Last year, McKinsey & Company and The Business of Fashion set out to transform the level of debate about fashion by providing a foundation for rigorous in-depth research and analysis of the global fashion industry, focusing on the themes, issues and opportunities driving the sector and its performance. Now, we are publishing our 2nd annual report. Over the past months we’ve again put together an unrivalled global network of experts, research and analysis to bring you a report that makes sense of fashion’s myriad segments, categories and geographies.
Our aim remains threefold: to establish a common understanding of the forces that are shaping the industry; to provide clarity and transparency on the industry’s performance; and to set the agenda for the topics that should be top of mind for business and creative leaders in 2018. By bringing together our two organisations, we have pooled resources to draw on BoF’s deep industry expertise and insider access alongside McKinsey’s functional, analytical and industry insight to offer a rare blend of quantitative rigour and sharp-eyed qualitative insights about the fashion sector. This year we surveyed more than 200 senior industry executives around the world and conducted in-depth interviews with some of the most influential and forward-thinking people in the industry, including Chip Bergh, president & chief executive of Levi Strauss & Co; Richard Liu, founder and chief executive of JD.com; Tory Burch, chief executive and designer of Tory Burch; Dame Ellen MacArthur, founder of the Ellen MacArthur Foundation; Victor Luis, chief executive of Tapestry Inc; and Marco Bizzarri, chief executive of Gucci. If you’re engaged in the business of fashion – in the boardroom, as an entrepreneur building a startup, or even as an informed shopper on the high street – this report will tell you what you need to know about the business trends shaping our industry’s future.
This report includes the second readout of our industry benchmark: the McKinsey Global Fashion Index (MGFI). With a database of nearly 500 fashion companies, this index will allow for analysis and comparison of how a fashion company is performing against others in its market segment and product category, and this year we have also added a regional view. Already, the data set has grown and is becoming ever-more valuable as a source of insight into both the pressures on fashion and the opportunities emerging from the world’s increasingly turbulent fashion markets.
Last year we made predictions about how the fashion world would pan out in 2017. In this report we make a new set of predictions for the year ahead rooted in the 10 trends we have identified across the global economy, consumer shifts and the fashion system, that are overarching, interconnected forces that will drive and shape the trends in years to come. The fashion industry is turning a corner. Looking towards 2018, there is a new sense of optimism in an industry plagued by uncertainty. And while “uncertain” and “challenging” remain the most common words that executives in the BoF-McKinsey Global Fashion Survey have used to describe the state of the industry this year, right behind them in third place is “optimism.”
The McKinsey Global Fashion Index forecasts industry sales growth to nearly triple between 2016 and 2018, from 1.5 percent to between 3.5 to 4.5 percent. But the rebound is not being felt evenly across the globe. In fact, 2017 signals the end of an era. The West will no longer be the global stronghold for fashion sales. In 2018, an important tipping point will be reached when, for the first time, more than half of apparel and footwear sales will originate outside of Europe and North America, as the main sources of growth are emerging market countries across Asia-Pacific, Latin America and other regions. Not surprisingly, this is also reflected in fashion executives’ sentiments, as respondents from emerging markets are more optimistic about the industry’s outlook in 2018.
This outlook varies across value segments too. The ongoing polarisation of the industry with consumers trading up or down from mid-market price points continues to create headwinds for mid-priced fashion players while those operating in the luxury, value and discount segments further pick up speed. What is new is that the absolute luxury segment is accelerating alongside affordable luxury.
These developments take place at the same time as the fashion industry is undergoing other transformative shifts. Alongside consumers’ adoption of digital are raised expectations of customer experience and a higher scrutiny on convenience, price, quality, newness and a personal touch. Leading players are therefore creating innovative business models, using granular customer insights as a source of differentiation and pushing the limits of their end-to-end product development process. The performance gap between frontrunners and laggards continues to widen: from 2005 to 2015 the top 20 percent of fashion companies contributed 100 percent of the economic profit, while in 2016 the top 20 percent contribution had increased to 144 percent.