The year ahead will be an awakening after the reckoning of 2018—a time for fashion companies to look at opportunities and not just at surmounting challenges. The ones that will succeed will have come to terms with the fact that in the new paradigm taking shape around them, some of the old rules simply don’t work. Regardless of size and segment, players now need to be nimble, think digital-first, and achieve ever-faster speed to market. They need to take an active stance on social issues, satisfy consumer demands for radical transparency and sustainability, and, most important, have the courage to “self-disrupt” their own identity and the sources of their old success to realize these changes and win new generations of customers.
They also need to invest in enhancing their productivity and resilience, as the outlook is uncertain. External shocks to the system continue to lurk, and growth cannot be taken for granted.
These are some of the findings from our latest report on The State of Fashion, written in partnership with the Business of Fashion (BoF), which explores the industry’s fragmented, complex ecosystem. Our first two reports, last year and the year before, laid the foundation for rigorous in-depth research and analysis, focusing on the themes, issues, and opportunities affecting the sector and its performance. The State of Fashion is now the largest and most authoritative overview of the industry, surveying more than 275 global fashion executives (approximately 30 percent more than last year) and interviewing thought leaders and pioneers. We also highlight the ten trends that will define the fashion agenda in 2019 (interactive).
The report includes the third readout of our industry benchmark, the McKinsey Global Fashion Index. This database of more than 500 companies allows us to analyze and compare the performance of individual companies with their peers, by category, segment, or region.
Sunny intervals but storms ahead
For fashion players, 2019 will be a year of awakening. External shocks to the system continue to lurk around the corner, and growth cannot be taken for granted: the McKinsey Global Fashion Index forecasts growth of 3.5 to 4.5 percent, slightly below 2018 figures. By geography, the most optimistic about the coming year are executives in North America. By segment, the most positive are executives from luxury brands, reflecting their strong growth trajectory in 2018. In all other regions and segments, executives are notably pessimistic, reflecting the potential challenges ahead (Exhibit 1).
All this comes against a backdrop of the fashion industry having turned a corner in 2018, with increased growth justifying the optimism expressed in last year’s global fashion survey. The caution in the economic outlook is also reflected in the BoF–McKinsey State of Fashion Survey, with 42 percent of respondents expecting conditions to become worse in 2019.
The rise of the ‘superwinners’
Polarization continues to be a stark reality in fashion: fully 97 percent of economic profits for the whole industry are earned by just 20 companies, most of them in the luxury segment. Notably, the top 20 group of companies has remained stable over time. Twelve of the top 20 have been a member of the group for the last decade. Long-term leaders include, among others, Inditex, LVMH, and Nike, which have more than doubled their economic profit over the past ten years (Exhibit 2). According to our estimates, each racked up more than $2 billion in economic profit in 2017.
Ten trends for 2019
This caution is one of our ten trends to watch in 2019. Another is that India is on the rise—its growing middle class, powerful manufacturing sector, and increasingly savvy tech have made it an essential destination for fashion companies. Our third trend is Trade 2.0: a warning that companies should make contingency plans for a potential shake-up of global value chains. The apparel trade could be reshaped by new barriers, trade tensions, and uncertainty. However, there may also be new opportunities from growing south–south trade and the renegotiation of trade agreements.
On the consumer side, we foresee the end of ownership, as concerns about sustainability grow and consumers and companies alike worry about how to alleviate their impact on the environment. Sustainability, which breaks into our respondents’ list of the most important challenges for the first time, is evolving from a tick-box exercise into a transformational feature. And “woke” consumers are also pushing for greater transparency into supply chains—and rewarding their favorite brands for taking controversial political stands. At the same time, they are demanding ever-quicker and more seamless fulfillment, from mobile shopping to drone delivery.
In response, wise companies are self-disrupting before upstarts do it for them, engaging in a digital landgrab to diversify their ecosystem, and using automation and data analytics to produce on demand to reduce waste and react rapidly to trends.
The speed of change
Overall, the industry continues to hover in a state of flux, and the fortunes of individual players can turn with frightening speed. As our ten trends indicate, new markets, new technologies, and shifting consumer needs present opportunities—but also risks. We predict that 2019 will be a year shaped by consumer shifts linked to technology, social causes, and trust issues, alongside the potential disruption from geopolitical and macroeconomic events. Only those brands that accurately reflect the Zeitgeist or have the courage to “self-disrupt” will emerge as winners.