collaboration with select social media and trusted analytics partners We’re obsessed with the future of retail. Fashion executives are focusing on crisis management now but eventually must shift to reimagining the industry. Therefore, businesses need to reskill and retrain employees quickly — on digital and other key skills. It’s a trap that leaders need to make a conscious effort in order to escape. This fourth in our annual series analyzes major themes around the fashion economy and breaks new ground to explain the dynamics driving the industry. One size will not fit all. Looking forward, we see more research into sustainable materials and technologies, as well as the circular economy. With tourism in the doldrums, domestic outlets will become more important than ever. All this comes against a backdrop of the fashion industry having turned a corner in 2018, with increased growth justifying the optimism expressed in last year’s global fashion survey. Dire consequences for fashion, one of the biggest industries in the world, generating $2.5 trillion in global annual revenues before the pandemic, 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. Tokyo. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more. 2019 Social Responsibility Report Our purpose as a firm is to help create positive, enduring change in the world. To estimate market size, we analyzed Internet Retailer’s 2019 US Top 500 list of the largest e-commerce companies by sales, identifying the 16 that are primarily subscription-based. Managing Director & … But regardless of touchpoint, consumers expect a consistent brand experience across channels. That means focusing on an omnichannel perspective, of course, but also emphasizing the importance of sustainability through the value chain. We also expect to see a rise in M&A activity as companies take advantage of low valuations and grab share in fast-growing markets. Sustainability, which breaks into our respondents’ list of the most important challenges for the first time, is evolving from a tick-box exercise into a transformational feature. For the personal luxury goods industry (luxury fashion, luxury accessories, luxury watches, luxury jewelry, and high-end beauty), we estimate a global revenue contraction of –35 to –39 percent in 2020 year-on-year, but positive growth of 1 to 4 percent in 2021 (compared with the 2019 baseline figure). The economy slowed last year, with real GDP growth declining to 1.9 percent in Q3 from 3.1 percent in Q1. Humanitarian repercussions are expected to outlast the pandemic itself. At the vanguard, we are seeing a new breed of direct-to-customer companies. This is an edited excerpt from the first joint report from McKinsey and the Business of Fashion, The State of Fashion (PDF–8MB). Brexit uncertainty had caused spending growth to slow in 2019 and the industry faced large-scale business restructuring with 85,000 jobs lost, a third of FTSE 350 CEOs changing and 9,169 store closures. The US retail sector is facing one of the most challenging times in recent memory. At the end of the day, McKinsey does acknowledge that there’s a social impact to retailers automating their facilities and operations — but highlight that they need to plan and support their staff and prepare for the future simultaneously. External shocks to the system continue to lurk, and growth cannot be taken for granted. Our first report, last year, laid the foundation for rigorous in-depth research and analysis, focusing on the themes, issues, and opportunities affecting the sector and its performance. As athletic wear continues to grow, it will become a category with the ability to compete on equal terms with clothing and footwear, particularly in the midmarket and premium segments. Anita Balchandani is a partner in McKinsey’s London office, where Marco Beltrami is a consultant; Achim Berg is a senior partner in the Frankfurt office, Saskia Hedrich is a senior expert in the Munich office, and Felix Rölkens is a consultant in the Berlin office. Although they are written off by some as “too 20th century,” we take a more constructive view. All things considered, we expect fashion-industry growth will increase to 2.5 to 3.5 percent in 2017, although the days when the industry outpaced GDP growth by as much as two percentage points seem over. Authors. tab. Strikingly, only 9 percent of respondents think conditions will improve next year, compared with 49 percent who said the same last year. Another is that India is on the rise—its growing middle class, powerful manufacturing sector, and increasingly savvy tech have made it an essential destination for fashion companies. For those leaning forward and willing to help design the new features of the modern fashion system, the opportunities at hand to truly connect with fashion consumers across the globe have never been greater. Over that period, the industry has grown at 5.5 percent annually, according to the McKinsey Global Fashion Index, to now be worth an estimated $2.4 trillion. “IN OUR WORK in the retail sector, we see automation reshaping business models and the broader value chain,” said McKinsey Consultants Steven Begley, Bryan Hancock, Tom Kilroy, and Sajal Kohli in a new report. With respect to sales growth, the affordable-luxury and value sectors have outperformed all other segments by one to one-and-a-half percentage points. The internet has provided customers with access to seemingly endless options while mobile technol-ogies have put information at their fingertips, anytime and Looking forward, our base case is cautiously optimistic, with the virus more effectively controlled over the coming year, thanks to a strong public-health response. “Our corporate-finance research suggests that two-thirds of companies fall into this trap. Exactly when this will happen is impossible to know for sure, except that it will, in all likelihood, be linked to the discovery of a workable antiviral treatment and delivery of a proven vaccine, which some experts say is at least 12 to 18 months away. More and more, they base their purchase decisions on whether a company’s practices and mission aligns with their values—while at the same time they are highly price sensitive. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. Athletic wear is set to become the absolute category champion, maintaining 6.5 to 7.5 percent sales growth, although it will be unable to reproduce the double-digit growth of the past. Things are looking up, but the rebound may be uneven, says this year’s The State of Fashion report. Speculation and uncertainty over the repercussions of the US election outcome could further dampen consumer sentiment and affect sales. While automation makes retail operations up to 65 percent faster, employees must shoulder more responsibilities, and leverage (real-time) data and analytics to make smarter decisions more quickly. The authors wish to thank McKinsey’s Tiffany Chan and Marilena Schmich, as well as The Business of Fashion’s Robb Young, for their contributions to this article. Those that aren’t already implementing automation risk falling behind. Only 12 percent of consumers said that they would buy from the same retailers and brands as they did in 2019. 2 Perspectives on retail and consumer goods Number 7, January 2019 A new year is an opportunity for renewal—a fresh start, a time to recommit to long-standing goals or to pursue new ones, a chance to get reenergized and build momentum for the year ahead. The fourth annual State of Fashion report by The Business of Fashion and McKinsey & Company forecasts slowing growth for the second year in a row and underscores a prevailing mood of anxiety and concern amongst senior fashion executives. The affordable-luxury segment seems likely to continue benefiting from consumers trading down from luxury, while signs point to the continued growth of the value segment as large global players expand internationally. The retail industry should be prepared for changing economic conditions in the coming year. Value and affordable luxury will probably be the big winners, both outpacing the industry average at a projected 3.0 to 4.0 percent and 3.5 to 4.5 percent growth, respectively. They don’t go through the day with […] Subscribed to {PRACTICE_NAME} email alerts. Widespread store closures for an industry reliant on offline channels, coupled with consumer instinct to prioritize necessary over discretionary goods, hit brands’ bottom lines and depleted cash reserves. This year, we are seeing real signs of change. Everyone. Imran Amed is the founder, editor-in-chief, and CEO of the Business of Fashion. 2 Only those brands that accurately reflect the Zeitgeist or have the courage to “self-disrupt” will emerge as winners. Perhaps unsurprisingly, 67 percent of executives said conditions for the fashion industry have worsened over the past 12 months. Every trend firm, every consultancy. 1. Among the well-known brands, Chanel is a significant player, with revenues of more than $10 billion, while Rolex is one of the few large independent and private luxury watch brands remaining. Many consumers today expect perfect functionality and immediate support at all times, coupled with rapid delivery times as players constantly compete to expedite products. Digital-first companies such as Alibaba, Amazon, Net-a-Porter, and Zappos continue to force fashion companies to provide an even more premium experience. According to our estimates, each racked up more than $2 billion in economic profit in 2017. While many experts speak broadly of the issues, McKinsey uses data to paint a more vivid picture: “Our analysis suggests that typical grocery and hypermarket retailers face 100 to 150 basis points of margin pressure, and typical specialty apparel or department stores 350 to 500 basis points. 2019 Retail Trends Report Microsoft Dynamics 365. Alongside public companies, we also identified a group of “hidden champions.” These privately owned gems often dominate their category areas and generate significant revenues. But it is in the developing world, where healthcare systems are often inadequate and poverty is rife, that people will be hit the hardest. The MGFI forecasts that growth will slow to 3 to 4 percent in 2020, slightly below the predicted rate for 2019. As the world recovers from the COVID-19 pandemic, what will be the defining themes in the business of fashion? McKinsey State of Fashion 2021 Survey; McKinsey analysis. This has a profound impact as purchase decisions are influenced by social media, peer reviews, influencer marketing, and traditional marketing, and even many purchases themselves are made consumer-to-consumer. This annual report from McKinsey & Company and LeanIn.Org is the largest study of the state of women in corporate America. It’s against this backdrop that McKinsey has teamed with the Business of Fashion to shine a light on the fragmented, complex ecosystem that underpins this giant global industry. 9. By August, such digital-first players were trading 35 percent higher, on average, than they did in December 2019. This is particularly true for the major players within each of the market segments and product categories. Consumers don’t think about retail the same way we do. Back in January 2020, we talked about how Retail was changing at an unprecedented speed. Something went wrong. When it comes to sustainability, the industry’s track record remains a source of concern. 2. McKinsey 7S framework considers strategy, structure and systems as hard elements, whereas shared values, skills, style and staff are accepted as soft elements. Kom werken bij McKinsey & Company Amsterdam en maak het verschil. “UN chief says coronavirus worst global crisis since World War II,” France 24, April 1, 2020, france24.com. However, there may also be new opportunities from growing south–south trade and the renegotiation of trade agreements. A freeze on spending is aggravating the supply-side crisis. But we are now detecting glimmers of hope: executives report optimism (even amid uncertainty), and the McKinsey Global Fashion Index forecasts industry sales growth to nearly triple between 2016 and 2018, from 1.5 percent to between 3.5 and 4.5 percent. Against this background, fashion-industry fortunes are highly polarized. The coronavirus also presents the fashion industry with a chance to reset and reshape the industry’s value chain completely—and an opportunity to reassess the values by which it measures actions. The caution in the economic outlook is also reflected in the BoF–McKinsey State of Fashion Survey, with 42 percent of respondents expecting conditions to become worse in 2019. McKinsey Global Institute. Our calculations, based on the changes in market capitalizations over time in our index on global fashion, suggest that the industry’s economic profit will fall by 93 percent in 2020 after rising 4 percent in 2019 (Exhibit 1). This caution is one of our ten trends to watch in 2019. 8 6. Economic profit grew for the second year running in 2018, following consecutive annual declines from 2012 to 2016 (Exhibit 2). But speed and flexibility bring added complexity. —a much steeper decline than that of the overall stock market. By the time the Northern Hemisphere went on its August vacation, the super winners had recovered on aggregate to just 5 percent below precrisis levels. McKinsey’s report does point out that as the demand for physical and manual skills declines, the need for technological skills, as well as social and emotional ones, will rise quickly in every sector, including retail. The report includes the third readout of our industry benchmark, the McKinsey Global Fashion Index. That translates into a significant increase in the number of companies that are “value destroyers,” which we expect will rise to 73 percent of those in the index in 2020, compared with 60 percent in 2019. Players need to be decisive and start putting recovery strategies into motion to emerge with renewed energy. “On average, replacing an employee can cost 20 to 30 percent of an annual salary, reskilling less than 10 percent. And “woke” consumers are also pushing for greater transparency into supply chains—and rewarding their favorite brands for taking controversial political stands. At the end of the day, there’s plenty of evidence indicating that automation is the need of the hour for retailers that want to stay relevant and protect their margins. So consumers expect it all: convenience, quality, values orientation, newness, and price. These players show that there is a great deal of industry value outside the spotlight, and the “hidden champions” too have much to offer alongside their listed counterparts. Digital disruptors will face more cautious investors in the year ahead. As with everything in this fast-moving sector, we’ll just have to wait and see. Stock-market valuations of tech players have reached dizzying levels, reminiscent of the dot-com boom of the early 2000s, while a number of private companies have reached unicorn status. Meanwhile, the economic outlook in the mature part of Europe is stable, and fashion-industry sales growth is likewise expected to remain at a modest but steady 2 to 3 percent. Billions of them. At the same time, they are demanding ever-quicker and more seamless fulfillment, from mobile shopping to drone delivery. Consumers in Southeast Asia spend about eight hours a day online on average. 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. Moreover, precrisis levels of activity are unlikely to return before the third quarter of 2022. This goodwill can have tangible benefits; approximately 40 percent of transformations fail because of employee resistance, so a reskilling campaign can mitigate that risk.”. The bottom line? Our survey of 290 global fashion executives and interviews with thought leaders and pioneers have helped us identify ten key themes that will set the agenda in the year ahead. Successful companies will invest more to nurture local clientele: 2017 will be the year of organic growth by deepening relationships with existing clients, rather than through geographic, channel, and store-network expansion. By Imran Amed, Anita Balchandani, Achim Berg, Saskia Hedrich, Jakob Ekeløf Jensen, and Felix Rölkens. Still, there are silver linings among the clouds. That said, almost all other market segments should see a slight improvement in sales growth of half to one-and-a-half percentage points. In fact, not only does it touch everyone, but it would be the world’s seventh-largest economy if ranked alongside individual countries’ GDP. Instead, we referenced our 2018 list to gauge the fortunes of the elite group. Yet fashion, because of its discretionary nature, is particularly vulnerable. In August 2019, Kering CEO François-Henri Pinault spearheaded an industry-wide pact to achieve net-zero emissions by 2050. margin was 10.8 percent, a tick up on 2017 and the highest since 2014. In short, the industry next year has an opportunity to stabilize and reset, and success stories will probably be written by those already planning for the year ahead. Asia spend about eight hours a day online on average is emerging as firm... 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