There are two potential scenarios for the fashion industry: if the measures to contain the virus and the vaccination campaign were to be successful, allowing for restrictions on travel to be lifted, the fashion industry could return to the levels of 2019 in the third quarter of 2022. If the opposite were to happen, and other surges of the virus occur in different areas around the world with the reintroduction of lockdowns, recovery would be pushed back to 2023.
These are the initial considerations of the fifth edition of “The State of Fashion 2021” – the annual report of McKinsey and BOF developed with the contribution of managers from the international fashion system –by Nick Blunden, President of Business of Fashion, presented as part of MICAMX on the MICAM Digital Show platform.
The crisis is not over, and there are other factors that are impacting the fashion industry: “The crisis has changed consumer trends, – explains Nick Blunden – the explosion of e-commerce, which is also partially due to reasons of need created by the lockdown, is joined by the move from formalwear towards casualwear with greater interest in sustainability”. The interruption of the supply chain, from sourcing to the economy of stores, is representing a challenge for the sector, but also an opportunity to kick off positive change, promoting business models that are more streamlined, sustainable, and fast. The gap between the super winners and the rest of the fashion industry is becoming wider: “the brands with a strong financial performance have the competitive advantage over players that were already weak on the eve of the crisis. – comments Nick Blunden – Total fashion industry profits fell by 90% in 2020, and as a result, there has been great pressure on companies that were already fighting to survive. Of the stock listed companies, 27% of them in 2020 generated a profit while 73% suffered losses: super winners maintained their levels of revenue, even if they were reduced”.
In this context, the decisions in the months to come will be strategic and will determine the future of the industry’s players: “Fashion executives will have to know how to quickly reply to the challenge of the moment, while keeping risk management in mind. – warns Nick Blunden – It’s difficult, given the climate of uncertainty: the industry has significantly changed. These are challenging times, but there are still opportunities waiting to be seized”.
Starting from these premises, Nick Blunden outlines the seven key trends that will shape the fashion industry in 2021, while pointing towards the beginning of a new chapter for the global fashion industry:
– The virus will impact the sector for all of 2021: social distancing and a slow return to normality will reward businesses that are focused on recovery, while emphasising flexibility and the ability to quickly reply to on-going trends.In 2021, fashion industry sales will fall by 15-20% in the scenario of a quicker recovery, or by 25-30% if the recovery is slower.
– Luxury will be faster to recover, just like markets in China (with a less significant drop in sales between -7% and -20%) and Asia will be, while recovery in Europe (-22/-35%) and in the United States (-17/-20%) will be slower. Casualwear will be more resilient.
– Digital sprint: in eight months of lockdown, online and e-commerce sales recorded the equivalent growth of the six previous years, almost doubling their global share, which went from 16% to 29%. Many fashion industries will pass from physical to digital retail. Players who were already present online before the pandemic and businesses that had already invested in digital will have the advantage in this scenario. Significant investments are expected to be made in this sector, and there will also be changes in digital business models: we will see a lot of innovation in digital channels.
– Seek Justice in the supply chain: the greater awareness of consumers, who look at what they are buying and sustainability, will reward companies that take steps towards greater responsibility.
– Travelling disruption: tourism is an extremely important driver in the fashion industry. Europe has always been the first shopping destination. The recovery of travel will be slow and international tourism might not return to pre-pandemic levels before 2023-24. Chinese consumers no longer travel and spend their money in their own country, while brands are trying to enact strategies that will help replace the market of travellers.
The Fashion System
- Less is more: for consumers and brands it will be a must. Consumers want to spend less to have more. Additionally, the fashion industry, accused of generating too much waste, is called upon to produce less and update its business model. As a consequence, an innovation of on-demand production is expected.
– Polarization of the fashion system: the sector will witness a general reorganisation, and many mergers and acquisitions are forecasted. There is no doubt the market will undergo a great shock.
Nick Blunden concludes his analysis on a positive note: “I believe there will be opportunities for reconstructing a better fashion industry, which is more responsible, sustainable, and profitable. I believe that by looking back on 2021, we will consider it as the year in which we began to move towards an industry of improved fashion”.