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A McKinsey and International analysis released this month stated that weak consumer confidence, prolonged inflation, and slower economic development will all contribute to uncertainties for the global fashion industry in 2024.
According to The State of Fashion 2024, a McKinsey report, the most common feeling among leaders in the fashion industry looking ahead to 2024 is uncertainty, which is a reflection of the likelihood of muted economic growth, ongoing inflation, and low consumer confidence. In light of this, companies will find it difficult to locate areas of value and discover fresh performance-enhancing factors.
Fashion estimates analyzed by McKinsey indicate that, with regional and national variances, the worldwide industry will see top-line growth of 2 to 4 percent in 2024 (display). Once more, the largest portion of economic profit is anticipated to be generated by the luxury market. Nevertheless, the challenging economic climate will still present challenges for businesses there.
The segment is expected to expand globally by 3 to 5 percent in 2023 as consumers curtail their expenditure following a post-pandemic spike, down from 5 to 7 percent in 2023. In line with the slightly more bullish forecast there, US GDP is predicted to perk up after a relatively sluggish 2023, while growth in Europe and China is predicted to decrease.
In line with the slightly more bullish forecast there, US GDP is predicted to perk up after a relatively sluggish 2023, while growth in Europe and China is predicted to decrease. Beyond luxury, 2 to 4 percent increase is anticipated in the upcoming year, consistent with the likely result in 2023.
Compared to 5 percent in the first half of 2023 and 1 to 3 percent in the second half, the European market is expected to grow by merely 1 to 3 percent. The most likely reasons for the reduction in spending are anticipated to be a fall in household savings and a decline in consumer confidence. It is anticipated that the nonluxury sector will increase in the US by 0 to 2 percent.
In addition, China is anticipated to have comparable difficulties in the face of 4 to 6 percent growth, which is a modest improvement from the end of 2023 but slow when compared to previous periods.
These are only a few conclusions drawn from The State of Fashion 2024, a report released by McKinsey and the Business of Fashion (BoF).
The ninth study in the yearly series examines the key issues influencing the fashion economy and evaluates possible solutions from the sector. It presents the major themes that could influence the fashion scene in the upcoming year, based on extensive study and numerous interviews with influential figures in the field.
Uncertainty when facing strong winds
According to McKinsey, geopolitics, along with economic volatility and inflation, is the top issue for fashion industry executives heading into 2024, with conflicts in Europe and the Middle East and strained international relations elsewhere ranking second and third, respectively.
According to 62 percent of executives surveyed in September of this year, the biggest risk to growth is global uncertainty. Fifty-five percent of respondents cite economic uncertainty, while 51 percent mention inflation (up from 78 percent the previous year). It is anticipated that in 2023, the worldwide average headline rate of inflation will drop from 6.9 percent to 5.8 percent, which is still high historically.
Executive opinions on the industry's prospects are more split than they have ever been since the BoF–McKinsey Executive Survey was introduced in 2017 against a difficult economic background. Although 26% of those surveyed believe that things will get better every year, 37% believe they will stay the same, and 38% believe they will become worse.
Industry-wide uncertainty is a reflection of the overall state of the economy, but with regional variations.
Pressure on household incomes is predicted to reduce garment consumption and encourage category trading by 2024. However, there are some geographical outliers that could provide solace. In September 2023, consumer confidence in India reached a four-year high.
Executives in India are more upbeat than those in the West; in a McKinsey Global Economics Intelligence poll, 85% of participants stated that circumstances had improved during the previous six months. Despite the difficulties facing the Chinese economy, more Chinese consumers intend to purchase for fashion in 2024 than in either the US or Europe.
Ten ideas for 2024
Top fashion brands will probably give emergency preparation top priority in the upcoming year in order to be ready for anything. Companies that manage prices precisely to drive growth while maintaining a tight rein on expenses and inventories will be a major focus. Suppliers and brands should prepare for a more competitive market.
Customers will, however, also have possibilities as they find new priorities, tastes, and styles, all of which offer avenues for value creation. This year's research, as in prior years, identifies ten emerging themes that will be at the top of the agendas of leaders.
Worldwide economy
As financial, geopolitical, and other issues continue to undermine consumer confidence, the prognosis for the world economy in 2024 is expected to remain uncertain. There will probably be challenges facing the fashion markets in China, Europe, and the US, some of which are specific to each region. Retailers, suppliers, and brands might need to strengthen their backup plans and deal with unforeseen circumstances.
Climate emergency
The climate problem is an even more pressing priority in 2023 than it was in previous years due to the frequency and intensity of extreme weather-related incidents. The industry needs to move quickly to address emissions and strengthen supply networks' resilience because physical and transition risks are increasing on all continents.
Changes in consumer behavior
mode of vacation. Customers are getting ready for the busiest travel year since the pandemic. Even while shopping is still a top priority, expectations are changing due to a shift in values. Distribution and category strategies need to be updated by brands and retailers to take the new situation into account.
The influence's new face. Brand marketers need to revise their influencer strategies in light of the growing popularity of a new wave of innovative personalities. In 2024, collaborating with opinion leaders will call for a new kind of alliance, a focus on video, and a readiness to relinquish creative control.
Reimagined outside.
Customers are adopting healthier lives, which is driving demand for "gorpcore" and technical outdoor apparel. It is anticipated that more outdoor firms would introduce lifestyle collections in 2024. The distinction between usefulness and design will probably become more hazy as lifestyle brands include technological components into their collections.
Style hierarchy
The creative intersection of generative AI. More application cases are appearing in the sector following 2023, the year that generative AI (gen AI) made its breakthrough. Fashion players will need to look past automation in order to realize profit, and investigate how Gen AI may improve the job of human creatives.
Fast fashion's manipulation. The rivalry in the fast-fashion industry is expected to intensify. Rivals, spearheaded by Shein and Temu, are introducing novel strategies concerning cost, client satisfaction, and velocity. Navigating the regulatory agenda while adjusting to changing customer demands may be the difference between disruptors and incumbents in terms of success.
Every eye is on the brand. It is anticipated that brand marketing will regain prominence when the fashion industry successfully moves away from performance marketing. Brands may benefit from forging emotional connections with consumers as marketers rewrite playbooks to emphasize long-term brand building.
Sustainability is paramount. The days of self-regulation in the fashion industry are coming to an end. New regulations will have a big impact on consumers and fashion industry operators everywhere. Manufacturers and brands might think about updating their business models to reflect the upcoming changes.
Bullwhip retaliates. The "bullwhip effect," which causes order volatility to echo unpredictable through supply chains, has been brought about by changes in customer demand. As brands and retailers prioritize openness and strategic collaborations, suppliers are expected to experience more pressure.
Consumer discretionary spending will be biased toward reputable brands and categories in an uncertain future. Hard luxury items like leather, watches, and jewelry will probably be in demand during lean economic times due to their potential investment value. It is anticipated that consumers will travel more and stay outside more. Additionally, they value genuineness and strong emotional bonds over celebrity endorsements.
Executives are preparing for a strategically challenging year overall. Leading organizations will be ready for various scenarios in order to mitigate uncertainty. According to McKinsey, the most successful will grow more resilient, more able to handle the difficulties, and prepared to accelerate when the storm clouds start to clear.
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