Much of the world has been living under the shadow of covid-19 for the past two years, and the global fashion industry is no different. It is now starting to find its feet again, although it still faces enormous challenges from supply chain disruption, patchy demand, scrutiny of manufacturing, rapid change across marketing and distribution channels, increased regulation and consistent pressure on the bottom line. While these pressures have taken their toll, firms are adapting to the new world of evolving customer demand and digital innovation.
The fashion industry posted a 20 per cent decline in revenues in 2019–20, with 69 per cent of companies showing a loss and around 7 per cent of companies leaving the market entirely, either due to financial distress or because they were bought by rivals, according to McKinsey. In 2021, China was the standout performer, as its economy recovered more quickly than other countries, and in 2022 the industry’s growth is likely to be driven by China again, along with the United States, while Europe is lagging. Inflation poses a challenge worldwide.
Luxury, and at the opposite end of the spectrum, discounting, outperformed the wider market, with mid-market brands in the ‘squeezed middle’. Sportswear brands saw the highest growth – perhaps boosted by consumers having to work from home and in turn the continuing trend for more casual workwear. The top five performers by profit were Nike, Inditex, Kering, LVMH (including Tiffany) and Hermes. It is anticipated that global fashion sales will recover and exceed 2019 levels in 2022, although the sector will be challenged by new-found social freedoms and experiences competing for consumers’ discretionary spend.
The key trends have evolved since we penned our introduction last year, as environmental, social and governance (ESG) has become an even more significant force in the sector. We are seeing increased scrutiny of the supply chain and the workforce, with transparency being required throughout the manufacturing and distribution chain. While initially embraced by the luxury brands and often demonstrated as part of their heritage credentials, value brands are now introducing conscious supply chain statements as a means of connecting with the younger demographic so important to the brands’ success. However, while the tension between fast fashion and sustainability is lessening, the fashion industry still has much work to do in this area.
Not unrelated to ESG, ownership models are continuing to change, particularly younger among consumers. Garment rental is growing through sites such as My Wardrobe HQ, Rent the Runway and Wardrobista, while pre-owned fashion sites like Vestiare Collective, Vinted and Poshmark provide a way to own high-end brands at affordable prices through sites. This model offers a way for the fashion industry to reduce its environmental impact; however, this is just a drop in the ocean, and a global systematic closed-loop recycling system is needed in the longer term.
Authentication has long been an issue for the fashion industry, with counterfeit goods becoming increasingly convincing and those responsible for their production becoming ever more adept at evading capture. However, the blockchain is now being used to guarantee the provenance and ownership of high-value items, in an attempt to build trust and consumer confidence, and its use is being extended to certifying materials, dyes and individual garment serial numbers.
Fashion companies also face the challenge of achieving a balance between giving consumers control over their data and digital lives, and, at the same time, providing access to affordable and relevant products and services. As new and highly punitive regulations come into force across the world, it is clear that data privacy is a topic of great interest to regulators and one that can tarnish reputations and hit profits if ignored.
The fashion industry is investing heavily in digital innovation. Digital assets such as non-fungible tokens (NFTs) have seen an explosion in popularity, and partnerships between established fashion brands and the gaming community are being established as a means to tap into this opportunity and attract younger demographics. The move to reduce the number of clicks to the point of sale has seen the development of ‘in-app social commerce, and this will continue to grow during 2022. Virtual commerce (VC) has been embraced, particularly in Asia-Pacific countries , as a means to enjoy high levels of personal service from luxury brands without leaving home. The luxury sector provides an excellent example of how innovative businesses were able to pivot and create services in response to their customers’ inability to travel. Influencers continue to be an important driver of sales. However, their ambition is increasingly being curtailed, as regulators seek to increase the transparency of influencers’ involvement in promotional activity. As the digitization of the fashion industry continues apace, so does the threat of cyberattacks. Ensuring adequate protections to protect customer data, IP and other assets from loss, accidental sharing or ransomware remains a concern.
Global supply chains were perhaps the biggest losers during and after the pandemic. According to McKinsey, around half of global businesses suffered supply chain disruptions in 2021, with one in eight severely affected. Logistics challenges will continue to be a feature in 2022, and will force brands to consider moving production closer to home or to switch to direct-to-consumer models in an effort to contain shortages. But workforce shortages are expected to remain a challenge no matter where production is located.
Agility, and the ability to adapt and evolve with ever-changing consumer demands will be key attributes for fashion companies to have in the coming years. Those businesses that have weathered the storm have responded quickly to changing market conditions, and in particular have embraced new routes to market. Many could not have foreseen the need to harness technology to the extent that has been necessary, while others were caught off guard by the rapid adoption of the sustainability agenda. Success will come to those willing to embrace a degree of risk, perhaps having one foot in established marketing and distribution channels and the other foot in the metaverse, with a virtual shopfront. Brands that can embrace change and closely follow their customers’ preferences will be the winners in this market.