AF&L sector performance 'quite fragmented' in last few years: McKinsey

Of course, strategic and operational choices can also make an impact, say a group of McKinsey researchers in an insights piece on the company website.

Overall, the AF&L industry has achieved consistently strong shareholder returns over the past decade, the researchers write.

While the overall market has been strong, individual AF&L players have experienced mixed results as cost pressures, the accelerated shift to e-commerce, supply chain disruptions and pandemic-induced changes in consumer patterns keep contributing to these varied performance results, they say.

Traditional value and mass players, the most challenged retailers that are much more dependent on competitive pricing and in-person shopping, have typically had a more difficult time adapting to both the changing needs of their customers and macroeconomic pressures, and they have delivered significantly lower returns to their shareholders as a result, the researchers note.

Sportswear brands and retailers have thrived in recent years, with upward of 20.3 per cent returns from 2019 to 2021 compared with 4.5 per cent among traditional apparel players. Sportswear continues to be the most resilient non-luxury category and one that continues to thrive within every price tier, the analysis shows.

Like sportswear, luxury and premium brands have been dramatically outperforming the rest of the global apparel market since before the pandemic. Amid COVID-19, this trend accelerated, with luxury and premium segments delivering shareholder returns of 33.2 per cent and 18 per cent respectively, compared with 8.9 per cent in value segments and 6.2 per cent in mass segments.

Forces that contributed to the luxury category’s extraordinary strength include pandemic-affected saving and spending habits, North American luxury dominance and more investable and sustainable shopping.

This period can rightfully be defined as a new era of luxury shopping, and the primary consumer is a departure from the traditional international shopper, the authors of the analysis say.

Despite facing substantial challenges before and during COVID-19, a few leading mass and value brands achieved notably standout performances.

Companies should consider stretching toward more luxury products and direct-to-consumer categories in ways that make sense for their brands, the authors suggest. To this end, many premium brands are actively working to blur the line between luxury and the rest of the market, as are standout mass brands such as Crocs.

Additionally, many nonluxury companies are starting to adopt the luxury channel model, moving away from commoditised products and outlet stores into closer proximity to the luxury brands that consumers covet.

The authors of the piece are Kelsea Alderman, consultant in McKinsey’s New Jersey office, Susan Nolen Foushee, senior expert in the Stamford office, Joëlle Grunberg, senior adviser in the New York office, Himangi Gupta, consultant in the Gurugram office, Elizabeth Hunter, partner in the Toronto office, and Jennifer Schmidt, senior partner in the Minneapolis office.

Fibre2Fashion News Desk (DS)