McKinsey report: The fashion industry has a tough year ahead – the luxury segment is expected to grow
Press release, 2 December, 2022
McKinsey and Business of Fashion (BoF) have released the annual report “The State of Fashion”. The report reveals that the fashion industry faces a challenging year, while the luxury segment is expected to grow by 5-10 percent. Which markets will be the most lucrative and how companies avoid falling into greenwashing, are some of the questions that the fashion industry leaders are struggling with.
The fashion industry has recovered from the pandemic: in 2021, the global industry revenues grew by 21 percent compared to 2020. Although the growth continued in the first half of 2022, the report reveals that the war in Ukraine, inflation and supply chain challenges have had an impact on the industry. More than half of the fashion industry executives (56 percent) believe the situation will worsen in 2023.
While the fashion industry is facing difficult times, opportunities arise for certain players and segments. The strong growth in 2021 and the beginning of 2022 has created a solid foundation for many companies, which now have good conditions to survive. The report reveals that one of the segments looks set to perform particularly well in 2023:
"Many consumers in Finland feel the pressure in their wallets and want to either save or buy fashion with discount. At the same time, sales of luxury goods are expected to grow by 5-10 percent worldwide in 2023. The assumption is based on the fact that consumers who have been least affected by the economic crisis will continue to shop as usual, especially luxury goods," says Anna Granskog, a partner in McKinsey's Helsinki office.
Sustainability or greenwashing?
At the same time as the industry strives to reduce its carbon footprint, companies will need to be careful with their communication around sustainability initiatives – otherwise there is a high risk of being accused of greenwashing. Eight out of ten managers highlight the lack of industry standards to be a challanege in evaluating sustainability work.
"In some places, it is more difficult for individual consumers to understand which products are really sustainable, because we don't have legislation or a system that would guide the consumer with their purchase decision. For example, new legislation is expected in France, which will require brands to add carbon labels to clothing and textiles. This of course, should also be okay for the companies, given they take their sustainability work seriously," says Anna Granskog.
Less focus on China, more on the Middle East and the US?
The uncertain economic situation makes many companies to review their geographical presence. Some fashion leaders are considering focusing less on the Chinese market, at least temporarily. The reason is that China's GDP growth in 2022 looks weak, partly as a result of strict COVID-19 regulations (3.2 percent compared to 8.1 percent in 2021).
Nine out of ten fashion leaders cite the Middle East as the most promising market in 2023. The luxury market in the Gulf Cooperation Council (GCC) is expected to generate $11 billion in sales in 2023. In addition, half of the leaders say they plan to expand their presence in North America. For US retail, 2022 looks set to be the strongest year in nearly two decades.
The "State of Fashion 2023" report explores ten themes expected to shape the fashion industry in 2022. Read the full report here.
Press contact:
Mari Muoniovaara
External Relations Specialist
+358 40 728 1550
mari_muoniovaara@mckinsey.com
About McKinsey & Company
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