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. 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. 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. A return to the riches of the previous decade appears unlikely. And “woke” consumers are also pushing for greater transparency into supply chains—and rewarding their favorite brands for taking controversial political stands. 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. 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. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. 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. 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. Equally, consumers and advocates are calling for the industry to become more inclusive. The exhibit unpacks five areas that could see significant changes; the full report explores these areas in greater depth. Just as China inched through recovery, outbreaks worsened in Europe and the United States. While automation makes retail operations up to 65 percent faster, employees must shoulder more responsibilities, and leverage (real-time) data and analytics to make smarter decisions more quickly. At the opposite end of the price spectrum is Primark, whose commitment to its core value proposition has made it a formidable competitor. The task for decision makers, therefore, is to find silver linings, knowing that times of change are inherently rich with opportunity. In August 2019, Kering CEO François-Henri Pinault spearheaded an industry-wide pact to achieve net-zero emissions by 2050. Download The State of Fashion 2020: Coronavirus Update, the full report on which this article is based (PDF–3MB). This fourth in our annual series analyzes major themes around the fashion economy and breaks new ground to explain the dynamics driving the industry. However, their profit margins are expected to decline, especially after 2016, because of a pricing-arbitrage disadvantage across geographies and fluctuating foreign-exchange rates. 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. 2 Perspectives on retail and consumer goods Number 7, January 2019 A new year is an opportunity for renewal—a fresh start, a time to recommit to long-standing goals or to pursue new ones, a chance to get reenergized and build momentum for the year ahead. The bottom line? Brands, suppliers, contractors, and property owners should also find ways to share the burden. 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. We predict a 5 to 10 percent sales growth in China in 2021 compared with 2019. Nonetheless, this is still expected to be the fastest-growing category, with continued strong demand in many markets. Jorge Colado. McKinsey analysis. Of course, for every success, there are also relative failures. 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. 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. By Imran Amed, Johanna Andersson, Achim Berg, Martine Drageset, Saskia Hedrich, and Sara Kappelmark. Our third trend is Trade 2.0: a warning that companies should make contingency plans for a potential shake-up of global value chains. And digital innovation will go behind the scenes: digitization will be the key to supply-chain efficiency, lowering procurement costs, and the enhancement of sourcing opportunities. Blockchain's Appeal Is Limited for Retail Banks, McKinsey Says By ... according to the report. 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. The think tank sees that the retail space is changing quickly. 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. The value segment continued to grow in 2016, particularly as a consequence of large global players expanding geographically. Those that aren’t already implementing automation risk falling behind. 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. The research is a snapshot of some surprising shifts in consumer behaviour that highlights the importance of adaptability and versatility. McKinsey State of Fashion 2021 Survey; McKinsey analysis. The challenges of a fundamentally changing industry and a continued unpredictable macroeconomic environment has led fashion players to toughen up. Instead, we referenced our 2018 list to gauge the fortunes of the elite group. Frankfurt. Speculation and uncertainty over the repercussions of the US election outcome could further dampen consumer sentiment and affect sales. Physical retail has been under historic levels of pressure. Download the full report to explore the 10 themes which will define the global fashion industry in 2020. At the same time, they must cater to local tastes across multiple markets and cultures. Perhaps unsurprisingly, 67 percent of executives said conditions for the fashion industry have worsened over the past 12 months. The report includes the third readout of our industry benchmark, the McKinsey Global Fashion Index. Office – After a landmark 2018, the sector is looking forward to another strong year as new sources of demand emerge and quality supply 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. Managing Director & … McKinsey analysis, based on data from S&P Capital IQ. In response, leading fashion players are offering innovative business models, using granular customer insights as a source of differentiation, and pushing the limits of go-to-market times. McKinsey’s 2019 chief purchasing officer (CPO) survey finds that sustainable sourcing at scale is the fashion industry’s new must-have. Imran Amed is the founder, editor-in-chief, and CEO of the Business of Fashion. We see local stores in particular building a role as partners in the digital revolution, helping customers touch, feel, and experience in convenient locations as they browse online and offline. The fifth annual State of Fashion report by The Business of Fashion and McKinsey & Company forecasts the continuation of tough trading conditions next year, forcing companies to find their ‘silver linings strategies.’ Download the full report to understand the 10 themes that will define the global fashion industry in 2021 and how to navigate the currents they create. 11. Thorsten Brackert. It’s a trap that leaders need to make a conscious effort in order to escape. Digital upends old models. Instead, from the wreckage of 2020, a sleeker, more focused offering will emerge. 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. Zara said that it plans to cut 1,200 stores over two years and invest €2.7 billion in store-based digital. The consultants point out that their analysis doesn’t factor in the potential benefits that commercializing customer data and insights can accrue to the firm, and yet, the gains look significant. This will also be a time for collaboration within the industry—even among competing organizations. By causing blow after blow to both supply and demand, the pandemic has brewed a perfect storm for the industry: a highly integrated global supply chain means that companies have been under immense strain as they have tried to manage crises on multiple fronts as lockdowns were imposed in rapid succession, halting manufacturing in China first, then Italy, followed by countries elsewhere around the world. In 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. As we move toward recovery, companies in the beauty segment have a chance to align with shifting category and regional opportunities. Yet fashion, because of its discretionary nature, is particularly vulnerable. The modern shopper’s comfort with digital channels and content has created a complex customer journey across online and offline touchpoints. “Our corporate-finance research suggests that two-thirds of companies fall into this trap. 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. 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. 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. Please try again later. As noted in our previous articles on “getting woke,” radical transparency, and sustainability first, the consumer mindset was already showing signs of shifting in certain directions before the pandemic. Billions of them. At the same time, they are demanding ever-quicker and more seamless fulfillment, from mobile shopping to drone delivery. 4. Given the standout performance of digital channels in the current environment, we expect digital to remain king in 2021. 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. We’re obsessed with the future of retail. Earnings before interest, taxes, and amortization. 1 In-store revolution 2 New store experiences 3 Innovating at scale 4 Re-defining convenience 5 Re-inventing retail 6 Re-commerce 7 The personal edit 8 Social discovery 9 East beats West 10 China leads the e-commerce revolution 11 The Chinese consumer market goes global 12 The coming year will be tough, as the digital shakeout gathers pace, customers demand more on sustainability, and slower growth puts pressure on margins. Retail Trends 2019 | April 2019 Contents What’s next for retail? With the outlook for global growth dimming and the uncertainty of trade tariffs unlikely to go away soon, we expect real GDP growth to slow to 1.6 percent this year from 2.3 percent in 2019. 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. After a challenging stretch, has fashion turned the corner? Nonetheless, our report finds that fashion companies are hopeful they can improve their performance through a combination of organic growth and leveraging new technologies. But equally, there is no call for rags just yet. In 2016, the 8.0 to 8.5 percent growth for athletic wear is more than double any other category. These are some of the findings from our latest report on The State of Fashion, written in partnership with the Business of Fashion (BoF), which explores the industry’s fragmented, complex ecosystem. This has a profound impact as purchase decisions are influenced by social media, peer reviews, influencer marketing, and traditional marketing, and even many purchases themselves are made consumer-to-consumer. In 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 data analytics to produce on demand to reduce waste and react rapidly to trends. Yet this sluggish overall growth masks some big winners: affordable luxury, value, and athletic wear. Dire consequences for fashion, one of the biggest industries in the world, generating $2.5 trillion in global annual revenues before the pandemic, Against this background, fashion-industry fortunes are highly polarized. 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. By Imran Amed, Anita Balchandani, Achim Berg, Saskia Hedrich, Shrina Poojara, and Felix Rölkens. ... the 2019 McKinsey sourcing report found. 12 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). The US retail sector is facing one of the most challenging times in recent memory. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. For an exclusive group of “Super Winners,” the sun is shining (Exhibit 3); by economic profit, these 20 companies added more to the industry bottom line in 2018 than all others combined. To evaluate new technologies and compel shoppers to spend more. To address consumer behavior, players will have to learn to serve shrewder and more-demanding customers and adjust to a shifting demographic profile. Consumers also have higher expectations of customer experience and scrutinize convenience, price, quality, and newness. No wonder Amazon intends to start 3,000 stores in the US by 2021. Learn about Experiential retail is coming to life 13 Trend 5 Planet friendly is due to arrive 16 Trend 6 Social currency will be more transactional 19 Trend 7 From transaction to service provider 22 Top 10 lessons for retailers 26 Contacts 28 Further publications 29 Table of contents 2019 is poised to be a transformational year for retail. Download The State of Fashion 2019, the full report on which this article is based (PDF–3 MB). With the COVID-19 pandemic dominating thoughts and minds, fashion executives are planning for a range of scenarios and hoping for a speedy global recovery. This unforeseeable humanitarian and financial crisis has rendered previously planned strategies for 2020 redundant, leaving fashion businesses exposed or rudderless as their leaders confront a disorienting future and vulnerable workers face hardship and destitution. This is an edited excerpt from the first joint report from McKinsey and the Business of Fashion, The State of Fashion (PDF–8MB). Please use UP and DOWN arrow keys to review autocomplete results. “A comprehensive automation program can significantly offset these headwinds. We also highlight the ten trends that will define the fashion agenda in 2019 (interactive). As the world recovers from the COVID-19 pandemic, what will be the defining themes in the business of fashion? “Zara Owner to Invest $3 billion to Expand Amid Covid-19 Crisis,”, It’s time to rewire the fashion system: State of Fashion coronavirus update, The State of Fashion 2020: Navigating uncertainty, The State of Fashion 2019: A year of awakening, The State of Fashion 2018: Renewed optimism for the fashion industry. 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. If you would like information about this content we will be happy to work with you. As our ten trends indicate, new markets, new technologies, and shifting consumer needs present opportunities—but also risks. Our approach to social responsibility includes empowering our people to give back to their communities, operating our firm in ways that are socially responsible and environmentally sustainable, and working with our clients to intentionally address societal challenges. 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. Customers’ attention is also tuned to new channels. Obviously, this means that employees will need to be trained and built into a workforce that can be redeployed to more for the business. 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). 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. McKinsey continues to track economic and epidemiological developments around the world. This year, we are seeing real signs of change. Given the disruptions of recent months, many companies are reconnecting with their supply chains, making tough decisions—for example, about ROI at store level—and ramping up omnichannel services. Soumik Roy is a business and technology specialist. The 16 percent year-on-year rise came largely from improved operating margins driven by cost cutting. This caution is one of our ten trends to watch in 2019. 6. Players need to be decisive and start putting recovery strategies into motion to emerge with renewed energy. Structurally speaking, the think tank foresees retail organizations rethinking their operating models with far fewer layers. Backed by positive economic fundamentals, healthy demand and quality supply infusion across sectors, India’s real estate sector is poised for strong growth in 2019. 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. McKinsey’s consultants point out that inertia in retail businesses cause them to steer clear of automation despite an abundance of evidence and use cases proving that the technology can help speed up things by up to 65 percent. This is particularly true for the major players within each of the market segments and product categories. 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. By Imran Amed, Anita Balchandani, Achim Berg, Saskia Hedrich, Jakob Ekeløf Jensen, and Felix Rölkens. The average market capitalization of apparel, fashion, and luxury players dropped almost 40 percent between the start of January and March 24, 2020 Notably, the top 20 group of companies has remained stable over time. 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. McKinsey analysis. Therefore, businesses need to reskill and retrain employees quickly — on digital and other key skills. In 54 pages, we document the current situation, the economic outlook, the forces shaping the next normal, and the new organizational structures that can help companies keep pace sustainably. This should lead to a move beyond 2019’s focus on transparency toward real commitment. For an overview, read our latest briefing materials (July 6, 2020). McKinsey Quarterly. It’s precisely for this reason that companies such as Walmart and IKEA constantly work on re-training and re-skilling their employees for new roles that the organization will have and areas that the organization needs support with. “Furthermore, reskilling is more likely to earn goodwill from employees, customers, and governments alike. 3. What will define the industry in the coming year? Flagship stores will be branded as discovery zones and tasked with creating emotional connections with customers. Download The State of Fashion 2020, the full report on which this article is based (PDF–7 MB). 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. McKinsey 7S framework considers strategy, structure and systems as hard elements, whereas shared values, skills, style and staff are accepted as soft elements. 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. 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. Every trend firm, every consultancy. The outlook for the fashion industry varies across different value segments, too. Our flagship business publication has been defining and informing the senior-management agenda since 1964. Most important to their Company 's growth and success offset these headwinds pandemic tracks an uncertain trajectory chain, achieve. To 10 percent sales growth in China in 2021 compared with 49 percent who the... 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