Pointed as one of the most polluting industries in today's world where we keep talking about the climate change, global warming and sustainability; fashion industry had another huge hit with Covid-19. But how exactly is the fashion industry doing?
In 2022, the fashion industry can return to growth as changing category landscapes, new digital frontiers, and advances in sustainability continue to present opportunities.
states McKinsey.
The fashion industry posted a 20% decline in revenues in 2019–20, as earnings before interest, taxes, and amortization (EBITA) margins declined by 3.4 percentage points to 6.8 percent.
As the pandemic continued to run its course, the performance inequalities that have become a challenge over recent years were more in evidence than ever. A record 69% of companies were value destroyers in 2020, according to the latest reading of the McKinsey Global Fashion Index (MGFI), compared with 61% in 2019 and just 28% in 2011.
About 7% of companies left the market entirely, either due to financial distress or because they were bought by rivals.
However, experts say that the fashion industry is back on its feet where companies are adapting to new consumer priorities, and digital is providing a nexus for growth. Below is graph showing the expected change in luxury fashion sales, according to McKinsey Fashion Scenarios.
The report adds that "In many global regions, the business of fashion is set to pick up momentum in 2022, as consumers unleash pent-up buying power and dress to impress (where the pandemic allows). Indeed, recovery is at the top of executives’ minds for the coming year, with 75 percent of luxury-segment executives, 61 percent of midmarket executives, and 50 percent of value executives expecting better trading conditions. However, as they pivot toward growth, a significant challenge is potential shortages of products and resources, as chocked supply chains and rising shipping costs undermine operations. Over recent months, numerous companies reported struggles to manage inventory flows or tied lower sales forecasts to supply-chain blockages. In response, many have turned to remedies that include more nearshoring, in-store supply stocking, and agile operating models designed to respond flexibly to change."
The bottom line going into 2022 is that the fashion industry faces a complex mix of challenges and opportunities, in which there is little room for missteps. Decision makers have their work cut out to manage the demands of digital, sustainability, and the supply chain. That said, the past year’s experience shows that consumers are resilient and that as economies recover, demand will follow suit. Therefore, the task for companies will be to unlock growth, align with changing customer needs, and focus intently on the bottom line.
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