Ten trends set to shape fashion industry in 2020
Anxiety and concern is the prevailing mood across the fashion industry for 2020, with global fashion industry growth expected to slow further as economic growth shrinks and competition intensifies. A new report offers the ten trends set to shape the industry during the course of the year.
According to 'The State of Fashion 2020' report, fashion industry growth is forecast to slow to 3% to 4% in 2020 – slightly below that predicted for 2019 – according to the McKinsey Global Fashion Index (MGFI). This slowdown will stem from consumers being increasingly cautious amid wider macroeconomic uncertainty, political upheaval across the globe, and the continued threat of trade wars.
In North America, consumer sentiment is muted and tariffs – aided by the strengthening dollar – are impacting both imports and exports. Emerging Asia-Pacific markets are still relatively strong, although growth is slowing: retail sales in the region have been falling short of expectations, and will continue to disappoint in 2020 as consumer sentiment weakens, the report predicts.
On the other side of the world, mature Europe continues to suffer from the general global economic malaise and ongoing uncertainty around Brexit. Growth in emerging Europe, Latin America, the Middle East and Africa is expected to remain stable overall with some brighter spots, such as Brazil and Nigeria – two of the most populous nations in the world that have rapidly expanding middle classes.
"The year ahead will open with the industry in a state of high nervousness and uncertainty, with most executives across fashion and the wider business world bracing for a slowdown in growth in the global economy," say report contributors Achim Berg and Imran Amed. "Because fashion is a global business with global supply chains, industry players are anxious about the impact of tariffs and trade disputes."
The survey of 290 global fashion executives and interviews with thought leaders and pioneers, carried out by McKinsey & Company in partnership with Business of Fashion (BoF), found just 9% think conditions for the industry will improve next year, compared to 49% who said the same last year.
"Challenging," "uncertain" and "disruptive" were the most frequently used words, compared to last year's more neutral "changing," "digital" and "fast."
Further, regardless of region or segment, more than half of respondents predict a deteriorating environment. The most optimistic region is Asia, although even here only 14% of executives expect an improvement in conditions. And in luxury, where performance has been strong, there is still little hope of an upturn.
Sustainability – an opportunity and a challenge
When asked what they see as the biggest challenges facing the industry going forwards – and the biggest opportunities for next year – sustainability topped the list for both.
"The industry's track record remains a source of concern," the report states. The textile sector still represents 6% of global greenhouse-gas emissions and 10% to 20% 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% of microplastic flows into the ocean.
Yet according to the report, while the absolute number of sustainable fashion products remains low, there has been a fivefold increase over the past two years.
"Looking forward, we see more research into sustainable materials and technologies, as well as the circular economy. 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," report authors say.
The rise of 'super winners'
Polarisation, however, continues to be a stark reality in fashion. For an exclusive group of 'Super Winners,' the sun is shining; 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.
Long-term leaders Nike, Inditex and LVMH have more than doubled their economic profit over the past ten years. According to the report, each racked up more than US$2bn in economic profit in 2018.
Alongside public companies, the report also identifies a group of 'hidden champions.' Among the well-known brands, Chanel is a significant player, with revenues of more than $10bn. At the opposite end of the price spectrum is Primark, whose commitment to its core value proposition has made it a formidable competitor.
A volatile outlook
For fashion players, the year ahead will be a tough one as slower growth puts pressure on margins, the digital shakeout gathers pace, and customers demand more on sustainability.
Those that respond and adapt fast will be successful, ensuring a focus on boosting earnings over revenue growth, and working out how to improve productivity while ensuring operational and financial flexibility.
"The good news is that for companies that do display resilience and resolve, additional rewards are there for the taking beyond 2020. While China continues to present a lucrative opportunity for many global and local fashion players, some companies are at risk of becoming over-reliant on the market. We see further potential to explore markets beyond China, including India, Southeast Asia, the Middle East and Russia."
To better address consumer themes next year, the report suggests fashion players focus on clearly understanding how to best use new social media channels and functions, how to optimise their store networks and experience, and how to best deliver industry change toward greater sustainability. Both R&D and innovation will play vital roles in delivering short-term sustainability targets and in reinventing fashion's economic model for longer term transformation.
Top ten trends
Sustainability, digitisation, and innovation are among the top trends to watch out for in 2020, according to the report:
#1: On high alert – Continued caution is advised for the year ahead as mounting underlying turmoil could disrupt relations among both developed and emerging market economies. Indicators of recession risk are spurring companies across industries to build a resiliency playbook and plan for other macro risks such as geopolitical instability and the inflammation of trade tensions.
#2: Beyond China – China will continue to provide exciting opportunities and play a leading role in the global fashion industry, but the colossal market is proving harder to crack than brands anticipated. As some successful players become over-reliant on China and others struggle, companies should consider spreading their risk by expanding to other high-growth geographies.
#3: Next-generation social – As traditional engagement models struggle on established social media platforms, fashion players will need to rethink their strategy and find ways to maximise their return on marketing spend. Attention-grabbing content will be key, deployed on the right platform for each market, using persuasive calls-to-action and, wherever possible, a seamless link to checkout.
#4: In the neighbourhood – Consumer demand for convenience and immediacy is prompting retailers to complement existing brick-and-mortar networks with smaller format stores that meet customers wherever they are and reduce friction in the customer journey. The winning formula will feature in-store experiences and localised assortments in neighbourhoods and suburbs beyond the main shopping thoroughfares.
#5: Sustainability first – The global fashion industry is extremely energy-consuming, polluting and wasteful. Despite some modest progress, fashion hasn't yet taken its environmental responsibilities seriously enough. Next year, fashion players need to swap platitudes and promotional noise for meaningful action and regulatory compliance while facing up to consumer demand for transformational change.
#6: Materials revolution – Fashion brands are exploring alternatives to today's standard materials, with key players focused on more sustainable substitutes that include recently rediscovered and re-engineered old favourites as well as high-tech materials that deliver on aesthetics and function. R&D is expected to increasingly focus on materials science for new fibres, textiles, finishes and other material innovations to be used at scale.
#7: Inclusive culture – Consumers and employees are putting increasing pressure on fashion companies to become proactive advocates of diversity and inclusion. More companies will elevate diversity and inclusion as a higher priority, embed it across the organisation and hire dedicated leadership roles, but companies' initiatives will also come under increasing scrutiny in terms of sincerity and results.
#8: Cross-border challenges – Established fashion brands and retailers will face growing competition from new Asian challengers, as manufacturers and SMEs step out of their traditional roles and sell directly to global consumers. Expect greater competition from hitherto unknown players in the Asian supply chain who design popular items to sell at affordable prices using cross-border e-commerce platforms.
#9: Unconventional conventions – Traditional trade shows must respond to the increase of direct-to-consumer activity, shorter fashion cycles and digitisation by embracing new roles and fine-tuning their target audience. In a bid to differentiate themselves – or even just to survive – more of these events will add B2C attractions or launch new services and experiences to improve relationships with their traditional B2B audience.
#10: Digital recalibration – Valuations of digital fashion players have reached dizzying levels and, despite a slew of high-profile IPOs and private firms achieving unicorn status, investor sentiment is taking a turn for the worse. Investor apprehension is growing over the path to profitability for some digital players, from online pure play retailers and marketplaces, to direct-to-consumer brands and other digital-first business models.
Last month McKinsey & Company revealed the results of its latest biennial survey of chief purchasing officers (CPOs). The feedback suggests that while sustainable sourcing is fast becoming a top priority for fashion companies, major hurdles to getting it to scale include a lack of international standards or clear definitions on sustainability, and problems with the cost and availability of materials: Sustainable sourcing at scale still a far-off dream.