The State of Fashion McKinsey Report Review

The State of Fashion McKinsey Report Review Hey there! We have looked at the annual report ´The State of Fashion´, published by Management Consultancy McKinsey.

Below you will find a summary of the report content, so you know what is currently happening in the world of fashion.

The global fashion sector will have to deal with inflation in the year 2023, while also looking for opportunities in new manufacturing techniques, channels, and digital marketing methods, and altering consumer trends.

After 18 months of strong growth, the fashion sector is once again dealing with difficult conditions.

Those observations relate to the beginning of year 2021 until mid-2022.

 

 

Reasons for Declining Growth in the textile industry

 

• Hyperinflation

• Depressed customer sentiments

• Macro-economic factors & Politics (e.g., War in Ukraine)

 

The luxury market, based on analysis, is perceived to grow by 5-10% in the year 2023.

It may build a consistent performance across China but is expected to have weaker results in the EMEA area.

Europe is currently suppressed by currency exchange rates and a persistent crisis in the energy sector.

Analyst working for McKinsey stated that the growth of purchases in the luxury segment can reach 3-8% in 2023.

 

 

International Impact of Inflation - Consumer Behavior Towards Fashion

Inflation is a prominent issue towards end of 2022 until 2023 and has earned great attention of business leaders.

The results of global inflation will impact consumer demand which leads customers to seek lower prices or reduce the spending on fashion overall.

Not only did energy prices rise at enormous speed.

Cost of food or groceries has spiked throughout the last decade (Sky News, 2023).

The news channel shared that the British Retail Consortium has recognised an astonishing inflation rate of food by 13.3 percent.

The BRC is the premier trade organisation for all UK retailers, advancing the retail narrative and influencing discussions and industry-relevant issues.

Increased Cost of Goods Sold

Among those executives employed at Fashion enterprises, 97 % expect the inflation will increase the cost of goods being sold.

Surveyors also see a rise in operating expenses, also called SG&A expenses.

Those SG&A costs include every cost generated that does not relate to production.

This could be reflected in activities or items such as travelling, wages, bonus pay outs or even marketing (CFI, 2022).

 

 

Fabrics Textile Prices Increase & Other Economic Outcomes

For instance, the price of cotton has climbed by 45% while the price of silk as well cashmere has increased by 30%.

As financial and political concerns continue to block corporate operations and increase reputational risk, leaders in the fashion industry are also keenly monitoring international headlines in the upcoming year.

Businesses in the textile industry are extremely concerned about the conflict in Ukraine, which has already hampered commerce and sparked an ongoing energy crisis.

The real estate crisis and more COVID-19 outbreaks in China have hampered the region's growth trajectory and disrupted supply networks.

In the meantime, Asia-wide supply networks and raw materials are being badly impacted by extreme weather.

 

Overconsumption of Fashion

The fashion industry anticipates that demand will be reduced or unpredictable in the upcoming year since consumers' shopping habits are becoming more and more reflective of the dire state of the world economy.

As cost-conscious consumers are likely to cut back or trade down, we predict that the differences between the buying patterns of low- and high-income households will grow more prominent.

In the meanwhile, consumers of luxury goods will probably continue to spend essentially as they have been, shielded from the effects of the recession.

 

 

The Future of Fashion & Global Trade

What Fashion Enterprises Do to Survive the Increase Complexity of its Business Environment.

The best-positioned fashion companies to weather the impending storm will be those who can adjust to the growing complexity by modernising their operational models and altering their supply chain, sales channel, and digital marketing tactics.

They can take advantage of the ten new consumer trends listed below: The Global Economy Global vulnerability.

The economy is in a precarious position due to the greatest inflation in a generation, escalating geopolitical unrest, the climate crisis, and declining consumer confidence due to an impending economic slump.

To overcome the various uncertainties and recessionary threats that lie ahead in 2023, fashion firms will need to plan carefully regional particulars.

It has never been simple to decide where to invest globally, but in 2023 it is going to become considerably more difficult due to variables including increasing geopolitical unpredictability and uneven economic recovery caused by the COVID-19 epidemic, among others.

 

Reevaluating Growth Opportunities

Brands can refine their plans to make them better suited to the regions in which they operate by reevaluating regional growth priorities. customer shifts. Expenditure on two tracks.

The projected economic turmoil in 2023 may have diverse effects on consumers.

Depending on factors such as disposable income level, some will postpone or curtail discretionary purchases.

But, others will seek out bargains, increasing the demand for resale, rental, and off-price products.

Fashion executives require to change and adapt their business models to protect customer loyalty and avoid diluting their brands liquid style.

Considering shifting consumer attitudes about gender identity and expression, gender-fluid fashion is gaining ground.

The blending of men's and women's clothing will force many manufacturers and retailers to reconsider their approach to product development, marketing, and in-person and online buying. formal attire reimagined.

As customers reconsider how they dress for work, weddings, and other occasions, formal wear is assuming new definitions.

Many special occasions may be dominated by statement-making clothes that customers rent or buy to stand out when they do decide to dress up, while offices and gatherings are likely to become increasingly casual.

The textile system

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The COVID-19 epidemic is still causing supply chains to be interrupted, which increases the need for faster and tighter manufacturing processes.

Fashion industry executives will need to diversify their sales channels to retain efficiency and market relevance even as direct-to-consumer, digital channels remain a primary goal.

Finally, in order to stand out in the crowded digital space where data targeting is no longer successful, firms will need to be more innovative in their marketing strategies.

 

Further Resources About Sustainability in Fashion

More Resources An article published in June 2022, ´In Search of Fashion´s Sustainability Seekers´, presents the idea of sustainability in the fashion industry.

It also includes aspects of a changing generation that has to adapt to rising demand of eco-friendly practices among businesses while remain competitive and profitable (McKinsey, 2022).

That being said, McKinsey has observed that customers increasingly look for sustainable alternatives.

On the other hand, majority of consumers still behave unbiased to this idea. One reason that has been identified is the difficulty to accredit ´sustainable´ to products.

 

Sustainable fashion may increase among Generation Z and millennials

There are many factors that influence the sustainability of a product or service.

The global consultancy expects that the demand for sustainable fashion may increase among Generation Z and millennials due to their increase in income levels over time.

These generations are claimed to be more conscious in relation to sustainability and hoped to reflect this behavior in their purchases.

In that case, it could also push the likeliness of businesses offering clearer communication as well as more sustainable action from businesses in this sector.

Specifically, those findings related to a largely conducted survey by McKinsey that included answers from more than 850,000 consumers back in year 2021.

Sustainability Awareness in Fashion & Problems to Tackle. There is a great need that society to support the awareness of sustainability across sectors.

Even though it is a common topic and, on most businesses, ´ agenda, the environmental impact of the fashion industry at large is still a present issue.

The Dangers of Plastic

Broken down, one of few main factors contributing to this impact is the mass production of fashion companies.

Furthermore, most garments that are ready to be sold remain as inventory.

 

 

Sadly, more than 50% of all produced textiles are made of plastic (polyester) which is energy-intensive to produce and transform.

Plastic also has a very long life and keeps building up on oceans.

Every single year approximately three hundred million tons of plastic are fabricated.

Alarmingly, there are about fourteen million tons of disposed plastic finding their way in the ocean (IUCN, 2023).

The organisation WWF reported various reasons why plastic ends up in the ocean.

For recall, even consumers living far distant from the sea, their disposed plastic may end up there anyway.

Major concerns are prominently the slow decomposition of plastic material. It is possible for rubbish to fly away due to the wind strength, and away from the disposal location or when laying around on the street (WWF, 2023).