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Fashion industry suffering worst year on record: report

Dec '20
Pic: Shutterstock
Pic: Shutterstock
Global fashion sales and economic profit—a measure of value where capital costs are deducted from net profit earned—will decline by 15-30 per cent and 90 per cent respectively in 2020 compared with 2019, according to the fifth State of Fashion report released today by McKinsey and The Business of Fashion.

It will take at least two years for industry revenues to recover to 2019 levels, at the earliest in the third quarter of 2022.

The recovery will be defined by online sales which have spiked due to COVID-19, amounting to 29 per cent of total revenues this year in Europe, the equivalent of six years of growth in only eight months.

Europe is expected to be the worst-hit region, experiencing a 22-35 per cent decline in sales, however is projected to recover by early Q2 2022 as travel and tourism returns. The United States will see a 17-32 per cent decline and appears set for a slower recovery by the first quarter of 2023, according to a press released from McKinsey.

China will likely be less impacted, seeing sales drop by 7-20 per cent, with sales projected to return to pre-crisis levels by as early as the fourth quarter of 2020 or, at the latest, the first quarter of 2021. Fashion players focused on digital, Asia (especially China) and luxury may have the competitive edge.

From a segment perspective, luxury and affordable luxury have proven marginally more resilient, with sales shrinking an average of 30 per cent and Earnings before interest, taxes, and amortisation (EBITA) declining by an average of 20 percentage points during the quarters falling between February and June 2020, compared to the same period in 2019.

The report covers the future of the $2.5-trillion global fashion industry, based on exclusive interviews with top industry executives and a survey of more than 320 fashion professionals, providing an authoritative view on what lies ahead for the industry next year.

The global beauty market is also proving that it is more resilient than fashion and is set to return to—and even surpass—2019 levels of sales in 2021.

The report outlines two scenarios for the fashion industry’s recovery. The earlier recovery scenario assumes effective virus containment through vaccine and/or state intervention, leading to the lift of travel restrictions within a couple of months, enabling faster economic recovery, with global fashion sales returning to 2019 levels in the third quarter of 2022.

The later recovery scenario foresees periodic virus resurgence in different regions of the world, resulting in further lockdowns, with global fashion sales only returning to 2019 levels by the last quarter of 2023.

In this disrupted environment, leaders must develop new strategies and have the agility to change their product offering, suggested Achim Berg, senior partner and global leader of apparel, fashion & luxury at McKinsey, in a press release.

“Digital adoption and innovation has been catalysed 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,” Imran Amed, founder-chief executive officer of The Business of Fashion, said.

Fibre2Fashion News Desk (DS)

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January 2021

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