Leading up to New Year’s, social feeds were clogged up with ’in and outs’-lists —predictions and subjective assessments for the time coming. But what are the professionals saying? The yearly report The State of Fashion, conducted by McKinsey & Co. and Business of Fashion, gives the fashion industry an overall environmental analysis and how brands should navigate a tumultuous and rocky path ahead.
— The fashion industry once again demonstrated remarkable resilience in 2022. The luxury segment in particular propelled growth through price increases, partially offsetting the weaknesses of other segments. While there are many challenges ahead for the global fashion industry in the coming year — mainly driven by volatility and uncertainty due to macroeconomic developments — we expect limited global growth of about 2–4% in 2024. Luxury’s global retail sales growth is forecast to slow to between 3–5% in 2024, due to consumers’ restrained spending after a post-pandemic shopping surge, says Achim Berg, Senior Partner at McKinsey.
Uncertain times equals uncertain outcomes
The end of 2023 wasn’t the most jolly days for the fashion industry. Globally, net intent to spend on apparel had a decrease by 16% in the last quarter, in Europe, the same number was a whole 29%. Most likely the time ahead will continue to be not very joyful. The International Monetary Fund’s forecast has put global GDP growth at 2.9% in 2024, down from 3% in 2023 and 3.5% in 2022. In Europe, there is still the hovering risk of a recession. Geopolitical turmoil, climate crisis, inflation, and subsequent interest rates are all contributing to an uncertain future. However, there are rays of light and opportunities to reach new markets. For example, the outlook in China and India is much more optimistic than the rest of the world.
The most successful outcome would be for brands to opt for growth in terms of price increases rather than volumes. In 2024, fashion leaders can enhance resilience throughout their value chains by prioritising contingency planning. They should craft scenarios that accommodate substantial uncertainty and the evolving demands of different regional markets. These scenarios need to adapt to the growing divergence in underlying factors within each region. Additionally, maintaining robust inventory management will continue to be crucial, building on successful cost-saving strategies established during the post-pandemic era.
Unleashing AI’s infinite possibilities
The previous year has been a primer to discover the opportunities that come with artificial intelligence. Already, 60% of fashion executives have worked with generative AI, which proves its stronghold on the industry. In the upcoming year, AI will be one of the leading technologies that could propel brands into a prosperous future.
— The rise of Generative AI provides a creative crossroad for the fashion industry: We are already seeing multiple use cases emerging. To capture the value of this transformative technology in the coming year will require fashion players to look beyond automation and explore GenAI’s potential to expand the work of human creatives, explained Gemma D’Auria, Senior Partner and Global Leader of McKinsey’s Apparel, Fashion and Luxury Group.
The importance of the ”brand” and finding new opportunities
Coming from a time in which performance marketing has been reigning, we’ll see a shift in which brand marketing will become more important. 71% of fashion executives have said that they will be increasing their budgets towards brand marketing, a quite significant change compared to previous years. This is connected to a consumer shift where long-term relationships between brands and consumers will become more important. Related to this, consumers are becoming tired of ads and sponsored posts. What is now favoured, is relatable and authentic marketing that are speaking directly to consumers.
While there is still limited growth connected to fashion, there are new areas of exploitation that could lead to new growth opportunities. For instance, reaching new types of consumers. A consumer group which is expected to grow in 2024 is holiday-goers. Travellers are now seeking experiences outside of the beaten path. This raises new opportunities for fashion execs to create memorable experiences in conjunction with destinations and hotels.
As a post-pandemic effect, consumers are now seeking healthier lifestyles by exploring nature. This has been reflected in fashion, where we’ve seen the rise of gorp-core and brands launching outdoor collections and -collaborations. This will continue to drive change in 2024, and most likely more brands will blur the lines between lifestyle and the outdoor segment.
Legislation paving the way forward
We’ll be seeing a slew of legislations that will come into effect in the upcoming years. This will, undeniably, affect every part of the fashion industry and its value chain. Changes will be, and are, happening on a national, regional and global level. We’ve already seen legislation coming into effect in Germany, France and the UK and both the EU and the US have proposals for upcoming legislation.
After years of — non-working — self-regulation, legislation is a much sought-after solution to the environmental damage that fashion and apparel spurs. This should be seen as an opportunity, rather than a threat, and an opportunity to create new business models and revenue streams. To achieve a successful transition, brands will need a team of regulatory experts to evaluate laws, provide guidance on implications, and perform materiality assessments. However, regulatory accountability shouldn’t be confined to this team alone. All C-suite executives must synchronise strategies, enhance expertise, recognise required resources, and disseminate this information across all organisational departments.
Industry associations and trade groups, such as the Council of Fashion Designers of America or the European Fashion Alliance, will have a huge importance in shaping upcoming legislation to shape future legislation. Hence, brands and fashion leaders should reach out to their local associations to be part of forming their future.
Reaction and adaption to a changing climate
Legislation is curbing climate risk at some sort, but one could argue that it needs more attention — which it might not get. Fashion executives have expressed that more urgent challenges will be their focus in 2024. However, with the increase in climate change, it will have a concrete influence on different parts of the value chain.
2023 is likely to be marked as a year dominated by climate-related catastrophes. The frequency of such disasters is anticipated to surge further due to the effects of climate change. Scientists project that soaring temperatures across the globe will position 2023 as one of, if not the, hottest years on record. This outcome is attributed to a combination of El Niño weather patterns and the overarching impact of global warming. The year witnessed scorching temperatures, rampant wildfires, torrential rains, and flash floods that ravaged communities worldwide, leaving behind a trail of devastation and deaths. Virtually no region appeared to have escaped the impact of these events, which also comes with huge financial losses. By 2030, worth of $65 billion of apparel exports and 1 million jobs are at risk of being erased due to climate changes such as flooding and extreme heat.
The problems related to climate change will need urgent and forceful actions. Both at a collaborative level where joining pacts like the Fashion Pact, the Sustainable Apparel Coalition and the Fashion Charter are a good entry, but also individual action by companies are much needed.
Find the full report here