According to a new report released by McKinsey Company and the Business Of Fashion (BoF), the global fashion industry, worth 2.5 trillion dollars, is forecast to see a 90% profit decline for 2020. This marks the worst year on record for the industry and is a result of the coronavirus pandemic.
1. Decline in sales
The global pandemic has caused a steep decline in fashion industry sales, worsening the situation for brands who were already troubled beforehand, accelerating shifts in consumer behaviour and disrupting supply chains. Global fashion sales are forecast to decline 15 to 30 percent in 2020 compared to 2019. Europe will see a 22 to 35 percent decline in sales, the U.S will see a 17 to 32 percent decline, and for China it will be 7 to 20 percent.
Achim Berg, senior partner and global leader of apparel, fashion and luxury at McKinsey stated, ‘As a result of the decline in economic profit, fashion industry value is now further consolidated among the top players — 60 percent of the industry was value-destroying in 2019, growing to an estimated 73 percent in 2020. In this disrupted environment, leaders must develop new strategies and have the agility to change their product offering’.
How will middle-market labels that survive the pandemic convince shoppers their products are worth their price tag? The answer may be to get out of department stores — and tweak the narrative. https://t.co/TiYsdX5sqd— The Business of Fashion (@BoF) December 4, 2020
2. Online sales increase
However, the pandemic has brought benefits for online sales as they saw the equivalent of 6 years of growth in only 8 months, nearly doubling from 16 to 29 percent of total sales revenues. As a result of this, 71 percent of fashion executives now expect their online business to grow by at least 20 percent in 2020, although it will still take at least two years for industry revenues to recover to 2019 levels.
3. Luxury and Beauty are doing better
The luxury and affordable luxury segments have proven slightly more resilient, as sales shrunk an average of 30 percent and earnings before interest, taxes, and amortisation (EBITA) decreased by an average of 20 percentage points during the quarters between February and June 2020, compared to the same period in 2019. The global beauty market is also showing its resilience compared to fashion and is set to return to, and even surpass, 2019 levels of sales in 2021.
Lauren Sherman, chief correspondent at the BOF, stated, ‘While luxury has proven marginally more resilient throughout the pandemic when compared to other parts of the fashion industry, brands must tap artificial intelligence, but also cultivate direct relationships with salespeople, to make every customer experience feel personal. Brands must also develop local customer relationships in regions that in the past were reliant on tourism to drive growth. While the pandemic has forced a shift away from buying experiences to buying things, brands should plan for the return of the experience economy’.
The State of Fashion 2021: In search of promise in perilous times- McKinsey Insights https://t.co/lqZv2o9p17— AI4Fashion (@Ai4Fashion) December 3, 2020
4. Fashion’s recovery
2021 is regarded as the step between the pre-pandemic reality and the potentially prolonged recovery period for the global fashion industry. The speed of the recovery will vary across fashion categories and geographic segments, and fashion companies focused on digital, the Asian market and luxury are considered to have a competitive edge in this.
5. Building the industry back better
Imran Amed, founder and CEO of the BoF, stated, ‘While the fashion industry has experienced its worst year on record, the pandemic has also prompted a long overdue reckoning for the sector, creating an opportunity for industry re-invention and reset in the coming years. Digital adoption and innovation has been catalyzed by the pandemic, even while consumers have become more aware of the plight of vulnerable workers in the value chain, creating expectations for fair treatment of all workers in fashion’s value chain. In the post-coronavirus world, the fashion system will need to be rewired to become more responsible, more sustainable and more human’.