World-renowned management consulting firm McKinsey and Company has published the sixth instalment of their annual "State of Fashion" reports, written alongside the Business of Fashion (BoF).
Through in-depth, data-driven research and conversations with industry leaders, the report aims to reflect the major changes that will shape the industry and probable responses to these shifts.
After almost a two-year-long disruption period, the fashion industry has begun to recover from the unprecedented damages done by the pandemic.
A record 69% of companies were value destroyers in 2020, meaning they delivered a loss during the pandemic. On the other hand, 7% of companies left the market entirely.
As a result, the recovery process will not be smooth sailing. Instead, companies will have to deal with global supply chain issues along with ever-changing consumer behaviour.
China and the United States will be the torchbearers of the initial recovery process, while Europe will lag. But all of these countries will have to contend with supply chain stresses, as the report suggests that almost half of the companies are concerned about this aspect.
For highly labour-intensive economies like Bangladesh, Cambodia, Vietnam etc. such shocks to the supply chain may give rise to unemployment and thereby prevalence of undernourishment.
The global personal luxury goods market could ignore the hit from the coronavirus crisis earlier this year and sales can recover to pre-pandemic levels, according to Bain and Company. If that is true, the market can generate $324.46 billion.
Overcoming all of these challenges will not come cheap. About 67% of businesses expect to increase retail prices next year, with an average increase of 3%, while 15% of executives even expect to increase prices by 10% or more
Discount and luxury companies have also outsold the wider market, even though a lot of that success depended on the economic resilience and healthcare systems in their consumer countries.
Sportswear also was a profitable product this year as 42% of profits in the MGFI Index came from sportswear companies.
McKinsey and Company also published the list of the five most profitable companies during the pandemic period, which is: Nike, Inditex, Kering, LVMH and Hermes. The list demonstrates that luxury brands were the top performers, as their demographics are wealthier and more resilient to sudden economic shocks.
Another staple of the report, the "10 themes for 2022" is also present, which tries to analyse the largest trends and biggest challenges in the industry and recommends a guideline for companies to follow.
This year, there are three main highlights in the list, the first of which, "circular textiles" focuses on manufacturing textiles from recycled raw materials.
Less than 10% of global textile is made up of recycled materials. Greater utilisation of these components can make the supply chain more flexible and resistant to sudden changes.
Product passport is also another key theme in this year's list. As consumers in the developed nations have become increasingly conscious about sustainability and human rights, their desire to know more about each step of the production process has also developed.
Product passports will provide these consumers with the comfort of knowing that their clothes, bags or accessories came from sustainably collected raw materials and were created by well-paid workers.
This will not only drive up sales but also provide companies with a reason to only conduct businesses with partners who have a similar view.
But perhaps the most important shift happened in consumer behaviour during the pandemic, as brick and mortar stores are becoming increasingly obsolete with the proliferation of online shopping. About 32% of executives surveyed identified digital as the greatest opportunity for growth.
But now, it is not enough for companies to just create an online outlet for their customers. About 53% of fashion executives said it was highly likely that their company would experience a significant cyber-attack by 2022.
Companies must actively consider cyber security as a core principle of their business model to protect both themselves and their clients from any kind of data theft and fraud.
Overcoming all of these challenges will not come cheap. About 67% of businesses expect to increase retail prices next year, with an average increase of 3%, while 15% of executives even expect to increase prices by 10% or more.
As a result, companies will not only have to be ready to recover from the worst challenge they have ever witnessed but also brace themselves for the subsequent aftershocks.
Supply chain disruption and bottlenecks can exaggerate the problem further. About 87% of fashion executives expect supply chain disruptions to hurt margins next year.
When asked by the surveyors to pick three words to describe the current business conditions, the top choices were: 'recovery', 'challenging' and 'changing'.
It is perhaps the most elegant way to illustrate the future of fashion, a challenging recovery process amidst an ever-changing pandemic.
Readus Salehen Jawad is a journalist at The Business Standard.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.