Even though the fashion industry has proven its resilience in recent years and even achieved economic profits in 2022 (with one exception) that were more than twice as high as in all years between 2010 and 2020, the general mood is uncertain. This is the conclusion of the latest “The State of Fashion 2024” study, published by the management consultancy McKinsey and The Business of Fashion (BoF). Global leaders expressed their assessment of developments in 2024 and used the word “uncertainty” most frequently.
Reasons for uncertainty include geopolitical events, weak economies and the ongoing impact of high interest rates. Nevertheless, executives in certain markets and segments also see reasons for optimism, which they describe in the study.
Economic challenges
In 2023, the industry faced persistent and worsening challenges: regionally, Europe and the US experienced slow growth throughout the year, while China’s initially strong performance slowed in the second half of the year. Although the luxury market performed more positively than the rest of the market in the first half of 2023, consumers’ willingness to shop for fashion declined across the board in the second half of the year, leading to a slowdown in sales and inconsistent performance. Even the luxury industry was starting to feel the heat after a long period of growth that benefited the entire industry.
Looking ahead to 2024, leading fashion companies are anticipating further headwinds and are therefore unclear about the outlook for the coming year. Consumer confidence remains fragile in the key markets of the USA, Europe and China, albeit for different reasons. Overall, they predict annual retail sales growth of between 2 and 4 percent for the fashion industry in 2024.
Climate pressure point
In addition to the economic challenges, the climate crisis is a pressure point that should not be neglected for the coming year. Leading companies will strengthen their resilience to the impacts of climate change in 2024, as extreme climate events are already endangering the lives and livelihoods of fashion workers and could jeopardize an estimated $65 billion in apparel exports by 2030.
How should fashion companies prepare? With cost-cutting tactics largely exhausted, the focus is expected to be on increasing sales, supported by new pricing and advertising strategies, rather than increasing sales volumes – across the industry, the net intention to increase prices is loud the Executive Survey at more than 50 percent. Cost pressures are expected to ease: Less than 20 percent of executives expect cost of goods sold and selling and administrative expenses to increase by more than 5 percent.
Pressure point demand
The industry will also feel the effects of the fluctuations in demand that have occurred repeatedly in recent years. There is often a “bullwhip effect” in supply chains, where small fluctuations in sales lead to large fluctuations, which in turn result in underutilization of factories, layoffs and delayed infrastructure investments. To overcome these challenges, the experts advise fashion brands to invest in developing more transparent and cooperative relationships with their suppliers.
With new sustainability regulations in the EU and US requiring brands and manufacturers to double down on initiatives to reduce greenhouse gas emissions and waste while developing business models that protect and conserve natural resources, the fashion industry’s supply chains will face greater scrutiny in the future become.
Growth driver AI
When looking for growth levers, one area that respondents have targeted is generative artificial intelligence (AI). This offers significant potential for creativity-oriented use cases in design and product development. However, about 73 percent of executives expect to prioritize generative AI in 2024, but many may face a talent gap as only 5 percent of respondents said they are ready to make the most of the technology.
Marketing is another area of focus, according to the study: “After years of relying on performance marketing, brand marketing could become increasingly central in the coming year. 71 percent of executives plan to spend more on brand marketing in 2023 to create emotional connections with customers.”
Growth drivers influencers and travel, outdoor
At the same time, brands may find that consumers are more demanding when it comes to authenticity and relatability, leading to a shift toward influencers who go their own way. “Forward-thinking companies should consider leaning on this new wave of content creators to enhance their brand stories,” the experts advise.
For the first time since the pandemic, travel volumes in 2024 will exceed those in 2019. This means that the desire for brand experiences and traditional shopping trips is growing in both tourist and lesser-known destinations. Fashion companies should therefore rethink how they engage with consumers who shop abroad.
In addition to the return to travel, there is also a shift towards more time outdoors, which will likely drive demand for outdoor clothing in 2024 and further blur the lines between functionality and style.
Conclusion
All in all, those surveyed are preparing for a strategically difficult year. Fashion executives should therefore plan carefully for a range of different scenarios, become better equipped for pricing and prepare to act more quickly when the storm subsides, they concluded.