- While the report predicts an overall slowdown for the industry, there are still opportunities. Sales of luxury fashion are expected to grow globally between five and ten percent in 2023.
- Notably, the economy in China — long considered an industry growth engine — is predicted to slow in 2023.
- In France new legislation expected in 2023 will require brands to label clothing and textiles that display each item’s environmental “score” in order to help consumers make more-informed purchase decisions.
The fashion industry has seen a strong recovery emerging from the pandemic. According to The State of Fashion 2023 conducted by The Business of Fashion (BoF) and McKinsey & Company, global industry revenue in 2021 grew 21 percent year-on-year, and continued to climb in the first half of 2022. However, a number of unprecedented challenges chipped away at any gains and slowed progress as the year progressed.
The war in Ukraine, which began in February, sent shockwaves through the industry and triggered an energy crisis across Europe. Industry leaders have had to navigate an increasingly fragile global economy, with serious repercussions for the industry in 2023. According to the report, 85 percent of fashion executives predict inflation will continue to be a challenge next year. Fifty eight percent believe the energy crisis will continue to weaken the market. Global GDP growth is expected to slow to approximately two percent in 2023 and the threat of recession looms over many major economies.
While the report predicts an overall slowdown for the industry, there are still opportunities. Sales of luxury fashion are expected to grow globally between five and ten percent in 2023. This is compared to between negative two percent and positive three percent for the rest of the industry. Fashion companies overall have been able to build robust foundations in 2021 and in the first half of 2022 to help them weather the storm.
Changing Consumer Behavior
Rising inflation in many major economies has created a cost of living crisis that is leading many consumers to reassess, and even dramatically change, their spending habits. According to the report, nearly three-quarters of U.S. consumers sought out lower-cost brands or lower-priced products between April and July 2022. The pressure is on brands to remain attractive to consumers given the tough economic environment.
The uncertain economic landscape means fashion companies will reassess the geographies in which they operate, potentially deprioritizing certain countries or regions while pivoting to others that offer greater potential. Notably, the economy in China — long considered an industry growth engine — is predicted to slow in 2023. GDP has been rising just three percent compared to an eight percent rise in 2021, leading some fashion executives to seek out opportunities elsewhere, at least over the short term.
As the industry grapples with its damaging environmental and social impacts, how brands communicate their sustainability credentials to consumers will be under scrutiny as they attempt to steer clear of accusations of “greenwashing.” Meanwhile, 79 percent of fashion executives cite the lack of industry-wide standards to help them assess their sustainability performance as the greatest hurdle in improving how consumers perceive their efforts.
New and emerging regulations prohibiting greenwashing require greater vigilance from brands about the sustainability information they share. For example, in France new legislation expected in 2023 will require brands to label clothing and textiles that display each item’s environmental “score” in order to help consumers make more-informed purchase decisions.
“The global economy is facing one of its toughest years ahead — with rising inflation, the cost of living crisis and the continued fallout from the war in Ukraine creating a ‘polycrisis.’ This requires careful cost management and focused growth strategies to seize on pockets of opportunity in the luxury segment — especially in the Middle East and in Asia-Pacific.” Imran Amed, Founder and CEO of The Business of Fashion, said.
“With global industry revenue growing 21 percent in 2021 and the average EBITA margin climbing six percentage points, the deteriorating macroeconomic and geopolitical conditions have weighed heavily on the industry in the second half of the year 2022,” Achim Berg, Senior Partner, Global Leader of McKinsey’s Apparel, Fashion and Luxury Group, said. “While the industry’s strong performance, with 13 percent revenue growth in the first half of 2022, provides a solid foundation — we expect 2023 to remain challenging. Global fashion sales growth will be driven by the luxury segment, up to 10 percent, compared to up to three percent for the rest of the industry.”
According to the report, here are 10 themes set to shape the fashion industry in 2023:
- Global Fragility:
A range of destabilizing factors, including heightened geopolitical tensions, continue to weaken an already fragile world economy, with global GDP expected to fall to approximately three percent in 2023.
- 56% of fashion executives expect conditions in the industry to worsen in the year ahead.
- Regional Realities:
The world map of growth opportunities for fashion brands has shifted, with regions like the Middle East and countries like the U.S. emerging as priorities for the year ahead.
- Half of fashion executives expect to expand their companies’ footprint in North America in 2023.
- Two-Track Spending:
Inflation will challenge consumer behavior. While high-income shoppers with savings, access to credit, and greater job security will continue spending on fashion, lower-income consumers will tighten or cut discretionary spending.
- 74% of U.S. fashion consumers opted for less expensive brands or products between April and July 2022.
- Fluid Fashion:
As the lines between menswear and womenswear are increasingly blurred, brands have an opportunity to rethink business processes and operations in order to tap into this evolution.
- Half of Gen Z consumers have purchased fashion outside of their gender identity.
- Formalwear Reinvented:
Formalwear for special occasions is expected to be the most resilient fashion category, as consumers rethink how they dress for the office and special events.
- 39% of fashion executives expect sales of occasionwear to be among the top three growth categories in 2023.
- DTC Reckoning:
Digital marketing costs are increasing as ecommerce growth rates normalize after pandemic highs, making it challenging to build a sustainably profitable online DTC business.
- One-third of fashion executives cite challenges to direct-to-consumer channels as one of the top themes that will impact their business next year.
- Tackling Greenwashing:
The European Commission’s strategic roadmap to make textiles more durable and recyclable by 2030 is homing in on greenwashing, while consumer watchdogs in Europe are keeping a close eye on the sustainability claims of fashion brands.
- 79% of fashion executives cite the lack of industry-wide standards to help them assess their sustainability performance as the greatest hurdle to improving how consumers perceive their efforts to reduce harm to the environment.
- Future-Proofing Manufacturing:
Sixty-five percent of fashion executives are considering nearshoring to create new hubs dedicated to serving their domestic consumer markets.
- Two-thirds of executives expect digitization to be the most important capability to enable suppliers to grow in the year ahead.
- Digital Marketing Reloaded:
Privacy regulations and technological changes have driven up the cost of paid digital marketing, leading brands to spend at least three times more to acquire a customer in 2022 than in 2013.
- 79% of U.S. apparel and footwear executives rate retail media networks as the most effective marketing channel.
- Organizational Overhaul:
Fifty-five percent of executives cite the talent crunch as one of the top factors impacting their business in 2022. Education and training generate between two-and-a-half and three times higher return on investment than recruiting, boosting the business case for investing in skill gaps and existing workforce.
- 90% of fashion executives predict a skills shortage in their organizations.
As the fashion industry continues to feel the after effects of the pandemic, it is important to keep up-to-date with the latest trends and conduct your own research to stay ahead of your competitors and keep your business afloat. Let these key trends help prepare your brand for the new year ahead and attract even more shoppers to your store.