The McKinsey and Business of Fashion Report on State of Fashion argues that the industry is in a flux. Technology, innovation, digitalisation, transparency, fashion immediacy, restructuring of supply chains and internal operations are the trends driving industry, writes Anjuli Gopalakrishna
"Uncertain, Changing and Challenging" were the top three words that executives used to describe the state of the fashion industry in 2016 in the recent survey conducted jointly by McKinsey and Business of Fashion. This is not surprising. We have seen multiple sources of turbulence in the recent past: the Brexit vote in the UK, terrorist attacks in various parts of the world, the US election campaign, the slowdown of the Chinese economy, overall volatility of the stock market, digital disruptions in various forms, rapidly evolving consumer expectations and behavior in the wake of technology advancements. These put together have resulted in tremendous pressures on the fashion industry.
The year 2016 experienced the worst sales growth rate of 2-3 per cent with stagnating profit margins. This is in stark contrast to the fashion industry's performance in the previous decade of 2005-2015, which saw the industry grow at a 5.5 per cent annual rate, according to the McKinsey Global Fashion Index. The fashion industry interestingly still remains one of the key global value-creating industries in the world, with a staggering $2.4 trillion in total value. If it were ranked alongside individual countries' GDP, the global fashion industry would represent the world's seventh largest economy.
The top challenges and opportunities: 2016 vs 2017
What are the top-of-the-mind issues industry professionals are grappling with? Here is a quick snapshot of the top challenges and opportunities that the survey brought out for 2016 and 2017. Dealing with volatility and uncertainty is certain and here to stay. So are the changing consumer expectations driven by the digital and technological revolution. Today's forever connected, well informed, discerning, customers with shifting loyalties to brands, seeking alignment of their purchases with their deeper values are that much more difficult to please and that much more unpredictable.
Amidst the challenges, we saw some opportunities emerge as well. Top-end players like Burberry, Tom Ford and Tommy Hilfiger successfully launched 'see now, buy now' runway shows to cater to the customer's need for instant gratification. The reconfiguration of the entire design and product development cycle to enable the runway pieces to be made available instantly to end-customers across multiple locations and platforms is an entirely new concept. Whether this will be adopted on a wider scale and in a profitably sustainable way remains to be seen.
What is clear is that brands can no longer afford to ignore changing customer expectations. Only those who pay heed and listen seriously to offer better experiences to their customers will stay in the game. Whether it is in providing instant gratification or providing an overall ease of shopping convenience seamlessly across different channels via omnichannel integration, or in addressing the need for transparency and information via sustainability measures or digitisation of supply chain initiatives are the developments to watch out for. The fashion industry is ripe for disruption and change.