The State of Fashion 2021 - McKinsey & Company

[Pages:128]The State of Fashion 2021

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The State of Fashion 2021

CONTENTS

GLOBAL ECONOMY

CONSUMER SHIFTS

FASHION SYSTEM

Executive Summary

Industry Outlook

GLOBAL ECONOMY

01: Living with the Virus Jumia: Balancing Speed with Discipline in a Crisis 02: Diminished Demand Covid-19 and the New Era of Luxury

CONSUMER SHIFTS

03: Digital Sprint Kering: Fast-Tracking a Digital Upgrade Alibaba: Innovating for China's Advanced Ecosystem 04: Seeking Justice Louis Vuitton: Hardwiring Accountability in a State of Flux 05: Travel Interrupted Selfridges Group: Managing the Pivot to Local Shopping

FASHION SYSTEM

06: Less is More A More Circular Fashion Industry Will Require a Collective Effort 07: Opportunistic Investment 08: Deeper Partnerships Shahi Exports: Reforming the Fashion Supply Chain Risk, Resilience and Rebalancing in the Apparel Value Chain 09: Retail ROI H&M Group: Making Retail More Resilient Mapping the Retail Portfolio of the Future 10: Work Revolution

THE STATE OF BEAUTY 2021

MCKINSEY GLOBAL FASHION INDEX

Glossary End Notes and Infographics

8--9

10--13

16--33

17 20 23 29

34--57

35 38 41 45 48 52 55

58--99

59 63 67 70 74 77 81 85 89 96

100--107

108--115

116 118

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BEAUTY 2021

MGFI

CONTRIBUTORS

The State of Fashion 2021

IMRAN AMED

As founder, editor-in-chief and chief executive of The Business of Fashion, Imran Amed is one of the fashion industry's leading writers, thinkers and commentators. Fascinated by the industry's potent blend of creativity and business, he began BoF as a blog in 2007, which has since grown into the pre-eminent global fashion industry resource serving a fivemillion-strong community from over 200 countries and territories. Previously, he was a consultant at McKinsey in London.

ACHIM BERG

Based in Frankfurt, Achim Berg leads McKinsey's Global Apparel, Fashion & Luxury group and is active in all relevant sectors including clothing, textiles, footwear, athletic wear, beauty, accessories and retailers spanning from the value end to luxury. As a global fashion industry and retail expert, he supports clients on a broad range of strategic and top management topics, as well as on operations and sourcingrelated issues.

ANITA BALCHANDANI

Anita Balchandani is a Partner in McKinsey's London office, and leads the Apparel, Fashion & Luxury group in EMEA. Her expertise extends across fashion, health and beauty, specialty retail and e-commerce. She focuses on supporting clients in developing their strategic responses to the disruptions shaping the retail industry and in delivering customer and brand-led growth transformations.

SASKIA HEDRICH

As global senior expert in McKinsey's Apparel, Fashion & Luxury group, Saskia Hedrich works with fashion companies around the world on strategy, sourcing optimisation, merchandising transformation, and sustainability topics -- all topics she is also publishing about regularly. Additionally, she is involved in developing strategies for national garment industries across Africa, Asia and Latin America.

FELIX R?LKENS

Felix R?lkens is part of the leadership 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 merchandising transformations.

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ROBB YOUNG

As global markets editor of The Business of Fashion, Robb Young oversees content from Asia-Pacific, the Middle East, Latin America, Africa, the CIS and Eastern Europe. He is an expert on emerging and frontier markets, whose career as a fashion editor, business journalist, author and strategic consultant has seen him lead industry projects around the world.

JAKOB EKEL?F JENSEN

Jakob Ekel?f Jensen is a consultant in McKinsey's London office, specialising in Apparel, Fashion & Luxury. He works with fashion and luxury companies as well as investors in the industry across Europe, on topics such as e-commerce, strategy, value creation, operating model and M&A.

ALTHEA PENG

Althea Peng is a Partner in McKinsey's San Francisco office, and leads the Apparel, Fashion & Luxury group for the Americas. In this dynamic industry, she partners with global apparel and retail companies to drive largescale transformations for profitability and to build new capabilities for growth.

ACKNOWLEDGEMENTS

The authors would like to thank all members of The Business of Fashion and the McKinsey community for their contribution to the research and participation in the BoF-McKinsey State of Fashion Survey, and the many industry experts who generously shared their perspectives during interviews. In particular, we would like to thank: Adam Freede, Albert Chan, Alexander Pavlov, Anant Ahuja, Anne Line Hansen, Anne Pitcher, Charlotte Elstob, Dickson Szeto, Doug Stephens, Elsa Berry, Gr?gory Boutt?, Helena Helmersson, Josh Gardner, Juan Carlos Escribano, Juliet Anammah, Michael Burke, Mike Hu, Nelli Kim, Philip Guarino, Rania Masri, Robert Burke, Sharifa Murdock and Thiago Alonso de Oliveira. The wider BoF team has also played an instrumental role in creating this report -- in particular Amanda Dargan, Anna Rawling, Anouk Vlahovic, Casey Hall, Chelsea Carpenter, Hannah Crump, Kate Vartan, Lauren Sherman, Niamh Coombes, Nick Blunden, Rachel Deeley, Sarah Brown, Sarah Kent, Tamison O'Connor, Venetia van Hoorn Alkema, Victoria Berezhna, Vikram Alexei Kansara and Zoe Suen. The authors would in particular like to thank Sonja Penttil? and Sarah Andr? from McKinsey's Helsinki and London offices respectively for their critical roles in delivering this report. We also acknowledge the following McKinsey colleagues for their special contributions to the report creation and in-depth articles: Adhiraj Chand, Aimee Kim, Alex Sukharevsky, Andres Avila, Anita Liao, Antonio Gonzalo, Cherry Chen, Claire Gu, Clarisse Magnin, Colin Henry, Colleen Baum, Daniel Zipser, Danielle Bozarth, Ellie Baker, Emanuele Pedrotti, Emily Gerstell, Ekaterina Abramicheva, Ewa Sikora, Fernanda Hoefel, Franck Laizet, Gillian Wright, Hanna Grabenhofer, Hannah Yankelevich, Jihye Lee, John Hooks, Julia Dagef?rde, Karl-Hendrik Magnus, Karthikeyan Swaminathan, Libbi Lee, Lisa Renaud, Marie Strawczynski, Mekala Krishnan, Miriam Lobis, Nakul Verma, Neha Onteeru, Nicola Montenegri, Patricio Ibanez, Peter Stumpner, Raphael Buck, Rebeca Vega, Rebecca Zhang, Ryan Shultz, Sajal Kohli, Sakina Mehenni, Sophie Marchessou, Susan Lund, Thomas Tochtermann, Tom Skiles, Ulric Jerome, Valerie Van der Voort, Vorah Shin. We'd also like to thank David Wigan and Jonathan Turton for their editorial support, and Adriana Clemens for external relations and communications. In addition, the authors would like to thank Joanna Zawadzka and Lucinda Scholey for their creative input and direction into this State of Fashion report, Martin Nicolausson for the cover illustration and Getty Images for supplying imagery to bring the findings to life.

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EXECUTIVE SUMMARY

In Search of Promise in Perilous Times

The State of Fashion 2021

For the fashion industry, 2020 was the year in which everything changed. As the coronavirus pandemic sent shockwaves around the world, the industry suffered its worst year on record with almost three quarters of listed companies losing money. Consumer behaviour shifted, supply chains were disrupted and the year approached its end with many regions in the grip of a second wave of infections. A turbulent and worrying year has left us all looking for silver linings -- both in life and in business -- knowing full well that we will need to make the most of them in the year ahead.

Indeed, according to McKinsey Global Fashion Index analysis, fashion companies will post approximately a 90 percent decline in economic profit in 2020, after a 4 percent rise in 2019. Given the ongoing uncertainty, our predictions for industry performance next year are focused on two scenarios.

The first, more optimistic "Earlier Recovery" scenario envisages that global fashion sales will decline by between 0 and 5 percent in 2021 compared to 2019. This would be predicated on successful virus containment in multiple

geographies and a relatively rapid transition to economic recovery. In this scenario, the industry would return to 2019 levels of activity by the third quarter of 2022.

Our second, "Later Recovery" scenario would see sales growth decline by 10 to 15 percent over the coming year compared with 2019. In this case, the virus would continue to wreak havoc despite widespread containment measures and fashion sales would only revert to 2019 levels in the fourth quarter of 2023.

In either scenario, we expect tough trading conditions to persist next year, in some geographies at least, and for high levels of bankruptcies, store closures and job cuts to continue. At the same time, the pandemic will accelerate trends that were in motion prior to the crisis, as shopping shifts to digital and consumers continue to champion fairness and social justice.

Given the extreme jeopardy facing the industry, there is no simple, standardised playbook for the coming year. Instead, fashion companies must tailor their strategies to fit their individual priorities, market exposure and capabilities.

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