyebrow mdc-u-ts-10"><span> </span></div></div></div><div class="mck-u-inline-module-border-top mck-u-inline-module-border-bottom"><picture data-component="mdc-c-picture" class="Exhibit_mck-c-exhibit__image__pyIDm"><source media="(min-width: 768px)" srcSet="/~/media/mckinsey/industries/retail/our%20insights/state%20of%20fashion/2023/stateoffashion2023-ex1.svgz?cq=50&cpy=Center"/><img alt="Beyond the differences between the luxury sector and other fashion segments, regional differences will be pronounced in 2023." src="/~/media/mckinsey/industries/retail/our%20insights/state%20of%20fashion/2023/stateoffashion2023-ex1.svgz?cq=50&cpy=Center" loading="lazy"/></picture></div><div class="mck-u-sr-only"></div></div> <p>These are just some of the findings from <em>The State of Fashion 2023</em>, a joint report from the Business of Fashion and McKinsey. The report, the seventh in the annual series, discusses the major themes shaping the fashion economy and assesses a range of possible responses. Reflecting in-depth research and numerous conversations with industry leaders, it reveals the key trends likely to shape the fashion landscape in the year ahead.</p> <h2>Inflation and geopolitical tensions loom</h2>  <p>Inflation is at the top of executives’ minds for the coming year, according to results from the annual Business of Fashion and McKinsey State of Fashion Survey. They expect that inflation will undercut consumer demand, pushing shoppers to curtail fashion spending or trade down for less expensive products as their energy and grocery bills spike. Fashion companies are also anticipating that inflation will spike their costs, with 97 percent of executives forecasting that their cost of goods sold and SG&A expenses will rise in 2023. Cotton and cashmere prices, for example, have increased 45 percent and 30 percent year on year, respectively.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="83545592-2f84-41fc-88c2-101f878ed98a"><sup class="FootNote_footnotesup__e73z_">4</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="83545592-2f84-41fc-88c2-101f878ed98a" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">Oliver Guyot, “Caught between inflation and rising costs, fashion seeks to strike new balance,” <em>Fashion Network</em>, July 19, 2022.</span></span></span></a></span></p> <p>Fashion leaders are also watching global headlines closely in the year ahead, as macroeconomic and political uncertainties continue to obstruct business operations and escalate reputational risk. The war in Ukraine is of high concern to the industry, having already disrupted trade routes and triggered an energy crisis that will continue to have impact. In China, further COVID-19 outbreaks and the real estate crisis have undermined the region’s growth trajectory, as well as disrupted supply chains. Meanwhile, extreme weather is negatively affecting supply chains and raw materials across Asia.</p> <p>This global economic gloom is increasingly reflected in consumers’ shopping habits, and the fashion industry is expecting that demand will be weakened or unpredictable in the year ahead. We foresee that the differences between the shopping habits of low- and high-income households will become more pronounced, as cost-conscious customers are likely to cut back or trade down. Meanwhile, shoppers for luxury items will likely continue to spend largely as they have been, insulated from the impact of the economic slowdown.</p> <h2>Ten themes for 2023</h2> <p>This year’s report presents a difficult outlook ahead, as fashion companies face challenges and revise forecasts downward after an exceptionally strong 2021, per McKinsey analysis of global data in the fashion industry. Inflation and geopolitical concerns dominate the agenda for 2023, negatively affecting both consumer demand and brands’ operating costs. Consumers are adjusting their behaviors, as many trade down to cheaper or discounted items to reduce their spending, though the luxury sector will remain strong, with affluent consumers less heavily affected by inflation.</p> <p>Fashion companies that can adapt to the increasing complexity by updating their operating models and adjusting their strategies for supply chain, sales channels, and digital marketing will be best placed to weather the upcoming storm. They can lean into the following ten emerging consumer trends:</p> <ul> <li>Global economy: <ul> <li><em>Global fragility.</em> Amid the highest inflation in a generation, rising geopolitical tensions, climate crises, and sinking consumer confidence in anticipation of an economic downturn, the global economy is in a volatile state. Fashion brands will need careful planning to navigate the many uncertainties and recessionary risks that lie ahead in 2023.</li> <li><em>Regional realities.</em> Understanding where to invest around the world has never been easy, but rising geopolitical uncertainty and uneven economic recoveries related to the COVID-19 pandemic, among other factors, will likely make it even more challenging in 2023. Brands can reevaluate regional growth priorities and hone their strategies so that they are more tailored to the geographies in which they operate.</li> </ul> </li> <li>Consumer shifts: <ul> <li><em>Two-track spending.</em> Consumers may be affected differently by the potential economic turbulence in 2023. Depending on factors such as disposable income level, some will postpone or curtail discretionary purchases; others will seek out bargains, increasing the demand for resale, rental, and off-price products. Fashion executives should adapt their business models to protect customer loyalty and avoid diluting their brands.</li> <li><em>Fluid fashion. </em>Gender-fluid fashion is gaining greater traction amid changing consumer attitudes toward gender identity and expression. For many brands and retailers, the blurring of the lines between men’s wear and women’s wear will require rethinking their product design, marketing, and in-store and digital shopping experiences.</li> <li><em>Formal wear reinvented.</em> Formal attire is taking on new definitions as shoppers rethink how they dress for work, weddings, and other occasions. While offices and events will likely become more casual, special occasions may be dominated by statement-making outfits that consumers rent or buy to stand out when they do decide to dress up.</li> </ul> </li> <li>Fashion system: <ul> <li><em>Direct-to-consumer reckoning.</em> Although brands across price segments and categories have embraced digital direct-to-consumer channels, mounting digital marketing costs and e-commerce readjustments have put the viability of the model into question. To grow, brands will likely need to diversify their channel mix, including wholesale and third-party marketplaces, alongside direct-to-consumer models.</li> <li><em>Tackling greenwashing. </em>As the industry continues to grapple with its damaging environmental and social impact, consumers, regulators, and other stakeholders may increasingly scrutinize how brands communicate about their sustainability credentials. If brands are to avoid greenwashing, they must show that they are making meaningful and credible change while abiding by emerging regulatory requirements.</li> <li><em>Future-proofing manufacturing. </em>Continued disruptions in supply chains are a catalyst for a reconfiguration of global production. Textile manufacturers can create new supply chain models based around vertical integration, nearshoring, and small-batch production, enabled by enhanced digitization.</li> <li><em>Digital marketing reloaded.</em> Recent data rules are spurring a new chapter for digital marketing as customer targeting becomes less effective and more costly. Brands will need to embrace creative campaigns and new channels, such as retail media networks and the metaverse, to achieve greater ROI on marketing spend and to gather valuable first-party data that can be leveraged to deepen customer relationships.</li> <li><em>Organization overhaul.</em> Successful execution of strategies in 2023 will in part hinge on a company’s alignment around key functions. Fashion executives need a new vision for what the organization of the future will require, focusing on attracting and retaining top talent, as well as on elevating teams and critical C-suite roles to execute on priorities such as sustainability and digital acceleration.</li> </ul> </li> </ul> <h2>Looking ahead</h2> <p>Bereft by global risks and uncertainties, leaders in the fashion industry will need to pay careful attention to macroeconomic and political issues in the regions where they produce and sell their products in the year ahead. They will need to develop risk mitigation strategies that can be implemented quickly as conflicts, fiscal policies, and government regulations evolve. Additionally, they will need to think critically about where they operate, looking beyond top-line growth potential when evaluating new and existing foreign markets. Brands can no longer plan on complete political neutrality as their global customer bases become more connected and outspoken.</p> <p>In 2023, consumers will be unpredictable and fickle. Brands will need to consider carefully the factors that affect shopping behaviors and respond accordingly. Even as many customers reduce spending, brands have an opportunity to keep customers engaged through, for example, rental channels and off-price retailers. But these strategies will require careful execution to ensure that margins and brand reputations are protected. At the same time, brands will need to update their merchandising and design approaches to reflect shifting ideas around gender lines in fashion and dress codes. Daily office attire will become more casual, and special-occasion dress will become bolder.</p> <p>Despite the economic headwinds ahead, fashion leaders are in a unique position to reevaluate the ways that their brands produce, distribute, and market their collections. Supply chains remain disrupted from the COVID-19 pandemic, elevating the need to invest in faster and geographically closer manufacturing systems. While direct-to-consumer, digital channels remain a top priority, fashion industry leaders will need to diversify their sales channels to maintain efficiency and market relevance. And finally, brands will need to be more creative in marketing to attract customers through bold, differentiated content that cuts through a crowded digital environment in which data targeting is no longer effective. To execute these changes and respond better to forthcoming regulations around sustainability marketing, the fashion industry should rethink how it allocates talent, promotes, and establishes executive roles and teams—reflecting the key challenges facing the industry in the years ahead.</p> <hr/> <p>The outlook for the global fashion industry in 2023 is uncertain and tenuous. Many customers are reigning in their budgets after months of discretionary spending. Growth has slowed in China, and major questions loom about the market’s future trajectory. An energy crisis is disrupting European economies. While the luxury and sportswear sectors have dominated the industry’s list of super successes in recent years, macroeconomic context might change that in the upcoming year. Heading into 2023, the industry’s decision makers will need to prepare to make strategic sacrifices while investing in agility and creativity to succeed when the market eventually recovers.</p> <p><em>Download </em><a href="">The State of Fashion 2023</a><em>, the full report on which this article is based (PDF–21.5MB).</em></p> <hr/> <p><strong>ABOUT THE AUTHOR(S)</strong></p> <p><strong>Imran Amed</strong> is the founder, editor-in-chief, and CEO of the Business of Fashion and an alumnus of McKinsey’s London office, where <strong><a href="/our-people/anita-balchandani">Anita Balchandani</a></strong> is a senior partner; <strong>Sarah André </strong>is a consultant in the Paris office; <strong>Achim Berg</strong> is a senior partner in the Frankfurt office; and <strong>Felix Rölkens</strong> is a partner in the Berlin office.</p> <p>The authors wish to thank Sandrine Devillard, Joëlle Grunberg, and Michael Straub for their contributions to this article.</p> <div data-component="mdc-c-module-wrapper" data-module-theme="dark" data-module-background="deep-blue" data-module-category="" data-module-gradient-position="top-right" class="mck-o-edge-to-edge SectionHeader_mck-c-section-header___N7qG mck-c-module-wrapper"><style></style><div data-component="mdc-c-background-image" class="mdc-c-bg-image___GJdv1_2734c4f background-image-section-header-9BA0A4827A7B4EA897F2A2EF80E01A55-bg SectionHeader_mck-c-section-header__parallax-container__sgMMy" role="img" aria-label=""""></div><div class="mdc-c-bg-image___GJdv1_2734c4f mdc-c-bg-image--opaque-bg___CauU1_2734c4f" style="opacity:0.3"></div><div class="mck-o-container"><div class="mck-o-container--wrapped mck-o-container--mobile-spacing"><div id="section-header-2022" class="mdc-u-grid mdc-u-grid-col-lg-12 SectionHeader_mck-c-section-header__wrapper__CZEyB"><div class="mdc-u-grid-col-lg-start-2 mdc-u-grid-col-lg-end-12 SectionHeader_mck-c-section-header__wrapper-positioned__fIWpF"><div class="mdc-u-grid mdc-u-grid-gutter-sm SectionHeader_mck-c-section-header__wrapper-text__hSx1f"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f SectionHeader_mck-c-section-header__heading__2ePOu"><span>State of Fashion 2022: An uneven recovery and new frontiers</span></h2></div><div class="SectionHeader_mck-c-section-header__section-holder__BaLti"></div></div></div></div></div></div> <p><strong>In 2022, the fashion industry can return to growth as changing category landscapes, new digital frontiers, and advances in sustainability continue to present opportunities.</strong></p> <p><strong>After nearly two years of disruption,</strong> the global fashion industry is once again finding its feet. Companies are adapting to new consumer priorities, and digital is providing a nexus for growth. Still, the industry faces significant challenges amid supply-chain disruption, patchy demand, and persistent pressure on the bottom line. With the majority of companies struggling to turn a profit, growth will be a key priority in the year ahead.</p> <div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="lightest-grey" data-module-category="" data-module-gradient-position="bottom-right" class="mck-c-inline-module-container SideBar_mck-c-sidebar__bgimg-wrapper__Qj4Dt mck-o-sm-left-span SideBar_mck-c-sidebar__sidebar-wrapper__Dpjw2 SideBar_mck-c-sidebar__sidebar-wrapper--istablet__IQ6ii mck-u-screen-only mck-c-module-wrapper" data-layer-region="sidebar"><div class="SideBar_mck-c-sidebar__epoAm mck-o-md-center"><div class="SideBar_mck-c-sidebar__share-icons-wrapper__9gB_c"><div data-component="mdc-c-link-container" class="mdc-c-link-container___xefGu_2734c4f mdc-c-link-container--display-column___X0HDD_2734c4f SideBar_mck-c-sidebar__share-icons___eQy6"><div data-component="mdc-c-dropdown-menu" class="mdc-c-drop-down"><button data-component="mdc-c-button" aria-label="" type="button" id="button_id" class="mdc-c-button___U4iY2_2734c4f mdc-c-button--ghost mdc-c-button--size-medium mdc-c-drop-down__rootmenu___yJzvz_2734c4f" aria-expanded="false" aria-haspopup="menu"><span data-component="mdc-c-icon" class="mdc-c-icon___oi7ef_2734c4f mdc-c-icon--default___f-hQM_2734c4f mdc-c-icon--size-md___yi5fA_2734c4f mck-share2-icon"></span></button><div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="white" data-module-category="" class=""></div></div><button data-component="mdc-c-button" aria-label="Expandable Sidebar" type="button" id="button_id" class="mdc-c-button___U4iY2_2734c4f mdc-c-button--ghost mdc-c-button--size-medium SideBar_mck-c-sidebar__toggle-btn__EL8iE" aria-expanded="false" data-layer-event-prefix="UI Item" data-layer-action="click" data-layer-category="sidebar" data-layer-subcategory="open" data-layer-text="open sidebar"><span data-component="mdc-c-icon" class="mdc-c-icon___oi7ef_2734c4f mdc-c-icon--radial___y3csX_2734c4f mdc-c-icon--size-xxl___cL3ZT_2734c4f mck-plus-no-circle-icon"></span></button></div></div><div class="SideBar_mck-c-sidebar__content-outer__UdWCq"><div class="SideBar_mck-c-sidebar__eyebrow__5GSEq"></div><div class="SideBar_mck-c-sidebar__content__raEwe"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-u-ts-3 SideBar_mck-c-sidebar__content-heading__NJekY"><div>About the authors</div></h2><div class="SideBar_mck-c-sidebar__content-description__4p9iI mdc-u-ts-7"><div class="mdc-o-content-body"><p>This article is a collaborative effort by Imran Amed, <a href="/our-people/anita-balchandani">Anita Balchandani</a>, Achim Berg, Saskia Hedrich, Jakob Ekeløf Jensen, Leila Le Merle, and Felix Rölkens, representing views from McKinsey’s Retail Practice.</p></div></div></div></div></div></div> <p>The fashion industry posted a 20 percent decline in revenues in 2019–20, as earnings before interest, taxes, and amortization (EBITA) margins declined by 3.4 percentage points to 6.8 percent. As the pandemic continued to run its course, the performance inequalities that have become a challenge over recent years were more in evidence than ever. A record 69 percent of companies were value destroyers in 2020, according to the latest reading of the McKinsey Global Fashion Index (MGFI), compared with 61 percent in 2019 and just 28 percent in 2011. About 7 percent of companies left the market entirely, either due to financial distress or because they were bought by rivals.</p> <p>From a geographic perspective, China was the standout performer over 2021, as its economy recovered much faster than those of other countries. In 2022, the industry’s growth will likely be driven by both China and the United States, while Europe lags behind and will need the return of international tourism to recover fully (Exhibit 1). In the meantime, domestic markets are set to continue their recent strong performance.</p>  <p>These are some of the findings from <em>The State of Fashion 2022</em>, written in partnership with <a href="https://www.businessoffashion.com/">the Business of Fashion</a> (BoF). The report, the sixth in our series, discusses the major themes shaping the fashion economy and assesses a range of possible responses. Reflecting in-depth research and numerous conversations with industry leaders, it reveals the key trends likely to shape the fashion business in the year ahead.</p> <h3>Discount and luxury outperform</h3> <p>Despite a dip in margins, discount and luxury outperformed the wider market in 2020, while the midmarket continued to be squeezed. However, performance was uneven, as countries with strong healthcare systems and economic resilience fared better than others. Among product categories, it was a breakout year for sportswear, with 42 percent of positive economic profit in the MGFI index coming from sportswear companies, amid strong growth for Chinese players.</p> <p>In last year’s report, we did not publish our annual list of “super winners,” due to distortions and reporting gaps caused by the pandemic. This year, we return to our analysis but with an adapted approach: smoothing pandemic-induced distortions by calculating the average economic profit over both 2019 and 2020. Over that period, the top five performers by economic profit were Nike, Inditex, Kering, LVMH (including Tiffany), and Hermes. The prominence of luxury brands among the top performers was attributable to the economic resilience of wealthier demographics, leading to a continuing demand for bags, luxury jewelry, and ready-to-wear.</p> <h3>Ten themes for 2022</h3> <p>We kick off our ten key themes for this year by taking the temperature of the global economy and analyzing the complex impacts of the pandemic as it continues its unpredictable progress. Amid these challenging dynamics, the imperative for brands will be to secure their recovery. At the same time, they must adapt to evolving consumer demand and ensure they take the opportunities offered by new digital frontiers. As sustainability becomes a more urgent concern, brands need to ramp up their efforts to reflect customer values in their assortments, supply chains, and ways of working. Finally, amid rising competition for talent—particularly tech talent—brands need to find new ways to attract the best and brightest, with cybersecurity likely to be near the top of the agenda (Exhibit 2).</p> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="mck-c-inline-module-container mck-o-md-center"><div class="mdc-u-grid mdc-u-grid-gutter-lg mdc-u-grid-col-sm-1 mdc-u-grid--align-start mdc-u-mb-3 GenericItem_mck-c-generic-item__sGwKL"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-xs GenericItem_mck-c-generic-item__content__gq1m0"><div class="mck-c-eyebrow mdc-u-ts-10"><span> 2</span></div></div></div><div class="mck-u-inline-module-border-top mck-u-inline-module-border-bottom"><picture data-component="mdc-c-picture" class="Exhibit_mck-c-exhibit__image__pyIDm"><source media="(min-width: 768px)" srcSet="/~/media/mckinsey/industries/retail/our%20insights/state%20of%20fashion/2022/svgz-statefashion2022-ex2.svgz?cq=50&cpy=Center"/><img alt="Ten themes across three categories will be critical for the fashion business in 2022." src="/~/media/mckinsey/industries/retail/our%20insights/state%20of%20fashion/2022/svgz-statefashion2022-ex2.svgz?cq=50&cpy=Center" loading="lazy"/></picture></div><div class="mck-u-sr-only"></div></div> <p>In many global regions, the business of fashion is set to pick up momentum in 2022, as consumers unleash pent-up buying power and dress to impress (where the pandemic allows). Indeed, recovery is at the top of executives’ minds for the coming year, with 75 percent of luxury-segment executives, 61 percent of midmarket executives, and 50 percent of value executives expecting better trading conditions. However, as they pivot toward growth, a significant challenge is potential shortages of products and resources, as chocked supply chains and rising shipping costs undermine operations. Over recent months, numerous companies reported struggles to manage inventory flows or tied lower sales forecasts to supply-chain blockages. In response, many have turned to remedies that include more nearshoring, in-store supply stocking, and agile operating models designed to respond flexibly to change.</p> <p>Among the standout themes of the past year has been the continuing flourishing of online business models, reflecting a longer-term trend that accelerated during the pandemic. Hyper-interactive digital environments and investment in e-commerce are increasingly the leitmotifs of brands that are pushing on fashion frontiers. We expect in 2022 that companies will seek fresh approaches to online creativity and commerce, with nonfungible tokens, gaming “skins,” and virtual fashion edging closer to the mainstream. Some brands over the past year expanded into the digital “metaverse,” rolling out virtual stores, gaming, and digital events. In the coming 12 months, these efforts will gather pace, as in-app social commerce plays an increasingly important role.</p> <p>More than ever, sustainability is dominating consumer priorities and the fashion agenda. Consumers want to know where materials come from, how products are made, and whether the people involved are treated fairly. In response, more and more companies are expanding their sustainable assortments and working to boost the sustainability of their supply chains. As part of those efforts, some are leveraging digital product passports. These can be embedded in items to support after-use activities such as resale and recycling. Brands are also turning to passports, married with distributed-ledger technologies, in the battle against counterfeiting.</p> <p>As fashion brands invest in new digital applications, they must work harder than ever to protect their systems, partners, and customers. Amid intense competition, cybertalent will be at a premium. And more broadly, all-time-high vacancy rates mean brands must find novel ways to attract and retain employees—as other industries compete hard on salaries, sustainability, and job security. Authenticity and employee well-being will be more important than ever.</p> <p>The bottom line going into 2022 is that <a href="/industries/retail/our-insights/how-current-global-trends-are-disrupting-the-fashion-industry">the fashion industry faces a complex mix of challenges and opportunities</a>, in which there is little room for missteps. Decision makers have their work cut out to manage the demands of digital, sustainability, and the supply chain. That said, the past year’s experience shows that consumers are resilient and that as economies recover, demand will follow suit. Therefore, the task for companies will be to unlock growth, align with changing customer needs, and focus intently on the bottom line.</p> <p><em>Download </em><a href="/~/media/mckinsey/industries/retail/our insights/state of fashion/2022/the-state-of-fashion-2022.pdf">The State of Fashion 2022</a>, <em>the full report on which this article is based (PDF–14MB).</em></p> <hr/> <p><strong>ABOUT THE AUTHOR(S)</strong></p> <p><strong><a href="/our-people/anita-balchandani">Anita Balchandani</a></strong> is a partner in McKinsey’s London office, where <strong>Jakob Ekeløf Jensen</strong> is an associate partner and <strong>Leila Le Merle</strong> is a consultant. <strong>Achim Berg</strong> is a senior partner in the Frankfurt office. <strong>Saskia Hedrich</strong> is a senior knowledge expert in the Munich office. <strong>Felix Rölkens</strong> is an associate partner in the Berlin office. <strong>Imran Amed</strong> is the founder, editor-in-chief, and CEO of the Business of Fashion and an alumnus of the London office.</p> <p>The authors wish to thank Pamela Brown, Emma Bruni, Dunja Matanovic, Michael Straub, and Robb Young for their contributions to this article.</p> <div data-component="mdc-c-module-wrapper" data-module-theme="dark" data-module-background="deep-blue" data-module-category="" data-module-gradient-position="top-right" class="mck-o-edge-to-edge SectionHeader_mck-c-section-header___N7qG mck-c-module-wrapper"><style></style><div data-component="mdc-c-background-image" class="mdc-c-bg-image___GJdv1_2734c4f background-image-section-header-8DA470B84449400B94C69E6BF69238C5-bg SectionHeader_mck-c-section-header__parallax-container__sgMMy" role="img" aria-label="The State of Fashion 2021: In search of promise in perilous times"></div><div class="mdc-c-bg-image___GJdv1_2734c4f mdc-c-bg-image--opaque-bg___CauU1_2734c4f" style="opacity:0.3"></div><div class="mck-o-container"><div class="mck-o-container--wrapped mck-o-container--mobile-spacing"><div id="section-header-2021" class="mdc-u-grid mdc-u-grid-col-lg-12 SectionHeader_mck-c-section-header__wrapper__CZEyB"><div class="mdc-u-grid-col-lg-start-2 mdc-u-grid-col-lg-end-12 SectionHeader_mck-c-section-header__wrapper-positioned__fIWpF"><div class="mdc-u-grid mdc-u-grid-gutter-sm SectionHeader_mck-c-section-header__wrapper-text__hSx1f"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f SectionHeader_mck-c-section-header__heading__2ePOu"><span>The State of Fashion 2021: In search of promise in perilous times</span></h2></div><div class="SectionHeader_mck-c-section-header__section-holder__BaLti"></div></div></div></div></div></div> <p><strong>In 2021, the COVID-19 pandemic will accelerate industry trends, with shopping shifting to digital channels and consumers continuing to champion fairness and social justice.</strong></p> <p><strong>With the COVID-19 pandemic</strong> 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.</p> <div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="lightest-grey" data-module-category="" data-module-gradient-position="bottom-right" class="mck-c-inline-module-container SideBar_mck-c-sidebar__bgimg-wrapper__Qj4Dt mck-o-sm-left-span SideBar_mck-c-sidebar__sidebar-wrapper__Dpjw2 SideBar_mck-c-sidebar__sidebar-wrapper--istablet__IQ6ii mck-u-screen-only mck-c-module-wrapper" data-layer-region="sidebar"><div class="SideBar_mck-c-sidebar__epoAm mck-o-md-center"><div class="SideBar_mck-c-sidebar__share-icons-wrapper__9gB_c"><div data-component="mdc-c-link-container" class="mdc-c-link-container___xefGu_2734c4f mdc-c-link-container--display-column___X0HDD_2734c4f SideBar_mck-c-sidebar__share-icons___eQy6"><div data-component="mdc-c-dropdown-menu" class="mdc-c-drop-down"><button data-component="mdc-c-button" aria-label="" type="button" id="button_id" class="mdc-c-button___U4iY2_2734c4f mdc-c-button--ghost mdc-c-button--size-medium mdc-c-drop-down__rootmenu___yJzvz_2734c4f" aria-expanded="false" aria-haspopup="menu"><span data-component="mdc-c-icon" class="mdc-c-icon___oi7ef_2734c4f mdc-c-icon--default___f-hQM_2734c4f mdc-c-icon--size-md___yi5fA_2734c4f mck-share2-icon"></span></button><div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="white" data-module-category="" class=""></div></div><button data-component="mdc-c-button" aria-label="Expandable Sidebar" type="button" id="button_id" class="mdc-c-button___U4iY2_2734c4f mdc-c-button--ghost mdc-c-button--size-medium SideBar_mck-c-sidebar__toggle-btn__EL8iE" aria-expanded="false" data-layer-event-prefix="UI Item" data-layer-action="click" data-layer-category="sidebar" data-layer-subcategory="open" data-layer-text="open sidebar"><span data-component="mdc-c-icon" class="mdc-c-icon___oi7ef_2734c4f mdc-c-icon--radial___y3csX_2734c4f mdc-c-icon--size-xxl___cL3ZT_2734c4f mck-plus-no-circle-icon"></span></button></div></div><div class="SideBar_mck-c-sidebar__content-outer__UdWCq"><div class="SideBar_mck-c-sidebar__eyebrow__5GSEq"></div><div class="SideBar_mck-c-sidebar__content__raEwe"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-u-ts-3 SideBar_mck-c-sidebar__content-heading__NJekY"><div>About the authors</div></h2><div class="SideBar_mck-c-sidebar__content-description__4p9iI mdc-u-ts-7"><div class="mdc-o-content-body">The authors of this article are <strong>Imran Amed</strong> (founder, editor in chief, and CEO of the Business of Fashion, and an alumnus of McKinsey’s London office), <strong><a href="/our-people/anita-balchandani">Anita Balchandani</a></strong> (a partner in the London office), <strong>Achim Berg</strong> (a senior partner in the Frankfurt office), <strong>Saskia Hedrich</strong> (a senior expert in the Munich office), <strong>Jakob Ekeløf Jensen</strong> (a consultant in the London office), and <strong>Felix Rölkens</strong> (an associate partner in the Berlin office).</div></div></div></div></div></div> <p>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 <a href="/capabilities/operations/our-insights/how-retail-can-adapt-supply-chains-to-win-in-the-next-normal">supply chains</a>, 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 <em>The State of Fashion 2021</em> 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 category and regional opportunities.</p> <p>Those are some of the findings from our latest report, <em>The State of Fashion 2021</em>, written in partnership with <a href="https://www.businessoffashion.com/">the Business of Fashion</a> (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. Our latest reading of the our global fashion index, meanwhile, reveals new insights into company performance by category, segment, and region.</p> <h3>Silver linings</h3> <p>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 (Exhibit 1). 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.</p> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="mck-c-inline-module-container mck-o-md-center"><div class="mdc-u-grid mdc-u-grid-gutter-lg mdc-u-grid-col-sm-1 mdc-u-grid--align-start mdc-u-mb-3 GenericItem_mck-c-generic-item__sGwKL"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-xs GenericItem_mck-c-generic-item__content__gq1m0"><div class="mck-c-eyebrow mdc-u-ts-10"><span> 1</span></div></div></div><div class="mck-u-inline-module-border-top mck-u-inline-module-border-bottom"><picture data-component="mdc-c-picture" class="Exhibit_mck-c-exhibit__image__pyIDm"><source media="(min-width: 768px)" srcSet="/~/media/mckinsey/industries/retail/our%20insights/state%20of%20fashion/2021/svgz-sof-2021-ex1.svgz?cq=50&cpy=Center"/><img alt="Global fashion industry profit rises from 2016 to 2019, then drops 93% in 2020." src="/~/media/mckinsey/industries/retail/our%20insights/state%20of%20fashion/2021/svgz-sof-2021-ex1.svgz?cq=50&cpy=Center" loading="lazy"/></picture></div><div class="mck-u-sr-only"> </div></div> <p>Still, there are silver linings among the clouds. While the crisis has visited a <a href="/capabilities/risk-and-resilience/our-insights/covid-19-implications-for-business">devastating impact</a> 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.</p> <p>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.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="3160c899-a8ec-4d21-bbdf-7ab596d7978a"><sup class="FootNote_footnotesup__e73z_">5</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="3160c899-a8ec-4d21-bbdf-7ab596d7978a" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">McKinsey analysis.</span></span></span></a></span> 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, precrisis 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.</p> <p>Where there is positive momentum, <a href="/industries/retail/our-insights/less-is-the-new-more-the-state-of-fashion-in-2021">the primary driver will continue to be digital channels</a>, reflecting the trend established before the COVID-19 crisis and the reluctance of people in many countries to gather in crowded environments. Indeed, recent data show that we have vaulted five years forward in consumer and business adoption of digital in a matter of months. 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.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="0758d1d6-d90e-414d-8ed6-773812d8f1cf"><sup class="FootNote_footnotesup__e73z_">6</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="0758d1d6-d90e-414d-8ed6-773812d8f1cf" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">McKinsey analysis.</span></span></span></a></span> 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.</p> <p>Against this background, fashion-industry fortunes are highly polarized. Given the disruptions in financial year 2019, it was not possible for us to calculate our annual list of 20 “super winners” accurately. Instead, we referenced our 2018 list to gauge the fortunes of the elite group. Perhaps unsurprisingly, investors this year had more confidence in the top 20 than in other companies, and super winners were less badly hit by the April stock market sell-off than their peers were (–26 percent from December, compared with –33 percent on average). 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.</p> <p>Companies that have performed the best over recent months tended to share at least one of two key characteristics (Exhibit 2). 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. E-commerce players, such as ASOS, FARFETCH UK, Revolve, and Zalando, have consistently outperformed in 2020, as locked-down customers turned to digital devices to shop. By August, such digital-first players were trading 35 percent higher, on average, than they did in December 2019.</p> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="mck-c-inline-module-container mck-o-md-center"><div class="mdc-u-grid mdc-u-grid-gutter-lg mdc-u-grid-col-sm-1 mdc-u-grid--align-start mdc-u-mb-3 GenericItem_mck-c-generic-item__sGwKL"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-xs GenericItem_mck-c-generic-item__content__gq1m0"><div class="mck-c-eyebrow mdc-u-ts-10"><span> 2</span></div></div></div><div class="mck-u-inline-module-border-top mck-u-inline-module-border-bottom"><picture data-component="mdc-c-picture" class="Exhibit_mck-c-exhibit__image__pyIDm"><source media="(min-width: 768px)" srcSet="/~/media/mckinsey/industries/retail/our%20insights/state%20of%20fashion/2021/svgz-sof-2021-ex2.svgz?cq=50&cpy=Center"/><img alt="Well-performing fashion companies share at least one of two key characteristics: Digital strength and an Asia–Pacific focus." src="/~/media/mckinsey/industries/retail/our%20insights/state%20of%20fashion/2021/svgz-sof-2021-ex2.svgz?cq=50&cpy=Center" loading="lazy"/></picture></div><div class="mck-u-sr-only"></div></div> <p>Given the standout performance of digital channels in the current environment, we expect <a href="/industries/retail/our-insights/future-of-retail-operations-winning-in-a-digital-era">digital to remain king</a> in 2021. 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.”<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="2fa02e78-609c-4952-a0da-c2a687da15ca"><sup class="FootNote_footnotesup__e73z_">7</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="2fa02e78-609c-4952-a0da-c2a687da15ca" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">McKinsey State of Fashion 2021 Survey; McKinsey analysis.</span></span></span></a></span></p> <h3>Ten themes for 2021</h3> <p>As the world recovers from the COVID-19 pandemic, what will be the defining themes in the business of fashion? 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).</p> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="mck-c-inline-module-container mck-o-md-center"><div class="mdc-u-grid mdc-u-grid-gutter-lg mdc-u-grid-col-sm-1 mdc-u-grid--align-start mdc-u-mb-3 GenericItem_mck-c-generic-item__sGwKL"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-xs GenericItem_mck-c-generic-item__content__gq1m0"><div class="mck-c-eyebrow mdc-u-ts-10"><span> 3</span></div></div></div><div class="mck-u-inline-module-border-top mck-u-inline-module-border-bottom"><picture data-component="mdc-c-picture" class="Exhibit_mck-c-exhibit__image__pyIDm"><source media="(min-width: 768px)" srcSet="/~/media/mckinsey/industries/retail/our%20insights/state%20of%20fashion/2021/svgz-sof-2021-ex3.svgz?cq=50&cpy=Center"/><img alt="Ten themes across three categories will be critical for the fashion business for 2021." src="/~/media/mckinsey/industries/retail/our%20insights/state%20of%20fashion/2021/svgz-sof-2021-ex3.svgz?cq=50&cpy=Center" loading="lazy"/></picture></div><div class="mck-u-sr-only"></div></div> <p>As decision makers continue to <a href="/capabilities/risk-and-resilience/our-insights/when-nothing-is-normal-managing-in-extreme-uncertainty">manage uncertainty</a>, the most successful will be those that <a href="/industries/consumer-packaged-goods/our-insights/five-charts-that-set-the-tone-as-new-york-fashion-week-2021-kicks-off">get a grip on the trends</a> shaping the fashion landscape. That means focusing on an omnichannel perspective, of course, but also emphasizing the importance of <a href="/industries/retail/our-insights/biodiversity-the-next-frontier-in-sustainable-fashion">sustainability</a> through the value chain. 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.</p> <p>Physical retail has been under historic levels of pressure. 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. 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. 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.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="27c6a790-3582-458a-bbcd-82b931145662"><sup class="FootNote_footnotesup__e73z_">8</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="27c6a790-3582-458a-bbcd-82b931145662" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">“NIKE, Inc. reports fiscal 2020 fourth quarter and full year results,” Nike, June 25, 2020, news.nike.com.</span></span></span></a></span> Zara said that it plans to cut 1,200 stores over two years and invest €2.7 billion in store-based digital.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="fbe5a862-fc6f-4272-94f2-fa7cba039780"><sup class="FootNote_footnotesup__e73z_">9</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="fbe5a862-fc6f-4272-94f2-fa7cba039780" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">“Zara Owner to Invest $3 billion to Expand Amid Covid-19 Crisis,” <em>Bloomberg,</em> June 10, 2020, https://www.bloomberg.com/news/articles/2020-06-10/inditex-has-first-quarterly-loss-since-zara-owner-went-public</span></span></span></a></span> Still, we do not believe the curtain is falling on physical channels. Instead, from the wreckage of 2020, <a href="/industries/retail/our-insights/consumers-are-reconsidering-whats-in-their-closets-the-state-of-fashion-in-2021">a sleeker, more focused offering</a> will emerge. That offering will combine the best of human and automated services—the beginning of a truly “bionic” customer experience.</p> <p>We see brands rethinking store formats and leveraging data and analytics to predict footfall, manage assortments, and built personalized offerings. Flagship stores will be branded as discovery zones and tasked with creating emotional connections with customers. 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. At the same time, we are likely to see more nuanced assessments of store ROI based on a combination of digital and physical lenses. With companies in China leading the way, brands will engage even more closely with social media to offer shoppers exclusive content and personalized experiences.</p> <p>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. With tourism in the doldrums, domestic outlets will become more important than ever. 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.</p> <hr/> <p>There is little doubt that 2021 will continue to be tough for many as the COVID-19 pandemic tracks an uncertain trajectory. The task for decision makers, therefore, is to find silver linings, knowing that times of change are inherently rich with opportunity. Fashion companies that double down on strategy, align with key trends, and reflect an evolving consumer landscape are likely to emerge from the crisis stronger, leaner, and ready to thrive in the next normal.</p> <p><em>Download </em><a href="/~/media/mckinsey/industries/retail/our insights/state of fashion/2021/the-state-of-fashion-2021-vf.pdf">The State of Fashion 2021</a>, <em>the full report on which this article is based (PDF–9MB).</em></p> <hr/> <p><strong>ABOUT THE AUTHOR(S)</strong></p> <p>The authors of this article are <strong>Imran Amed</strong> (founder, editor in chief, and CEO of the Business of Fashion, and an alumnus of McKinsey’s London office), <strong><a href="/our-people/anita-balchandani">Anita Balchandani</a></strong> (a partner in the London office), <strong>Jakob Ekeløf Jensen</strong> (a consultant in the London office), <strong>Achim Berg</strong> (a senior partner in the Frankfurt office), <strong>Saskia Hedrich</strong> (a senior expert in the Munich office), and <strong>Felix Rölkens</strong> (an associate partner in the Berlin office).</p> <p>The authors wish to thank Sarah Andre, Althea Peng, Sonja Penttilä, and Robb Young for their contributions to this article.</p> <div data-component="mdc-c-module-wrapper" data-module-theme="dark" data-module-background="deep-blue" data-module-category="" data-module-gradient-position="top-right" class="mck-o-edge-to-edge SectionHeader_mck-c-section-header___N7qG mck-c-module-wrapper"><style></style><div data-component="mdc-c-background-image" class="mdc-c-bg-image___GJdv1_2734c4f background-image-section-header-CA4EE16433E248738373B3E938320F66-bg SectionHeader_mck-c-section-header__parallax-container__sgMMy" role="img" aria-label="It’s time to rewire the fashion system: State of Fashion coronavirus update"></div><div class="mdc-c-bg-image___GJdv1_2734c4f mdc-c-bg-image--opaque-bg___CauU1_2734c4f" style="opacity:0.2"></div><div class="mck-o-container"><div class="mck-o-container--wrapped mck-o-container--mobile-spacing"><div id="section-header-2020covid" class="mdc-u-grid mdc-u-grid-col-lg-12 SectionHeader_mck-c-section-header__wrapper__CZEyB"><div class="mdc-u-grid-col-lg-start-2 mdc-u-grid-col-lg-end-12 SectionHeader_mck-c-section-header__wrapper-positioned__fIWpF"><div class="mdc-u-grid mdc-u-grid-gutter-sm SectionHeader_mck-c-section-header__wrapper-text__hSx1f"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f SectionHeader_mck-c-section-header__heading__2ePOu"><span>It’s time to rewire the fashion system: State of Fashion coronavirus update</span></h2></div><div class="SectionHeader_mck-c-section-header__section-holder__BaLti"></div></div></div></div></div></div> <p>By Imran Amed, Anita Balchandani, Achim Berg, Saskia Hedrich, Jakob Ekeløf Jensen, and Felix Rölkens</p> <p><strong>Fashion executives are focusing on crisis management now but eventually must shift to reimagining the industry. How will changes to the global economy and consumers’ behavior affect fashion in the postcoronavirus world?</strong></p> <p><strong>Even before the coronavirus</strong> disrupted financial markets, upended supply chains, and crushed consumer demand across the global economy, fashion-industry leaders were not optimistic about 2020. The industry was already on high alert, and executives expressed pessimism across all geographies and price points in our annual report, <em><a href="#2020update">The State of Fashion 2020</a></em>, released late last year. But fast-forward a few months, and fashion’s outlook has gotten dramatically and suddenly bleaker. The industry is now on red alert.</p> <p>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. With this special coronavirus update to <em>The State of Fashion 2020</em>, 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.</p> <h3>The black swan and fashion</h3> <p>COVID-19 could spur the biggest economic contraction since World War II, hitting every sector from finance to hospitality.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="85566dab-bf14-4943-ab97-815fc788f21c"><sup class="FootNote_footnotesup__e73z_">10</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="85566dab-bf14-4943-ab97-815fc788f21c" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">“<a href="https://www.france24.com/en/20200401-un-chief-says-coronavirus-worst-global-crisis-since-world-war-ii">UN chief says coronavirus worst global crisis since World War II</a>,” France 24, April 1, 2020, france24.com.</span></span></span></a></span> Yet fashion, because of its discretionary nature, is particularly vulnerable. The average market capitalization of <a href="/industries/retail/how-we-help-clients/apparel-fashion-luxury">apparel, fashion, and luxury players</a> dropped almost 40 percent between the start of January and March 24, 2020<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="92a4ac58-4d52-4a78-b0db-619e592f03a6"><sup class="FootNote_footnotesup__e73z_">11</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="92a4ac58-4d52-4a78-b0db-619e592f03a6" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">McKinsey analysis, based on data from S&P Capital IQ.</span></span></span></a></span> —a much steeper decline than that of the overall stock market.</p> <p>Humanitarian repercussions are expected to outlast the pandemic itself. Dire consequences for fashion, one of the biggest industries in the world, generating $2.5 trillion in global annual revenues before the pandemic,<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="2309e6e7-08d3-4064-b56d-f426988e2027"><sup class="FootNote_footnotesup__e73z_">12</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="2309e6e7-08d3-4064-b56d-f426988e2027" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">McKinsey analysis, 2019.</span></span></span></a></span> entails joblessness or financial hardship for people across the value chain.</p> <p>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). 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). If stores remain closed for two months, McKinsey analysis approximates that 80 percent of publicly listed fashion companies in Europe and North America will be in financial distress. 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.</p>  <p>The interconnectedness of the industry is making it harder for businesses to plan ahead. Just as China inched through recovery, outbreaks worsened in Europe and the United States. But it is in the developing world, where healthcare systems are often inadequate and poverty is rife, that people will be hit the hardest. 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.</p> <p>The crisis is affecting daily lives, instilling anxiety and uncertainty in the minds of almost everyone. Indeed, <a href="/capabilities/growth-marketing-and-sales/our-insights/global-surveys-of-consumer-sentiment-during-the-coronavirus-crisis">consumer pessimism about the economy</a> 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.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="20fc5f48-2d45-431e-bd81-4fd11f638d8d"><sup class="FootNote_footnotesup__e73z_">13</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="20fc5f48-2d45-431e-bd81-4fd11f638d8d" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">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.</span></span></span></a></span></p> <p>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. By causing blow after blow to both supply and demand, the pandemic has brewed a perfect storm for the industry: <a href="/industries/retail/our-insights/five-actions-retail-supply-chains-can-take-to-navigate-the-coronavirus-pandemic">a highly integrated global supply chain</a> 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.</p> <p>A freeze on spending is aggravating the supply-side crisis. 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. 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.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="d96c4fdc-e01f-4757-9e52-a39b97cccd22"><sup class="FootNote_footnotesup__e73z_">14</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="d96c4fdc-e01f-4757-9e52-a39b97cccd22" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">McKinsey analysis, based on data from Amazon and Stackline.</span></span></span></a></span></p> <h3>Once the dust settles</h3> <p>Once the dust settles on the immediate crisis, fashion will face a recessionary market and an industry landscape still undergoing dramatic transformation. The exhibit<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="855c07ce-c62b-4000-8916-d72de8be00d0"><sup class="FootNote_footnotesup__e73z_">15</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="855c07ce-c62b-4000-8916-d72de8be00d0" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline"><em>To view exhibit, refer to</em> <a href="/~/media/mckinsey/industries/retail/our insights/its time to rewire the fashion system state of fashion coronavirus update/the-state-of-fashion-2020-coronavirus-update-final.pdf">The State of Fashion 2020: Coronavirus Update</a>.</span></span></span></a></span> unpacks five areas that could see significant changes; the full report explores these areas in greater depth. We expect a period of recovery to be characterized by a continued lull in spending and a decrease in demand across channels. As noted in our previous articles on “<a href="/industries/retail/our-insights/the-influence-of-woke-consumers-on-fashion">getting woke</a>,” <a href="/industries/retail/our-insights/what-radical-transparency-could-mean-for-the-fashion-industry">radical transparency</a>, and <a href="/industries/retail/our-insights/the-fashion-industry-in-2020-ten-top-themes-from-the-state-of-fashion">sustainability first</a>, the consumer mindset was already showing signs of shifting in certain directions before the pandemic.</p> <p>Now, the resulting “quarantine of consumption”<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="86d55dbd-e762-4c81-aef0-50a4caae6bcb"><sup class="FootNote_footnotesup__e73z_">16</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="86d55dbd-e762-4c81-aef0-50a4caae6bcb" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">Marcus Fairs, “<a href="https://www.dezeen.com/2020/03/09/li-edelkoort-coronavirus-reset/">Coronavirus offers ‘a blank page for a new beginning’ says Li Edelkoort</a>,” <em>Dezeen</em>, March 9, 2020, dezeen.com.</span></span></span></a></span> could accelerate some of these consumer shifts, such as a growing antipathy toward waste-producing business models and heightened expectations for <a href="/capabilities/people-and-organizational-performance/our-insights/demonstrating-corporate-purpose-in-the-time-of-coronavirus">purpose-driven, sustainable action</a>. 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.</p> <p>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. We expect that themes of digital acceleration, discounting, industry consolidation, and corporate innovation will be prioritized once the immediate crisis subsides. 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.</p> <p>This will also be a time for collaboration within the industry—even among competing organizations. No company will get through the pandemic alone, and fashion players need to share data, strategies, and insights on how to navigate the storm. Brands, suppliers, contractors, and property owners should also find ways to share the burden.</p> <p>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. 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.</p> <p><a href="/industries/healthcare/our-insights/beyond-coronavirus-the-path-to-the-next-normal">Navigating this uncertainty</a> will not be easy for fashion leaders. Players need to be decisive and start putting recovery strategies into motion to emerge with renewed energy. The crisis is a catalyst that will shock the industry into change—now is the time to get ready for a postcoronavirus world.</p> <p><em>Download</em> <a href="/~/media/mckinsey/industries/retail/our insights/its time to rewire the fashion system state of fashion coronavirus update/the-state-of-fashion-2020-coronavirus-update-final.pdf">The State of Fashion 2020: Coronavirus Update</a><em>, the full report on which this article is based (PDF–3MB).</em> </p> <hr/> <p><strong>ABOUT THE AUTHOR(S)</strong></p> <p><strong>Imran Amed,</strong> the founder, editor-in-chief, and CEO of the Business of Fashion, is an alumnus of McKinsey’s London office, where <strong><a href="/our-people/anita-balchandani">Anita Balchandani</a></strong> is a partner and <strong>Jakob Ekeløf Jensen</strong> is a consultant; <strong>Achim Berg</strong> is a senior partner in the Frankfurt office; <strong>Saskia Hedrich</strong> is a senior expert in the Munich office; and <strong>Felix Rölkens</strong> is an associate partner in the Berlin office.</p> <p>The authors wish to thank McKinsey’s Tiffany Wendler, as well as the Business of Fashion’s Robb Young, for their contributions to this article.</p> <a id="2020update"></a> <div data-component="mdc-c-module-wrapper" data-module-theme="dark" data-module-background="deep-blue" data-module-category="" data-module-gradient-position="top-right" class="mck-o-edge-to-edge SectionHeader_mck-c-section-header___N7qG mck-c-module-wrapper"><style></style><div data-component="mdc-c-background-image" class="mdc-c-bg-image___GJdv1_2734c4f background-image-section-header-517F0E5BE2924ACBB3C2C32FB6319920-bg SectionHeader_mck-c-section-header__parallax-container__sgMMy" role="img" aria-label="The state of fashion 2020: Navigating uncertainty"></div><div class="mdc-c-bg-image___GJdv1_2734c4f mdc-c-bg-image--opaque-bg___CauU1_2734c4f" style="opacity:0.3"></div><div class="mck-o-container"><div class="mck-o-container--wrapped mck-o-container--mobile-spacing"><div id="section-header-2020" class="mdc-u-grid mdc-u-grid-col-lg-12 SectionHeader_mck-c-section-header__wrapper__CZEyB"><div class="mdc-u-grid-col-lg-start-2 mdc-u-grid-col-lg-end-12 SectionHeader_mck-c-section-header__wrapper-positioned__fIWpF"><div class="mdc-u-grid mdc-u-grid-gutter-sm SectionHeader_mck-c-section-header__wrapper-text__hSx1f"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f SectionHeader_mck-c-section-header__heading__2ePOu"><span>The State of Fashion 2020: Navigating uncertainty</span></h2></div><div class="SectionHeader_mck-c-section-header__section-holder__BaLti"></div></div></div></div></div></div> <p>By Imran Amed, <a href="/our-people/anita-balchandani">Anita Balchandani</a>, Achim Berg, Saskia Hedrich, Shrina Poojara, and Felix Rölkens</p> <p><strong>The industry is not looking forward to 2020—suggesting strategic clarity will be important.</strong></p> <p><strong>The prevailing mood</strong> of fashion leaders is one of anxiety and concern. On the one hand, evolving channels, shifting markets, and groundbreaking research offer revenue opportunities and the chance for radical innovation. On the other, global economic growth is slowing and competition is more intense than ever.</p>  <p>To thrive in this environment, companies must think strategically, sharpen their decision making, and keep their fingers on the pulse of customer demand. They need to get digital right and to address consumers increasingly concerned by the climate-change agenda. At the same time, they must cater to local tastes across multiple markets and cultures. One size will not fit all.</p> <p>These are some of the findings from our latest report, The State of Fashion 2020, written in partnership with <a href="https://www.businessoffashion.com/">The Business of Fashion (BoF)</a>. This fourth in our annual series analyzes major themes around the fashion economy and breaks new ground to explain the dynamics driving the industry. 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. The latest reading of the McKinsey Global Fashion Index (MGFI), meanwhile, reveals new insights into fashion-company performance by category, segment, and region.</p> <h3>A darkening mood</h3> <p>For many in the fashion industry, the glass is half empty. The mood among respondents to our executive survey is sober across geographies and price points, and the pockets of optimism seen last year in North America and the luxury segment have steadily evaporated (Exhibit 1).<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="67b1d436-65b7-4570-b75e-0b1dd325f094"><sup class="FootNote_footnotesup__e73z_">17</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="67b1d436-65b7-4570-b75e-0b1dd325f094" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline"><em>To view exhibit, refer to</em> <a href="/~/media/mckinsey/industries/retail/our insights/the state of fashion 2020 navigating uncertainty/the-state-of-fashion-2020-final.pdf">The State of Fashion 2020</a>.</span></span></span></a></span></p> <p>The MGFI forecasts that growth will slow to 3 to 4 percent in 2020, slightly below the predicted rate for 2019. Strikingly, only 9 percent of respondents think conditions will improve next year, compared with 49 percent who said the same last year.</p> <p>Economic profit grew for the second year running in 2018, following consecutive annual declines from 2012 to 2016 (Exhibit 2).<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="8767ed77-efca-430d-81e8-09bd0c4fcdf5"><sup class="FootNote_footnotesup__e73z_">18</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="8767ed77-efca-430d-81e8-09bd0c4fcdf5" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline"><em>To view exhibit, refer to</em> <a href="/~/media/mckinsey/industries/retail/our insights/the state of fashion 2020 navigating uncertainty/the-state-of-fashion-2020-final.pdf">The State of Fashion 2020</a>.</span></span></span></a></span> The 16 percent year-on-year rise came largely from improved operating margins driven by cost cutting. The average industry EBITA<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="5ca8dfa3-a489-47e5-bcdf-7004255ec98c"><sup class="FootNote_footnotesup__e73z_">19</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="5ca8dfa3-a489-47e5-bcdf-7004255ec98c" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline"><em>To view exhibit, refer to</em> <a href="/~/media/mckinsey/industries/retail/our insights/the state of fashion 2020 navigating uncertainty/the-state-of-fashion-2020-final.pdf">The State of Fashion 2020</a>.</span></span></span></a></span> margin was 10.8 percent, a tick up on 2017 and the highest since 2014.</p> <p>One reason that executives are not breaking out the bunting is that <a href="/sitecore/service/notfound.aspx?item=web%3a%7bf8ee9947-c9df-4018-ac14-c8f285979f3b%7d%40en">the outlook for the global economy is less rosy</a> than it was a year ago. Against this background, fashion-industry fortunes are highly polarized. For an exclusive group of “Super Winners,” the sun is shining (Exhibit 3);<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="56542882-57dd-41e5-9e38-324405c3bc31"><sup class="FootNote_footnotesup__e73z_">20</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="56542882-57dd-41e5-9e38-324405c3bc31" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline"><em>To view exhibit, refer to</em> <a href="/~/media/mckinsey/industries/retail/our insights/the state of fashion 2020 navigating uncertainty/the-state-of-fashion-2020-final.pdf">The State of Fashion 2020</a>.</span></span></span></a></span> by economic profit, these 20 companies added more to the industry bottom line in 2018 than all others combined. 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. 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. Not only are leading companies highly value-creating, they are also at the cutting edge of innovation. They are also most successful in attracting funding and talent, often leaving the rest to fight over scraps.</p> <p>Alongside public companies, we also identified a group of “hidden champions.” These privately owned gems often dominate their category areas and generate significant revenues. Some are household names, while others are less visible but still pack a punch. 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. At the opposite end of the price spectrum is Primark, whose commitment to its core value proposition has made it a formidable competitor. These players show that there is a great deal of industry value outside the spotlight, and the “hidden champions” too have much to offer alongside their listed counterparts.</p> <p>Of course, for every success, there are also relative failures. 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. For some, the abyss beckons.</p> <h3>Ten themes for 2020</h3> <p>What will define the industry in the coming year? Based on our executive survey, the words on everyone’s lips are sustainability, digitization, and innovation (Exhibit 4).<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="b2dd5579-69e8-4db5-86cf-36f3d93dcd09"><sup class="FootNote_footnotesup__e73z_">21</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="b2dd5579-69e8-4db5-86cf-36f3d93dcd09" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">Earnings before interest, taxes, and amortization.</span></span></span></a></span></p> <p>When it comes to sustainability, the industry’s track record remains a source of concern. The textile sector still represents 6 percent of global greenhouse-gas emissions and 10 to 20 percent of pesticide use. 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. Consumers are increasingly waking up to this reality and demanding change. In August 2019, Kering CEO François-Henri Pinault spearheaded an industry-wide pact to achieve net-zero emissions by 2050. According to McKinsey’s <a href="/industries/retail/our-insights/fashions-new-must-have-sustainable-sourcing-at-scale">2019 Apparel Chief Purchasing Officer Survey</a>, while the absolute number of sustainable fashion products remains low, there has been a fivefold increase over the past two years.</p> <p>Looking forward, we see more research into sustainable materials and technologies, as well as <a href="/capabilities/sustainability/our-insights/mapping-the-benefits-of-a-circular-economy">the circular economy</a>. This should lead to a move beyond 2019’s focus on transparency toward real commitment. That’s great news for consumers and for companies that can make sustainability real. However, given the scale of investment required, it means nervous times for small and midsize players.</p> <p>Equally, consumers and advocates are calling for the industry to <a href="/capabilities/people-and-organizational-performance/our-insights/delivering-through-diversity">become more inclusive</a>. 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.</p> <p>Digital disruptors will face more cautious investors in the year ahead. 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. The trick in 2020 will be to prove to investors they can turn potential into profit. At the vanguard, we are seeing a new breed of direct-to-customer companies. 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.</p> <p>At the forefront for many is the future role of brick-and-mortar stores. Although they are written off by some as “too 20th century,” we take a more constructive view. We see local stores in particular building a role as partners in the digital revolution, helping customers touch, feel, and experience in convenient locations <a href="/industries/retail/our-insights/ready-to-where-getting-sharp-on-apparel-omnichannel-excellence">as they browse online and offline</a>.</p> <p>The bottom line? The coming year will be tough, as the digital shakeout gathers pace, customers demand more on sustainability, and slower growth puts pressure on margins. However, there will be opportunities. Brands that can align with the dominant trends and continue to innovate are most likely to ride the challenges and emerge ahead of the pack.</p> <p><em>Download</em> <a href="/~/media/mckinsey/industries/retail/our insights/the state of fashion 2020 navigating uncertainty/the-state-of-fashion-2020-final.pdf">The State of Fashion 2020</a><em>, the full report on which this article is based (PDF–7MB).</em></p> <hr/> <p><strong>ABOUT THE AUTHOR(S)</strong></p> <p><strong><a href="/our-people/anita-balchandani">Anita Balchandani</a></strong> is a partner in McKinsey’s London office, where <strong>Shrina Poojara</strong> is a consultant; <strong>Achim Berg</strong> is a senior partner in the Frankfurt office; <strong>Saskia Hedrich</strong> is a senior expert in the Munich office; and <strong>Felix Rölkens</strong> is an associate partner in the Berlin office. <strong>Imran Amed</strong> is the founder, editor-in-chief, and CEO of <a href="https://www.businessoffashion.com/">The Business of Fashion</a>.</p> <p>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.</p> <div data-component="mdc-c-module-wrapper" data-module-theme="dark" data-module-background="deep-blue" data-module-category="" data-module-gradient-position="top-right" class="mck-o-edge-to-edge SectionHeader_mck-c-section-header___N7qG mck-c-module-wrapper"><style></style><div data-component="mdc-c-background-image" class="mdc-c-bg-image___GJdv1_2734c4f background-image-section-header-6780A0B74F1349E8BBFB7EA9816A67C4-bg SectionHeader_mck-c-section-header__parallax-container__sgMMy" role="img" aria-label="The State of Fashion 2019: A year of awakening"></div><div class="mdc-c-bg-image___GJdv1_2734c4f mdc-c-bg-image--opaque-bg___CauU1_2734c4f" style="opacity:0.3"></div><div class="mck-o-container"><div class="mck-o-container--wrapped mck-o-container--mobile-spacing"><div id="section-header-2019" class="mdc-u-grid mdc-u-grid-col-lg-12 SectionHeader_mck-c-section-header__wrapper__CZEyB"><div class="mdc-u-grid-col-lg-start-2 mdc-u-grid-col-lg-end-12 SectionHeader_mck-c-section-header__wrapper-positioned__fIWpF"><div class="mdc-u-grid mdc-u-grid-gutter-sm SectionHeader_mck-c-section-header__wrapper-text__hSx1f"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f SectionHeader_mck-c-section-header__heading__2ePOu"><span>The State of Fashion 2019: A year of awakening</span></h2></div><div class="SectionHeader_mck-c-section-header__section-holder__BaLti"></div></div></div></div></div></div> <p>By Imran Amed, <a href="/our-people/anita-balchandani">Anita Balchandani</a>, Marco Beltrami, Achim Berg, Saskia Hedrich, and Felix Rölkens</p> <p><strong>The industry as a whole is embracing new opportunities—even as dangers lurk.</strong></p> <p><strong>The year ahead</strong> will be an awakening after the reckoning of 2018—a time for fashion companies to look at opportunities and not just at surmounting challenges. The ones that will succeed will have come to terms with the fact that in the new paradigm taking shape around them, some of the old rules simply don’t work. Regardless of size and segment, players now need to be nimble, think digital-first, and achieve ever-faster <a href="/industries/retail/our-insights/measuring-the-fashion-world">speed to market</a>. They need to take an active stance on social issues, satisfy consumer demands for radical transparency and <a href="/capabilities/sustainability/our-insights/a-new-textiles-economy-redesigning-fashions-future">sustainability</a>, and, most important, have the courage to “self-disrupt” their own identity and the sources of their old success to realize these changes and win new generations of customers.</p> <p>They also need to invest in enhancing their productivity and resilience, as the outlook is uncertain. External shocks to the system continue to lurk, and growth cannot be taken for granted.</p>  <p>These are some of the findings from our latest report on <em>The State of Fashion</em>, written in partnership with the <a href="https://www.businessoffashion.com/">Business of Fashion (BoF)</a>, which explores the industry’s fragmented, complex ecosystem. Our first two reports, <a href="#2018update">last year</a> and <a href="#2017update">the year before</a>, laid the foundation for rigorous in-depth research and analysis, focusing on the themes, issues, and opportunities affecting the sector and its performance. The <em>State of Fashion</em> is now the largest and most authoritative overview of the industry, surveying more than 275 global fashion executives (approximately 30 percent more than last year) and interviewing thought leaders and pioneers. We also highlight the ten trends that will define the fashion agenda in 2019 (interactive).</p>  <p>The report includes the third readout of our industry benchmark, the McKinsey Global Fashion Index. This database of more than 500 companies allows us to analyze and compare the performance of individual companies with their peers, by category, segment, or region.</p> <h3>Sunny intervals but storms ahead</h3> <p>For fashion players, 2019 will be a year of awakening. 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. By geography, the most optimistic about the coming year are executives in North America. By segment, the most positive are executives from <a href="/industries/retail/our-insights/luxury-in-the-age-of-digital-darwinism">luxury brands</a>, reflecting their strong growth trajectory in 2018. In all other regions and segments, executives are notably pessimistic, reflecting the potential challenges ahead (Exhibit 1).<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="5a138c97-3b97-408a-87ed-1897c884d5b7"><sup class="FootNote_footnotesup__e73z_">22</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="5a138c97-3b97-408a-87ed-1897c884d5b7" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline"><em>To view exhibit, refer to</em> <a href="/~/media/mckinsey/industries/retail/our insights/the state of fashion 2019 a year of awakening/the-state-of-fashion-2019-final.pdf">The State of Fashion 2019</a>.</span></span></span></a></span></p> <p>All this comes against a backdrop of the fashion industry having turned a corner in 2018, with increased growth justifying the optimism expressed in last year’s global fashion survey. 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.</p> <h3>The rise of the ‘superwinners’</h3> <p>Polarization continues to be a stark reality in fashion: fully 97 percent of economic profits for the whole industry are earned by just 20 companies, most of them in the luxury segment. Notably, the top 20 group of companies has remained stable over time. Twelve of the top 20 have been a member of the group for the last decade. 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).<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="4a4eb715-de2f-49c7-afdf-850fb2e12cd6"><sup class="FootNote_footnotesup__e73z_">23</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="4a4eb715-de2f-49c7-afdf-850fb2e12cd6" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline"><em>To view exhibit, refer to</em> <a href="/~/media/mckinsey/industries/retail/our insights/the state of fashion 2019 a year of awakening/the-state-of-fashion-2019-final.pdf">The State of Fashion 2019</a>.</span></span></span></a></span> According to our estimates, each racked up more than $2 billion in economic profit in 2017.</p> <h3>Ten trends for 2019</h3> <p>This caution is one of our ten trends to watch in 2019. Another is that <a href="/featured-insights/india">India</a> is on the rise—its growing middle class, powerful manufacturing sector, and increasingly savvy tech have made it an essential destination for fashion companies. Our third trend is Trade 2.0: a warning that companies should make contingency plans for <a href="/industries/public-sector/our-insights/navigating-the-new-realities-of-global-trade">a potential shake-up of global value chains</a>. The apparel trade could be reshaped by new barriers, trade tensions, and uncertainty. However, there may also be new opportunities from growing south–south trade and the renegotiation of trade agreements.</p> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="mck-o-sm-left-span Image_mck-c-image__fhx5v"><picture data-component="mdc-c-picture" class="Image_mck-c-image__img-container__JusDB"><img alt="The Ste of Fashion 2019" src="/~/media/mckinsey/industries/retail/our%20insights/the%20state%20of%20fashion%202019%20a%20year%20of%20awakening/the-state-of-fashion-2019.jpg?cq=50&mw=767&cpy=Center" loading="lazy"/></picture><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f"><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f mdc-u-ts-9 mdc-u-mt-3 Image_mck-c-image__description__nsDz3"><div><em>Download</em> <a href="/~/media/mckinsey/industries/retail/our insights/the state of fashion 2019 a year of awakening/the-state-of-fashion-2019-final.pdf">The State of Fashion</a> <em>(PDF–3MB).</em></div></div></div><div class="mck-u-sr-only">The Ste of Fashion 2019</div></div> <p>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. 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. And “woke” consumers are also pushing for greater transparency into supply chains—and rewarding their favorite brands for taking controversial political stands. At the same time, they are demanding ever-quicker and more seamless fulfillment, from mobile shopping to <a href="/industries/travel-logistics-and-infrastructure/our-insights/technology-delivered-implications-for-cost-customers-and-competition-in-the-last-mile-ecosystem">drone delivery</a>.</p> <p>In response, wise companies are self-disrupting before upstarts do it for them, engaging in a digital landgrab to diversify their ecosystem, and using automation and <a href="/industries/retail/our-insights/geek-meets-chic-four-actions-to-jump-start-advanced-analytics-in-apparel">data analytics</a> to produce on demand to reduce waste and react rapidly to trends.</p> <h3>The speed of change</h3> <p>Overall, the industry continues to hover in a state of flux, and the fortunes of individual players can turn with frightening speed. As our ten trends indicate, new markets, new technologies, and shifting consumer needs present opportunities—but also risks. 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. Only those brands that accurately reflect the Zeitgeist or have the courage to “self-disrupt” will emerge as winners.</p> <p><em>Download</em> <a href="/~/media/mckinsey/industries/retail/our insights/the state of fashion 2019 a year of awakening/the-state-of-fashion-2019-final.pdf">The State of Fashion 2019</a><em>, the full report on which this article is based (PDF–3 MB).</em></p> <hr/> <p><strong>ABOUT THE AUTHOR(S)</strong></p> <p><strong><a href="/our-people/anita-balchandani">Anita Balchandani</a></strong> is a partner in McKinsey’s London office, where <strong>Marco Beltrami</strong> is a consultant; <strong>Achim Berg</strong> is a senior partner in the Frankfurt office, <strong>Saskia Hedrich</strong> is a senior expert in the Munich office, and <strong>Felix Rölkens</strong> is a consultant in the Berlin office. <strong>Imran Amed</strong> is the founder, editor-in-chief, and CEO of the <a href="https://www.businessoffashion.com/">Business of Fashion</a>.</p> <p>The authors wish to thank McKinsey’s Johanna Andersson and Dale Kim, as well as the Business of Fashion’s Robb Young, for their contributions to this work.</p> <a id="2018update"></a> <div data-component="mdc-c-module-wrapper" data-module-theme="dark" data-module-background="deep-blue" data-module-category="" data-module-gradient-position="top-right" class="mck-o-edge-to-edge SectionHeader_mck-c-section-header___N7qG mck-c-module-wrapper"><style></style><div data-component="mdc-c-background-image" class="mdc-c-bg-image___GJdv1_2734c4f background-image-section-header-B1FBA738590D4D7DB8F4BE2905EC5A2B-bg SectionHeader_mck-c-section-header__parallax-container__sgMMy" role="img" aria-label="Renewed optimism for the fashion industry"></div><div class="mdc-c-bg-image___GJdv1_2734c4f mdc-c-bg-image--opaque-bg___CauU1_2734c4f" style="opacity:0.5"></div><div class="mck-o-container"><div class="mck-o-container--wrapped mck-o-container--mobile-spacing"><div id="section-header-2018" class="mdc-u-grid mdc-u-grid-col-lg-12 SectionHeader_mck-c-section-header__wrapper__CZEyB"><div class="mdc-u-grid-col-lg-start-2 mdc-u-grid-col-lg-end-12 SectionHeader_mck-c-section-header__wrapper-positioned__fIWpF"><div class="mdc-u-grid mdc-u-grid-gutter-sm SectionHeader_mck-c-section-header__wrapper-text__hSx1f"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f SectionHeader_mck-c-section-header__heading__2ePOu"><span>The State of Fashion 2018: Renewed optimism for the fashion industry</span></h2></div><div class="SectionHeader_mck-c-section-header__section-holder__BaLti"></div></div></div></div></div></div> <p>By Imran Amed, Johanna Andersson, Achim Berg, Martine Drageset, Saskia Hedrich, and Sara Kappelmark</p> <p><strong>After a challenging stretch, has fashion turned the corner? Things are looking up, but the rebound may be uneven, says this year’s The <em>State of Fashion</em> report.</strong></p> <p><strong>There is general agreement</strong> that 2016 was one of the most challenging years the fashion industry has ever seen. 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. Emerging markets remain a crucial source of this growth; indeed, in 2018, for the first time, more than half of apparel and footwear sales will originate outside Europe and North America.</p> <p>These are some of the findings from our latest <em>The State of Fashion</em> report, written in partnership with the <em><a href="https://www.businessoffashion.com/">Business of Fashion (BoF)</a></em> to explore the industry’s fragmented, complex ecosystem. <a href="#2017update">Our first report</a>, 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. (For more, see our infographic on the ten trends that will define the fashion agenda in 2018.) This year, we are seeing real signs of change.</p>  <h3>Fashion’s growth outlook by region, and by category</h3> <p>Although the fashion industry appears to be turning a corner, the rebound is not being felt evenly across the globe. 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. 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).<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="55e267de-1ec8-4f40-b2dd-c1f9c1b96803"><sup class="FootNote_footnotesup__e73z_">24</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="55e267de-1ec8-4f40-b2dd-c1f9c1b96803" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline"><em>To view exhibit, refer to</em> <a href="/~/media/mckinsey/industries/retail/our insights/renewed optimism for the fashion industry/the-state-of-fashion-2018-final.pdf">The State of Fashion 2018</a>.</span></span></span></a></span> Meanwhile, the economic outlook in the mature part of Europe is stable, and fashion-industry sales growth is likewise expected to remain at a modest but steady 2 to 3 percent. 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. Here, we expect a modest growth of 1 to 2 percent. 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.</p> <p>The outlook for the fashion industry varies across different value segments, too. <a href="/industries/retail/our-insights/the-two-faces-of-fashion-industry-performance">The industry continues to polarize</a>: consumers are trading away from the midmarket price points even while the luxury, value, and discount segments are picking up speed. 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. Handbags and luggage, and to some extent watches and jewelry, are returning slowly to their historic highs, driven by demand in Asia–Pacific. Athletic wear is the only category where record growth rates look to slow down slightly in 2018, as the “athleisure” trend has reached its peak in some mature markets. Nonetheless, this is still expected to be the fastest-growing category, with continued strong demand in many markets.</p> <h3>Shifts among consumers</h3> <p>These developments take place at the same time as the fashion industry goes through other transformative shifts. Mainstream customers are <a href="/industries/consumer-packaged-goods/our-insights/the-consumer-sector-in-2030-trends-and-questions-to-consider">moving into a decisive phase of digital adoption</a>, and online sales of apparel and footwear are projected to grow rapidly. Consumers in Southeast Asia spend about eight hours a day online on average. The modern shopper’s comfort with digital channels and content has created a complex customer journey across online and offline touchpoints. But regardless of touchpoint, <a href="/capabilities/operations/our-insights/mastering-the-digital-advantage-in-transforming-customer-experience">consumers expect a consistent brand experience</a> across channels. Consumers also have higher expectations of <a href="/capabilities/operations/our-insights/the-ceo-guide-to-customer-experience">customer experience</a> 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. Many consumers today expect perfect functionality and immediate support at all times, coupled with rapid delivery times as players constantly compete to expedite products.</p> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="mck-o-sm-left-span Image_mck-c-image__fhx5v"><picture data-component="mdc-c-picture" class="Image_mck-c-image__img-container__JusDB"><img alt="Renewed optimism for the fashion industry" src="/~/media/mckinsey/industries/retail/our%20insights/renewed%20optimism%20for%20the%20fashion%20industry/cover_bof_2018_cr.jpg?cq=50&mw=767&cpy=Center" loading="lazy"/></picture><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f"><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f mdc-u-ts-9 mdc-u-mt-3 Image_mck-c-image__description__nsDz3"><div>Download <em><a href="/~/media/mckinsey/industries/retail/our insights/renewed optimism for the fashion industry/the-state-of-fashion-2018-final.pdf">The State of Fashion</a></em> (PDF–3 MB).</div></div></div><div class="mck-u-sr-only">Renewed optimism for the fashion industry</div></div> <p>Customers’ attention is also tuned to new channels. 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. With information and the ease of comparison at their fingertips, <a href="/capabilities/growth-marketing-and-sales/our-insights/the-new-battleground-for-marketing-led-growth">consumers are becoming less brand loyal</a> among millennials, two-thirds say they are willing to switch brands for a discount of 30 percent or more. Shoppers are also becoming more selective. More and more, they base their purchase decisions on whether a company’s practices and mission aligns with their values—while at the same time they are highly price sensitive.</p> <p>So consumers expect it all: convenience, quality, values orientation, newness, and price. In response, leading fashion players are offering innovative business models,<a href="/capabilities/quantumblack/our-insights/capturing-value-from-your-customer-data"> using granular customer insights</a> as a source of differentiation, and pushing the limits of go-to-market times. 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. To keep up, leading fashion players are accelerating their speed from design to shelf. This “need for speed” is driven partly by social media accelerating the movement of fashion trends to the masses, and by industry leaders using analytics and customer insights to meet customer needs better and increase responsiveness.</p> <p>But speed and flexibility bring added complexity. Shortening lead times requires major changes to the traditional business model and supply chain, and <a href="/capabilities/mckinsey-digital/our-insights/the-next-generation-operating-model-for-the-digital-world">a shift in focus to a customer-centric model</a>. Laggards face increased fashion risk and excess inventory if they fail to match customer demand. 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.</p> <p>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.</p> <hr/> <p>The challenges of a fundamentally changing industry and a continued unpredictable macroeconomic environment has led fashion players to toughen up. 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. 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.</p> <p><em>Download</em> <a href="/~/media/mckinsey/industries/retail/our insights/renewed optimism for the fashion industry/the-state-of-fashion-2018-final.pdf">The State of Fashion 2018</a> <em>to view the exhibit and read the full report on which this article is based (PDF–3 MB).</em></p> <p><strong>ABOUT THE AUTHOR(S)</strong></p> <p><strong>Johanna Andersson</strong> is a consultant in McKinsey’s Stockholm office, where <strong>Sara Kappelmark</strong> is a partner; <strong>Achim Berg</strong> is a senior partner in the Frankfurt office, <strong>Martine Drageset</strong> is a consultant in the Oslo office, and <strong>Saskia Hedrich</strong> is a senior expert in the Munich office. <strong>Imran Amed</strong> is the founder, editor-in-chief, and CEO of the <em>Business of Fashion</em>.</p> <a id="2017update"></a> <div data-component="mdc-c-module-wrapper" data-module-theme="dark" data-module-background="deep-blue" data-module-category="" data-module-gradient-position="top-right" class="mck-o-edge-to-edge SectionHeader_mck-c-section-header___N7qG mck-c-module-wrapper"><style></style><div data-component="mdc-c-background-image" class="mdc-c-bg-image___GJdv1_2734c4f background-image-section-header-C49B96195EF64BA79A654521283381FC-bg SectionHeader_mck-c-section-header__parallax-container__sgMMy" role="img" aria-label="The state of fashion"></div><div class="mck-o-container"><div class="mck-o-container--wrapped mck-o-container--mobile-spacing"><div id="section-header-2017" class="mdc-u-grid mdc-u-grid-col-lg-12 SectionHeader_mck-c-section-header__wrapper__CZEyB"><div class="mdc-u-grid-col-lg-start-2 mdc-u-grid-col-lg-end-12 SectionHeader_mck-c-section-header__wrapper-positioned__fIWpF"><div class="mdc-u-grid mdc-u-grid-gutter-sm SectionHeader_mck-c-section-header__wrapper-text__hSx1f"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f SectionHeader_mck-c-section-header__heading__2ePOu"><span>The State of Fashion 2017</span></h2></div><div class="SectionHeader_mck-c-section-header__section-holder__BaLti"></div></div></div></div></div></div> <p> <strong>Fashion is one</strong> of the past decade’s rare economic success stories. Over that period, the industry has grown at 5.5 percent annually, according to the McKinsey Global Fashion Index, to now be worth an estimated $2.4 trillion. In fact, not only does it touch everyone, but it would be the world’s seventh-largest economy if ranked alongside individual countries’ GDP.</p> <p> Yet 2016 was one of the industry’s toughest years. 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. At the same time, <a href="/industries/consumer-packaged-goods/our-insights/saving-scrimping-and-splurging-new-insights-into-consumer-behavior">consumers have become more demanding, more discerning, and less predictable in their purchasing behavior</a>, which is being radically reshaped by new technologies. It’s against this backdrop that McKinsey has teamed with <a target="_blank" href="https://www.businessoffashion.com/" rel="noopener noreferrer">the Business of Fashion</a> to shine a light on the fragmented, complex ecosystem that underpins this giant global industry.</p> <h3>2016: A year to forget</h3> <p>Our first <a href="/~/media/mckinsey/industries/retail/our insights/the state of fashion 2017/the-state-of-fashion-mck-bof-2017-report.pdf"><em>The State of Fashion</em></a> report (PDF–8MB) finds that it’s not only external shock waves that have roiled the industry. Companies have also been looking inward, implementing changes to the core operations that are reshaping the entire fashion system, from shortening the length of the fashion cycle to integrating sustainable innovation into the core product-design and manufacturing processes. Perhaps unsurprisingly, 67 percent of executives said conditions for the fashion industry have worsened over the past 12 months.</p> <p>This fact is clearly borne out in the industry’s financial performance. Sales growth seems set to slow to a mere 2 or, at most, 3 percent by the close of 2016, with stagnating profit margins. Speculation and uncertainty over the repercussions of the US election outcome could further dampen consumer sentiment and affect sales. This is in stark contrast to the fashion industry’s performance over the previous decade, which saw the industry expand at 5.5 percent annually.</p> <p>Yet this sluggish overall growth masks some big winners: affordable luxury, value, and athletic wear.</p> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="mck-o-sm-left-span Image_mck-c-image__fhx5v"><picture data-component="mdc-c-picture" class="Image_mck-c-image__img-container__JusDB"><img alt="The State of Fashion 2017" src="/~/media/mckinsey/industries/retail/our%20insights/the%20state%20of%20fashion%202017/fashion.jpg?cq=50&mw=767&cpy=Center" loading="lazy"/></picture><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f"><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f mdc-u-ts-9 mdc-u-mt-3 Image_mck-c-image__description__nsDz3"><div>Download <a href="/~/media/mckinsey/industries/retail/our insights/the state of fashion 2017/the-state-of-fashion-mck-bof-2017-report.pdf"><em>The State of Fashion</em></a> (PDF–8MB).</div></div></div><div class="mck-u-sr-only">The State of Fashion 2017</div></div> <p>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. This is consistent with their compound annual growth rate (CAGR) over the past three years, which has been 9 percent for affordable luxury and 6 percent for value, the highest of any segment since 2013.</p> <p>Affordable-luxury players benefited from consumers trading down from luxury, <a href="/industries/retail/our-insights/chinese-consumers-revisiting-our-predictions">particularly among Chinese consumers</a>. However, their profit margins are expected to decline, especially after 2016, because of a pricing-arbitrage disadvantage across geographies and fluctuating foreign-exchange rates.</p> <p>The value segment continued to grow in 2016, particularly as a consequence of large global players expanding geographically. With its clearly defined value proposition, the value segment has been taking share from discount this year.</p> <p>In 2016, the 8.0 to 8.5 percent growth for athletic wear is more than double any other category. This is consistent with its 10 percent CAGR of the past decade, driven by consumers’ more active lifestyles, the rise of “athleisure,” emerging brands in the high-end segments, and product innovations. 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.</p> <h3>2017: Glimmers of recovery</h3> <p>So what will change in 2017? No one would put money on volatility and uncertainty lessening. Nonetheless, our report finds that fashion companies are hopeful they can improve their performance through a combination of organic growth and <a href="/capabilities/growth-marketing-and-sales/our-insights/digitizing-the-consumer-decision-journey">leveraging new technologies</a>. Successful companies will invest more to nurture local clientele: 2017 will be the year of organic growth by deepening relationships with existing clients, rather than through geographic, channel, and store-network expansion. And <a href="/industries/consumer-packaged-goods/our-insights/is-luxury-ecommerce-nearing-its-tipping-point">digital innovation</a> will go behind the scenes: digitization will be the key to supply-chain efficiency, lowering procurement costs, and the enhancement of sourcing opportunities.</p> <p>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).<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="09bd1609-9a1e-4849-83a3-5fc175ff34c2"><sup class="FootNote_footnotesup__e73z_">25</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="09bd1609-9a1e-4849-83a3-5fc175ff34c2" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline"><em>To view exhibit, refer to</em> <a href="/~/media/mckinsey/industries/retail/our insights/the state of fashion 2017/the-state-of-fashion-mck-bof-2017-report.pdf">The State of Fashion 2017</a>. </span></span></span></a></span> This is particularly true for the major players within each of the market segments and product categories. Many of them have already undertaken significant cost cutting and restructuring, and they are now primed to capture the benefits.</p> <p>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. A return to the riches of the previous decade appears unlikely. But equally, there is no call for rags just yet.</p> <p>Performance will vary depending on the individual dynamics of specific market segments and categories. Value and affordable luxury will probably be the big winners, both outpacing the industry average at a projected 3.0 to 4.0 percent and 3.5 to 4.5 percent growth, respectively. That said, almost all other market segments should see a slight improvement in sales growth of half to one-and-a-half percentage points. Only the discount segment is likely not to be part of the recovery trend.</p> <p>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. 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. 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.</p> <hr/> <p>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. 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.</p> <p>Economically, we see a number of trends that will shape the industry, including fashion’s response to intensifying volatility, <a href="/featured-insights/china/the-ceo-guide-to-chinas-future">continued challenges in China</a>, and <a href="/featured-insights/urbanization/urban-world-meeting-the-demographic-challenge-in-cities">the rise of urban centers</a>. To address consumer behavior, players will have to learn to serve shrewder and more-demanding customers and adjust to a shifting demographic profile. Finally, 2017 will also be a critical year for the fashion business system, with developments expected around the fashion cycle, technological advancements, and a shake-up in the ownership of fashion companies, as players restructure and industry outsiders step up their activities in the fashion sector.</p> <p>The bottom line is that amid this uncertainty and change, our analysis suggests cautious optimism is warranted. It’s a sentiment shared by industry executives: 40 percent expect conditions for the industry to improve in the year ahead. As with everything in this fast-moving sector, we’ll just have to wait and see.</p> <p><em>This is an edited excerpt from the first joint report from McKinsey and the Business of Fashion,</em> <a href="/~/media/mckinsey/industries/retail/our insights/the state of fashion 2017/the-state-of-fashion-mck-bof-2017-report.pdf">The State of Fashion</a> (PDF–8MB). <em>Download the report to view the exhibit.</em></p></div><div class="container-placeholder"></div></div></div><div class="mdc-u-grid mdc-u-grid-gutter-xl"><section role="contentinfo" data-layer-region="article-about-authors" class="mdc-u-grid mdc-u-grid-col-md-12 AboutAuthor_mck-c-about-author__nRJzu"><div class="mdc-u-grid-col-md-start-2 mdc-u-grid-col-md-end-12 mdc-u-grid-col-lg-start-3 mdc-u-grid-col-lg-end-11"><h5 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-c-heading--title___5qyOB_2734c4f mdc-c-heading--border___K8dj3_2734c4f mdc-u-align-center"></h5><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f mdc-u-ts-8 mck-u-links-inline mck-u-links-inline--secondary mdc-u-mt-5"><div><p><strong>Achim Berg</strong> is a senior partner in McKinsey’s Frankfurt office, <strong>Leonie Brantberg</strong> is an associate partner in the London office, and <strong>Saskia Hedrich</strong> is a senior expert in the Munich office. <strong>Imran Amed</strong> is the founder, editor-in-chief, and CEO of <a href="https://www.businessoffashion.com/" target="_blank">the Business of Fashion</a>. </p><p> The authors wish to thank Robb Young, <a href="https://www.businessoffashion.com/" target="_blank">the Business of Fashion</a>’s global markets editor, for his contribution to this article.</p></div></div></div></section><section class="mdc-u-grid mdc-u-grid-col-md-12 mck-u-screen-only"><div class="mdc-u-grid-col-md-start-2 mdc-u-grid-col-md-end-12 mdc-u-grid-col-lg-start-5 mdc-u-grid-col-lg-end-9"><h5 data-component="mdc-c-heading" 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archive","fields":null,"databaseName":"web","deviceId":"fe5d7fdf-89c0-4d99-9aa3-b5fbd009c9f3","itemId":"fc146e33-721a-4327-bd29-ad236495acd2","itemLanguage":"en","itemVersion":8,"layoutId":"ae753eb4-a035-40b4-83bf-4b4438df6742","templateId":"683910db-02ba-40ba-92e7-726c880160a9","templateName":"ArticleJSS","placeholders":{"jss-main":[{"uid":"232bb7e9-289f-492d-a916-2b6185e44a84","componentName":"ArticleTemplate","dataSource":"","fields":{"data":{"articleTemplate":{"title":{"jsonValue":{"value":"State of Fashion report archive (2017-2024)"}},"sEOTitle":{"value":""},"description":{"jsonValue":{"value":"McKinsey\u0026rsquo;s State of Fashion report offers the best of our research and insights into the fashion industry. View our archives for past reports from 2017-2024."}},"sEODescription":{"value":"Updated annually, our State of Fashion report offers the best of our research and insights into the fashion industry. Explore the findings from our latest report."},"displayDate":{"jsonValue":{"value":"2024-11-14T00:00:00Z"}},"body":{"value":"\u003ch4\u003eYou\u0026rsquo;ve reached an archival page. Please see our 2025 State of Fashion report \u003cspan style=\"color: #2155ff;\"\u003e\u003ca href=\"/industries/retail/our-insights/state-of-fashion\"\u003ehere\u003c/a\u003e\u003c/span\u003e.\u003c/h4\u003e\n[[TableOfContents]]\n[[SectionHeader 2024]]\n[[Audio 2024]]\n[[DownloadsSidebar]]\n\u003cp\u003e\u003cstrong\u003eFashion companies will face economic headwinds, technology shifts, and an evolving competitive landscape in 2024. However, shifting consumer priorities will continue to offer opportunities.\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eStorm clouds are gathering,\u003c/strong\u003e but the experience of recent years shows how the fashion industry may ride out the challenges ahead. In 2022, the industry again showed its resilience, almost equaling the record economic profit of 2021, the McKinsey Global Fashion Index shows. Echoing the pattern of the previous year, the luxury sector outperformed, with a 36 percent rise in economic profit that offset weakness in other segments. Yet even the non-luxury sector was ahead of its long-term average. Strong margin performance meant the industry in 2022 achieved more than double the economic profit than in all years between 2011 and 2020, except for one.\u003c/p\u003e\n\u003cp\u003eIn 2023, the industry faced challenges that were both persistent and deepening. On a regional basis, Europe and the United States saw slow growth throughout the year, while China\u0026rsquo;s initially strong performance faded in the second half. Though the luxury segment initially fared well, it too began to feel the effects of weaker demand in the latter part of the year, leading to slowing sales and uneven performance.\u003c/p\u003e\n[[Sidebar 2024authors]]\n\u003cp\u003eLooking toward 2024, the most prominent sentiment among fashion industry leaders is uncertainty, reflecting the prospect of subdued economic growth, persistent inflation, and weak consumer confidence. Against this backdrop, businesses will be challenged to identify pockets of value and unlock new drivers of performance.\u003c/p\u003e\n\u003cp\u003eAccording to McKinsey\u0026rsquo;s analysis of fashion forecasts, the global industry will post top-line growth of 2 to 4 percent in 2024 (exhibit), with regional and country-level variations. Once again, the luxury segment is expected to generate the biggest share of economic profit. However, even there, companies will be challenged by the tough economic environment. The segment is forecast to grow globally by 3 to 5 percent, compared with 5 to 7 percent in 2023, as consumers rein in spending after a postpandemic surge. European and Chinese growth is set to slow, while US growth is expected to pick up after a relatively weak 2023, reflecting the slightly more optimistic outlook there.\u003c/p\u003e\n[[Exhibit 2024]]\n[[MostPopularArticles 5]]\n\u003cp\u003eBeyond luxury, growth of 2 to 4 percent is predicted for the year ahead, in line with the probable outcome in 2023. The European market will likely expand by just 1 to 3 percent, compared with 5 percent in the first half of 2023 and 1 to 3 percent in the second half. Slumping consumer confidence and declining household savings are expected to be the most probable causes of restrained spending. In the United States, nonluxury sector growth of 0 to 2 percent is forecast. And China is expected to be similarly challenged amid 4 to 6 percent growth, which is a slight uptick from the end of 2023 but slow when considered on a historical basis.\u003c/p\u003e\n\u003cp\u003eThese are just some of the findings from \u003cem\u003eThe State of Fashion 2024\u003c/em\u003e, published by the Business of Fashion (BoF) and McKinsey. The eighth report in the annual series discusses the major themes shaping the fashion economy and assesses the industry\u0026rsquo;s potential responses. Reflecting in-depth research and many conversations with industry leaders, it reveals the key trends that could shape the fashion landscape in the year ahead.\u003c/p\u003e\n\u003ch2\u003eUncertainty in the face of headwinds\u003c/h2\u003e\n\u003cp\u003eWith conflicts in Europe and the Middle East and strained international relations elsewhere, geopolitics is the number-one concern for fashion industry executives going into 2024, followed by economic volatility and inflation. Some 62 percent of executives in this year\u0026rsquo;s survey, conducted in September, cite geopolitical instability as the top risk to growth. Economic volatility is cited by 55 percent and inflation is mentioned by 51 percent (compared with 78 percent last year). The global average headline rate of inflation is predicted to moderate to 5.8 percent\u0026mdash;still high on a historical basis\u0026mdash;from 6.9 percent in 2023.[[footnote 1]]\u003c/p\u003e\n\u003cp\u003eAgainst a challenging economic backdrop, executive views of the industry\u0026rsquo;s prospects are more divided than in any year since the launch of the BoF\u0026ndash;McKinsey Executive Survey in 2017. While 26 percent of survey respondents say they expect conditions to improve year on year, 37 percent see them remaining the same and 38 percent think they will worsen.\u003c/p\u003e\n\u003cp\u003eUncertainty within the industry reflects the broader economic situation, albeit with regional divergence. Going into 2024, pressure on household incomes is expected to dampen demand for apparel and prompt trading down across categories. Still, there are geographic outliers that may offer comfort. One is India, where consumer confidence hit a four-year high in September 2023.[[footnote 2]] India-based executives are more optimistic than those in Western countries, with 85 percent of respondents to McKinsey\u0026rsquo;s \u003ca href=\"/capabilities/strategy-and-corporate-finance/our-insights/global-economics-intelligence-executive-summary-september-2023\"\u003eGlobal Economics Intelligence survey\u003c/a\u003e\u0026nbsp;saying that conditions have improved in the past six months.[[footnote 3]] China\u0026rsquo;s economy is facing challenges, but the country\u0026rsquo;s consumers show a higher intent to shop for fashion in 2024 than consumers in both the United States and Europe.\u003c/p\u003e\n\u003ch2\u003eTen themes for 2024\u003c/h2\u003e\n\u003cp\u003eTo prepare for challenges and be alert to opportunities, leading fashion companies will likely prioritize contingency planning for the coming year. A key theme will be companies keeping a firm grip on costs and inventories while driving growth by precisely managing prices. Brands and suppliers can expect an increasingly competitive environment. But they will also have opportunities, with consumers discovering new styles, tastes, and priorities\u0026mdash;all presenting routes to value creation. As previously done, this year\u0026rsquo;s report highlights ten emerging themes that will be high on leadership agendas.\u003c/p\u003e\n\u003cul\u003e\n \u003cli\u003e\n \u003cp\u003eGlobal economy:\u003c/p\u003e\n \u003cul\u003e\n \u003cli\u003e\u003cem\u003eFragmented future.\u003c/em\u003e In 2024, the global economic outlook will continue to be unsettled, as financial, geopolitical, and other challenges weigh on consumer confidence. Fashion markets in China, Europe, and the United States will likely face headwinds, some of which reflect individual regional dynamics. Suppliers, brands, and retailers may need to bolster contingency planning and manage for uncertainty.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eClimate urgency.\u003c/em\u003e The frequency and intensity of extreme weather-related events in 2023 mean the climate crisis is an even more urgent priority than in previous years. With physical and transition risks rising across continents, the industry must not delay in tackling emissions and building resilience into supply chains.\u003c/li\u003e\n \u003c/ul\u003e\n \u003c/li\u003e\n \u003cli\u003e\n \u003cp\u003eConsumer shifts:\u003c/p\u003e\n \u003cul\u003e\n \u003cli\u003e\u003cem\u003eVacation mode.\u003c/em\u003e Consumers are gearing up for the biggest year of travel since before the pandemic. But a shift in values means expectations are evolving, even as shopping remains a priority. Brands and retailers should refresh distribution and category strategies to reflect the new reality.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eThe new face of influence.\u003c/em\u003e It\u0026rsquo;s time for brand marketers to update their influencer playbooks, as a new guard of creative personalities wins fans. Working with opinion leaders in 2024 will require a different type of partnership, an emphasis on video, and a willingness to loosen the reins on creative control.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eOutdoors reinvented.\u003c/em\u003e Technical outdoor clothing and \u0026ldquo;gorpcore\u0026rdquo; are in demand as consumers embrace healthier lifestyles. In 2024, more outdoor brands are expected to launch lifestyle collections. At the same time, lifestyle brands will likely embed technical elements into collections, blurring the lines between functionality and style.\u003c/li\u003e\n \u003c/ul\u003e\n \u003c/li\u003e\n \u003cli\u003e\n \u003cp\u003eFashion system:\u003c/p\u003e\n \u003cul\u003e\n \u003cli\u003e\u003cem\u003eGenerative AI\u0026rsquo;s creative crossroads.\u003c/em\u003e After generative AI\u0026rsquo;s (gen AI) breakout year in 2023, more use cases are emerging across the industry. Capturing value will require fashion players to look beyond automation and explore gen AI\u0026rsquo;s potential to enhance the work of human creatives.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eFast fashion\u0026rsquo;s power play.\u003c/em\u003e Fast-fashion competition is set to be fiercer than ever. Challengers, led by Shein and Temu, are bringing new tactics on price, customer experience, and speed. Success for disruptors and incumbents could hinge on adapting to new consumer preferences while navigating the regulatory agenda.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eAll eyes on brand.\u003c/em\u003e Brand marketing is expected to be back in the spotlight as the fashion industry manages a switch away from performance marketing. Brands may benefit from forging emotional connections with consumers as marketers rewrite playbooks to emphasise long-term brand building.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eSustainability rules.\u003c/em\u003e The era of fashion industry self-regulation is drawing to a close. Across jurisdictions, new rules will have significant effects on both consumers and fashion players. Brands and manufacturers may consider revamping business models to align with the changes ahead.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eBullwhip snaps back.\u003c/em\u003e Shifts in consumer demand have created a \u0026ldquo;bullwhip effect,\u0026rdquo; by which order volatility reverberates unpredictably through supply chains. Suppliers will likely face pressure as brands and retailers focus on transparency and strategic partnerships.\u003c/li\u003e\n \u003c/ul\u003e\n \u003c/li\u003e\n\u003c/ul\u003e\n\u003ch2\u003eLooking ahead\u003c/h2\u003e\n\u003cp\u003eAs the industry continues to be challenged by geopolitical and economic headwinds, fashion leaders in 2024 will look to strike a careful balance between managing uncertainty and seizing opportunities. With cost-saving tactics mostly exhausted, companies may focus on growing sales, underpinned by new pricing and promotion strategies. Across the industry, net intent to raise prices is more than 50 percent, according to the BoF\u0026ndash;McKinsey Executive Survey. At the same time, reduced cost pressures could provide a potential boost to performance.\u003c/p\u003e\n\u003cp\u003eAs climate change brings increasingly extreme weather events and global temperatures rise, the coming year is likely to mark a heightened industry focus on environmental, social, and governance issues. Our survey shows that the topic is seen as both the number-one priority and number-one challenge for industry executives. The most successful companies will find a balance between sustainability initiatives, risk management, and commercial imperatives.\u003c/p\u003e\n\u003cp\u003eIn an uncertain world, consumer discretionary spend will be weighted toward trusted categories and brands. Hard luxury goods\u0026mdash;jewelry, watches, and leather\u0026mdash;will likely be in demand, reflecting their potential investment value in tough economic times. Consumers are expected to travel more and continue spending more time outdoors. And they prefer emotional connections and authenticity over celebrity endorsements.\u003c/p\u003e\n\u003cp\u003eAll told, executives are bracing for a strategically complex year ahead. To counter uncertainty, leading companies will prepare for a range of outcomes. The most successful will become more resilient, better equipped to manage the challenges, and ready to accelerate when the storm clouds begin to clear.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eABOUT THE AUTHOR(S)\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e\u003ca href=\"/our-people/anita-balchandani\"\u003eAnita Balchandani\u003c/a\u003e\u003c/strong\u003e is a senior partner in McKinsey\u0026rsquo;s London office, where \u003cstrong\u003eEwa Starzynska\u003c/strong\u003e is a consultant; \u003cstrong\u003eDavid Barrelet\u003c/strong\u003e is an associate partner in the Munich office; \u003cstrong\u003eAchim Berg\u003c/strong\u003e is a senior partner in the Frankfurt office; \u003cstrong\u003e\u003ca href=\"/our-people/gemma-d-auria\"\u003eGemma D\u0026rsquo;Auria\u003c/a\u003e\u003c/strong\u003e is a senior partner in the Milan office; and \u003cstrong\u003e\u003ca href=\"/our-people/felix-rolkens\"\u003eFelix R\u0026ouml;lkens\u003c/a\u003e\u003c/strong\u003e is a partner in the Berlin office. \u003cstrong\u003eImran Amed\u003c/strong\u003e is the founder, editor-in-chief, and CEO of the Business of Fashion and is an alumnus of McKinsey\u0026rsquo;s London office.\u003c/p\u003e\n\u003cp\u003eThe authors wish to thank Asina De Branche and Jo\u0026euml;lle Grunberg for their contributions to this article.\u003c/p\u003e\n\u003cp\u003e\u003cem\u003eDownload \u003c/em\u003e\u003ca href=\"/industries/retail/our-insights/state-of-fashion-2024\"\u003eThe State of Fashion 2024\u003c/a\u003e\u003cem\u003e, the full report on which this article is based (PDF\u0026ndash;15.48MB).\u003c/em\u003e\u003c/p\u003e\n[[SectionHeader 2023]]\n\u003cp\u003e\u003cstrong\u003eIn 2023, the global fashion industry will need to weather inflation while finding opportunities in shifting consumer patterns, channel and digital marketing strategies, and manufacturing approaches.\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eAfter experiencing 18 months of robust growth\u003c/strong\u003e (early 2021 through mid-2022), the fashion industry is again facing a challenging climate. Hyperinflation and depressed customer sentiments have already resulted in declining growth rates in the second half of 2022. We expect that the slowdown is likely to continue through 2023.\u003c/p\u003e\n\u003cp\u003eMany industry players are in a stronger position than they were a year ago, however. The fashion industry delivered a 21 percent increase in revenues in 2020\u0026ndash;21, and EBITA margins doubled by 6 percentage points to 12.3 percent.\u003c/p\u003e\n[[Sidebar 2023authors]]\n\u003cp\u003eLooking forward, we anticipate that the luxury sector will outperform the rest of the industry, as wealthy shoppers continue to travel and spend, and thus remain more insulated from the effects of hyperinflation. Based on McKinsey\u0026rsquo;s analysis of fashion forecasts, the luxury sector is expected to grow between 5 and 10 percent in 2023, driven by strong momentum in China (projected to grow between 9 and 14 percent) and in the United States (projected to grow between 5 and 10 percent). Europe, on the other hand, is under high pressure from currency rates and a growing energy crisis, which are likely to result in modest sales growth for the luxury sector (projected to grow between 3 and 8 percent).\u003c/p\u003e\n\u003cp\u003eThe fashion market, excluding the luxury sector, will struggle to deliver significant growth in 2023. McKinsey analysis of fashion forecasts projects relatively slow sales growth of between \u0026ndash;2 and +3 percent, weighed down by a contraction in the European market (expected to shrink between 1 and 4 percent) (exhibit). China and the United States are expected to fare better, growing between 2 and 7 percent and between 1 and 6 percent, respectively. These forecasts are reflective of inflation and are calculated in local currencies, meaning that the real impact for the sector could be more negative than these figures suggest.\u003c/p\u003e\n[[Exhibit 20231]]\n\u003cp\u003eThese are just some of the findings from \u003cem\u003eThe State of Fashion 2023\u003c/em\u003e, a joint report from the Business of Fashion and McKinsey. The report, the seventh in the annual series, discusses the major themes shaping the fashion economy and assesses a range of possible responses. Reflecting in-depth research and numerous conversations with industry leaders, it reveals the key trends likely to shape the fashion landscape in the year ahead.\u003c/p\u003e\n\u003ch2\u003eInflation and geopolitical tensions loom\u003c/h2\u003e\n[[MostPopularArticles 5]]\n\u003cp\u003eInflation is at the top of executives\u0026rsquo; minds for the coming year, according to results from the annual Business of Fashion and McKinsey State of Fashion Survey. They expect that inflation will undercut consumer demand, pushing shoppers to curtail fashion spending or trade down for less expensive products as their energy and grocery bills spike. Fashion companies are also anticipating that inflation will spike their costs, with 97 percent of executives forecasting that their cost of goods sold and SG\u0026amp;A expenses will rise in 2023. Cotton and cashmere prices, for example, have increased 45 percent and 30 percent year on year, respectively.[[footnote 4]]\u003c/p\u003e\n\u003cp\u003eFashion leaders are also watching global headlines closely in the year ahead, as macroeconomic and political uncertainties continue to obstruct business operations and escalate reputational risk. The war in Ukraine is of high concern to the industry, having already disrupted trade routes and triggered an energy crisis that will continue to have impact. In China, further COVID-19 outbreaks and the real estate crisis have undermined the region\u0026rsquo;s growth trajectory, as well as disrupted supply chains. Meanwhile, extreme weather is negatively affecting supply chains and raw materials across Asia.\u003c/p\u003e\n\u003cp\u003eThis global economic gloom is increasingly reflected in consumers\u0026rsquo; shopping habits, and the fashion industry is expecting that demand will be weakened or unpredictable in the year ahead. We foresee that the differences between the shopping habits of low- and high-income households will become more pronounced, as cost-conscious customers are likely to cut back or trade down. Meanwhile, shoppers for luxury items will likely continue to spend largely as they have been, insulated from the impact of the economic slowdown.\u003c/p\u003e\n\u003ch2\u003eTen themes for 2023\u003c/h2\u003e\n\u003cp\u003eThis year\u0026rsquo;s report presents a difficult outlook ahead, as fashion companies face challenges and revise forecasts downward after an exceptionally strong 2021, per McKinsey analysis of global data in the fashion industry. Inflation and geopolitical concerns dominate the agenda for 2023, negatively affecting both consumer demand and brands\u0026rsquo; operating costs. Consumers are adjusting their behaviors, as many trade down to cheaper or discounted items to reduce their spending, though the luxury sector will remain strong, with affluent consumers less heavily affected by inflation.\u003c/p\u003e\n\u003cp\u003eFashion companies that can adapt to the increasing complexity by updating their operating models and adjusting their strategies for supply chain, sales channels, and digital marketing will be best placed to weather the upcoming storm. They can lean into the following ten emerging consumer trends:\u003c/p\u003e\n\u003cul\u003e\n \u003cli\u003eGlobal economy:\n \u003cul\u003e\n \u003cli\u003e\u003cem\u003eGlobal fragility.\u003c/em\u003e Amid the highest inflation in a generation, rising geopolitical tensions, climate crises, and sinking consumer confidence in anticipation of an economic downturn, the global economy is in a volatile state. Fashion brands will need careful planning to navigate the many uncertainties and recessionary risks that lie ahead in 2023.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eRegional realities.\u003c/em\u003e Understanding where to invest around the world has never been easy, but rising geopolitical uncertainty and uneven economic recoveries related to the COVID-19 pandemic, among other factors, will likely make it even more challenging in 2023. Brands can reevaluate regional growth priorities and hone their strategies so that they are more tailored to the geographies in which they operate.\u003c/li\u003e\n \u003c/ul\u003e\n \u003c/li\u003e\n \u003cli\u003eConsumer shifts:\n \u003cul\u003e\n \u003cli\u003e\u003cem\u003eTwo-track spending.\u003c/em\u003e Consumers may be affected differently by the potential economic turbulence in 2023. Depending on factors such as disposable income level, some will postpone or curtail discretionary purchases; others will seek out bargains, increasing the demand for resale, rental, and off-price products. Fashion executives should adapt their business models to protect customer loyalty and avoid diluting their brands.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eFluid fashion. \u003c/em\u003eGender-fluid fashion is gaining greater traction amid changing consumer attitudes toward gender identity and expression. For many brands and retailers, the blurring of the lines between men\u0026rsquo;s wear and women\u0026rsquo;s wear will require rethinking their product design, marketing, and in-store and digital shopping experiences.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eFormal wear reinvented.\u003c/em\u003e Formal attire is taking on new definitions as shoppers rethink how they dress for work, weddings, and other occasions. While offices and events will likely become more casual, special occasions may be dominated by statement-making outfits that consumers rent or buy to stand out when they do decide to dress up.\u003c/li\u003e\n \u003c/ul\u003e\n \u003c/li\u003e\n \u003cli\u003eFashion system:\n \u003cul\u003e\n \u003cli\u003e\u003cem\u003eDirect-to-consumer reckoning.\u003c/em\u003e Although brands across price segments and categories have embraced digital direct-to-consumer channels, mounting digital marketing costs and e-commerce readjustments have put the viability of the model into question. To grow, brands will likely need to diversify their channel mix, including wholesale and third-party marketplaces, alongside direct-to-consumer models.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eTackling greenwashing. \u003c/em\u003eAs the industry continues to grapple with its damaging environmental and social impact, consumers, regulators, and other stakeholders may increasingly scrutinize how brands communicate about their sustainability credentials. If brands are to avoid greenwashing, they must show that they are making meaningful and credible change while abiding by emerging regulatory requirements.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eFuture-proofing manufacturing. \u003c/em\u003eContinued disruptions in supply chains are a catalyst for a reconfiguration of global production. Textile manufacturers can create new supply chain models based around vertical integration, nearshoring, and small-batch production, enabled by enhanced digitization.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eDigital marketing reloaded.\u003c/em\u003e Recent data rules are spurring a new chapter for digital marketing as customer targeting becomes less effective and more costly. Brands will need to embrace creative campaigns and new channels, such as retail media networks and the metaverse, to achieve greater ROI on marketing spend and to gather valuable first-party data that can be leveraged to deepen customer relationships.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eOrganization overhaul.\u003c/em\u003e Successful execution of strategies in 2023 will in part hinge on a company\u0026rsquo;s alignment around key functions. Fashion executives need a new vision for what the organization of the future will require, focusing on attracting and retaining top talent, as well as on elevating teams and critical C-suite roles to execute on priorities such as sustainability and digital acceleration.\u003c/li\u003e\n \u003c/ul\u003e\n \u003c/li\u003e\n\u003c/ul\u003e\n\u003ch2\u003eLooking ahead\u003c/h2\u003e\n\u003cp\u003eBereft by global risks and uncertainties, leaders in the fashion industry will need to pay careful attention to macroeconomic and political issues in the regions where they produce and sell their products in the year ahead. They will need to develop risk mitigation strategies that can be implemented quickly as conflicts, fiscal policies, and government regulations evolve. Additionally, they will need to think critically about where they operate, looking beyond top-line growth potential when evaluating new and existing foreign markets. Brands can no longer plan on complete political neutrality as their global customer bases become more connected and outspoken.\u003c/p\u003e\n\u003cp\u003eIn 2023, consumers will be unpredictable and fickle. Brands will need to consider carefully the factors that affect shopping behaviors and respond accordingly. Even as many customers reduce spending, brands have an opportunity to keep customers engaged through, for example, rental channels and off-price retailers. But these strategies will require careful execution to ensure that margins and brand reputations are protected. At the same time, brands will need to update their merchandising and design approaches to reflect shifting ideas around gender lines in fashion and dress codes. Daily office attire will become more casual, and special-occasion dress will become bolder.\u003c/p\u003e\n\u003cp\u003eDespite the economic headwinds ahead, fashion leaders are in a unique position to reevaluate the ways that their brands produce, distribute, and market their collections. Supply chains remain disrupted from the COVID-19 pandemic, elevating the need to invest in faster and geographically closer manufacturing systems. While direct-to-consumer, digital channels remain a top priority, fashion industry leaders will need to diversify their sales channels to maintain efficiency and market relevance. And finally, brands will need to be more creative in marketing to attract customers through bold, differentiated content that cuts through a crowded digital environment in which data targeting is no longer effective. To execute these changes and respond better to forthcoming regulations around sustainability marketing, the fashion industry should rethink how it allocates talent, promotes, and establishes executive roles and teams\u0026mdash;reflecting the key challenges facing the industry in the years ahead.\u003c/p\u003e\n\u003chr /\u003e\n\u003cp\u003eThe outlook for the global fashion industry in 2023 is uncertain and tenuous. Many customers are reigning in their budgets after months of discretionary spending. Growth has slowed in China, and major questions loom about the market\u0026rsquo;s future trajectory. An energy crisis is disrupting European economies. While the luxury and sportswear sectors have dominated the industry\u0026rsquo;s list of super successes in recent years, macroeconomic context might change that in the upcoming year. Heading into 2023, the industry\u0026rsquo;s decision makers will need to prepare to make strategic sacrifices while investing in agility and creativity to succeed when the market eventually recovers.\u003c/p\u003e\n\u003cp\u003e\u003cem\u003eDownload \u003c/em\u003e\u003ca href=\"\"\u003eThe State of Fashion 2023\u003c/a\u003e\u003cem\u003e, the full report on which this article is based (PDF\u0026ndash;21.5MB).\u003c/em\u003e\u003c/p\u003e\n\u003chr /\u003e\n\u003cp\u003e\u003cstrong\u003eABOUT THE AUTHOR(S)\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eImran Amed\u003c/strong\u003e is the founder, editor-in-chief, and CEO of the Business of Fashion and an alumnus of McKinsey\u0026rsquo;s London office, where \u003cstrong\u003e\u003ca href=\"/our-people/anita-balchandani\"\u003eAnita Balchandani\u003c/a\u003e\u003c/strong\u003e is a senior partner; \u003cstrong\u003eSarah Andr\u0026eacute; \u003c/strong\u003eis a consultant in the Paris office; \u003cstrong\u003eAchim Berg\u003c/strong\u003e\u0026nbsp;is a senior partner in the Frankfurt office; and \u003cstrong\u003eFelix R\u0026ouml;lkens\u003c/strong\u003e is a partner in the Berlin office.\u003c/p\u003e\n\u003cp\u003eThe authors wish to thank Sandrine Devillard, Jo\u0026euml;lle Grunberg, and Michael Straub for their contributions to this article.\u003c/p\u003e\n[[SectionHeader 2022]]\n\u003cp\u003e\u003cstrong\u003eIn 2022, the fashion industry can return to growth as changing category landscapes, new digital frontiers, and advances in sustainability continue to present opportunities.\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eAfter nearly two years of disruption,\u003c/strong\u003e the global fashion industry is once again finding its feet. Companies are adapting to new consumer priorities, and digital is providing a nexus for growth. Still, the industry faces significant challenges amid supply-chain disruption, patchy demand, and persistent pressure on the bottom line. With the majority of companies struggling to turn a profit, growth will be a key priority in the year ahead.\u003c/p\u003e\n[[Sidebar 2022authors]]\n\u003cp\u003eThe fashion industry posted a 20 percent decline in revenues in 2019\u0026ndash;20, as earnings before interest, taxes, and amortization (EBITA) margins declined by 3.4 percentage points to 6.8 percent. As the pandemic continued to run its course, the performance inequalities that have become a challenge over recent years were more in evidence than ever. A record 69 percent of companies were value destroyers in 2020, according to the latest reading of the McKinsey Global Fashion Index (MGFI), compared with 61 percent in 2019 and just 28 percent in 2011. About 7 percent of companies left the market entirely, either due to financial distress or because they were bought by rivals.\u003c/p\u003e\n\u003cp\u003eFrom a geographic perspective, China was the standout performer over 2021, as its economy recovered much faster than those of other countries. In 2022, the industry\u0026rsquo;s growth will likely be driven by both China and the United States, while Europe lags behind and will need the return of international tourism to recover fully (Exhibit 1). In the meantime, domestic markets are set to continue their recent strong performance.\u003c/p\u003e\n[[Ceros 20221]]\n\u003cp\u003eThese are some of the findings from \u003cem\u003eThe State of Fashion 2022\u003c/em\u003e, written in partnership with \u003ca href=\"https://www.businessoffashion.com/\"\u003ethe Business of Fashion\u003c/a\u003e (BoF). The report, the sixth in our series, discusses the major themes shaping the fashion economy and assesses a range of possible responses. Reflecting in-depth research and numerous conversations with industry leaders, it reveals the key trends likely to shape the fashion business in the year ahead.\u003c/p\u003e\n\u003ch3\u003eDiscount and luxury outperform\u003c/h3\u003e\n\u003cp\u003eDespite a dip in margins, discount and luxury outperformed the wider market in 2020, while the midmarket continued to be squeezed. However, performance was uneven, as countries with strong healthcare systems and economic resilience fared better than others. Among product categories, it was a breakout year for sportswear, with 42 percent of positive economic profit in the MGFI index coming from sportswear companies, amid strong growth for Chinese players.\u003c/p\u003e\n\u003cp\u003eIn last year\u0026rsquo;s report, we did not publish our annual list of \u0026ldquo;super winners,\u0026rdquo; due to distortions and reporting gaps caused by the pandemic. This year, we return to our analysis but with an adapted approach: smoothing pandemic-induced distortions by calculating the average economic profit over both 2019 and 2020. Over that period, the top five performers by economic profit were Nike, Inditex, Kering, LVMH (including Tiffany), and Hermes. The prominence of luxury brands among the top performers was attributable to the economic resilience of wealthier demographics, leading to a continuing demand for bags, luxury jewelry, and ready-to-wear.\u003c/p\u003e\n\u003ch3\u003eTen themes for 2022\u003c/h3\u003e\n\u003cp\u003eWe kick off our ten key themes for this year by taking the temperature of the global economy and analyzing the complex impacts of the pandemic as it continues its unpredictable progress. Amid these challenging dynamics, the imperative for brands will be to secure their recovery. At the same time, they must adapt to evolving consumer demand and ensure they take the opportunities offered by new digital frontiers. As sustainability becomes a more urgent concern, brands need to ramp up their efforts to reflect customer values in their assortments, supply chains, and ways of working. Finally, amid rising competition for talent\u0026mdash;particularly tech talent\u0026mdash;brands need to find new ways to attract the best and brightest, with cybersecurity likely to be near the top of the agenda (Exhibit 2).\u003c/p\u003e\n[[Exhibit 20222]]\n\u003cp\u003eIn many global regions, the business of fashion is set to pick up momentum in 2022, as consumers unleash pent-up buying power and dress to impress (where the pandemic allows). Indeed, recovery is at the top of executives\u0026rsquo; minds for the coming year, with 75 percent of luxury-segment executives, 61 percent of midmarket executives, and 50 percent of value executives expecting better trading conditions. However, as they pivot toward growth, a significant challenge is potential shortages of products and resources, as chocked supply chains and rising shipping costs undermine operations. Over recent months, numerous companies reported struggles to manage inventory flows or tied lower sales forecasts to supply-chain blockages. In response, many have turned to remedies that include more nearshoring, in-store supply stocking, and agile operating models designed to respond flexibly to change.\u003c/p\u003e\n\u003cp\u003eAmong the standout themes of the past year has been the continuing flourishing of online business models, reflecting a longer-term trend that accelerated during the pandemic. Hyper-interactive digital environments and investment in e-commerce are increasingly the leitmotifs of brands that are pushing on fashion frontiers. We expect in 2022 that companies will seek fresh approaches to online creativity and commerce, with nonfungible tokens, gaming \u0026ldquo;skins,\u0026rdquo; and virtual fashion edging closer to the mainstream. Some brands over the past year expanded into the digital \u0026ldquo;metaverse,\u0026rdquo; rolling out virtual stores, gaming, and digital events. In the coming 12 months, these efforts will gather pace, as in-app social commerce plays an increasingly important role.\u003c/p\u003e\n\u003cp\u003eMore than ever, sustainability is dominating consumer priorities and the fashion agenda. Consumers want to know where materials come from, how products are made, and whether the people involved are treated fairly. In response, more and more companies are expanding their sustainable assortments and working to boost the sustainability of their supply chains. As part of those efforts, some are leveraging digital product passports. These can be embedded in items to support after-use activities such as resale and recycling. Brands are also turning to passports, married with distributed-ledger technologies, in the battle against counterfeiting.\u003c/p\u003e\n\u003cp\u003eAs fashion brands invest in new digital applications, they must work harder than ever to protect their systems, partners, and customers. Amid intense competition, cybertalent will be at a premium. And more broadly, all-time-high vacancy rates mean brands must find novel ways to attract and retain employees\u0026mdash;as other industries compete hard on salaries, sustainability, and job security. Authenticity and employee well-being will be more important than ever.\u003c/p\u003e\n\u003cp\u003eThe bottom line going into 2022 is that \u003ca href=\"/industries/retail/our-insights/how-current-global-trends-are-disrupting-the-fashion-industry\"\u003ethe fashion industry faces a complex mix of challenges and opportunities\u003c/a\u003e, in which there is little room for missteps. Decision makers have their work cut out to manage the demands of digital, sustainability, and the supply chain. That said, the past year\u0026rsquo;s experience shows that consumers are resilient and that as economies recover, demand will follow suit. Therefore, the task for companies will be to unlock growth, align with changing customer needs, and focus intently on the bottom line.\u003c/p\u003e\n\u003cp\u003e\u003cem\u003eDownload \u003c/em\u003e\u003ca href=\"/~/media/mckinsey/industries/retail/our insights/state of fashion/2022/the-state-of-fashion-2022.pdf\"\u003eThe State of Fashion 2022\u003c/a\u003e, \u003cem\u003ethe full report on which this article is based (PDF\u0026ndash;14MB).\u003c/em\u003e\u003c/p\u003e\n\u003chr /\u003e\n\u003cp\u003e\u003cstrong\u003eABOUT THE AUTHOR(S)\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e\u003ca href=\"/our-people/anita-balchandani\"\u003eAnita Balchandani\u003c/a\u003e\u003c/strong\u003e is a partner in McKinsey\u0026rsquo;s London office, where \u003cstrong\u003eJakob Ekel\u0026oslash;f Jensen\u003c/strong\u003e is an associate partner and \u003cstrong\u003eLeila Le Merle\u003c/strong\u003e is a consultant. \u003cstrong\u003eAchim Berg\u003c/strong\u003e is a senior partner in the Frankfurt office. \u003cstrong\u003eSaskia Hedrich\u003c/strong\u003e is a senior knowledge expert in the Munich office. \u003cstrong\u003eFelix R\u0026ouml;lkens\u003c/strong\u003e is an associate partner in the Berlin office. \u003cstrong\u003eImran Amed\u003c/strong\u003e is the founder, editor-in-chief, and CEO of the Business of Fashion and an alumnus of the London office.\u003c/p\u003e\n\u003cp\u003eThe authors wish to thank Pamela Brown, Emma Bruni, Dunja Matanovic, Michael Straub, and Robb Young for their contributions to this article.\u003c/p\u003e\n[[SectionHeader 2021]]\n\u003cp\u003e\u003cstrong\u003eIn 2021, the COVID-19 pandemic will accelerate industry trends, with shopping shifting to digital channels and consumers continuing to champion fairness and social justice.\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eWith the COVID-19 pandemic\u003c/strong\u003e 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.\u003c/p\u003e\n[[Sidebar 2021authors]]\n\u003cp\u003eAfter 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 \u003ca href=\"/capabilities/operations/our-insights/how-retail-can-adapt-supply-chains-to-win-in-the-next-normal\"\u003esupply chains\u003c/a\u003e, making tough decisions\u0026mdash;for example, about ROI at store level\u0026mdash;and ramping up omnichannel services. The beauty segment, covered for the first time this year in our \u003cem\u003eThe State of Fashion 2021\u003c/em\u003e 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 category and regional opportunities.\u003c/p\u003e\n\u003cp\u003eThose are some of the findings from our latest report, \u003cem\u003eThe State of Fashion 2021\u003c/em\u003e, written in partnership with \u003ca href=\"https://www.businessoffashion.com/\"\u003ethe Business of Fashion\u003c/a\u003e (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. Our latest reading of the our global fashion index, meanwhile, reveals new insights into company performance by category, segment, and region.\u003c/p\u003e\n\u003ch3\u003eSilver linings\u003c/h3\u003e\n\u003cp\u003eThe sober mood among fashion executives surveyed in last year\u0026rsquo;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\u0026rsquo;s economic profit will fall by 93 percent in 2020 after rising 4 percent in 2019 (Exhibit 1). That translates into a significant increase in the number of companies that are \u0026ldquo;value destroyers,\u0026rdquo; which we expect will rise to 73 percent of those in the index in 2020, compared with 60 percent in 2019.\u003c/p\u003e\n[[Exhibit 20211]]\n\u003cp\u003eStill, there are silver linings among the clouds. While the crisis has visited a \u003ca href=\"/capabilities/risk-and-resilience/our-insights/covid-19-implications-for-business\"\u003edevastating impact\u003c/a\u003e\u0026nbsp;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.\u003c/p\u003e\n\u003cp\u003eLooking forward, our base case is cautiously optimistic, with the virus more effectively controlled over the coming year, thanks to a strong public-health response.[[footnote 5]] 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, precrisis 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.\u003c/p\u003e\n\u003cp\u003eWhere there is positive momentum, \u003ca href=\"/industries/retail/our-insights/less-is-the-new-more-the-state-of-fashion-in-2021\"\u003ethe primary driver will continue to be digital channels\u003c/a\u003e, reflecting the trend established before the COVID-19 crisis and the reluctance of people in many countries to gather in crowded environments. Indeed, recent data show that we have vaulted five years forward in consumer and business adoption of digital in a matter of months. 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.[[footnote 6]] 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\u0026mdash;the personal touch that reflects the priorities of many.\u003c/p\u003e\n\u003cp\u003eAgainst this background, fashion-industry fortunes are highly polarized. Given the disruptions in financial year 2019, it was not possible for us to calculate our annual list of 20 \u0026ldquo;super winners\u0026rdquo; accurately. Instead, we referenced our 2018 list to gauge the fortunes of the elite group. Perhaps unsurprisingly, investors this year had more confidence in the top 20 than in other companies, and super winners were less badly hit by the April stock market sell-off than their peers were (\u0026ndash;26 percent from December, compared with \u0026ndash;33 percent on average). 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.\u003c/p\u003e\n\u003cp\u003eCompanies that have performed the best over recent months tended to share at least one of two key characteristics (Exhibit 2). Many have had a strong Asia\u0026ndash;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. E-commerce players, such as ASOS, FARFETCH UK, Revolve, and Zalando, have consistently outperformed in 2020, as locked-down customers turned to digital devices to shop. By August, such digital-first players were trading 35 percent higher, on average, than they did in December 2019.\u003c/p\u003e\n[[Exhibit 20212]]\n\u003cp\u003eGiven the standout performance of digital channels in the current environment, we expect \u003ca href=\"/industries/retail/our-insights/future-of-retail-operations-winning-in-a-digital-era\"\u003edigital to remain king\u003c/a\u003e\u0026nbsp;in 2021. Indeed, some 22 percent of executives say it will be the key momentum driver in the coming year\u0026mdash;a percentage point less than the proportion that cites \u0026ldquo;uncertainty\u0026rdquo; and slightly more than the 20 percent that pick \u0026ldquo;challenging.\u0026rdquo;[[footnote 7]]\u003c/p\u003e\n\u003ch3\u003eTen themes for 2021\u003c/h3\u003e\n\u003cp\u003eAs the world recovers from the COVID-19 pandemic, what will be the defining themes in the business of fashion? 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).\u003c/p\u003e\n[[Exhibit 20213]]\n\u003cp\u003eAs decision makers continue to \u003ca href=\"/capabilities/risk-and-resilience/our-insights/when-nothing-is-normal-managing-in-extreme-uncertainty\"\u003emanage uncertainty\u003c/a\u003e, the most successful will be those that \u003ca href=\"/industries/consumer-packaged-goods/our-insights/five-charts-that-set-the-tone-as-new-york-fashion-week-2021-kicks-off\"\u003eget a grip on the trends\u003c/a\u003e\u0026nbsp;shaping the fashion landscape. That means focusing on an omnichannel perspective, of course, but also emphasizing the importance of \u003ca href=\"/industries/retail/our-insights/biodiversity-the-next-frontier-in-sustainable-fashion\"\u003esustainability\u003c/a\u003e\u0026nbsp;through the value chain. 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.\u003c/p\u003e\n\u003cp\u003ePhysical retail has been under historic levels of pressure. 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. With the pandemic adding to the segment\u0026rsquo;s woes, many brands have embarked on strategic reviews or have compressed multiyear transformations into just a few months. 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.[[footnote 8]] Zara said that it plans to cut 1,200 stores over two years and invest \u0026euro;2.7 billion in store-based digital.[[footnote 9]] Still, we do not believe the curtain is falling on physical channels. Instead, from the wreckage of 2020, \u003ca href=\"/industries/retail/our-insights/consumers-are-reconsidering-whats-in-their-closets-the-state-of-fashion-in-2021\"\u003ea sleeker, more focused offering\u003c/a\u003e\u0026nbsp;will emerge. That offering will combine the best of human and automated services\u0026mdash;the beginning of a truly \u0026ldquo;bionic\u0026rdquo; customer experience.\u003c/p\u003e\n\u003cp\u003eWe see brands rethinking store formats and leveraging data and analytics to predict footfall, manage assortments, and built personalized offerings. Flagship stores will be branded as discovery zones and tasked with creating emotional connections with customers. 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. At the same time, we are likely to see more nuanced assessments of store ROI based on a combination of digital and physical lenses. With companies in China leading the way, brands will engage even more closely with social media to offer shoppers exclusive content and personalized experiences.\u003c/p\u003e\n\u003cp\u003eStrategically, there will be an imperative in 2021 to manage commercial opportunities actively and to be acute in picking winning segments, markets, and channel combinations. With tourism in the doldrums, domestic outlets will become more important than ever. We also expect to see a rise in M\u0026amp;A activity as companies take advantage of low valuations and grab share in fast-growing markets.\u003c/p\u003e\n\u003chr /\u003e\n\u003cp\u003eThere is little doubt that 2021 will continue to be tough for many as the COVID-19 pandemic tracks an uncertain trajectory. The task for decision makers, therefore, is to find silver linings, knowing that times of change are inherently rich with opportunity. Fashion companies that double down on strategy, align with key trends, and reflect an evolving consumer landscape are likely to emerge from the crisis stronger, leaner, and ready to thrive in the next normal.\u003c/p\u003e\n\u003cp\u003e\u003cem\u003eDownload \u003c/em\u003e\u003ca href=\"/~/media/mckinsey/industries/retail/our insights/state of fashion/2021/the-state-of-fashion-2021-vf.pdf\"\u003eThe State of Fashion 2021\u003c/a\u003e, \u003cem\u003ethe full report on which this article is based (PDF\u0026ndash;9MB).\u003c/em\u003e\u003c/p\u003e\n\u003chr /\u003e\n\u003cp\u003e\u003cstrong\u003eABOUT THE AUTHOR(S)\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003eThe authors of this article are \u003cstrong\u003eImran Amed\u003c/strong\u003e (founder, editor in chief, and CEO of the Business of Fashion, and an alumnus of McKinsey\u0026rsquo;s London office), \u003cstrong\u003e\u003ca href=\"/our-people/anita-balchandani\"\u003eAnita Balchandani\u003c/a\u003e\u003c/strong\u003e (a partner in the London office), \u003cstrong\u003eJakob Ekel\u0026oslash;f Jensen\u003c/strong\u003e (a consultant in the London office),\u0026nbsp;\u003cstrong\u003eAchim Berg\u003c/strong\u003e (a senior partner in the Frankfurt office),\u0026nbsp;\u003cstrong\u003eSaskia Hedrich\u003c/strong\u003e (a senior expert in the Munich office), and \u003cstrong\u003eFelix R\u0026ouml;lkens\u003c/strong\u003e (an associate partner in the Berlin office).\u003c/p\u003e\n\u003cp\u003eThe authors wish to thank Sarah Andre, Althea Peng, Sonja Penttil\u0026auml;, and Robb Young for their contributions to this article.\u003c/p\u003e\n[[SectionHeader 2020covid]]\n\u003cp\u003eBy Imran Amed, Anita Balchandani, Achim Berg, Saskia Hedrich, Jakob Ekel\u0026oslash;f Jensen, and Felix R\u0026ouml;lkens\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eFashion executives are focusing on crisis management now but eventually must shift to reimagining the industry. How will changes to the global economy and consumers\u0026rsquo; behavior affect fashion in the postcoronavirus world?\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eEven before the coronavirus\u003c/strong\u003e disrupted financial markets, upended supply chains, and crushed consumer demand across the global economy, fashion-industry leaders were not optimistic about 2020. The industry was already on high alert, and executives expressed pessimism across all geographies and price points in our annual report, \u003cem\u003e\u003ca href=\"#2020update\"\u003eThe State of Fashion 2020\u003c/a\u003e\u003c/em\u003e, released late last year. But fast-forward a few months, and fashion\u0026rsquo;s outlook has gotten dramatically and suddenly bleaker. The industry is now on red alert.\u003c/p\u003e\n\u003cp\u003eThis 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. With this special coronavirus update to \u003cem\u003eThe State of Fashion 2020\u003c/em\u003e, we have taken a stance on what our new normal will look like in the aftermath of this \u0026ldquo;black swan\u0026rdquo; 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.\u003c/p\u003e\n\u003ch3\u003eThe black swan and fashion\u003c/h3\u003e\n\u003cp\u003eCOVID-19 could spur the biggest economic contraction since World War II, hitting every sector from finance to hospitality.[[footnote 10]] Yet fashion, because of its discretionary nature, is particularly vulnerable. The average market capitalization of \u003ca href=\"/industries/retail/how-we-help-clients/apparel-fashion-luxury\"\u003eapparel, fashion, and luxury players\u003c/a\u003e\u0026nbsp;dropped almost 40 percent between the start of January and March 24, 2020[[footnote 11]] \u0026mdash;a much steeper decline than that of the overall stock market.\u003c/p\u003e\n\u003cp\u003eHumanitarian repercussions are expected to outlast the pandemic itself. Dire consequences for fashion, one of the biggest industries in the world, generating $2.5 trillion in global annual revenues before the pandemic,[[footnote 12]] entails joblessness or financial hardship for people across the value chain.\u003c/p\u003e\n\u003cp\u003eWe estimate that revenues for the global fashion industry (apparel and footwear sectors) will contract by \u0026ndash;27 to \u0026ndash;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). 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 \u0026ndash;35 to \u0026ndash;39 percent in 2020 year-on-year, but positive growth of 1 to 4 percent in 2021 (compared with the 2019 baseline figure). If stores remain closed for two months, McKinsey analysis approximates that 80 percent of publicly listed fashion companies in Europe and North America will be in financial distress. 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.\u003c/p\u003e\n[[ceros covid]]\n\u003cp\u003eThe interconnectedness of the industry is making it harder for businesses to plan ahead. Just as China inched through recovery, outbreaks worsened in Europe and the United States. But it is in the developing world, where healthcare systems are often inadequate and poverty is rife, that people will be hit the hardest. 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.\u003c/p\u003e\n\u003cp\u003eThe crisis is affecting daily lives, instilling anxiety and uncertainty in the minds of almost everyone. Indeed, \u003ca href=\"/capabilities/growth-marketing-and-sales/our-insights/global-surveys-of-consumer-sentiment-during-the-coronavirus-crisis\"\u003econsumer pessimism about the economy\u003c/a\u003e\u0026nbsp;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.[[footnote 13]]\u003c/p\u003e\n\u003cp\u003eAlthough 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. By causing blow after blow to both supply and demand, the pandemic has brewed a perfect storm for the industry: \u003ca href=\"/industries/retail/our-insights/five-actions-retail-supply-chains-can-take-to-navigate-the-coronavirus-pandemic\"\u003ea highly integrated global supply chain\u003c/a\u003e\u0026nbsp;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.\u003c/p\u003e\n\u003cp\u003eA freeze on spending is aggravating the supply-side crisis. Widespread store closures for an industry reliant on offline channels, coupled with consumer instinct to prioritize necessary over discretionary goods, hit brands\u0026rsquo; bottom lines and depleted cash reserves. 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.[[footnote 14]]\u003c/p\u003e\n\u003ch3\u003eOnce the dust settles\u003c/h3\u003e\n\u003cp\u003eOnce the dust settles on the immediate crisis, fashion will face a recessionary market and an industry landscape still undergoing dramatic transformation. The exhibit[[Footnote 15]] unpacks five areas that could see significant changes; the full report explores these areas in greater depth. We expect a period of recovery to be characterized by a continued lull in spending and a decrease in demand across channels. As noted in our previous articles on \u0026ldquo;\u003ca href=\"/industries/retail/our-insights/the-influence-of-woke-consumers-on-fashion\"\u003egetting woke\u003c/a\u003e,\u0026rdquo; \u003ca href=\"/industries/retail/our-insights/what-radical-transparency-could-mean-for-the-fashion-industry\"\u003eradical transparency\u003c/a\u003e, and \u003ca href=\"/industries/retail/our-insights/the-fashion-industry-in-2020-ten-top-themes-from-the-state-of-fashion\"\u003esustainability first\u003c/a\u003e, the consumer mindset was already showing signs of shifting in certain directions before the pandemic.\u003c/p\u003e\n\u003cp\u003eNow, the resulting \u0026ldquo;quarantine of consumption\u0026rdquo;[[footnote 16]] could accelerate some of these consumer shifts, such as a growing antipathy toward waste-producing business models and heightened expectations for \u003ca href=\"/capabilities/people-and-organizational-performance/our-insights/demonstrating-corporate-purpose-in-the-time-of-coronavirus\"\u003epurpose-driven, sustainable action\u003c/a\u003e. 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\u0026mdash;things that would have happened further down the road if the pandemic had not helped them gain speed and urgency now.\u003c/p\u003e\n\u003cp\u003eThe coronavirus also presents the fashion industry with a chance to reset and reshape the industry\u0026rsquo;s value chain completely\u0026mdash;and an opportunity to reassess the values by which it measures actions. We expect that themes of digital acceleration, discounting, industry consolidation, and corporate innovation will be prioritized once the immediate crisis subsides. 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.\u003c/p\u003e\n\u003cp\u003eThis will also be a time for collaboration within the industry\u0026mdash;even among competing organizations. No company will get through the pandemic alone, and fashion players need to share data, strategies, and insights on how to navigate the storm. Brands, suppliers, contractors, and property owners should also find ways to share the burden.\u003c/p\u003e\n\u003cp\u003eThis 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. 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.\u003c/p\u003e\n\u003cp\u003e\u003ca href=\"/industries/healthcare/our-insights/beyond-coronavirus-the-path-to-the-next-normal\"\u003eNavigating this uncertainty\u003c/a\u003e will not be easy for fashion leaders. Players need to be decisive and start putting recovery strategies into motion to emerge with renewed energy. The crisis is a catalyst that will shock the industry into change\u0026mdash;now is the time to get ready for a postcoronavirus world.\u003c/p\u003e\n\u003cp\u003e\u003cem\u003eDownload\u003c/em\u003e \u003ca href=\"/~/media/mckinsey/industries/retail/our insights/its time to rewire the fashion system state of fashion coronavirus update/the-state-of-fashion-2020-coronavirus-update-final.pdf\"\u003eThe State of Fashion 2020: Coronavirus Update\u003c/a\u003e\u003cem\u003e, the full report on which this article is based (PDF\u0026ndash;3MB).\u003c/em\u003e\n\u003c/p\u003e\n\u003chr /\u003e\n\u003cp\u003e\u003cstrong\u003eABOUT THE AUTHOR(S)\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eImran Amed,\u003c/strong\u003e the founder, editor-in-chief, and CEO of the Business of Fashion, is an alumnus of McKinsey\u0026rsquo;s London office, where \u003cstrong\u003e\u003ca href=\"/our-people/anita-balchandani\"\u003eAnita Balchandani\u003c/a\u003e\u003c/strong\u003e is a partner and \u003cstrong\u003eJakob Ekel\u0026oslash;f Jensen\u003c/strong\u003e is a consultant; \u003cstrong\u003eAchim Berg\u003c/strong\u003e is a senior partner in the Frankfurt office; \u003cstrong\u003eSaskia Hedrich\u003c/strong\u003e is a senior expert in the Munich office; and \u003cstrong\u003eFelix R\u0026ouml;lkens\u003c/strong\u003e is an associate partner in the Berlin office.\u003c/p\u003e\n\u003cp\u003eThe authors wish to thank McKinsey\u0026rsquo;s Tiffany Wendler, as well as the Business of Fashion\u0026rsquo;s Robb Young, for their contributions to this article.\u003c/p\u003e\n\u003ca id=\"2020update\"\u003e\u003c/a\u003e\n[[SectionHeader 2020]]\n\u003cp\u003eBy Imran Amed, \u003ca href=\"/our-people/anita-balchandani\"\u003eAnita Balchandani\u003c/a\u003e, Achim Berg, Saskia Hedrich, Shrina Poojara, and Felix R\u0026ouml;lkens\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eThe industry is not looking forward to 2020\u0026mdash;suggesting strategic clarity will be important.\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eThe prevailing mood\u003c/strong\u003e of fashion leaders is one of anxiety and concern. On the one hand, evolving channels, shifting markets, and groundbreaking research offer revenue opportunities and the chance for radical innovation. On the other, global economic growth is slowing and competition is more intense than ever.\u003c/p\u003e\n[[Video 20201]]\n\u003cp\u003eTo thrive in this environment, companies must think strategically, sharpen their decision making, and keep their fingers on the pulse of customer demand. They need to get digital right and to address consumers increasingly concerned by the climate-change agenda. At the same time, they must cater to local tastes across multiple markets and cultures. One size will not fit all.\u003c/p\u003e\n\u003cp\u003eThese are some of the findings from our latest report, The State of Fashion 2020, written in partnership with \u003ca href=\"https://www.businessoffashion.com/\"\u003eThe Business of Fashion (BoF)\u003c/a\u003e. This fourth in our annual series analyzes major themes around the fashion economy and breaks new ground to explain the dynamics driving the industry. 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. The latest reading of the McKinsey Global Fashion Index (MGFI), meanwhile, reveals new insights into fashion-company performance by category, segment, and region.\u003c/p\u003e\n\u003ch3\u003eA darkening mood\u003c/h3\u003e\n\u003cp\u003eFor many in the fashion industry, the glass is half empty. The mood among respondents to our executive survey is sober across geographies and price points, and the pockets of optimism seen last year in North America and the luxury segment have steadily evaporated (Exhibit 1).[[Footnote 17]]\u003c/p\u003e\n\u003cp\u003eThe MGFI forecasts that growth will slow to 3 to 4 percent in 2020, slightly below the predicted rate for 2019. Strikingly, only 9 percent of respondents think conditions will improve next year, compared with 49 percent who said the same last year.\u003c/p\u003e\n\u003cp\u003eEconomic profit grew for the second year running in 2018, following consecutive annual declines from 2012 to 2016 (Exhibit 2).[[Footnote 18]] The 16 percent year-on-year rise came largely from improved operating margins driven by cost cutting. The average industry EBITA[[footnote 19]] margin was 10.8 percent, a tick up on 2017 and the highest since 2014.\u003c/p\u003e\n\u003cp\u003eOne reason that executives are not breaking out the bunting is that \u003ca href=\"/sitecore/service/notfound.aspx?item=web%3a%7bf8ee9947-c9df-4018-ac14-c8f285979f3b%7d%40en\"\u003ethe outlook for the global economy is less rosy\u003c/a\u003e\u0026nbsp;than it was a year ago. Against this background, fashion-industry fortunes are highly polarized. For an exclusive group of \u0026ldquo;Super Winners,\u0026rdquo; the sun is shining (Exhibit 3);[[Footnote 20]] by economic profit, these 20 companies added more to the industry bottom line in 2018 than all others combined. The Super Winners include three new entrants\u0026mdash;Anta Sports, Heilan Home (HLA Corporation), and Lululemon\u0026mdash;reflecting the strength of sportswear and the growing influence of Chinese players. In luxury, Kering made an impressive rise through the ranks, driven by Gucci\u0026rsquo;s double-digit sales growth and strong performance in Asia\u0026ndash;Pacific markets such as Japan. Not only are leading companies highly value-creating, they are also at the cutting edge of innovation. They are also most successful in attracting funding and talent, often leaving the rest to fight over scraps.\u003c/p\u003e\n\u003cp\u003eAlongside public companies, we also identified a group of \u0026ldquo;hidden champions.\u0026rdquo; These privately owned gems often dominate their category areas and generate significant revenues. Some are household names, while others are less visible but still pack a punch. 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. At the opposite end of the price spectrum is Primark, whose commitment to its core value proposition has made it a formidable competitor. These players show that there is a great deal of industry value outside the spotlight, and the \u0026ldquo;hidden champions\u0026rdquo; too have much to offer alongside their listed counterparts.\u003c/p\u003e\n\u003cp\u003eOf course, for every success, there are also relative failures. A growing number of publicly traded and private companies have become \u0026ldquo;value destroyers.\u0026rdquo; The midmarket in particular is in the doldrums, generating negative returns for shareholders. For some, the abyss beckons.\u003c/p\u003e\n\u003ch3\u003eTen themes for 2020\u003c/h3\u003e\n\u003cp\u003eWhat will define the industry in the coming year? Based on our executive survey, the words on everyone\u0026rsquo;s lips are sustainability, digitization, and innovation (Exhibit 4).[[Footnote 21]]\u003c/p\u003e\n\u003cp\u003eWhen it comes to sustainability, the industry\u0026rsquo;s track record remains a source of concern. The textile sector still represents 6 percent of global greenhouse-gas emissions and 10 to 20 percent of pesticide use. 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. Consumers are increasingly waking up to this reality and demanding change. In August 2019, Kering CEO Fran\u0026ccedil;ois-Henri Pinault spearheaded an industry-wide pact to achieve net-zero emissions by 2050. According to McKinsey\u0026rsquo;s \u003ca href=\"/industries/retail/our-insights/fashions-new-must-have-sustainable-sourcing-at-scale\"\u003e2019 Apparel Chief Purchasing Officer Survey\u003c/a\u003e, while the absolute number of sustainable fashion products remains low, there has been a fivefold increase over the past two years.\u003c/p\u003e\n\u003cp\u003eLooking forward, we see more research into sustainable materials and technologies, as well as \u003ca href=\"/capabilities/sustainability/our-insights/mapping-the-benefits-of-a-circular-economy\"\u003ethe circular economy\u003c/a\u003e. This should lead to a move beyond 2019\u0026rsquo;s focus on transparency toward real commitment. That\u0026rsquo;s great news for consumers and for companies that can make sustainability real. However, given the scale of investment required, it means nervous times for small and midsize players.\u003c/p\u003e\n\u003cp\u003eEqually, consumers and advocates are calling for the industry to \u003ca href=\"/capabilities/people-and-organizational-performance/our-insights/delivering-through-diversity\"\u003ebecome more inclusive\u003c/a\u003e. We see 2020 as being a watershed for \u0026ldquo;Inclusive Culture,\u0026rdquo; with diverse races, genders, and sexual orientations increasingly present across organizations and in leadership roles.\u003c/p\u003e\n\u003cp\u003eDigital disruptors will face more cautious investors in the year ahead. 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. The trick in 2020 will be to prove to investors they can turn potential into profit. At the vanguard, we are seeing a new breed of direct-to-customer companies. 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.\u003c/p\u003e\n\u003cp\u003eAt the forefront for many is the future role of brick-and-mortar stores. Although they are written off by some as \u0026ldquo;too 20th century,\u0026rdquo; we take a more constructive view. We see local stores in particular building a role as partners in the digital revolution, helping customers touch, feel, and experience in convenient locations \u003ca href=\"/industries/retail/our-insights/ready-to-where-getting-sharp-on-apparel-omnichannel-excellence\"\u003eas they browse online and offline\u003c/a\u003e.\u003c/p\u003e\n\u003cp\u003eThe bottom line? The coming year will be tough, as the digital shakeout gathers pace, customers demand more on sustainability, and slower growth puts pressure on margins. However, there will be opportunities. Brands that can align with the dominant trends and continue to innovate are most likely to ride the challenges and emerge ahead of the pack.\u003c/p\u003e\n\u003cp\u003e\u003cem\u003eDownload\u003c/em\u003e \u003ca href=\"/~/media/mckinsey/industries/retail/our insights/the state of fashion 2020 navigating uncertainty/the-state-of-fashion-2020-final.pdf\"\u003eThe State of Fashion 2020\u003c/a\u003e\u003cem\u003e, the full report on which this article is based (PDF\u0026ndash;7MB).\u003c/em\u003e\u003c/p\u003e\n\u003chr /\u003e\n\u003cp\u003e\u003cstrong\u003eABOUT THE AUTHOR(S)\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e\u003ca href=\"/our-people/anita-balchandani\"\u003eAnita Balchandani\u003c/a\u003e\u003c/strong\u003e is a partner in McKinsey\u0026rsquo;s London office, where \u003cstrong\u003eShrina Poojara\u003c/strong\u003e is a consultant; \u003cstrong\u003eAchim Berg\u003c/strong\u003e is a senior partner in the Frankfurt office; \u003cstrong\u003eSaskia Hedrich\u003c/strong\u003e is a senior expert in the Munich office; and \u003cstrong\u003eFelix R\u0026ouml;lkens\u003c/strong\u003e is an associate partner in the Berlin office. \u003cstrong\u003eImran Amed\u003c/strong\u003e is the founder, editor-in-chief, and CEO of \u003ca href=\"https://www.businessoffashion.com/\"\u003eThe Business of Fashion\u003c/a\u003e.\u003c/p\u003e\n\u003cp\u003eThe authors wish to thank McKinsey\u0026rsquo;s Tiffany Chan and Marilena Schmich, as well as The Business of Fashion\u0026rsquo;s Robb Young, for their contributions to this article.\u003c/p\u003e\n[[SectionHeader 2019]]\n\u003cp\u003eBy Imran Amed, \u003ca href=\"/our-people/anita-balchandani\"\u003eAnita Balchandani\u003c/a\u003e, Marco Beltrami, Achim Berg, Saskia Hedrich, and Felix R\u0026ouml;lkens\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eThe industry as a whole is embracing new opportunities\u0026mdash;even as dangers lurk.\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eThe year ahead\u003c/strong\u003e will be an awakening after the reckoning of 2018\u0026mdash;a time for fashion companies to look at opportunities and not just at surmounting challenges. The ones that will succeed will have come to terms with the fact that in the new paradigm taking shape around them, some of the old rules simply don\u0026rsquo;t work. Regardless of size and segment, players now need to be nimble, think digital-first, and achieve ever-faster \u003ca href=\"/industries/retail/our-insights/measuring-the-fashion-world\"\u003espeed to market\u003c/a\u003e. They need to take an active stance on social issues, satisfy consumer demands for radical transparency and \u003ca href=\"/capabilities/sustainability/our-insights/a-new-textiles-economy-redesigning-fashions-future\"\u003esustainability\u003c/a\u003e, and, most important, have the courage to \u0026ldquo;self-disrupt\u0026rdquo; their own identity and the sources of their old success to realize these changes and win new generations of customers.\u003c/p\u003e\n\u003cp\u003eThey also need to invest in enhancing their productivity and resilience, as the outlook is uncertain. External shocks to the system continue to lurk, and growth cannot be taken for granted.\u003c/p\u003e\n[[Video 2019A]]\n\u003cp\u003eThese are some of the findings from our latest report on \u003cem\u003eThe State of Fashion\u003c/em\u003e, written in partnership with the \u003ca href=\"https://www.businessoffashion.com/\"\u003eBusiness of Fashion (BoF)\u003c/a\u003e, which explores the industry\u0026rsquo;s fragmented, complex ecosystem. Our first two reports, \u003ca href=\"#2018update\"\u003elast year\u003c/a\u003e\u0026nbsp;and \u003ca href=\"#2017update\"\u003ethe year before\u003c/a\u003e, laid the foundation for rigorous in-depth research and analysis, focusing on the themes, issues, and opportunities affecting the sector and its performance. The \u003cem\u003eState of Fashion\u003c/em\u003e is now the largest and most authoritative overview of the industry, surveying more than 275 global fashion executives (approximately 30 percent more than last year) and interviewing thought leaders and pioneers. We also highlight the ten trends that will define the fashion agenda in 2019 (interactive).\u003c/p\u003e\n[[ceros 20191]]\n\u003cp\u003eThe report includes the third readout of our industry benchmark, the McKinsey Global Fashion Index. This database of more than 500 companies allows us to analyze and compare the performance of individual companies with their peers, by category, segment, or region.\u003c/p\u003e\n\u003ch3\u003eSunny intervals but storms ahead\u003c/h3\u003e\n\u003cp\u003eFor fashion players, 2019 will be a year of awakening. 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. By geography, the most optimistic about the coming year are executives in North America. By segment, the most positive are executives from \u003ca href=\"/industries/retail/our-insights/luxury-in-the-age-of-digital-darwinism\"\u003eluxury brands\u003c/a\u003e, reflecting their strong growth trajectory in 2018. In all other regions and segments, executives are notably pessimistic, reflecting the potential challenges ahead (Exhibit 1).[[Footnote 22]]\u003c/p\u003e\n\u003cp\u003eAll this comes against a backdrop of the fashion industry having turned a corner in 2018, with increased growth justifying the optimism expressed in last year\u0026rsquo;s global fashion survey. The caution in the economic outlook is also reflected in the BoF\u0026ndash;McKinsey State of Fashion Survey, with 42 percent of respondents expecting conditions to become worse in 2019.\u003c/p\u003e\n\u003ch3\u003eThe rise of the \u0026lsquo;superwinners\u0026rsquo;\u003c/h3\u003e\n\u003cp\u003ePolarization continues to be a stark reality in fashion: fully 97 percent of economic profits for the whole industry are earned by just 20 companies, most of them in the luxury segment. Notably, the top 20 group of companies has remained stable over time. Twelve of the top 20 have been a member of the group for the last decade. 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).[[Footnote 23]] According to our estimates, each racked up more than $2 billion in economic profit in 2017.\u003c/p\u003e\n\u003ch3\u003eTen trends for 2019\u003c/h3\u003e\n\u003cp\u003eThis caution is one of our ten trends to watch in 2019. Another is that \u003ca href=\"/featured-insights/india\"\u003eIndia\u003c/a\u003e\u0026nbsp;is on the rise\u0026mdash;its growing middle class, powerful manufacturing sector, and increasingly savvy tech have made it an essential destination for fashion companies. Our third trend is Trade 2.0: a warning that companies should make contingency plans for \u003ca href=\"/industries/public-sector/our-insights/navigating-the-new-realities-of-global-trade\"\u003ea potential shake-up of global value chains\u003c/a\u003e. The apparel trade could be reshaped by new barriers, trade tensions, and uncertainty. However, there may also be new opportunities from growing south\u0026ndash;south trade and the renegotiation of trade agreements.\u003c/p\u003e\n[[Image 20191]]\n\u003cp\u003eOn 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. Sustainability, which breaks into our respondents\u0026rsquo; list of the most important challenges for the first time, is evolving from a tick-box exercise into a transformational feature. And \u0026ldquo;woke\u0026rdquo; consumers are also pushing for greater transparency into supply chains\u0026mdash;and rewarding their favorite brands for taking controversial political stands. At the same time, they are demanding ever-quicker and more seamless fulfillment, from mobile shopping to \u003ca href=\"/industries/travel-logistics-and-infrastructure/our-insights/technology-delivered-implications-for-cost-customers-and-competition-in-the-last-mile-ecosystem\"\u003edrone delivery\u003c/a\u003e.\u003c/p\u003e\n\u003cp\u003eIn response, wise companies are self-disrupting before upstarts do it for them, engaging in a digital landgrab to diversify their ecosystem, and using automation and \u003ca href=\"/industries/retail/our-insights/geek-meets-chic-four-actions-to-jump-start-advanced-analytics-in-apparel\"\u003edata analytics\u003c/a\u003e\u0026nbsp;to produce on demand to reduce waste and react rapidly to trends.\u003c/p\u003e\n\u003ch3\u003eThe speed of change\u003c/h3\u003e\n\u003cp\u003eOverall, the industry continues to hover in a state of flux, and the fortunes of individual players can turn with frightening speed. As our ten trends indicate, new markets, new technologies, and shifting consumer needs present opportunities\u0026mdash;but also risks. 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. Only those brands that accurately reflect the Zeitgeist or have the courage to \u0026ldquo;self-disrupt\u0026rdquo; will emerge as winners.\u003c/p\u003e\n\u003cp\u003e\u003cem\u003eDownload\u003c/em\u003e \u003ca href=\"/~/media/mckinsey/industries/retail/our insights/the state of fashion 2019 a year of awakening/the-state-of-fashion-2019-final.pdf\"\u003eThe State of Fashion 2019\u003c/a\u003e\u003cem\u003e, the full report on which this article is based (PDF\u0026ndash;3 MB).\u003c/em\u003e\u003c/p\u003e\n\u003chr /\u003e\n\u003cp\u003e\u003cstrong\u003eABOUT THE AUTHOR(S)\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e\u003ca href=\"/our-people/anita-balchandani\"\u003eAnita Balchandani\u003c/a\u003e\u003c/strong\u003e is a partner in McKinsey\u0026rsquo;s London office, where \u003cstrong\u003eMarco Beltrami\u003c/strong\u003e is a consultant; \u003cstrong\u003eAchim Berg\u003c/strong\u003e is a senior partner in the Frankfurt office, \u003cstrong\u003eSaskia Hedrich\u003c/strong\u003e is a senior expert in the Munich office, and \u003cstrong\u003eFelix R\u0026ouml;lkens\u003c/strong\u003e is a consultant in the Berlin office. \u003cstrong\u003eImran Amed\u003c/strong\u003e is the founder, editor-in-chief, and CEO of the \u003ca href=\"https://www.businessoffashion.com/\"\u003eBusiness of Fashion\u003c/a\u003e.\u003c/p\u003e\n\u003cp\u003eThe authors wish to thank McKinsey\u0026rsquo;s Johanna Andersson and Dale Kim, as well as the Business of Fashion\u0026rsquo;s Robb Young, for their contributions to this work.\u003c/p\u003e\n\u003ca id=\"2018update\"\u003e\u003c/a\u003e\n[[SectionHeader 2018]]\n\u003cp\u003eBy Imran Amed, Johanna Andersson, Achim Berg, Martine Drageset, Saskia Hedrich, and Sara Kappelmark\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eAfter a challenging stretch, has fashion turned the corner? Things are looking up, but the rebound may be uneven, says this year\u0026rsquo;s The \u003cem\u003eState of Fashion\u003c/em\u003e report.\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eThere is general agreement\u003c/strong\u003e that 2016 was one of the most challenging years the fashion industry has ever seen. 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. Emerging markets remain a crucial source of this growth; indeed, in 2018, for the first time, more than half of apparel and footwear sales will originate outside Europe and North America.\u003c/p\u003e\n\u003cp\u003eThese are some of the findings from our latest \u003cem\u003eThe State of Fashion\u003c/em\u003e report, written in partnership with the \u003cem\u003e\u003ca href=\"https://www.businessoffashion.com/\"\u003eBusiness of Fashion (BoF)\u003c/a\u003e\u003c/em\u003e to explore the industry\u0026rsquo;s fragmented, complex ecosystem. \u003ca href=\"#2017update\"\u003eOur first report\u003c/a\u003e, 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. (For more, see our infographic on the ten trends that will define the fashion agenda in 2018.) This year, we are seeing real signs of change.\u003c/p\u003e\n[[Ceros 20181]]\n\u003ch3\u003eFashion\u0026rsquo;s growth outlook by region, and by category\u003c/h3\u003e\n\u003cp\u003eAlthough the fashion industry appears to be turning a corner, the rebound is not being felt evenly across the globe. In fact, 2017 signals the end of an era, as the West will no longer be the global stronghold for fashion sales\u0026mdash;more than half of apparel and footwear sales will originate outside of Europe and North America. The main sources of growth are emerging-market countries across Asia\u0026ndash;Pacific, Latin America, and other regions; they are forecasted to grow at rates ranging between 5 and 7.5 percent in 2018 (exhibit).[[footnote 24]] Meanwhile, the economic outlook in the mature part of Europe is stable, and fashion-industry sales growth is likewise expected to remain at a modest but steady 2 to 3 percent. 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. Here, we expect a modest growth of 1 to 2 percent. Not surprisingly, this regional divide is reflected in fashion executives\u0026rsquo; sentiments, as respondents to the BoF\u0026ndash;McKinsey Global Fashion Survey from emerging countries are more optimistic about the industry\u0026rsquo;s outlook in 2018 than their European or North American counterparts.\u003c/p\u003e\n\u003cp\u003eThe outlook for the fashion industry varies across different value segments, too. \u003ca href=\"/industries/retail/our-insights/the-two-faces-of-fashion-industry-performance\"\u003eThe industry continues to polarize\u003c/a\u003e: consumers are trading away from the midmarket price points even while the luxury, value, and discount segments are picking up speed. 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. Handbags and luggage, and to some extent watches and jewelry, are returning slowly to their historic highs, driven by demand in Asia\u0026ndash;Pacific. Athletic wear is the only category where record growth rates look to slow down slightly in 2018, as the \u0026ldquo;athleisure\u0026rdquo; trend has reached its peak in some mature markets. Nonetheless, this is still expected to be the fastest-growing category, with continued strong demand in many markets.\u003c/p\u003e\n\u003ch3\u003eShifts among consumers\u003c/h3\u003e\n\u003cp\u003eThese developments take place at the same time as the fashion industry goes through other transformative shifts. Mainstream customers are \u003ca href=\"/industries/consumer-packaged-goods/our-insights/the-consumer-sector-in-2030-trends-and-questions-to-consider\"\u003emoving into a decisive phase of digital adoption\u003c/a\u003e, and online sales of apparel and footwear are projected to grow rapidly. Consumers in Southeast Asia spend about eight hours a day online on average. The modern shopper\u0026rsquo;s comfort with digital channels and content has created a complex customer journey across online and offline touchpoints. But regardless of touchpoint, \u003ca href=\"/capabilities/operations/our-insights/mastering-the-digital-advantage-in-transforming-customer-experience\"\u003econsumers expect a consistent brand experience\u003c/a\u003e\u0026nbsp;across channels. Consumers also have higher expectations of \u003ca href=\"/capabilities/operations/our-insights/the-ceo-guide-to-customer-experience\"\u003ecustomer experience\u003c/a\u003e\u0026nbsp;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. Many consumers today expect perfect functionality and immediate support at all times, coupled with rapid delivery times as players constantly compete to expedite products.\u003c/p\u003e\n[[image 2018cover]]\n\u003cp\u003eCustomers\u0026rsquo; attention is also tuned to new channels. 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. With information and the ease of comparison at their fingertips, \u003ca href=\"/capabilities/growth-marketing-and-sales/our-insights/the-new-battleground-for-marketing-led-growth\"\u003econsumers are becoming less brand loyal\u003c/a\u003e\u0026nbsp;among millennials, two-thirds say they are willing to switch brands for a discount of 30 percent or more. Shoppers are also becoming more selective. More and more, they base their purchase decisions on whether a company\u0026rsquo;s practices and mission aligns with their values\u0026mdash;while at the same time they are highly price sensitive.\u003c/p\u003e\n\u003cp\u003eSo consumers expect it all: convenience, quality, values orientation, newness, and price. In response, leading fashion players are offering innovative business models,\u003ca href=\"/capabilities/quantumblack/our-insights/capturing-value-from-your-customer-data\"\u003e using granular customer insights\u003c/a\u003e as a source of differentiation, and pushing the limits of go-to-market times. 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. To keep up, leading fashion players are accelerating their speed from design to shelf. This \u0026ldquo;need for speed\u0026rdquo; is driven partly by social media accelerating the movement of fashion trends to the masses, and by industry leaders using analytics and customer insights to meet customer needs better and increase responsiveness.\u003c/p\u003e\n\u003cp\u003eBut speed and flexibility bring added complexity. Shortening lead times requires major changes to the traditional business model and supply chain, and \u003ca href=\"/capabilities/mckinsey-digital/our-insights/the-next-generation-operating-model-for-the-digital-world\"\u003ea shift in focus to a customer-centric model\u003c/a\u003e. Laggards face increased fashion risk and excess inventory if they fail to match customer demand. Frontrunners are building agile supply chains supported by higher-quality consumer insights\u0026mdash;with the frontier being close to a real-time supply chain fed by \u0026ldquo;test and learn\u0026rdquo; and data analytics.\u003c/p\u003e\n\u003cp\u003eIn 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\u0026rsquo;s entire economic profit; in 2016, the top 20 percent\u0026rsquo;s contribution had increased to 144 percent.\u003c/p\u003e\n\u003chr /\u003e\n\u003cp\u003eThe challenges of a fundamentally changing industry and a continued unpredictable macroeconomic environment has led fashion players to toughen up. 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. 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.\u003c/p\u003e\n\u003cp\u003e\u003cem\u003eDownload\u003c/em\u003e \u003ca href=\"/~/media/mckinsey/industries/retail/our insights/renewed optimism for the fashion industry/the-state-of-fashion-2018-final.pdf\"\u003eThe State of Fashion 2018\u003c/a\u003e \u003cem\u003eto view the exhibit and read the full report on which this article is based (PDF\u0026ndash;3 MB).\u003c/em\u003e\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eABOUT THE AUTHOR(S)\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eJohanna Andersson\u003c/strong\u003e is a consultant in McKinsey\u0026rsquo;s Stockholm office, where \u003cstrong\u003eSara Kappelmark\u003c/strong\u003e\u0026nbsp;is a partner; \u003cstrong\u003eAchim Berg\u003c/strong\u003e\u0026nbsp;is a senior partner in the Frankfurt office, \u003cstrong\u003eMartine Drageset\u003c/strong\u003e is a consultant in the Oslo office, and \u003cstrong\u003eSaskia Hedrich\u003c/strong\u003e is a senior expert in the Munich office. \u003cstrong\u003eImran Amed\u003c/strong\u003e is the founder, editor-in-chief, and CEO of the \u003cem\u003eBusiness of Fashion\u003c/em\u003e.\u003c/p\u003e\n\u003ca id=\"2017update\"\u003e\u003c/a\u003e\n[[SectionHeader 2017]]\n\u003cp\u003e\n\u003cstrong\u003eFashion is one\u003c/strong\u003e of the past decade\u0026rsquo;s rare economic success stories. Over that period, the industry has grown at 5.5 percent annually, according to the McKinsey Global Fashion Index, to now be worth an estimated $2.4 trillion. In fact, not only does it touch everyone, but it would be the world\u0026rsquo;s seventh-largest economy if ranked alongside individual countries\u0026rsquo; GDP.\u003c/p\u003e\n\u003cp\u003e\nYet 2016 was one of the industry\u0026rsquo;s toughest years. 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. At the same time, \u003ca href=\"/industries/consumer-packaged-goods/our-insights/saving-scrimping-and-splurging-new-insights-into-consumer-behavior\"\u003econsumers have become more demanding, more discerning, and less predictable in their purchasing behavior\u003c/a\u003e, which is being radically reshaped by new technologies. It\u0026rsquo;s against this backdrop that McKinsey has teamed with \u003ca rel=\"noopener noreferrer\" href=\"https://www.businessoffashion.com/\" target=\"_blank\"\u003ethe Business of Fashion\u003c/a\u003e to shine a light on the fragmented, complex ecosystem that underpins this giant global industry.\u003c/p\u003e\n\u003ch3\u003e2016: A year to forget\u003c/h3\u003e\n\u003cp\u003eOur first \u003ca href=\"/~/media/mckinsey/industries/retail/our insights/the state of fashion 2017/the-state-of-fashion-mck-bof-2017-report.pdf\"\u003e\u003cem\u003eThe State of Fashion\u003c/em\u003e\u003c/a\u003e report (PDF\u0026ndash;8MB) finds that it\u0026rsquo;s not only external shock waves that have roiled the industry. Companies have also been looking inward, implementing changes to the core operations that are reshaping the entire fashion system, from shortening the length of the fashion cycle to integrating sustainable innovation into the core product-design and manufacturing processes. Perhaps unsurprisingly, 67 percent of executives said conditions for the fashion industry have worsened over the past 12 months.\u003c/p\u003e\n\u003cp\u003eThis fact is clearly borne out in the industry\u0026rsquo;s financial performance. Sales growth seems set to slow to a mere 2 or, at most, 3 percent by the close of 2016, with stagnating profit margins. Speculation and uncertainty over the repercussions of the US election outcome could further dampen consumer sentiment and affect sales. This is in stark contrast to the fashion industry\u0026rsquo;s performance over the previous decade, which saw the industry expand at 5.5 percent annually.\u003c/p\u003e\n\u003cp\u003eYet this sluggish overall growth masks some big winners: affordable luxury, value, and athletic wear.\u003c/p\u003e\n[[image cover]]\n\u003cp\u003eWith respect to sales growth, the affordable-luxury and value sectors have outperformed all other segments by one to one-and-a-half percentage points. This is consistent with their compound annual growth rate (CAGR) over the past three years, which has been 9 percent for affordable luxury and 6 percent for value, the highest of any segment since 2013.\u003c/p\u003e\n\u003cp\u003eAffordable-luxury players benefited from consumers trading down from luxury, \u003ca href=\"/industries/retail/our-insights/chinese-consumers-revisiting-our-predictions\"\u003eparticularly among Chinese consumers\u003c/a\u003e. However, their profit margins are expected to decline, especially after 2016, because of a pricing-arbitrage disadvantage across geographies and fluctuating foreign-exchange rates.\u003c/p\u003e\n\u003cp\u003eThe value segment continued to grow in 2016, particularly as a consequence of large global players expanding geographically. With its clearly defined value proposition, the value segment has been taking share from discount this year.\u003c/p\u003e\n\u003cp\u003eIn 2016, the 8.0 to 8.5 percent growth for athletic wear is more than double any other category. This is consistent with its 10 percent CAGR of the past decade, driven by consumers\u0026rsquo; more active lifestyles, the rise of \u0026ldquo;athleisure,\u0026rdquo; emerging brands in the high-end segments, and product innovations. 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.\u003c/p\u003e\n\u003ch3\u003e2017: Glimmers of recovery\u003c/h3\u003e\n\u003cp\u003eSo what will change in 2017? No one would put money on volatility and uncertainty lessening. Nonetheless, our report finds that fashion companies are hopeful they can improve their performance through a combination of organic growth and \u003ca href=\"/capabilities/growth-marketing-and-sales/our-insights/digitizing-the-consumer-decision-journey\"\u003eleveraging new technologies\u003c/a\u003e. Successful companies will invest more to nurture local clientele: 2017 will be the year of organic growth by deepening relationships with existing clients, rather than through geographic, channel, and store-network expansion. And \u003ca href=\"/industries/consumer-packaged-goods/our-insights/is-luxury-ecommerce-nearing-its-tipping-point\"\u003edigital innovation\u003c/a\u003e will go behind the scenes: digitization will be the key to supply-chain efficiency, lowering procurement costs, and the enhancement of sourcing opportunities.\u003c/p\u003e\n\u003cp\u003eSome 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).[[footnote 25]] This is particularly true for the major players within each of the market segments and product categories. Many of them have already undertaken significant cost cutting and restructuring, and they are now primed to capture the benefits.\u003c/p\u003e\n\u003cp\u003eAll 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. A return to the riches of the previous decade appears unlikely. But equally, there is no call for rags just yet.\u003c/p\u003e\n\u003cp\u003ePerformance will vary depending on the individual dynamics of specific market segments and categories. Value and affordable luxury will probably be the big winners, both outpacing the industry average at a projected 3.0 to 4.0 percent and 3.5 to 4.5 percent growth, respectively. That said, almost all other market segments should see a slight improvement in sales growth of half to one-and-a-half percentage points. Only the discount segment is likely not to be part of the recovery trend.\u003c/p\u003e\n\u003cp\u003eProduct 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. 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. 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.\u003c/p\u003e\n\u003chr /\u003e\n\u003cp\u003eIn 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. 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.\u003c/p\u003e\n\u003cp\u003eEconomically, we see a number of trends that will shape the industry, including fashion\u0026rsquo;s response to intensifying volatility, \u003ca href=\"/featured-insights/china/the-ceo-guide-to-chinas-future\"\u003econtinued challenges in China\u003c/a\u003e, and \u003ca href=\"/featured-insights/urbanization/urban-world-meeting-the-demographic-challenge-in-cities\"\u003ethe rise of urban centers\u003c/a\u003e. To address consumer behavior, players will have to learn to serve shrewder and more-demanding customers and adjust to a shifting demographic profile. Finally, 2017 will also be a critical year for the fashion business system, with developments expected around the fashion cycle, technological advancements, and a shake-up in the ownership of fashion companies, as players restructure and industry outsiders step up their activities in the fashion sector.\u003c/p\u003e\n\u003cp\u003eThe bottom line is that amid this uncertainty and change, our analysis suggests cautious optimism is warranted. It\u0026rsquo;s a sentiment shared by industry executives: 40 percent expect conditions for the industry to improve in the year ahead. As with everything in this fast-moving sector, we\u0026rsquo;ll just have to wait and see.\u003c/p\u003e\n\u003cp\u003e\u003cem\u003eThis is an edited excerpt from the first joint report from McKinsey and the Business of Fashion,\u003c/em\u003e \u003ca href=\"/~/media/mckinsey/industries/retail/our insights/the state of fashion 2017/the-state-of-fashion-mck-bof-2017-report.pdf\"\u003eThe State of Fashion\u003c/a\u003e\u0026nbsp;(PDF\u0026ndash;8MB). \u003cem\u003eDownload the report to view the exhibit.\u003c/em\u003e\u003c/p\u003e"},"isFullScreenInteractive":{"boolValue":false},"hideStickySocialShareBar":{"boolValue":false},"desktopID":{"value":""},"mobileID":{"value":""},"desktopURL":{"value":""},"mobileURL":{"value":""},"desktopPaddingPercentage":{"value":""},"mobilePaddingPercentage":{"value":""},"desktopOverrideHeight":{"value":""},"mobileOverrideHeight":{"value":""},"cerosOembedURL":{"value":""},"cerosRenderMode":{"targetItem":null},"cerosBackgroundColor":{"targetItem":null},"hideByLine":{"boolValue":false},"tableOfContentsTitle":{"value":"Previous State of Fashion editions"},"accessStatus":{"targetItem":{"key":{"value":"RegisteredUsers"},"value":{"value":"Registered Users"}}},"articleType":{"targetItem":{"displayName":"Report"}},"hasSpecialReport":{"boolValue":true},"contentType":{"targetItem":{"displayName":"Article"}},"sourcePublication":{"targetItem":null},"externalPublication":{"value":""},"mobileReady":{"boolValue":true},"forClientsOnly":{"boolValue":false},"excludeFromClientLink":{"boolValue":false},"originalPublishDate":{"jsonValue":{"value":"2016-12-01T00:00:00Z"}},"footnotes":{"value":"\u003col\u003e\u003cli\u003e\u003cem\u003eWorld economic outlook update: Near-term resilience, persistent challenges\u003c/em\u003e, International Monetary Fund, July 2023.\u003c/li\u003e\n \u003cli\u003e\u0026ldquo;Consumer confidence survey,\u0026rdquo; Reserve Bank of India, October 6, 2023.\u003c/li\u003e\n \u003cli\u003eRyosuke Hanada, \u0026ldquo;India\u0026rsquo;s consumer sentiment rebounds past pre-COVID levels,\u0026rdquo; Nikkei Asia, July 18, 2023.\u003c/li\u003e\n \u003cli\u003eOliver Guyot, \u0026ldquo;Caught between inflation and rising costs, fashion seeks to strike new balance,\u0026rdquo; \u003cem\u003eFashion Network\u003c/em\u003e, July 19, 2022.\u003c/li\u003e\n \u003cli\u003eMcKinsey analysis.\u003c/li\u003e\n \u003cli\u003eMcKinsey analysis.\u003c/li\u003e\n \u003cli\u003eMcKinsey State of Fashion 2021 Survey; McKinsey analysis.\u003c/li\u003e\n \u003cli\u003e\u0026ldquo;NIKE, Inc. reports fiscal 2020 fourth quarter and full year results,\u0026rdquo; Nike, June 25, 2020, news.nike.com.\u003c/li\u003e\n \u003cli\u003e\u0026ldquo;Zara Owner to Invest $3 billion to Expand Amid Covid-19 Crisis,\u0026rdquo; \u003cem\u003eBloomberg,\u003c/em\u003e June 10, 2020, https://www.bloomberg.com/news/articles/2020-06-10/inditex-has-first-quarterly-loss-since-zara-owner-went-public\u003c/li\u003e\n \u003cli\u003e\u0026ldquo;\u003ca href=\"https://www.france24.com/en/20200401-un-chief-says-coronavirus-worst-global-crisis-since-world-war-ii\"\u003eUN chief says coronavirus worst global crisis since World War II\u003c/a\u003e,\u0026rdquo; France 24, April 1, 2020, france24.com.\u003c/li\u003e\n \u003cli\u003eMcKinsey analysis, based on data from S\u0026amp;P Capital IQ.\u003c/li\u003e\n \u003cli\u003eMcKinsey analysis, 2019.\u003c/li\u003e\n \u003cli\u003eMcKinsey COVID-19 Consumer Pulse Survey: for Europe, held March 20\u0026ndash;26, 2020, with 5,614 respondents (France, Germany, Italy, Portugal, Spain, and the United Kingdom); for United States, held March 23\u0026ndash;29, 2020, with 1,119 respondents.\u003c/li\u003e\n \u003cli\u003eMcKinsey analysis, based on data from Amazon and Stackline.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eTo view exhibit, refer to\u003c/em\u003e \u003ca href=\"/~/media/mckinsey/industries/retail/our insights/its time to rewire the fashion system state of fashion coronavirus update/the-state-of-fashion-2020-coronavirus-update-final.pdf\"\u003eThe State of Fashion 2020: Coronavirus Update\u003c/a\u003e.\u003c/li\u003e\n \u003cli\u003eMarcus Fairs, \u0026ldquo;\u003ca href=\"https://www.dezeen.com/2020/03/09/li-edelkoort-coronavirus-reset/\"\u003eCoronavirus offers \u0026lsquo;a blank page for a new beginning\u0026rsquo; says Li Edelkoort\u003c/a\u003e,\u0026rdquo; \u003cem\u003eDezeen\u003c/em\u003e, March 9, 2020, dezeen.com.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eTo view exhibit, refer to\u003c/em\u003e \u003ca href=\"/~/media/mckinsey/industries/retail/our insights/the state of fashion 2020 navigating uncertainty/the-state-of-fashion-2020-final.pdf\"\u003eThe State of Fashion 2020\u003c/a\u003e.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eTo view exhibit, refer to\u003c/em\u003e \u003ca href=\"/~/media/mckinsey/industries/retail/our insights/the state of fashion 2020 navigating uncertainty/the-state-of-fashion-2020-final.pdf\"\u003eThe State of Fashion 2020\u003c/a\u003e.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eTo view exhibit, refer to\u003c/em\u003e \u003ca href=\"/~/media/mckinsey/industries/retail/our insights/the state of fashion 2020 navigating uncertainty/the-state-of-fashion-2020-final.pdf\"\u003eThe State of Fashion 2020\u003c/a\u003e.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eTo view exhibit, refer to\u003c/em\u003e \u003ca href=\"/~/media/mckinsey/industries/retail/our insights/the state of fashion 2020 navigating uncertainty/the-state-of-fashion-2020-final.pdf\"\u003eThe State of Fashion 2020\u003c/a\u003e.\u003c/li\u003e\n \u003cli\u003eEarnings before interest, taxes, and amortization.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eTo view exhibit, refer to\u003c/em\u003e \u003ca href=\"/~/media/mckinsey/industries/retail/our insights/the state of fashion 2019 a year of awakening/the-state-of-fashion-2019-final.pdf\"\u003eThe State of Fashion 2019\u003c/a\u003e.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eTo view exhibit, refer to\u003c/em\u003e \u003ca href=\"/~/media/mckinsey/industries/retail/our insights/the state of fashion 2019 a year of awakening/the-state-of-fashion-2019-final.pdf\"\u003eThe State of Fashion 2019\u003c/a\u003e.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eTo view exhibit, refer to\u003c/em\u003e \u003ca href=\"/~/media/mckinsey/industries/retail/our insights/renewed optimism for the fashion industry/the-state-of-fashion-2018-final.pdf\"\u003eThe State of Fashion 2018\u003c/a\u003e.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eTo view exhibit, refer to\u003c/em\u003e \u003ca href=\"/~/media/mckinsey/industries/retail/our insights/the state of fashion 2017/the-state-of-fashion-mck-bof-2017-report.pdf\"\u003eThe State of Fashion 2017\u003c/a\u003e.\n \u003c/li\u003e\n\u003c/ol\u003e"},"contributoryPractice":{"targetItems":[{"displayName":"Retail"}]},"aboutTheAuthors":{"value":"\u003cp\u003e\u003cstrong\u003eAchim Berg\u003c/strong\u003e\u0026nbsp;is a senior partner in McKinsey\u0026rsquo;s Frankfurt office,\u0026nbsp;\u003cstrong\u003eLeonie Brantberg\u003c/strong\u003e\u0026nbsp;is an associate partner in the London office, and\u0026nbsp;\u003cstrong\u003eSaskia Hedrich\u003c/strong\u003e\u0026nbsp;is a senior expert in the Munich office. \u003cstrong\u003eImran Amed\u003c/strong\u003e\u0026nbsp;is the founder, editor-in-chief, and CEO of \u003ca href=\"https://www.businessoffashion.com/\" target=\"_blank\"\u003ethe Business of Fashion\u003c/a\u003e.\u0026nbsp;\u003c/p\u003e\u003cp\u003e\nThe authors wish to thank Robb Young, \u003ca href=\"https://www.businessoffashion.com/\" target=\"_blank\"\u003ethe Business of Fashion\u003c/a\u003e\u0026rsquo;s global markets editor, for his contribution to this article.\u003c/p\u003e"},"authors":{"targetItems":[]},"nonPartnerAuthors":{"targetItems":[]},"interactiveToUse":{"targetItem":null},"enableArticleComponents":{"boolValue":false},"relatedArticles":{"targetItems":[{"sourcePublication":{"targetItem":null},"publicationSource":null,"externalPublication":{"value":""},"title":{"value":"State of Fashion: Watches and Jewellery"},"url":{"path":"/industries/retail/our-insights/state-of-fashion-watches-and-jewellery"},"eyebrow":{"targetItem":{"name":"Report"}},"articleType":{"targetItem":{"name":"Report"}},"contentType":{"targetItem":{"name":"Article"}},"description":{"value":"Bringing the sparkle back: Six seismic shifts are shaping the fine jewellery and watches industries in the next five years."},"standardImage":{"src":"/~/media/mckinsey/industries/retail/our insights/state of fashion watches and jewellery/state-of-fashion-watches-and-jewellery-standard.jpg","alt":"State of Fashion: Watches \u0026 Jewellery"},"heroImage":null,"thumbnailImage":null},{"sourcePublication":{"targetItem":null},"publicationSource":null,"externalPublication":{"value":""},"title":{"value":"Sporting goods 2021: The next normal for an industry in flux"},"url":{"path":"/industries/retail/our-insights/sporting-goods-2021-the-next-normal-for-an-industry-in-flux"},"eyebrow":{"targetItem":{"name":"Report"}},"articleType":{"targetItem":{"name":"Report"}},"contentType":{"targetItem":{"name":"Article"}},"description":{"value":"Eight trends are shaping the sporting goods industry in 2021. 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