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The State of Fashion 2019
The State of Fashion 2019
2
2019
The State
of Fashion
Contents
Executive Summary 10
Executive Summary
Industry Outlook 12
Global Economy 18—37
Trend 1: Caution Ahead 19
Executive Interview: Joann Cheng 22
Trend 2: Indian Ascent 24
Executive Interview: Darshan Mehta 28
Global Economy
Trend 3: Trade 2.0 31
Global Value Chains in Apparel: The New China Effect 34
Consumer Shifts 38—69
The State of Fashion 2019
Trend 4: End of Ownership 39
Executive Interview: Jennifer Hyman 42
Trend 5: Getting Woke 45
Consumer Shifts
Executive Interview: Cédric Charbit 48
Trend 6: Now or Never 51
Executive Interview: Jeff Gennette 54
Digital Innovation Made Simple 58
Trend 7: Radical Transparency 60
Dealing with the Trust Deficit 62
Fashion System
Fashion System 70—91
Trend 8: Self-Disrupt 71
The Explosion of Small 74
Trend 9: Digital Landgrab 77
Executive Interview: Nick Beighton 80
Trend 10: On Demand 83
Is Apparel Manufacturing Coming Home? 86
MGFI
McKinsey Global Fashion Index 92—99
Glossary 100
End Notes and Detailed Infographics 102
Foreword
The year ahead is one that will go down
in history. Greater China will for the first time in
centuries overtake the US as the world’s largest
fashion market. It will be a year of awakening
after the reckoning of 2018 — a time for looking at
opportunities, not just challenges. In the US and
in the luxury sector it will be a year of optimism;
for Europe and for struggling segments such as
the mid-market, optimism may be in short supply.
Far-sighted companies will make bold moves in
Thomas Lohr
automation and AI, and will disrupt themselves
before others do it for them. Consumers will
make or break brands based on trust. And global
economic and political trends hover over the
The State of Fashion 2019 marks the third whole picture.
year of an ongoing partnership between The
In short, it’s going to be a bumpy ride. But
Business of Fashion and McKinsey & Company,
whatever your role — from boardroom executive
bringing analytical rigour and evidence to better
The State of Fashion 2019
to start-up founder to informed consumer — read
understand the rapidly changing global fashion
on, and we’ll cushion the impact and tell you
industry and providing an authoritative point of
everything you need to know about the state of
view on the state of fashion in the year to come.
fashion in 2019.
Once again, our team of global experts
has conducted fresh research and analysis to bring
clarity and precision to a fragmented and complex — Imran Amed & Achim Berg
landscape of countries, companies, categories and
segments. Our research establishes a common
understanding of the forces at work in fashion;
sets out how well the industry is performing; and
identifies where the top priorities, both business
and creative are for 2019. Once again, we combine
BoF’s insider knowledge with McKinsey’s global
expertise and analytical rigour, and then survey
more than 270 global fashion executives and
interview many of the industry’s thought leaders
and pioneers.
The State of Fashion 2019 also includes
the third read-out of our industry benchmark,
the McKinsey Global Fashion Index (MGFI).
Its database of over 500 private and public
companies allows us to analyse and compare the
performance of individual companies against their
peers by category, segment or region. Now three
years in, this is an unrivalled resource on which
we continue to build.
7
Contributors Acknowledgements
The authors would like to thank all the members of The Business
of Fashion and McKinsey community for their contribution to
research and participation in our State of Fashion Survey and the
many industry experts, who generously shared their perspectives
during interviews. In particular, we would like to thank: Jessi
Baker, Nick Beighton, Alessandro Bogliolo, Tamsin Blanchard,
Leonardo Bonanni, Karin Brinck, Cédric Charbit, Joann Cheng,
Neliana Fuenmayor, Jeffrey Gennette, Jennifer Hyman, Sanjay
Kapoor, Lisa Lang , Yusaku Maezawa, Darshan Mehta, Ananth
Narayanan, Stephanie Phair, Rachel Scott, Mike Smith, Paulvan Zyl
Imran Amed Achim Berg Anita Balchandani Marco Beltrami and the McKinsey Senior Advisors Adrienne Lazarus, Ali Horowitz,
Colin Henry and John Hooks.
As founder, editor-in-chief and CEO of Based in Frankfurt, Achim Berg leads Anita Balchandani is a Partner in Based in London, Marco Beltrami is
The Business of Fashion, Imran Amed McKinsey’s Global Apparel, Fashion McKinsey’s London office, and leads part of McKinsey’s Apparel, Fashion The wider BoF team have also played an instrumental role in
is one of the fashion industry’s leading & Luxury Practice and is active in all the Apparel, Fashion & Luxury Practice and Luxury Practice. He has supported creating this report — in particular, Vikram Alexei Kansara,
writers, thinkers and commentators. relevant sectors including clothing, in the United Kingdom. Her expertise apparel and beauty companies in the UK Victoria Berezhna, Nick Blunden, Kati Chitrakorn, Emma Clark,
Fascinated by the industry’s potent blend textiles, footwear, athletic wear, extends across fashion, health and and Europe, on topics including strategy, Amanda Dargan, Michael Edelmann, Casey Hall, Yara Heine,
of creativity and business, he began BoF accessories and retailers spanning beauty, department stores and specialty mergers & acquisitions, and retail Chungaiz Mumtaz, Andres Pajon-Leite, Lauren Sherman, Kate
as a blog in 2007, which has since grown from the value end to luxury. As a global retail in Europe and North America. operations. Vartan, Anouk Vlahovic and Yifan Wang.
into the pre-eminent global fashion fashion industry and retail expert, She focuses on supporting clients in
industry resource serving a five-mil- he supports clients on a broad range of developing their strategic responses The authors would like to acknowledge the following McKinsey
lion-strong community from over 190 strategic and top management topics, to the disruptions shaping the retail colleagues for their special contributions to the report creation and
countries and territories. Previously, he as well as on operations and sourcing- industry today, especially in areas such as in-depth articles: Colin Britton, Henna Dattani, Jasmine Vogel,
was a consultant at McKinsey in London. related issues. customer-led digital transformation. Jessica Moulton, Karl-Hendrik Magnus, Laura Gallagher, Mac Muir,
The State of Fashion 2019
Neil Robbins, Sara Hudson, Susan Lund, and Tunde Olanrewaju.
We also appreciate the support, we have received by other McKinsey
colleagues across the globe: Adhiraj Chand, Adriana Clemens, Anna
Stanley, Aimee Kim, Alex Sukharevsky, Alexander Dobrakovsky,
Althea Peng, Andres Avila, Anita Liao, Ankita Das, Antonio Achille,
Dale Kim Antonio Gonzalo, Benjamin Durand-Servoingt, Claire Gu, Daniel
Zipser, Ewa Sikora, Fernanda Hoefel, Frannie Li, Georgina Buck,
Dale Kim is a consultant in McKinsey’s Hans-Martin Stockmeier, Heloisa Callegaro, Jan Mischke, Jean-
London office, specialising in Apparel, Baptiste Coumau, Jennifer Schmidt, Jihye Lee, Kanika Kalra, Kate
Fashion and Luxury. He has served global VanAkin, Lan Luan, Laura Boege, Marie Strawczynski, Martine
companies ranging from fine jewellery Drageset, Mekala Krishnan, Nakul Banga, Neha Nangia Ojha, Peter
to beauty, on topics such as strategy, Stumpner, Purvi Gupta, Pritesh Zala, Raj Shah, Sophie Marchessou,
operating models and M&A. Silvana Mueller, Susan Nolen Foushee, Tom Skiles, Tomohiko
Funaishi, Yasuhiro Ishida, and Younghoon Kang. We also thank
Johanna Andersson Saskia Hedrich Robb Young David Honigmann and David Wigan for editor support and Katie
Smith from Edited for analytical support.
Johanna Andersson co-leads the As global senior expert in McKinsey’s As global markets editor of The Business
Scandinavian Apparel, Fashion and Apparel, Fashion and Luxury Group, of Fashion, Robb Young oversees content In addition, the authors would like to thank Joanna Zawadzka for
Luxury goods hub and has supported Saskia Hedrich works with fashion from Asia-Pacific, the Middle East, Latin her creative input and direction into this State of Fashion report,
companies in the sector ranging from companies around the world on strategy, America, Africa, the CIS and Eastern Andreas Samuelsson for our cover illustration and Getty Images for
luxury to value around the globe. sourcing optimisation, merchandising Europe. He is an expert on emerging supplying imagery to bring our findings to life.
Johanna focuses on strategy, growth transformation, and sustainability topics and frontier markets, whose career as a
and digital/omnichannel related topics. — all topics she is also publishing about fashion editor, business journalist, author
regularly. Additionally, she is involved and strategic consultant has seen him lead
in developing strategies for national industry projects around the world.
garment industries across Africa, Asia,
and Latin America. Felix Rölkens
Felix Rölkens is part of McKinsey’s
Apparel, Fashion & Luxury Group
and works with apparel, sportswear,
and pure play fashion e-commerce
companies in Europe and North America,
on a wide range of topics including
strategy, operating model and merchan-
dising transformations.
8 9
Executive Summary
After a year of reckoning — time for an
urgent awakening
For fashion players, 2019 will be a year of expressed in last year’s global fashion survey.
awakening. The ones who will succeed will have But even with this more positive backdrop,
to come to terms with the fact that in the new executives are now fully acknowledging the
paradigm that is taking shape around them, some changing nature of the industry, using words such
of the old rules simply don’t work. Regardless of as “changing,” “digital,” and “fast” to describe it.
size and segment, players now need to be nimble, In a year of reckoning, for which the McKinsey
think digital-first and achieve ever-faster speed Global Fashion Index predicts growth of 4 to
to market. They need to take an active stance 5 percent for 2018 (up from 2.5 to 3.5 percent
on social issues, satisfy consumer demands for in 2017), fashion players have begun to look
ultra-transparency and sustainability, and, most proactively at opportunities rather than just
importantly, have the courage to “self-disrupt” focusing on challenges ahead.
their own identity and the sources of their old
The State of Fashion 2019
success in order to realise these changes and win According to McKinsey
new generations of customers.
FashionScope, Greater China is
They also need to invest in enhancing
expected to overtake the US as
their productivity and resilience, as the outlook
is increasingly uncertain. External shocks to the the largest fashion market in
the world in 2019.
For fashion players,
system continue to lurk around the corner,
and growth cannot be taken for granted: the
McKinsey Global Fashion Index (MGFI) forecasts However, recovery continues to be
2019 will be a year of growth of 3.5 to 4.5 percent for 2019, slightly below
2018 growth, predicted at 4 to 5 percent. Optimism
unequal, with most of the growth coming from
luxury and emerging markets in Asia. According
awakening. The ones who
can be found only in pockets, notably in North to McKinsey FashionScope, Greater China
America and in the premium and luxury segments, is expected to overtake the US as the largest
aided by their strong performance in 2018. fashion market in the world in 2019. Mid-market
will succeed will have to The majority of executives in the remaining
segments and geographies are pessimistic, citing
companies and mature economies continue to lag,
with the exception of North America, which saw
come to terms with the fact “dealing with volatility, uncertainty and shifts
in the global economy” as their primary concern
higher than expected growth supported by
an expansive fiscal policy. Meanwhile, polarisation
that in the new paradigm
for the year ahead. Risks of trade disruptions and persists: the top 20 companies in the industry
slowing economic growth, even in key growth account for 97 percent of economic profit, while
markets in Asia, could undermine global growth an increasing proportion of publicly-traded
that is taking shape around prospects, as could uncertainty over other major
events such as Brexit or the possible onset of a
fashion companies struggle to create any economic
value. The prizes for those who can adapt may be
them, some of the old rules
global economic slowdown. greater than ever — but so are the penalties for
those who fail.
All this comes against a backdrop of a
simply don’t work.
fashion industry that turned a corner in 2018,
with increased growth justifying the optimism
10
11 11
Industry Outlook Executives describe 2018 with the words “changing,”
“digital,” and “fast”
Sunny intervals — but storms ahead
New
Exhibit 1:
Top 3 words to describe 2016 2017 2018
the industry
After strong performance in 2018, the industry Still, better industry conditions on Top 3 words; % of respondents who
mentioned word, n=274
will slow slightly in 2019. The McKinsey Global aggregate have brought an overall change First Uncertain Uncertain Changing
Fashion Index predicts industry growth of 3.5 to in attitudes. Now used to uncertainty after 54 53 34
4.5 percent in 2019 compared with a 4 to 5 percent living with it for so many years, in 2018 fashion
estimate for 2018. The weaker forecast reflects executives have begun to think less about survival
economic predictions for slightly slower global and much more actively about their strategic
growth and potential disruption to trade rela- agenda. When asked in the BoF-McKinsey State Second Changing Challenging Digital
tionships. We see Latin America, Middle East and of Fashion Survey to describe the industry, the 31 32 26
Africa and Russia experiencing more economic word that comes to the minds of most executives
and political challenges, which will likely dampen (34 percent) is “changing.” The second and third
consumer spending. Europe is facing a slowdown most common words are “digital” and “fast.”
and US growth may have peaked in 2018. Emerging The implication is that change has become a key
Third Challenging Optimistic Fast
Asia Pacific countries and much of emerging priority among industry leaders, with a particular 29 21 25
Europe, on the other hand, will continue to see focus on digital and speed-to-market.
strong spending growth with more global players
Question: What are the 5 adjectives you
entering these markets. Much of emerging Europe will would use to describe how you feel about
The State of Fashion 2019
the fashion industry in 2018 so far? Source: BoF-McKinsey State of Fashion Survey
The caution in the economic outlook continue to see strong spending
is also reflected in our BoF-McKinsey State of
growth with more global players Executives generally viewed consumer shifts enabled by
Fashion Survey, with 42 percent of respondents
expecting conditions to become worse in 2019. entering these markets. technology as the most important trends in 2018
Dealing with volatility, uncertainty and shifts in
the global economy are seen as the top challenges The attitudes of executives also reflect Exhibit 2: Technology related Consumer shifts
for the third straight year. This pessimism could evolving consumer behaviours that are forcing Perceived impact of
2018 trends
be driven by fears of an accelerating trade war industry players to “self-disrupt” (the #1 trend Mobile obsessed
Average rating of respondents (1-10)
as China and the US react to each other’s tariffs, identified by executives for 2019.) Footfall in
uncertainty over how Brexit will play out (still the physical environment continues to decline,
unclear as we go to press), or just a feeling that a which is driving the need for brands and retailers
Start-up thinking
10-year boom is now overdue to tip into recession. to develop their omnichannel strategies. Social
media has an increasingly important voice in
Over the past year, the global fashion Getting personal
dictating consumer demand, and it is helping small
industry has reached new heights. We see growth
brands grow explosively. Across the industry, Sustainability
of 4 to 5 percent in 2018, slightly ahead of our credibility
speed-to-market and responsiveness to consumer
projections for 2018, and a considerable uplift
needs are becoming critical success factors. Predictably
on the 2.5 to 3.5 percent seen in 2017. Better unpredictable
performance has been driven by strong demand When asked to reflect on the importance
Asian trailblazers
for luxury and value brands, sales growth in the of the trends we predicted in last year’s State
US amid tax cuts and growth in emerging markets. of Fashion report, executives identified tech- Globalisation
However, as we describe in the McKinsey Global nology-related issues as their top four choices. reboot
Fashion Index, this recovery has been polarised. Consumer shifts enabled by technology were
Most of the economic gains have accrued to the top particularly salient, with “mobile obsessed” cited
20 “winners,” most notably in the luxury segment, as the most important of the trends we predicted.
Question: Looking back at 2018 so AI gets real
while a growing number of players are struggling The second- and third-most important are far, how much have the following
to create economic value. “platforms first” and “start-up thinking,” trends impacted your business?
Source: BoF-McKinsey State of Fashion Survey
12 13
Volatility, uncertainty and shifts in the global economy is Industry Outlook
still foreseen as the industry’s #1 challenge
New
Exhibit 3: 2017 2018 2019
Main challenges for again highlighting companies proactively dealing investing in e-commerce and digital marketing)
year ahead Dealing with Dealing with Dealing with volatility, with digital disruption in the fashion system. is their number one priority for 2019 for the third
volatility, volatility, uncertainty uncertainty and shifts
uncertainty and and shifts in the in the global economy year running.
1st shifts in the global economy
We were surprised to find artificial intel-
global economy 15% of respondents ligence (AI) less highly ranked. This shift may not From an operational perspective,
have reached critical mass in 2018, but we predict another persistent trend has been the desire to
Sales and Competition Competition
it will continue to affect the industry in 2019 address cost structures at an organisational level,
profitability from online and from online and and beyond. Players including Amazon, Alibaba, including efforts to improve productivity. This
2nd growth omnichannel omnichannel
Myntra and Stitch Fix have made progress across remains a key priority in 2019 with 29 percent
13% of respondents various areas of the value chain and others will of the BoF-McKinsey State of Fashion Survey
follow suit. Ananth Narayanan, chief executive respondents saying they wish to “review organisa-
Competition Value chain Speed of changing
from online and improvement and consumer preferences
of Myntra, remarked that, “for curation and tional structures and focus on increasing employee
3 rd
pure-play players digitalisation assortment, we are using a lot more data science productivity.” This underlines the need to adapt
7% of respondents
to tell what will sell. I think that could extend a lot operating models and create a more agile organisa-
more into manufacturing and the back-end system tion that can thrive in the digital world.
Supply chain Decreasing foot Need to achieve and we are doing parts of that already at Myntra.”
improvement traffic and offline greater sustainability
4th retailing pressure and transparency An increasingly important priority In 2018, fashion executives have
7% of respondents is sustainability and transparency, reflecting begun to think less about survival
The State of Fashion 2019
Question: What do you think will be the
single biggest challenge for the fashion rising concerns on the part of consumers and and much more actively about
industry next year? Source: BoF-McKinsey State of Fashion Survey
companies about how to alleviate their impact on
the environment. Sustainability, which for the first their strategic agenda.
time breaks into our respondents’ list of the most
While the premium/luxury segment expressed overall optimism, Become worse
important challenges, is evolving from a tick-box Overall, the fashion industry continues
value and mid-market players appear to be more cautious Remain the same
exercise into a transformational feature that is to hover in a state of flux and the fortunes of
Become better
engrained in the business model and ethos of many individual players can turn with frightening
Exhibit 4:
Market segment 2019F recent success stories. speed. As our 10 trends indicate, new markets,
Outlook for industry
conditions in 2019
new technologies and shifting consumer needs
By geography, the most optimistic about
Premium/luxury 32 12 56 present opportunities but also risks. We predict
the coming year are executives in North America.
% of respondents that 2019 will be a year shaped by consumer shifts
By segment, the most positive are executives
linked to technology, social causes and trust issues,
Mid-market 58 42 from luxury brands, reflecting their strong
alongside the potential disruption from geopoliti-
growth trajectory in 2018. In all other regions
cal and macroeconomic events. Only those brands
and segments, executives are notably pessimistic,
54 19 27
that accurately reflect the zeitgeist or have the
Value reflecting the potential challenges ahead.
courage to “self-disrupt” will emerge as winners.
Not surprisingly, executives are looking
Geography 2019F
to invest where they see the most need to add
value. For the third year straight, the top sales
30 6 64
North America growth investment priority remains developing
omnichannel capabilities. This reinforces our
Europe 47 9 44 perception that executives have finally come to
terms with the fact that the industry is
digitising, but are not yet satisfied with their own
Asia 51 19 30 response. Some 54 percent of the BoF-McKinsey
Question: How do you expect conditions State of Fashion Survey respondents said
for the fashion industry to develop over
the course of the next 12 months? Source: BoF-McKinsey State of Fashion Survey increasing omnichannel integration (alongside
14 15The State of Fashion 2019
GLOBAL ECONOMY CONSUMER SHIFTS FASHION SYSTEM
01. 02. 03. 04. 05. 06. 07. 08. 09. 10.
Caution Indian Trade 2.0 End of Getting Now or Radical Self-Disrupt Digital On Demand
Ahead Ascent Ownership Woke Never Transparency Landgrab
Downward India becomes a All companies will The lifespan of the Younger In the mobile After years of having Traditional brands As the race to be Automation and
movements in focal point for the need to prepare fashion product generations’ consumer personal data are beginning to the platform of data analytics have
key economic fashion industry contingency plans is becoming passion for social journey, the gap owned and handled disrupt their own choice for both enabled a new
indicators and as its middle- to face a potential more elastic and environmental between discovery by businesses, a business models, customers and breed of start-ups
other potentially class consumer shake-up of global as pre-owned, causes has reached and purchase more distrusting image and offering brands intensifies, to achieve agile
destabilising base grows and value chains. On refurbished, critical mass, has become a consumer now in response to e-commerce made-to-order
The State of Fashion 2019
forces will manufacturing the one hand, repair and rental causing brands pain-point for a expects companies a new breed of players will production. Mass
conspire to create sector strengthens. the apparel trade business models to become more more impatient to reciprocate with small emerging continue to players will begin
a more cautious Fashion players could be reshaped continue to evolve. fundamentally fashion consumer, radical transparency brands that are innovate by adding to experiment next,
mood. With the must redouble their by new barriers, Fashion players will purpose driven who seeks to and sharing of accelerating thanks profitable value- responding more
possibility of a efforts in this highly trade tensions increasingly tap to attract both purchase exactly information. For to decreasing added services. rapidly to trends
global economic fragmented and and uncertainty into this market consumers and the products companies to brand loyalty and Whether through and consumer
slowdown by 2020, challenging market and, on the other to gain access to talent. Consumers they discover, meet a new bar for a growing appetite acquisitions, demands,
companies will turn where an educated hand, by new new consumers from some, but immediately. consumer trust, they for newness. investments or achieving just-in-
more prudent and and tech-savvy opportunities from seeking both not all markets Players will focus will need to offer a We expect more internal R&D, time production
start to look more demographic rub growing South- affordability and a will reward players on bridging this heightened level of brands to follow those players who and reducing
aggressively into shoulders with the South trade and move away from that take a strong gap through transparency along suit on this path diversify their overstock and
opportunities to poor and upwardly the renegotiation of the permanent stance on social shorter lead dimensions such of self-disruption, ecosystem will making short,
boost productivity mobile. trade agreements. ownership of and environmental times, improved as value for money, which will have a strengthen their small-batch
compared to clothing. issues beyond availability creative integrity significant impact lead over those production cycles
previous years. traditional CSR. of advertised and data protection. on their operating who remain pure the new norm.
products and new models. players relying
technologies such solely on retail
as visual search. margins.
70% 62% 44% 6.3x
24h
65% #1 2018 2025
690m 4x
Percentage of survey Projected number of Percentage of survey Percentage of The number of times In 2018, customers Percentage of survey Top ranked trend that Revenue CAGR of Aspiration level for a
respondents that were smartphone users in respondents that survey respondents the word “feminist” is of Amazon in the US respondents that cited fashion executives fashion e-commerce shift to nearshoring
concerned about India by 2022, 2.3x believe changes in that believe the forecast to appear on expected deliveries “consumer needs predict will shape retailers over traditional will double between
the overall global the usage in 2017. trade policy will pose pre-owned business retailer homepages within 24 hours, for trust in product the fashion industry fashion retailers from 2018 and 2025.
macroeconomic potential risks to global model will be more and newsletters in 2018 as opposed to a authenticity and creative in 2019, included 2013 to 2017.
outlook in 2019. economic growth relevant in 2019 than compared to 2016. 9-day delivery time originality” in their top in top 5 by 80% of
(Q2 2018 sentiments, in 2018. expectation in 1995. 5 trends for 2019; respondents.
+8% from Q1). ranked 2nd out of 12.
16 17Global
01. CAUTION AHEAD
Economy
A potential turn in the economic cycle is
prompting concern among industry executives
over prospects for the coming year. Following
a prolonged period of growth and rising costs,
strategic priorities for the subsequent period
are likely to focus more on being nimble and
boosting productivity.
The State of Fashion 2019
While last year was characterised by cautious In addition, advanced economies are
optimism in the face of uncertainty, this year struggling to lift labour productivity, which has
various indicators point towards clouds on the remained basically flat over the past eight years,
horizon which could somewhat dampen global dampened by after-effects from the financial crisis,
economic growth prospects. Global growth has while significant advances in automation and
averaged above 2.5 percent in the years since the digitisation come with lag effects and transition
financial crisis, but there are signs of a plateau.1 cost. China and India have bucked the global
Additionally, after a long period of accommoda- trend and continue to see sharp productivity
tive monetary policy, the US Federal Reserve and increases, measured by GDP per person employed.
other central banks are starting to raise interest (Productivity growth and increases in the number
rates, increasing the cost of borrowing for many of employed people are the key drivers of
companies and consumers. The European Central economic growth.)
Bank is also signalling tightening monetary policy
These official forecasts are also reflected
in the coming months, increasing the chance that
in sentiment among industry leaders. In a survey
global economic growth could start to slow.
of more than 1,000 international executives and
Forecasts from the World Bank, chief executives across industries published by
IMF and OECD predict slower growth in developed McKinsey in September 2018, some 41 percent
markets through 2020, and a flattening of the expect global economic conditions to worsen,
growth curve in developing markets. Looking compared with 35 percent in June 2018 and just 15
Frédéric Soltan/Corbis via Getty Images ahead to 2019, there are signs that Europe, percent in December 2017.2 This sentiment echoes
Latin America and the Middle East could be the views of the IMF, whose managing director
most vulnerable to a deceleration. The US and Christine Lagarde said during a Bretton Woods
China could also face a slowdown, with fears of a Committee meeting in October 2018 that “It’s not
potential bubble in the former, and trade dynamics just clouds on the horizon that we see, but some of
could impact consumer spending and fashion the clouds have started opening up, and it’s a bit
sector growth in both. more than a drizzle.”3
18 19Global Economy 01. Caution Ahead
None of this has gone unnoticed in period. Several companies have already taken percentage points respectively), compared over the longer term, fashion players should
the fashion industry. Executives view economic steps, implementing cost reduction and restruc- with those in the bottom 80 percent, suggesting seek to couple productivity enhancements with
conditions as a potential challenge, citing it as turing programmes. As a result, SG&A ratios have a strong link between keeping costs low and a necessary innovation efforts, such as automation
the third biggest trend for 2019 in the latest become more fragmented, with leading companies strong bottom line. of production, analytics-driven decision making,
BoF-McKinsey State of Fashion Survey. Forty-two seeing a slower rate of cost increase than laggards. review of omnichannel footprint and reorganisa-
As the macroeconomic landscape
percent expect industry conditions to worsen in Among companies to act are hosiery and bodywear tion for better agility. Those that are successful are
shifts, we expect companies will seek to protect
2019. Excluding respondents from North America specialist Wolford, which launched a restructur- most likely to reap rewards in terms of outsized
themselves from slower growth by implementing
and the luxury segment, which are the main ing programme in late 2017,4 J.Crew, which said performance.
“shock proofing” measures. These will primarily
pockets of optimism, the majority of executives in 2017 it aimed to cut costs and rebrand,5 and
be aimed at boosting productivity through
are even more pessimistic about the year ahead. H&M, which said in 2017 that it was aiming to
greater efficiency and cutting costs. To ensure
reduce costs by 5-6 percent.6 More recently, Under
these interventions deliver sustainable benefits
“It’s not just clouds on the Armour announced plans to continue to focus and
drive productivity in September 2018.7
horizon that we see, but some
of the clouds have started Looking at the year ahead, 17 percent of Among executives of all industries, there’s an increasing view that the
respondents to the BoF-McKinsey State of Fashion
opening up, and it’s a bit more Survey said they would focus more on improving
economy will worsen
than a drizzle.”
The State of Fashion 2019
costs rather than growing sales. The main cost
improvement areas cited include reviewing organ- Exhibit 5:
The strong performance of the global isational structure (11 percent increase compared
economy over recent years has been accompanied to 2018), diagnosing end-to-end efficiency Expected change in global economic conditions, next 6 months
by rising investments by fashion industry players. opportunities and reducing product assortment % of respondents
Sixty-eight percent of companies’ cost bases have complexity. Still, the proportion of executives
risen over the past five years, while only 22 percent planning to focus on cost efficiency is not substan- Global economy
have seen a decrease. Average selling, general and tially higher than the 16 percent of respondents
Dec Mar Jun Sep
administrative expenses (SG&A) were 36 percent that said the same in the previous year, suggesting 2017 2018 2018 2018
of sales in 2017, compared with 34 percent in 2013, that, while executives are concerned about 3
according to analysis from McKinsey’s Global economic development, cutting costs is not yet Substantially better
48 5
Fashion Index. Priority investments in sales a top priority on fashion executives’ agendas.
growth named for this year were omnichannel 38
3
and e-commerce, developing CRM capabilities, Executives view economic 2
improving in-store experiences and investing in 29
brand building.
conditions as a potential challenge, Moderately better 23
42 percent expect industry
For costs of goods sold (COGS), on the
other hand, the picture is more nuanced. Over conditions to worsen in 2019.
the last five years, COGS to revenue increased by
Moderately worse
0.5 percentage points or more for 43 percent of Our “winners and losers” analysis in
14
companies in the MGFI and by over 2 percentage the McKinsey Global Fashion Index may serve
1
points for 25 percent of companies, often due to as additional inspiration to take a step towards 24
Substantially worse
markdown pressure. efficiency: on average over the past five years,
1
32
firms in the top 20 percent of economic profit
To offset the impact of slower growth 37
have seen significantly lower SG&A and COGS as Respondents who answered “the same” are not shown. 3
and rising costs, companies need to set a strategic In Dec 2017, n=1,648; and in Sep 2018, n=1,158.
a proportion of revenue (4 percentage points and 6 4
agenda to boost productivity over the coming Source: McKinsey Economic Conditions Snapshot, September 2018
20 21Executive Interview 01. Caution Ahead
Joann Cheng but as long as our portfolio has
[such diversity,] the impact can
the force on fast-changing social
media to really integrate the
and the winning spirit amongst
teams. So, the whole organisa-
be mitigated. multi-social [experience]. Finally, tional chart needs to support our
Chairman of Fosun Fashion Group & Lanvin [we are focusing on] improving future growth.
BoF: How do you think the brand shopping experience
Western luxury brands using O2O omnichannel.
BoF: How will your invest-
like Lanvin and St. John ment scope and target
can enhance their appeal to BoF: At Lanvin, you‘ve strategy change in 2019?
Chinese consumers? recently brought on a new
JC: At Fosun Fashion Group
JC: China is quite a unique chief executive. What do you
we consider ourselves as the new
market and also very crucial see as his priorities to revive
kid on the block. Our strategy in
for the luxury fashion business. the brand?
both investment and operations
Sometimes people think of JC: Yes, Jean-Philippe Hecquet could well be dynamic in view of
Greater China as one business, is super strong. The first priority the development of the whole
[but] actually, in my view, you is to recruit the right design group and the whole industry.
have different cities and different team to create appealing and However, whatever changes we
provinces across a very large well-balanced collections to make, it’s a broader core vision
geography, so if you handle reinterpret the brand DNA and that’s consistent with what
China it‘s not only handling one the clothes in a powerful and Fosun Group has been doing for
market region. You also handle modern way. Then we‘ll focus on years, which is to focus on the
different cultures, different the collections. consumer lifestyle.
The State of Fashion 2019
The chairman of the fashion group BoF: If there is a deepening
of the trade conflict between
demands in the system, different
tiers of cities. “For our portfolio, balance and diversity are
of Fosun International, an $80 billion China and the US, how would
Fosun be impacted?
However, one thing is true:
very important. When I refer to diversity,
Chinese conglomerate which owns JC: I don’t think that the fashion
Chinese consumers are
becoming more internation- it’s not only a category diversification but also
Lanvin, St. John Knits and Wolford, industry is the area that will
be hit by trade wars. My own
al. They are more awakened;
they’ve learnt self-expression.
a geographic and demographic diversification...
talks about global trade tensions, portfolio is worldwide including The young generation are digital We’re never able to omit all the risks, but as
the US, but the core market of natives; they are global citizens. long as our portfolio has [such diversity,]
China’s slowing growth and future the portfolio is in Europe. Connecting better with our
the impact can be mitigated.”
I don‘t think we will be very Chinese audience is one of the
investment opportunities. much impacted. priorities for brands like Lanvin,
St. John and Wolford. We have In terms of the retail network, One of the keys for Fosun Group
— by Casey Hall BoF: And what about the to go digital and offer offline
channels so people in China
I think he will focus on growing
the key markets, including
is happiness, so this has also
become our consistently-applied
potential for further
economic slowdown within [can] use their smartphone to Europe, yes, and Greater China. strategy — around the happiness
China? Is that something that shop [in a seamless way.] Another priority will be the store [aspect of ] the consumers’
concerns you? Also we need to create our brand concept, so that we can keep lifestyle.
narrative and tell the story in delivering a consistent message
JC: China is still a large economy their own language and how that in the brand expression. Digital This interview has been edited and
with very strong internal con- relates to our brand DNA. Of is [central] to that so we need condensed.
sumption power. Anyway, course, we need to optimise the to accelerate brand digitisation,
for our portfolio, balance and product portfolio to reflect the invest heavily on communication
diversity are very important. consumers’ needs, so product and the e-commerce platform.
When I refer to diversity, it’s not is key. Customised events and In terms of the culture and the
only a category diversification products will make our products people, I think it’s quite clear
but also a geographic and demo- more appealing to Chinese that we need to bring back the
graphic diversification... We’re consumers. And we have to drive confidence, the positive tones
never able to omit all the risks,
22 2302. INDIAN ASCENT 02. Indian Ascent
India is increasingly a focal point for the country of 1.2 billion people and only 45 million
using the Internet.12 These figures have since
labour cost is significantly lower than China’s and
comparable with Vietnam’s. There is also a high
fashion industry, reflecting a rapidly growing increased to 355 million and 460 million respec- availability of raw materials (e.g., cotton, wool, silk,
tively (2018) and are expected to double by 2021, and jute), which enable participation in the entire
middle-class and increasingly powerful when more than 900 million Indian consumers fashion value chain.
manufacturing sector. These, together with will be online.
Still, players looking to enter the
E-commerce leaders are moving to Indian market should recognise several inherent
strong economic fundamentals and growing AI-based solutions. “Personalisation and curation, challenges. First, India is a mosaic of climates and
tech-savvy, make India too important for based on personal taste will become a lot more
important,” says Ananth Narayanan, chief
tastes. “If you break [India] up into four parts, i.e.,
north, east, south and west, North India is the only
international brands to ignore. executive of Myntra, a fashion e-commerce player region which is going to have winter, where you
acquired by Flipkart in 2014. “It’s not about having have mild to severe winter for eight weeks,”
the largest selection, it’s about presenting the most says Kapoor.
appropriate selection to the customer involved.”
“Brands that are successful in India have
The supply side of the industry is equally understood that, how [Indians] consume, what
robust, and the growth of textile and apparel colour they consume, what kind of designs work,
The State of Fashion 2019
Economic expansion is happening across Asia, good, happy to feel good and are expanding the exports is expected to accelerate. According what touch points and personalisation work may
but we expect that 2019 will be the year in which consumption of today.” to a 2017 McKinsey survey, 41 percent of chief be very different from a consumer living in New
India will take centre stage. The country is being procurement officers expect to increase their York or Hong Kong,” Kapoor adds. “Indian women
Given these dynamics, it is little surprise
propelled by strong macroeconomic tailwinds sourcing share from India.13 India’s average have kept a lot of their traditional sensibilities alive
that more than 300 international fashion brands
and is predicted to grow 8 percent a year between
are expected to open stores in India in the next two
2018 and 2022. The Indian middle class is forecast
years. But India remains a complex market, which
to expand at 19.4 percent a year over the same
presents challenges as well as opportunities.
period, outpacing China, Mexico and Brazil.8
The apparel business is still largely “unorganised,”
As a result, India is set to move from being an
with formal retail accounting for just 35 percent of
increasingly important sourcing hub to being one
sales in 2016. Its share is likely to reach around 45
of the most attractive consumer markets outside
percent by 2025,10 still a relatively low proportion.
the Western world.
To build momentum around conventional
India’s apparel market will be worth $59.3
stores, Indian players are innovating the retail
billion in 2022, making it the sixth-largest in the
experience. Retailers are leveraging technology
world, and comparable to the UK ($65 billion) and
to enhance the in-store experience with digital
Germany ($63.1 billion), according to data from
marketing displays and improved check-out.
McKinsey’s FashionScope. The aggregate income
For instance, Madura Fashion & Lifestyle launched
Brian Sokol/Bloomberg via Getty Images
of the addressable population (individuals with
the “Van Heusen Style Studio,” which uses
over $9,500 in annual income) is expected to triple
augmented reality to display outfits on customers.
between now and 2025.9 According to Sanjay
Malls have increased their share of food service
Kapoor, founder of Genesis Luxury, an Indian
and entertainment.
luxury retail conglomerate, higher incomes are
likely to create a whole new class of consumer: The growth in the apparel sector is also
“We are moving on towards the ‘gold collar’ being driven by increasing tech-savviness among
worker. It’s a term that defines the well paid, consumers. Ten years ago, technology was for
highly paid professionals, who are happy to look the few, with just five million smartphones11 in a
24 25Global Economy 02. Indian Ascent
and you see a beautiful mix of both Indian and and the middle class is at its highest level in 92
Western sensibilities across the spectrum.” years.18 Another consideration is the possibility Of the top emerging markets, India’s GDP is expected to grow at the
of corruption. According to Transparency
International companies considering
International, India ranks 81stout of 180 countries
highest rate
an entry into India should heed this important
on its Corruption Perception Index (versus China
message. Traditional clothing is still very much the
at 77).19 A significant number of licences is required
default choice for women, making up an estimated Exhibit 6:
for new entrants, so executives should beware of
70 percent of women’s apparel sales in 2017.
the potential for complicated negotiations. India powers ahead of other major emerging markets
Appetite for Western styles is likely to increase,
but it is expected that traditional wear will still Still, many brands are determined to Real GDP CAGR 2018-22 forecast, %
account for a 65 percent market share by 2023.14 take advantage of India’s blossoming growth.
The majority are likely to choose one of three
“We are moving on towards the routes. First, players can partner with existing
e-commerce platforms. This is most suitable India 8.0
‘gold collar’ worker. It’s a term for players with little brand awareness and with
that defines the well paid, highly relatively low capital to invest, and offers a good China 6.1
paid professionals, who are way to test demand and customer preferences.
3.7
The State of Fashion 2019
Second, brands that have little local knowledge Turkey
happy to look good, happy to and are looking for fast entry can enter with a
3.0
feel good and are expanding the franchise model, developing brick and mortar Mexico
consumption of today.” retail spaces. Finally, players that have significant
Brazil 2.3
local knowledge and capital resources can create
fully owned and operated stores.
Another challenge is the low quality Russia 1.5
of India’s infrastructure, which continues to Indian authorities are certainly keen to
lag behind that of many other Asian countries. promote investment. Relaxed FDI regulations
Nearly 40 percent of the Indian road network was (e.g., allowing 100 percent foreign-owned single
unpaved as of 2016.15 Poor infrastructure can make brand retail operations), will likely lead to more
Source: Economist Intelligence Unit
last-mile delivery difficult. In addition, retail stock overseas-originated activity through the value
is also often below expectations. chain. We expect more outsourcing and more
brand-owned stores without Indian partners in
However, there are signs of improvement.
the years ahead. Most activity is likely to be
“We have two fantastic luxury malls coming up
focused on major urban centres, reflecting
in Bombay at the Bandra Kurla Complex along
demographic trends, rising urban consumer
with the convention centre,” says Darshan Mehta,
spending power and improving infrastructure
founder and chief executive of Reliance Brands,
in those areas.
which operates over 500 stores for international
brands. “So there is a whole new fantastic retail In short, the Indian market offers
ecosystem.”16 great promise. Despite structural challenges that
include inequality, infrastructure and market
One sign of India’s challenges, and also
fragmentation, we expect strong economic growth,
an indication of latent demand, is the growing
scale and rising tech-savviness will combine to
level of inequality in the country, which follows a
make it the next big global opportunity in fashion
broader global trend of rising income inequality.17
and apparel.
The gap between the top one percent of earners
26 27Executive Interview 02. Indian Ascent
Darshan Mehta out of within a kilometre distance
to each other and Bandra Kurla
DM: I think mid- to the high-end
because there is natural pro-
Trump government and their
approach [to] trade wars [are
Complex, are going to increase gression upwards. It’s what I call another concern].
President & Chief Executive of Reliance Brands competition. [going from] the hundred dollars The second is the rise of oil
to the thousands of dollars. prices, especially given that India
produces negligible amounts
“Every time you look at India through the of its own oil and is largely
dependent on oil imports. This
Chinese lens you will not see [the opportunity] is [worsened by] a rupee-dollar
correctly. India is a whole different ball game. exchange rate which has eroded
In India, it is not about the traditionally rich by close to six to seven percent
since the beginning of 2018.
Indians — they shop all over the world. It is From a consumer [spending]
about the 999 others who are the customers point of view, it’s not always easy.
You can either pass on the impact
of tomorrow.” in volume shrink or you can
have… deeper and more frequent
BoF: Indeed. One of the BoF: What we hear about discount on the product — both
biggest challenges for fashion most are the middle classes of which erode the margin.
in India has been the lack of swelling resulting in a The [other issue] is… the price
retail infrastructure. Is this massive boost in more value equation, which is getting
The State of Fashion 2019
changing? Could 2019 be a affordable fashion segments.
The chief executive of the fashion BoF: If you look at most
five-year forecasts, growth watershed year? Is it premature for us to
substantially reset [due to the
commoditisation of our sector
division of Reliance Industries, India’s projections for India’s
apparel market and the
DM: Absolutely, I think in the
expect the Indian middle
classes to make a big impres-
by] the likes of Amazon and
Flipkart. After the US, India is
same way that 2008 was. In 2008,
largest private sector conglomerate with broader economy are quite the Emporio Mall started but
sion in lower end brands? seen as possibly the next [market
impressive. But just how the challenge with the Emporio DM: There are some categories where this will happen], so that’s
consolidated turnover of $63 billion, upbeat do you feel about was that unfortunately it was the where marketers and brands a worry.
business opportunities
talks about seizing opportunities in the in 2019?
same year the terrorist attacks
happened in Oberoi and the Taj
already reaped what we call the
democratic dividend of the rich BoF: Let’s talk more about
fastest growing major economy DM: Very upbeat. Last quarter Hotel in Bombay. It took away
some of the wind from the sails
middle class. In a lot of these
categories, individual players
that. There is so much
our GDP grew 7.7 percent. dynamism happening
in the world. So, we continue to retain the but nonetheless the Emporio have worked very hard to create in Indian e-commerce
highest GDP growth in the marked a bit of a turning point. the [right] price-value equation. market; how bullish are you
I think 2019 is going to be similar, Fashion spending and trading up
— by Robb Young world and everything prime
minister Narendra Modi is doing we are going to see a very big in the category should become
about e-commerce as an
opportunity for a business
— barring currency pressure — change. Quest Mall in Calcutta a habit and it is, but I think the like yours, which is skewed
looks very good. is doing well; Palladium Mall fashion industry overall has not more toward luxury?
in Chennai, early days, but you done enough.
For a very long time, the Emporio can see the traction is building; DM: Very bullish. We’ve created
Mall in Delhi became a bit of in Saket [an upmarket suburb very clever software where
torch bearer of luxury [moving] BoF: Despite the upbeat
of Delhi], the DLF mall is going all our stores’ inventories are
out of five-star hotel lobbies climate, India is still not
through a complete overhaul parallelly given digital exposure.
into the mainstream consumer an easy place to do business.
[and then you have the new Last year a significant portion of
mindset. Ten years later we now What sort of pain-points
Mumbai malls so] we are going our brick-and-mortar sales [were
have two fantastic luxury malls worry you most?
to see quite a bit of activity. driven by] online. It also doesn’t
opening in Bombay so there DM: One of the biggest worries, [impair] the price-value equation
is a whole new fantastic retail BoF: Which categories or which could become a substantial because it is one inventory, one
ecosystem. The Jio World Centre segments do you think will pain-point, is the forex situation. image and one price. For a place
and Maker Maxity, both coming reap the most benefits? The economics of the Donald like India, which has pockets of
28 29Executive Interview 03. TRADE 2.0
wealth, I am able to have access understanding do Western
to that because those pockets of executives now have of the
wealth may still not be ready for Indian luxury consumer?
a fully-fledged store, [but] the
customers that exist in the town
DM: The singular mistake that
they make is that the European
Companies should make contingency plans
can still shop through my store.
mindset comes from a few for a potential shake-up of global value chains.
centuries of inherited riches.
BoF: Reliance recently upped
its stake in Genesis Luxury
In India we’re now looking at The apparel trade could be reshaped by new
the first wave of what I call first
Fashion, the Indian group
that distributes brands like
generation wealth, which spends barriers, trade tensions and uncertainty.
Bottega Veneta, Giorgio
very differently than inherited
wealth. On the one hand, it is a However, there may also be new opportunities
Armani, Michael Kors and
Coach and has a joint venture
very rich and powerful consumer
movement because new wealth
from growing South-South trade and the
with Burberry for the Indian
market. Does Reliance have
has an innate need to announce
itself in many ways and fashion
renegotiation of trade agreements.
ambitions to become a luxury
is clearly one of the ways. Yet,
conglomerate along the lines
on the other hand, first genera-
of an Indian LVMH?
tion wealth also has very sharp
DM: We’re certainly not trying and recent memory of how that
to clone anyone else. When wealth was created and hence Fashion is inherently sensitive to the policies Still, while the US and China are
The State of Fashion 2019
the Genesis opportunity came, they spend differently because it and politics that shape cross-border trade. raising tariffs against each other, China is at the
we knew that they had a whole is the wealth creator [himself or Recent talk of trade shifts between the US and same time trying to make some imports cheaper.
bunch of private equity players herself ] who is spending it. some of its key trading partners has brought the A Chinese government decision to cut import
who were not so strategic in their Second, because geographically issue to the fore. At the same time the axes of duties led LVMH to reduce prices by 3-5 percent
approach. We saw a good oppor- we are juxtaposed to China, every global trade are shifting, amid a surge in commerce in July on some items sold in China.22 In September
tunity when L Catterton wanted time you look at India through between emerging economies in the Global South. 2018, China announced it would reduce tariffs for
to exit and bought out all the the Chinese lens you will not The dynamics may lead to a rethink of sourcing textiles and construction materials from 11.5 to 8.4
other private equity players. see [the opportunity] correctly. and pricing strategies in the year ahead. percent. Any reduction of tariffs usually must be
[Genesis Luxury founder] Sanjay India is a whole different ball offered to all countries equally under World Trade
Kapoor had created a good pool game. In India, it is not about As 2018 ends, fashion companies find
Organization rules, but China said US goods would
of talent, a good entrepreneurial the traditionally rich Indians — themselves in a cross current of trade-related
still be subject to retaliatory tariffs.
ecosystem, some high-quality they shop all over the world. It news flow. A sharp rise in trade tensions between
real estate, and a great brand is about the 999 others who are the US and other large economies seems set to Despite some of the positive develop-
portfolio, all of which sat well the customers of tomorrow, who increase costs for some players and increase the ments in trade, the dominant theme over 2017
[with us]. We will never be will find it too intimidating to go risk of disruption. At the same time, new trade has been tightening of trade conditions between
predatory in nature, so having into the five-star hotel lobby or a
agreements promise better trading conditions in specific partners. For the G20 economies, there
bought the first 40 percent gallery to shop there. So [former
certain instances. were $74 billion of restrictive measures in May
[stake] our intention was to sit as Burberry chief executive] Angela
a new partner along with Sanjay Ahrendts came and took the 2018, compared with $47 billion in May 2017, a
In the US, the fashion industry accounts
and his other partners to create bold decision to set a Burberry rise of 58 percent. Trade-facilitating measures,
for 6 percent of imports but pays 51 percent of
more value. opposite a Zara store [because] which include eliminating or reducing tariffs and
tariff receipts, so the tariffs issue is critically
a woman coming out of the Zara simplifying customs procedures, meanwhile, fell
important.20 In addition, with new tariffs coming
BoF: Through Reliance’s store will feel less intimidated from $163 billion to just $83 billion, a 49 percent
into force on goods from China (including leather
direct partnerships with to go window shopping at the drop.23 Consumers are also noticing more gloomy
clothing, woven fabrics and wool yarn), there is a
brands like Zegna, Diesel Burberry store. trade sentiments: Google searches for the words
and Bally, you have daily direct feed-through to the consumer. Companies
“trade war,” “trade tensions” or “tariffs” are at the
contact with many Western such as Samsonite and Gap, which have large
This interview has been edited and highest level for at least five years, after growing
luxury executives. Generally condensed. manufacturing operations in China, have said they
by a factor of 10 this year.24 The IMF, meanwhile,
speaking, how good of an plan to raise their consumer prices.21
30 31You can also read
