The global fashion industry is expected to suffer a 15-30 percent decline in sales this year and is not expected to return to 2019 levels until at least the third quarter of 2022, according “The State of Fashion 2021”, a new report by Business of Fashion and McKinsey & Co.
This year has produced “the worst performance ever in Europe, the U.S. and - to a lesser degree - in China” due to the impact of the Covid-19 pandemic. Next year will see some improvements, assuming governments around the world manage to get the coronavirus under control, the report stated.
In an “Earlier Recovery” scenario, assuming a ”successful virus containment in multiple geographies and a relatively rapid transition to economic recovery,” global fashion industry revenues in 2021 are seen dropping by 0 to 5 percent versus 2019. The return to growth in 2022, in this scenario, is based on predictions that China will register 5 to 10 percent sales expansion in 2021 compared to 2019. In Europe, where international tourism will still lag, revenues are seen down 2 to 7 percent compared to 2019 and are not expected to reach pre-Covid levels until the third quarter of 2022. Meanwhile, in the U.S. sales are seen down 7 to 12 percent in 2021 compared to 2019, “and recovery to pre-Covid sales only expected by the first quarter of 2023.”
In a more pessimistic “Later Recovery” scenario, under which it is assumed that a vaccine is not widely available next year, fashion revenues in 2021 are seen declining by 10-15 percent on 2019 levels and a return to 2019 levels will not occur until the fourth quarter of 2023. In this scenario, U.S. revenues will decline by 22 to 27 percent in 2021 compared to 2019, and will not reach pre-Covid levels “until after 2025.” In Europe sales are forecast down 14 to 19 percent on 2019. But luxury revenues could be particularly hard hit, especially if lockdowns and travel restrictions continue throughout next year. In this scenario, “luxury sales in Europe could drop up to 40 percent and only recover to their pre-crisis level by the third quarter of 2023,” according to the research.
The report also suggests 10 themes for 2021 (see chart), each highlighting “a major disruption sparked by the pandemic.” For example, companies are advised to “rewrite their operating models to enable flexibility and faster decision-making” and to “double down on outperforming categories, channels and territories.” According to the consultants, as global tourism remains subdued, brands will also need to “engage better with local consumers” while investing in markets “showing the most robust recoveries”. Another crucial theme for the coming year will be dealing with the need to “reduce complexity and find ways to increase full-price to sell-through” as well as adjust assortment strategies and boost in-season replenishment, so as to limit inventory and mark-downs.
|The State of Fashion 2021|
|Global Economy||Consumer Shifts|
|Living with the virus||Diminished demand||Digital sprint||Seeking justice||Travel interrupted|
|The Covid-19 crisis has impacted the lives and livelihoods of millions of people, while disrupting international trade, travel, the economy and consumer behaviour. To continue to manage unprecedented levels of uncertainty in the year ahead, companies should rewire their operating models to enable flexibility and faster decision-making, and balance speed against discipline in the pursuit of innovation.||Following the deepest recession in decades, the global economy is expected to partially recover next year but economic growth will remain diminished relative to pre- pandemic levels. Since demand for fashion is also unlikely to bounce back due to restrained spending power amid unemployment and rising inequality, companies should seize new opportunities and double down on outperforming categories, channels and territories.||Digital adoption has soared during the pandemic, with many brands finally going online and enthusiasts embracing digital innovations like livestreaming, customer service video chat and social shopping. As online penetration accelerates and shoppers demand ever-more sophisticated digital interactions, fashion players must optimise the online experience and channel mix while finding persuasive ways to integrate the human touch.||With garment workers, sales assistants and other lower-paid workers operating at the sharp end of the crisis, consumers have become more aware of the plight of vulnerable employees in the fashion value chain. As momentum for change builds alongside campaigns to end exploitation, consumers will expect companies to offer more dignity, security and justice to workers throughout the global industry.||The travel retail sector remains severely disrupted and destination shopping suffered throughout 2020. With international tourism expected to remain subdued next year and shoppers experiencing further interruptions to travel, companies will need to engage better with local consumers, make strategic investments in markets witnessing a stronger recovery and unlock new opportunities to keep customers shopping.|
|Covid-19 and the economic crisis is the top challenge for 2021 for 45% of fashion executives and stakeholders surveyed||Global fashion sales in 2021 could be below 2019 levels by as much as 15 percent||71% of fashion executives expect their online business to grow by 20% or more in 2021||55% of consumers expect fashion brands to care for the health of employees in times of crisis||66% of fashion executives expect travel retail sales to recover their former growth levels only within 2 or 3 years|
|Less is more||Opportunistic investment||Deeper partnerships||Retail ROI||Work revolution|
|After demonstrating that more products and collections do not necessarily yield better financial results, Covid-19 highlighted the need for a shift in the profitability mindset. Companies need to reduce complexity and find ways to increase full-price sell-through to reduce inventory levels by taking a demand-focused approach to their assortment strategy, while boosting flexible in-season reactivity for both new products and replenishment.||Performance polarisation in the fashion industry accelerated during the pandemic as the gap widened between the best-performing companies and the rest. With some players already bankrupt and others kept afloat by government subsidies, we expect M&A activity to increase as companies manoeuvre to take market share, unlock new opportunities and expand capabilities.||By exposing the vulnerability of procurement partners, the weakness of contracts and the risks of a concentrated supplier footprint, the crisis accelerated many of the changes that companies were already making to rebalance their supply chain. To mitigate future ruptures, fashion players should move away from transactional relationships in favour of deeper partnerships that bring greater agility and accountability.||Physical retail has been in a downward spiral for years and the number of permanent store closures will continue to rise in the post-pandemic period, compelling fashion players to rethink their retail footprints. Amplified by a potential power shift from landlords to retailers and the need to seamlessly embed digital, companies will need to make tough choices to improve ROI at store level.||Prompted by fundamental changes in the way companies worked during the pandemic and the need to drive performance in the years to come, an enduring new model for work is likely to emerge. Companies should therefore refine their blends of remote and on- premises work, invest in reskilling talent and instil a greater sense of shared purpose and belonging for employees who continue to reconsider their own priorities.|
|58% of fashion executives consider assortment planning to be a key area for data and analytics in 2021||45% of fashion executives expect market share redistribution to be a top theme in 2021||35% of fashion executives expect resilience and partnerships in the supply chain to be a top theme in 2021||Approximately half of European consumers have shopped less in physical stores since lockdowns started||89% of fashion executives expect a hybrid model of working to be part of the new normal|
|Source: The State of Fashion 2021, McKinsey & Company|