Business of Fashion and consulting firm McKinsey & Company have released its fifth annual State of Fashion report, which talks about its forecast for the 2021 outlook of the fashion industry.
The report notes that according to McKinsey Global Fashion Index analysis, the fashion industry is expected to see an approximate 90 per cent decline in economic profit in 2020, following a four per cent rise in 2019.
According to Bof, the 10 fashion industry themes that will set the agenda in 2021 are as follows:
1. Living with the Virus
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.
2. Diminished Demand
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.
3. Digital Sprint
Digital adoption has soared during the pandemic, with many brands finally going online and enthusiasts embracing digital innovations like live streaming, 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.
4. Seeking Justice
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.
5. Travel Interrupted
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.
6. Less Is More
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.
7. Opportunistic Investment
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.
8. Deeper Partnerships
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.
9. Retail ROI
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.
10. Work Revolution
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.
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